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HomeMy WebLinkAbout2023-12-12; City Council; ; Update on Status of Negotiations to Relocate San Diego Gas & Electric’s North Coast Service CenterCA Review CKM Meeting Date: Dec. 12, 2023 To: Mayor and City Council From: Scott Chadwick, City Manager Staff Contact: Gary Barberio, Deputy City Manager, Community Services gary.barberio@carlsbadca.gov, 442-339-2822 Cindie K. McMahon, City Attorney attorney@carlsbadca.gov, 442-339-2891 Subject: Update on Status of Negotiations to Relocate San Diego Gas & Electric’s North Coast Service Center District: 2 Recommended Action Receive status update and provide direction on negotiations to relocate SDG&E’s North Coast Service Center. Executive Summary This report provides the City Council with an update on the ongoing negotiations between the city, NRG Energy and San Diego Gas & Electric over relocating SDG&E’s North Coast Service Center as part of a previous settlement agreement. Explanation & Analysis Background The City of Carlsbad has been negotiating with NRG Energy and San Diego Gas & Electric Company to relocate SDG&E’s North Coast Service Center from its current location near the northeast corner of Carlsbad Boulevard and Cannon Road as anticipated in the “Settlement Agreement dated as of Jan. 14, 2014 Between and Among The City of Carlsbad, Carlsbad Municipal Water District, Cabrillo Power I LLC, Carlsbad Energy Center LLC, and San Diego Gas and Electric Company.” After staff, NRG and SDG&E had exhausted options to relocate the service center offsite – e.g., The Shoppes at Carlsbad site, the SDG&E-owned property known as Lot 11, and other sites – on Nov. 15, 2022, the City Council directed staff to discontinue efforts to include Lot 11 in the city’s negotiations with SDG&E and NRG and to pursue an option for constructing a new service center on the eastern part of the existing site closer to the railroad tracks, referred to by the parties as the Against the Tracks option. This option was expected to free up approximately 8- 10 acres on the western part of the existing site for transfer to the city. The City Council also directed staff to return to the City Council for further direction on March 7, 2023, or sooner. Dec. 12, 2023 Item #12 Page 1 of 5 However, as reported at the City Council meeting on March 7, 2023 (Exhibit 1), the negotiations for the Against the Tracks option stalled because the cost of constructing the new service center significantly exceeded the funding available from NRG and SDG&E under that option. At that time, NRG was working on selecting a development partner for the future redevelopment of the adjacent power plant property and anticipated the development partner would provide solutions for resolving the funding gap. To allow NRG time to complete its selection process and receive input from its development partner, the City Council provided the parties an additional six months to explore options and directed staff to return in September 2023, or sooner, with an update on continuing negotiations. Since March 2023, the parties have continued to meet regularly (approximately 18 meetings) to try to resolve the funding gap and other ancillary matters. Although NRG has not yet finalized the selection of its development partner, NRG has determined through the selection process to date that its development partner will not be able to resolve the funding gap for the Against the Tracks option. Instead, on Aug. 31, 2023, NRG proposed a different option for reconfiguring the existing service center site that would close the funding gap as it involves less new construction and frees up less land (approximately 5-6 acres) for transfer to the city. The parties are referring to this option as the Seaside option. At that time, the Seaside option was new and conceptual only, and NRG and SDG&E’s teams were reviewing the proposal internally to determine its feasibility. Consequently, city staff lacked sufficient information to present the new Seaside option to the City Council in September for its consideration and direction. Over the ensuing three months NRG and SDG&E have determined that the Seaside option is feasible, and the two parties have solidified a plan to eliminate any funding gap associated with this option. Seaside option The Seaside option is similar to the Against the Tracks option in that it reconfigures the current site to the east, away from Carlsbad Boulevard and the coastline, such that a new service center administration building could be built on the eastern 13-acre portion of the 19-acre SDG&E property, with SDG&E parking and materials staging areas relocated to an approximately eight- acre portion of the NRG property. This option would make available for conveyance to the city approximately six acres (five acres net) of the western portion of the SDG&E site. Dec. 12, 2023 Item #12 Page 2 of 5 The eastern one-acre of the six-acre property conveyed to the city would be used to provide vehicle access to the city’s site and the future NRG redevelopment site from Cannon Road at its intersection with Los Robles Drive. While the six acres is less than the eight to ten acres anticipated to become available to the city under the Against the Tracks