Dismantling of the decommissioned South Bay Power Plant “could be a big gain for the South Bay and specifically Chula Vista.”

Clandestine negotiations, fueled by the prospect of a pot of gold set aside for cleaning up the South Bay Power Plant, have become a concern to some city council members and residents of Chula Vista. In late February, Councilmember Rudy Ramirez called for more daylight on the subject; more recently, the council called for a public hearing on the negotiations at the March 22 council meeting.

The South Bay Power Plant has long been a source of pollution and an impediment to Chula Vista’s efforts to develop its bayfront. Dedicated in 1960, the plant was owned and operated by San Diego Gas and Electric until 1999, when it was sold to the Port of San Diego. Duke Energy, the port’s first tenant, leased the plant and the land it sat on for seven years; the plant’s current operator is Dynegy. The plant was shut down on December 31, 2010. Dynegy is obligated to dismantle the plant and clean up the toxic waste on the site.

The first that many people knew of the city’s plan to take on responsibility for the cleanup was an editorial in the Union-Tribune. “[S]ecret talks have led to a potential arrangement under which Dynegy would turn the entire problem over to Chula Vista along with accumulated funds of $72 million to pay for the work,” the November 21 editorial read. “The potential arrangement was brokered by David Malcolm at the request of Chula Vista Mayor Cheryl Cox.”

This peephole into remediation negotiations generated concerns expressed privately, in letters to the editor, and on the council dais. Was the city of Chula Vista capable of doing the cleanup without taking on huge liabilities? If there was money left over, how should it be spent? Why were some members of the council kept in the dark? But for many, the main concern was, what part did Malcolm play in these sensitive negotiations that involved the cleanup of port land?

Malcolm, a former Chula Vista city councilman, was appointed to the Port Commission in 1995, and he served until 2002, when he resigned. During his tenure, he took a leading role in the port’s acquisition of the South Bay Power Plant and in the lease agreement with Duke. Months after Malcolm’s resignation, he pled guilty to a felony conflict-of-interest charge in San Diego Superior Court. While he’d been a port commissioner, he’d also been paid $20,000 a month by Duke Energy to represent its interests. (The conviction was later expunged from his record.)

Fast-forward to February 6, 2011, when Malcolm jumped into an email conversation about the power plant that was taking place between members and friends of a Chula Vista community group called Crossroads II. Malcolm’s email laid out his driving concern that Dynegy was about to be taken over by a hedge fund, which might not share the city of Chula Vista’s sense of urgency to tear down the power plant or remediate the site.

Malcolm wrote: “…I told Mayor Cox and Councilwoman Bensoussan we need to make a deal with Dynergy [Dynegy] before Carl Ichan/Hedge Fund get[s] control of the plant. You read a little about the agreement to pay the City of CV $72,000,000.00 upfront to take their clean up responsibilities. This was an OPTION for 120 days for free!... Unfortunately, Steve Padilla gave a copy of the agreement I made with Dynergy to the Port. Well guess what…..The Port wanted the money [the rent paid by Dynegy] and worked the press to kill the deal the City had with Dynergy.… I almost called Peter [a Crossroad’s member] and briefed him on what we were doing because I didn’t trust Padilla.…”

Steve Padilla was the city of Chula Vista’s representative on the port commission on October 18, when he gave the agreement to the port. Padilla was abruptly replaced in early January. On February 18, Icahn’s attempted buyout failed, and on March 8, Dynegy announced that it may be forced into bankruptcy.

The day following his email, on February 7, I interviewed Malcolm. Malcolm said he stood by everything he had written. He elaborated on who made up the team that had been negotiating with Dynegy. He said the team consisted of himself, Chula Vista mayor Cheryl Cox, Councilmember Pam Bensoussan, Laura Hunter from the Environmental Health Coalition, and former California senator Steve Peace. Peace is best known as the author of energy deregulation in California, which set the stage for San Diego Gas and Electric’s sale of the South Bay Power Plant to the port.

Malcolm detailed the way the negotiations with Dynegy had unfolded. He said that he became involved when a Dynegy consultant expressed frustration about the failure of the port to negotiate the closure of the power plant with the state agency, the Independent System Operator. While he talked, Malcolm pulled up a timeline on his computer and said the first team negotiations took place on August 28, 2010. He was in Texas at the time and had to participate via telephone.

The mayor gives a different account of how and when Malcolm became involved in the negotiations. On February 6, following Malcolm’s jumping into the email conversation with the Crossroads group, Mayor Cox also unexpectedly joined the online conversation: “When the California Independent System Operator…informed me in October that they removed Reliability Must Run status from the South Bay Power Plant, their action triggered a response from the Regional Water Quality Control Board and the State Water Quality Control Board.… That weekend, I called David Malcolm, the author of the agreement that in l998/99 that called for the Plant’s demolition, removal, and remediation by February 2010, in order to learn more about the terms of the agreement from its author.”

The mayor repeated her account of the timeline at a March 1 council meeting. Councilmember Patricia Aguilar asked the council, “How did David Malcolm become involved in the negotiations and to what extent is he involved?” Cox reiterated that she had called him in October. She added that she saw his role not as a negotiator but rather as being available should anybody want to contact him for information. City manager Jim Sandoval said he had never received any direction one way or another about whether Malcolm was authorized to negotiate for the city.

An account provided by former commissioner Padilla conforms with Malcolm’s description of his role in driving the negotiations. The city of Chula Vista hired an outside attorney — John Lormon of Procopio, Cory, Hargreaves & Savitch LLP — to help with bayfront talks. Not all councilmembers were informed of this step. Lormon first drew up a terms-of-agreement sheet that included the decommissioning of the plant, rent arrangements between the port and Dynegy, and site remediation. This was the agreement that Padilla submitted to the port on October 18. (The agreement became moot when the state agency decided to decommission the plant.)

