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Mayor Gavin Newsom wants to give Mirant Corp. a $2 million credit to shut down its Potrero Hill power plan and is offering to devote two full-time staffers to helping the company move forward a new development for the site, documents show.
An Oct. 30 agreement between the Mayor’s Office and the Atlanta energy company, obtained under the Sunshine Ordinance, lays out a generous city program to encourage the shutdown — even though city officials say the pollution-spewing plant will almost certainly be closed anyway.
Negotiations are moving forward on the city’s plan to construct a new fossil fuel–burning power plant with two "peakers" between the Dogpatch and Bayview neighborhoods — a project that supporters say will make the Mirant plant economically unviable and lead to its closure.
The 145-megawatt single-cycle natural gas–burning power plant, part of San Francisco’s Electric Reliability Project, is necessary to meet a need for in-city energy reliability, according to the California Independent System Operator, a state agency that controls the power grid.
But the city’s Public Utilities Commission argues that the peakers will obviate the need to keep the Mirant plant running — and Cal-ISO has agreed to pull the company’s lucrative contract for providing power and transfer it to San Francisco once the new city-owned turbines are in place.
Critics are worried that the southeast part of the city could wind up with the worst of all worlds — that Mirant would keep its plant open and the peakers would operate too, increasing the level of airborne pollution in a neighborhood that has suffered environmental injustice for decades.
Now it appears the city has secured a solid guarantee that Mirant will shutter its Potrero plant — at a price.
"Mirant is committing to shut down once the plant is no longer needed for reliability," Jesse Blout, chief of staff of the Mayor’s Office of Workforce and Economic Development, told us. "It’s not economic to run that plant once our plant’s in place."
The city is now seeking a legally binding agreement to secure that closure — and offering a sweet deal to get it.
According to a copy of the current term sheet that’s being negotiated between San Francisco and Mirant, in exchange for the company agreeing to close the plant once it’s no longer needed for reliability, the city "will agree to immediately designate a senior staff member from each of the Mayor’s Office of Economic and Workforce Development and the Planning Department" and "agree to review and process on a priority basis a completed application for a proposed site plan."
Additionally, the term sheet reads, "In light of the public benefits associated with expediting closure of the Potrero Power Plant, the city will agree that … Mirant will receive a credit of up to $2,000,000 — without interest — against certain city fees and costs, as described below, that would otherwise be payable in connection with review and approval of the site plan and any development project."
Felicia Browder, director of media relations for Mirant, confirmed that closure of the plant is imminent, once the state contract is terminated. However, she would not discuss details of the future use of the 27-acre site, as the deal is not finalized, something that’s supposed to happen this week.
Blout told us a deed restriction prohibits residential use of the land, and he predicted some kind of light industry for the area. The property, located at the bay’s edge between 22nd and 23rd streets, is also home to some of the toxic spoils of industry, which Pacific Gas and Electric Co., the original owner of the site, agreed to clean up to nonresidential standards when it sold its holdings to Mirant.
PUC members expressed satisfaction with the pending shutdown and voted unanimous approval of an Oct. 31 resolution authorizing the commission’s general manager, Susan Leal, to move forward with the plan. The resolution also includes clauses banning the sale of energy for profit from the three combustion turbines at the in-city facility and exploring whether two instead of three CTs could meet reliability needs.
The financing and control of the peaker project is also changing. Initially, the city negotiated a public-private partnership with JPower, a Japanese energy company with an Illinois subsidiary, to finance the $230 million project for two plants — the 145 MW in-city facility and another 48 MW plant located at San Francisco International Airport. Under the original deal, JPower would own and operate both plants for a period of some years before turning them over to the city. Now, however, the city is committing to financing the project and owning it outright, and the contract with JPower will be for operation and maintenance. "It makes more policy sense," Blout said, adding that after 12 to 14 years, "we will own the units free and clear." He said the city plans to issue tax-exempt bonds but at this point was uncomfortable stating how much they would be for.
Though JPower will be staffing the plant for the city, it will not be making a profit. "In the contract it will stipulate they can only run when Cal-ISO calls for them for reliability," the PUC’s Tony Winnicker said.
However, the 48 MW plant located at the airport will still be owned and operated by JPower for a 30-year period, and that plant is licensed to operate for 4,900 hours a year. "JPower will be able to operate that unit up to its limit," Winnicker said. "That’s part of what makes the deal profitable for JPower."
A mixed bag of environmentalists, social justice advocates, and Bayview and Potrero residents who are neighbors of the new and old plants still opposes the city building any new fossil fuel power plants. The Brightline Defense Project is currently representing the A. Philip Randolph Institute, Californians for Renewable Energy, and two citizens in litigation seeking to halt the building of the new plant.
Eric Brooks of Our City, a local public interest group, expressed skepticism of the plan to swap one power plant for another. "We would send the worst possible message to the world by building a fossil fuel power plant in our city limits at the very beginning of what must be a renewable-energy century," he told us. He’s also urging the city to let lapse Mirant’s water and air permits, which are set to expire in 2008 and 2010, respectively.
Other opposition to the city’s power plants has come from PG&E, through the Close It! Coalition, a group the utility company founded and financially supports. "These new plants will further our reliance on fossil fuels and contribute to global warming," the group states on its Web site. However, PG&E has a 20-year contract with a similar peaker plant under construction in Fresno and is building three new fossil fuel plants of its own in Antioch, Eureka, and Colusa. PG&E, of course, also wants to keep any hint of public power out of San Francisco.