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HomeMy WebLinkAbout2024-03-26; City Council; ; Update on Status of Negotiations to Relocate San Diego Gas & Electric’s North Coast Service CenterMeeting Date: March 26, 2024 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 Adopt a resolution extending the deadline for terminating negotiations to relocate SDG&E’s North Coast Service Center beyond the City Council established March 31, 2024, deadline by four months, to July 31, 2024, and directing staff to continue negotiations with SDG&E and NRG on the Seaside option and to return to the City Council by July 31, 2024, or sooner, with an agreement for the City Council’s consideration. 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. Staff are requesting additional time to return to the City Council with a new agreement for its consideration. Explanation & Analysis Background The City of Carlsbad has been negotiating with NRG Energy and the 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 March 26, 2024 Item #2 Page 1 of 7 CA Review CKM parties as the Against the Tracks option. This option was expected to free up approximately eight to ten 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. 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. Meanwhile, the parties continued to meet regularly (holding about 18 meetings) to try to resolve the funding gap and other ancillary matters. Although NRG had not yet selected its development partner, NRG determined through the selection process that its development partner would 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 because it involves less new construction and frees up less land (approximately five to six acres) for transfer to the city. The parties refer 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 determined that the Seaside option is feasible, and the two parties have solidified a plan to eliminate any funding gap associated with this option. March 26, 2024 Item #2 Page 2 of 7 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 makes available for conveyance to the city approximately six acres (five acres net) of the western portion of the SDG&E site. 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, SDG&E’s remaining 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 will 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 visitors. 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 will receive from SDG&E a 5.76-acre property on the north shore of the Agua Hedionda Lagoon (the 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. March 26, 2024 Item #2 Page 3 of 7 •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), 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 eight 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 will receive from SDG&E and NRG ownership to the Carlsbad Boulevard and Cannon Road right-of-way fronting their respective properties. Current City Council direction At the Dec. 12, 2023, City Council meeting, the City Council voted to 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. Acting on that direction, city staff, SDG&E, and NRG have met eight times to negotiate the terms of an agreement acceptable to all three parties that would implement the Seaside option. The parties have also exchanged multiple drafts of a 100-plus page agreement detailing the terms. While the three parties have negotiated solutions addressing many of the outstanding issues and have made significant progress towards completing a draft agreement, the parties are not yet in a position to present a draft agreement to the City Council for its consideration. City staff anticipate that it will take four additional months to complete a draft agreement and that we will be able to return to the City Council by July 31, 2024, or sooner, with a completed draft agreement for the City Council’s consideration. Recommendation Staff recommend that the City Council extend the City Council established March 31, 2024, termination deadline to July 31, 2024, and direct staff to continue negotiations with SDG&E and NRG on the Seaside option and to return to the City Council by July 31, 2024, or sooner, with an agreement for the City Council’s consideration. If the parties are unable to reach agreement by July 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 2014 settlement agreement. Alternatively, the parties could agree at that time to extend the July 31, 2024, deadline or pursue another plan. Fiscal Analysis There is no financial impact from this item. No additional funding is being requested. March 26, 2024 Item #2 Page 4 of 7 Next Steps Staff will continue negotiations with SDG&E and NRG and return with an agreement for the City Council to consider by July 31, 2024, or sooner, as appropriate. Until the agreement is completed, staff will continue to provide monthly progress updates to the City Council via memorandums. 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.City Council resolution March 26, 2024 Item #2 Page 5 of 7 RESOLUTION NO. 2024-056 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CARLSBAD, CALIFORNIA, EXTENDING THE DEADLINE FOR TERMINATING NEGOTIATIONS TO RELOCATE SDG&E'S NORTH COAST SERVICE CENTER BEYOND THE CITY COUNCIL ESTABLISHED MARCH 31, 2024 DEADLINE BY FOUR MONTHS, TO JULY 31, 2024, AND DIRECTING STAFF TO CONTINUE NEGOTIATIONS WITH SDG&E AND NRG ON THE SEASIDE OPTION AND TO RETURN TO THE CITY COUNCIL BY JULY 31, 2024, OR SOONER, WITH AN AGREEMENT FOR THE CITY COUNCIL'S CONSIDERATION WHEREAS, on Jan. 14, 2014, the City Council of the City of Carlsbad adopted Resolution 2014- 010 approving a Settlement Agreement between and among the City of Carlsbad, the Carlsbad Municipal Water District (CMWD), Cabrillo Power I LLC and Carlsbad Energy Center LLC (collectively, NRG), and San Diego Gas & Electric (SDG&E), related to the decommissioning and demolition of the existing power plant known as Encina Power Station (EPS) and construction of a new plant known as Carlsbad Energy Center (Settlement Agreement); and WHEREAS, among other things, the Settlement Agreement anticipated the relocation of SDG&E's North Coast Service Center (NCSC), which is currently located near the northeast corner of Carlsbad Boulevard and Cannon Road (5.1]; and WHEREAS, if relocated in accordance with the terms of the Settlement Agreement, NRG would contribute $22.5 million to SDG&E for the relocation and reconstruction of a new service center (5.4], the city would take title to certain properties totaling approximately 24.5 acres (5. 7] and the city and NRG would work in good faith to consider a joint development strategy for the Encina Redevelopment Site and the NCSC site [6.2(b)]; and WHEREAS, negotiators for the city, SDG&E and NRG have met regularly to work on a identifying an appropriate relocation site for NSCS; and WHEREAS, staff provided updates and sought direction from the City Council regarding these negotiations at City Council meetings on April 20, 2021, May 23, 2022, July 26, 2022, Oct. 11, 2022, Nov. 15, 2022, March 7, 2023, and Dec. 12, 2023; and WHEREAS, the parties have considered numerous options for relocation of NSCS and transfer of property to the city; and Exhibit 1 March 26, 2024 Item #2 Page 6 of 7