MEMORANDUM February 21, 2007 TO: MEMBERS, PORT COMMISSION Hon. Ann Lazarus, President Hon. Kimberly Brandon, Vice President Hon. Rodney Fong Hon. Michael Hardeman FROM: Monique Moyer Executive Director SUBJECT: Informational presentation regarding the environmental review and energy policy considerations related to the proposal by Trans Bay Cable LLC (“TBC”) to install an electricity transmission line at 23rd Street and the San Francisco Bay and proposed terms of the proposed Port-TBC agreements. DIRECTOR’S RECOMMENDATION: INFORMATIONAL ONLY; NO ACTION REQUIRED Introduction Trans Bay Cable LLC (“TBC”) proposes to install a 400 MW high voltage direct current transmission line (“Project”) beneath the Bay, between the cities of Pittsburg and San Francisco. The subject of this report is the environmental review and approval process for the Project, the role the Project will play in the City and County of San Francisco’s transmission grid and related energy policy considerations, and draft terms of the proposed Port-TBC license agreements, subject to further negotiation. Port staff made an informational presentation to the Port Commission on December 12, 2006 regarding the Project. Background The Project sponsor is a wholly-owned subsidiary of Babcock & Brown LP, a San Francisco-based company, in cooperation with Pittsburg Power Company, a municipal utility. The primary goal of the Project is to transmit electrical power from the East Bay, which has excess electricity-generation capacity and to reduce transmission grid congestion to the distribution facilities in San Francisco. The California Independent System Operator (CAISO) approved the Project as the preferred long- term transmission alternative to address the identified electric reliability concerns in San Francisco and northern San Mateo County beginning in 2012 and supports an earlier date of operation. This Print Covers Calendar Item No. 10D CAISO staff has recently reviewed this analysis and now propose that San Francisco faces a potential reliability problem as early as 2010. CAISO is a not-for-profit public-benefit corporation, created as a result of California’s electric restructuring that is charged with operating the majority of California’s high-voltage wholesale power grid. Among its duties are engaging in planning to ensure reliable electric service. Part 1 of the informational presentation and this report is intended to brief the Port Commission (“Commission”) about the environmental review conducted for the Project and the Commission and Board of Supervisors’ role in approving the Project. Part 2 of this report describes the role the Project will play in the City’s energy future and describes other Projects proposed to meet the City’s energy demand. Part 3 of this report summarizes the terms of the proposed Port-TBC license and related agreements, subject to continued negotiation with TBC. Project Description The Project consists of the following major components: • Approximately 53 miles of 10-inch diameter high voltage direct current (“DC”) cable buried in Bay sediment between PG&E's Pittsburg Substation and its San Francisco Potrero Substation, including 9.4 miles of submerged lands and a small portion of shoreline under Port jurisdiction (see Exhibit A). • A DC cable route from the edge of the San Francisco Bay immediately south and east of 23rd Street to a San Francisco converter station site. • Construction of converter stations in Pittsburg and San Francisco, which are utilized to convert DC transmitted by the cable to alternating current (“AC”). In San Francisco, pursuant to the Project Final Environmental Impact Report (“FEIR”), the mitigated location for this proposed 5-acre converter station is the Harrigan Weidenmuller Company (“HWC”) site, which is private property located on Illinois Street between 23rd and 24th streets. • An AC cable route connecting the San Francisco converter station site and the existing local PG&E Potrero Substation. Part 1. Project Environmental Review and Required Approvals Background The City of Pittsburg (“Pittsburg”), which is the lead agency for the Project under the California Environmental Quality Act (“CEQA”), published the Draft EIR (“DEIR”) in May 2005. The DEIR concluded that while many impacts associated with the Project were potentially significant, with implementation of the proposed mitigation measures only one remained significant: the cultural resources impact resulting from demolition of two potentially historic warehouses on the HWC site that would be demolished in order to construct the San Francisco converter station. With -2- publication of the DEIR, TBC and Pittsburg undertook public outreach efforts, both general outreach to solicit stakeholder and community input, and CEQA-required