Chula Vista's $70 Million Power Plant Gamble - Voice of San Diego

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Chula Vista's $70 Million Power Plant Gamble

City leaders are considering taking on the task of demolishing
and cleaning up the South Bay Power Plant, a move that brings great
risk and possible reward.

 

Chula Vista’s leaders are considering taking on the task of dismantling the South Bay Power Plant and cleaning up after it.

That’s a daunting task. Power plants are big. And this one spent decades pumping hot water, laced with who-knows-what, into San Diego Bay and spreading noxious fumes and soot all over the South Bay. Nobody really knows the extent of the contamination that the power plant has saddled Chula Vista’s bay front with, and, for now, nobody’s even really trying to find out.

Let me repeat: Chula Vista’s leaders are considering taking on the task of dismantling the South Bay Power Plant and cleaning up after it.

Sounds like a pretty crazy undertaking for a city that’s spent the last few years on the brink of bankruptcy, right? Chula Vista’s had a hard enough time managing its own $120 million to $130 million budget without taking on a $70 million project of a type it has no experience doing and of which nobody really knows the parameters.

But there’s a kicker. Done right, the project could land the city with a multimillion dollar windfall that it could then use to further pretty up the bay front and prepare it for potential developer suitors.

Of course, done wrong, the deal could land Chula Vista in a whole pile of hurt.

Reporting this one has been tricky.

That’s because the city’s leaders seem to be rather confused about what’s actually happening with an apparent deal being brokered between Chula Vista and Dynegy, the Houston-based company that’s currently saddled with the cleanup operation. Dynegy’s spokesman wouldn’t comment at all on the situation.

So, who does know what’s going on?

David Malcolm does. He’s the former port commissioner who put together the initial deal for the commission to buy the power plant and its land back in 1998. Malcolm also brokered the deal to get the plant decommissioned last year, and he seems to be running the show again with this demolition deal. (That’s despite telling my colleague Liam Dillon in December that he’s backing away from the issue.)

Malcolm sat me down in his office a week ago and laid the whole deal out for me: How much is Dynegy willing to hand over to the city to relinquish its responsibilities and liabilities at the site? $50 million, Malcolm said. How set is that deal? The company’s given the city an “option” to take it up on the offer, Malcolm said, it just remains for the city to accept.

Compare that to:

Chula Vista Mayor Cheryl Cox, asked if there’s a deal on the table: “I’m not aware of one.”

Chula Vista City Manager Jim Sandoval: “There is no real deal.”

As things currently stand, Dynegy is responsible for both tearing down the power plant and clearing up any mess that’s left behind.

It could be that Malcolm, who’s landed in hot water over port matters before, is getting ahead of himself on this. But he doesn’t think so, nor does Steve Peace, the former state senator who’s partnered with Malcolm to get deals done on the power plant.

The way Peace and Malcolm tell it, they’re doing the bargaining with Dynegy and they’re waiting for Chula Vista’s politicians and managers and the Port Commission to get their act together and get on board with the plan.

Scott Peters, chairman of the Port Commission, confirmed that there is, indeed, some discussion going on about Chula Vista taking on the role of demolishing and cleaning up after the power plant. Peters said he and the commission are open to hearing proposals from the city.

According to Malcolm and Peace, a proposal should look something like this:

Dynegy gives the city of Chula Vista the $50 million it has saved up to do the job. In return, the company, which recently failed in a second attempt to sell itself to billionaire investor Carl C. Icahn washes its hands of the power plant and is no longer liable for the cleanup. The city couples that $50 million with $22 million the Port Commission has stashed away for cleaning up the plant. That gives the city roughly $72 million to play with.

But the city does absolutely nothing until it’s sure that the deal is risk-free, Malcolm said.

How does it do that?

In two ways: First, the city, on Dynegy’s dime, sends out scientists to actually assess the contamination of the site and the bay. Those scientists come back with an estimate of how much it would cost to clean the site up. If that number’s way out of whack with the $72 million on hand to do the work, the city simply says “No thanks” to Dynegy, Malcolm said.

But as an extra layer of defense, the city also insures the whole deal, Malcolm said. The city puts a cap on how much it wants to spend and takes out an (admittedly very expensive) insurance policy to cap its liability on the deal.

The city can’t lose, Malcolm said. If the deal’s not worth doing because the cleanup would be too expensive or because they can’t get insured, or because the insurance policy is too expensive, then they simply reject Dynegy’s offer to take on the job.

But if, for example, the city establishes that it would cost around $30 million to demolish and clean up the site, plus, say, $5 million to insure the city from liability, that’s a lot less than $72 million. Malcolm’s point is that the city can pocket the remaining money and spend it on further sprucing up the bay front.

“The city can control their own destiny, and protect themselves with an insurance policy and bonded bids and then be able to tear down the plant immediately,” Malcolm said. “This isn’t about putting cash in their pockets, this is about remediating the land at a higher level. I hope they’d put parks there and allow the people back onto the property. That’s my dream.”

But there’s always the chance that the cost will run over the estimates — imagine that! A public project costing more than it was supposed to!

In that case, it will be left to the city of Chula Vista’s small team of lawyers to do battle with whatever insurance company they worked with to figure out who pays for the cost overruns.

That should be fun for a city that can barely keep its libraries open, shut down its rec centers and doesn’t have the money to pay for a crew of people to scrub graffiti off walls.

Please contact Will Carless directly at will.carless@voiceofsandiego.org or at 619.550.5670 and follow him on Twitter: twitter.com/willcarless.

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