Then, according to Padilla, David Malcolm and Councilmember Bensoussan called a meeting at the South Bay Fish and Grill on October 27. At that meeting, Malcolm and Bensoussan presented Padilla with a new document, a draft letter of intent, which had been prepared by Lormon. The letter effectively said that Dynegy was going to assign the decommissioning obligations and remediation to the city of Chula Vista and that the port acknowledged and agreed to the assignment.

Padilla said he was stunned. He said, “To my knowledge, even at this time, only two councilmembers knew of this agreement.” He asked Malcolm and Bensoussan, “You want the city of Chula Vista to assume the risks and obligations of cleaning up the power plant site?” Padilla said they wanted him to present the draft letter of intent at the next port meeting.

An October email from Malcolm to Padilla also shows Malcolm’s hand in shaping the agreements. Among the email recipients was Malcolm’s cousin Dan, who had been chosen to replace the retiring port commissioner from Imperial Beach in January 2011. The email contains attachments, and Malcolm’s instruction reads: “[Steve] Peace can open and so can Dan Malcolm.… There are only a few changes in the redline. Spelling of Dynergy and #7 as added. Except as set forth in the definitive agreements, the rights and obligations of the parties under existing agreements shall remain in full force and effect including, without limitation, the Environmental Remediation Agreement, the Facility Services Agreement and the Easement and Covenant Agreement. Only other changes are spelling and grammar errors.”

Another email, written last October, again illustrates Malcolm’s role in the negotiations. In the email, he seems to be attempting to persuade members of his team that the power plant site won’t need much cleanup. “Their [Dynegy’s] desire is to pay an agreed upon fee up front and be released. They will share their 16 bids on the demolition of the plant with us. You must remember, [San Diego Gas and Electric] remains liable for certain ground contamination (if any). I will tell you the number of soils tests we did BEFORE the purchase of the plant were extensive. The Port didn’t want to get in line of title of a possible toxic situation and maybe more important Duke didn’t want to take on a possible expensive mitigation project. Both the Port’s and Duke’s environment people ‘poked’ holes through the property and found nothing. If we assemble the right team to review the bids, review the soils reports this could be a BIG gain for the So Bay and specifically CV.”

The email is at odds with his statements in the February 7 interview, at which time he said, “San Diego Gas and Electric has to clean up everything from the 50’s all the way up through 1999, which was the vast majority of time when they had bad things like PCBs and transformers, all those things that leaked. Those things haven’t existed since Dynegy became involved.”

He proceeded to elaborate how excess cleanup money might be spent. “Chula Vista could decide to use some of the leftover money to restore some wetlands down there in the South Bay Wildlife Refuge and use some money to help the Nature Interpretive Center.”

In early February, I interviewed former commissioner Padilla. He commented on the difficult position he had been put in trying to serve the Chula Vista City Council and the port. Padilla said that negotiations between the city and Dynegy ultimately needed port approval. “We [the port]…said we’ll get you any information you need, but you need to know that at the end of the day, Chula Vista will have to provide evidence of how they can financially do this [clean up the site] and how they’re going to perform. And that’s standard to any tenant — to any lessee — in the port, and Dynegy is no different.”

The way the negotiations were set up, Padilla said, was like “taking a chance on starting World War III. Frankly, it seemed like some people wanted to create this conflict between the city and the port when there didn’t need to be one. And it really centered around these same people, and I think, frankly, some of this was by design. They were looking for a fight with the port instead of working with the port to advance the bayfront.”

When asked point-blank if Chula Vista should secede from the port, Malcolm said, “I’ve always thought that Chula Vista ought to control its own future. The port was formed in 1963 because the San Diego Harbor District was bankrupt, and National City had the most money in their harbor district, followed by Chula Vista. So the port district was put together to save San Diego Harbor District. Now, if you ask each of the city councils if they ought to be controlling and planning their own waterfront, I think they would tell you yes. The only one who would be opposed to that would be Imperial Beach because they’re heavily subsidized by the port.”

Padilla responded to the idea of breaking up the port by saying, “If these people think that without a financial partner like the port that the Chula Vista bayfront can go forward, if they think the city of Chula Vista can manage the wetlands and tidelands, deal with all the state regulatory agencies, that the port tidelands and bay tidelands are all going to be managed piecemeal, if these people think that’s good policy for the environment, that it’s going to be welcomed with open arms by the environmental community statewide, I think they’re smoking pot.”

Ron Powell, media contact for the Port of San Diego, said the district is in a good position to oversee cleanup of the power plant site. The port has agreements with all the former occupants: San Diego Gas and Electric, Duke, and Dynegy. Powell says that if Dynegy is incapable of remediating the site, then the port has an agreement with Duke.

As for the pot of gold that everyone has been eager to divide, Powell said he doesn’t know where people got the figure of $72 million. The ratepayers have paid $32 million, which is on Dynegy’s books. The port is a signatory to another $20 million held in trust.

Though the future of Chula Vista’s bayfront is fraught with problems, in the February 7 interview Malcolm expressed his vision for development. “I’m not a creative person,” he said, “but Disney is, and I don’t know what they’d have, but I’d go meet with them.… I would like to see a symposium of the biggest companies in the world that do waterfront things. This is an opportunity with more acreage than you can get anywhere in Southern California. What should we do? I don’t know, but you know, what I don’t want is the Chula Vista City Council deciding it, and I don’t want the port commissioners deciding it. I want these world-class brains to get together and tell us what they think, and you know what — something’s gonna resonate out of it.” ■