meetings and hearing. The outreach efforts are appended to the December 12, 2006 Port Commission staff report on the Project. City Staff Review and Comment on DEIR The City of San Francisco, including the Port, is a responsible agency under CEQA, and as such is responsible for consulting with the lead agency during preparation of the EIR and considering environmental effects of the Project that relate to the City’s discretionary actions. To fulfill the first part of these obligations, City staff met with TBC and Pittsburg staff on June 12th and June 21st, 2006, and commented on the DEIR on July 10, 2006. The City submitted more than 80 comments that addressed many sections of the DEIR, including the purpose and need for the Project, the alternatives analysis, air quality, potential to disturb contaminated soil and sediment, mitigation measures monitoring, noise and visual impacts on open space, recreation, and potential future residential development, and impact on historic resources associated with the proposed demolition of the two potentially historic warehouses. Many of the City’s comments requested clarification or additional information. Pittsburg responded to the City's comments in its “Response to Comments” document, issued as a part of the Project's FEIR on October 16, 2006. Pittsburg Responses to Comments and FEIR Addendum The Pittsburg response addressed many of the City’s comments, including relocating the San Francisco converter station to the west side of the HWC site, referred to as the “Mitigated HWC Site”, which eliminated the impact to historic buildings. The FEIR concluded that with implementation of the proposed mitigation measures and other revisions to the Project (i.e. relocation of the converter station to the Mitigated HWC site), the Project resulted in no potentially significant impacts. On October 27, 2006, the City submitted a second letter to Pittsburg, commenting on the FEIR, specifically with respect to concerns regarding the alternatives analysis, reliability of the cable, the air emission modeling that was done to evaluate air quality impacts, implementation of required mitigation measures monitoring, and noise and visual impacts. In a response to the City by letter dated November 6, 2006, Pittsburg addressed the City’s outstanding comments, including committing to hire a 3rd-party firm, at TBC’s expense, to implement the mitigation measures monitoring and reporting. Also on November 6, 2006, Pittsburg, as the lead agency, certified the FEIR and issued several project approvals and, in doing so, adopted CEQA findings and a mitigation measures monitoring program, and filed a Notice of Determination. Copies of the City’s comment and response letters are on file with the Port Commission Secretary. After certification of the FEIR, Pittsburg issued an Addendum to the EIR in December 2006, to describe proposed changes to the Project due to the commercial availability of new technology for the converter facilities in both Pittsburg and San Francisco. The proposed changes to the converter station design would decrease its footprint and height, among other changes, and would lead to further reductions in the Project's already less-than-significant impacts to visual quality, noise, and construction-related air quality. The Addendum concluded that the proposed changes did not trigger CEQA's requirements for a supplemental or subsequent environmental impact report, -3- (CEQA Guidelines section 15162), and would further reduce the Project's less than significant impacts. Port/City as Responsible Agency To fulfill the second part of its role as a responsible agency, the City must consider the environmental effects of the Project, as identified by the FEIR and Addendum, that relate to the City’s discretionary actions. The City, as a responsible agency, must assume the validity of the FEIR and Addendum1. Prior to taking any Project-related discretionary act, the City must: make findings regarding each significant environmental effect of the Project that relates to the City’s approvals; adopt a statement of overriding considerations, if necessary, for any significant effect related to the City’s approvals that is not mitigated to a less than significant level; and adopt mitigation measures. As noted above, both the FEIR and Addendum conclude that all environmental impacts have been mitigated to a less than significant level. Consequently, if the Port approves a license or lease with TBC, it must adopt CEQA findings, including a finding that the City considered the FEIR and Addendum prepared by the lead agency, and adopt those portions of the Project’s mitigation monitoring and reporting program that relate to the City’s approvals. Copies of the draft CEQA findings that the Port Commission would have