option, it would provide the city with options for future use of the six acres, such as a location for a permanent Fire Station No. 7, ownership (as opposed to a lease) and possible expansion of Cannon Park, and an area to provide parking for Cannon Park and beach users. In addition to the approximately six acres (five acres net) proposed for conveyance to the City and the possible options for future use of this property, the Seaside option, as currently proposed, would provide for the following additional community benefits: • The city would receive from SDG&E a 5.76-acre property on the north shore of the Agua Hedionda Lagoon (North Shore Bluff Parcel) • SDG&E will cooperate with the city to develop a trail network in the Hub Park Lease area on the south shore of the Agua Hedionda Lagoon, including allowing access on the SDG&E-owned Lot 11 for a trailhead parking lot, access to the pedestrian tunnels underneath Cannon Road, and access through Lot 11 to the Hub Park Lease area. SDG&E will also share in the cost of developing this portion of the city trail system. • The city will receive from NRG an irrevocable offer of dedication for the NRG-owned Beach Bluff Property (approximately 10.8 acres on the west side of Carlsbad Boulevard), and the NRG-owned middle Agua Hedionda Lagoon basin (approximately 21 acres between the railroad tracks and Interstate 5) and the inner basin (approximately 181.23 acres east of I-5). The irrevocable offer of dedication will allow the city to take ownership of the property at a future date, if so desired. o The city currently has an irrevocable offer of dedication over the approximately 2.8 acre upper-bluff portion of the Beach Bluff Property. This new irrevocable offer of dedication would cover the entire approximately 10.8 acres of the property, or an additional approximately 8 acres. The city also currently has a lease agreement on the Agua Hedionda Lagoon inner basin and previously had a lease agreement on the middle basin. • The city would receive from SDG&E and NRG ownership to the Carlsbad Boulevard and Cannon Road right-of-way fronting their respective properties. Recommendation Staff recommend that the City Council direct staff to continue negotiations with SDG&E and NRG on the Seaside option and to return to the City Council by March 31, 2024, or sooner, with an agreement for the City Council’s consideration. If the parties are unable to reach agreement by March 31, 2024, then the negotiation efforts shall be reassessed, and a decision made about whether to terminate them. If a decision is made to terminate negotiations, then the city would receive $10 million from NRG, as identified in the settlement agreement. Dec. 12, 2023 Item #12 Page 3 of 5 Alternatively, the parties could agree at that time to extend the March 31, 2024, deadline or pursue another plan. Representatives from SDG&E and NRG will attend the City Council meeting to present information on these issues to the City Council. Fiscal Analysis There is no financial impact from this item. No additional funding is being requested. Options Staff provide the following options for the City Council’s consideration: 1. Direct staff to continue negotiations with SDG&E and NRG on the Seaside option and to return to the City Council by March 31, 2024, or sooner, with an agreement for City Council consideration. If the parties are unable to reach agreement by March 31, 2024, then the negotiation efforts shall be reassessed, and a decision made about whether to terminate. If a decision is made to terminate negotiations, then the City of Carlsbad would receive $10 million from NRG, as identified in the settlement agreement. Alternatively, the parties could agree at that time to extend the March 31, 2024, deadline or pursue another plan. Pros: • Provides for additional time to reach an agreement on the Seaside option, which could deliver certain land transfers and other community benefits to the city Cons: • None identified 2. Direct staff to terminate negotiations with SDG&E and NRG. Pros: • The city would receive $10 million from NRG, as identified in the settlement agreement Cons: • The City of Carlsbad would not receive the other land transfer or community benefits anticipated from the Seaside option Staff recommend that the City Council direct staff to pursue Option 1. Next Steps Upon receiving City Council direction, staff will continue negotiations with the other parties and return with an agreement for the City Council and the Carlsbad Municipal Water District Board to consider by March 31, 2024, or sooner, as appropriate. Environmental Evaluation This action does not require environmental review because it does not constitute a project within the meaning of the California Environmental Quality Act under California Public Resources Code Section 21065 in that it has no potential to cause either a direct physical change or a reasonably foreseeable indirect physical change in the environment. Exhibits 1. March 7, 2023, City Council staff report, with exhibits (on file in the Office of the City Clerk) Dec. 12, 2023 Item #12 Page 4 of 5 Exhibit 1 March 7, 2023, City Council staff report, with exhibits (on file in the Office of the City Clerk) Dec. 12, 2023 Item #12 Page 5 of 5