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2021-001 Gibbons Creek Q and ADate: January 8, 2020 Report No. INFORMAL STAFF REPORT TO MAYOR AND CITY COUNCIL SUBJECT: Provide staff responses to City Council questions regarding the potential sale of Gibbons Creek Steam Electric Station and related assets BACKGROUND: During the January 5, 2021 City Council meeting, staff presented a work session report regarding the potential sale of Texas Municipal Power Agency’s Gibbons Creek Steam Electric Station and related assets in Grimes County, Texas including a review of the economics of the sale, the key provisions of the proposed Asset Purchase Agreement (APA) and the associated risks. Prior to and following that presentation, members of the City Council requested information related to the work session report. This Informal Staff Report combines all of those questions and staff responses into a single location. Responses to any outstanding questions will be provided in a subsequent report prior to January 26th when the City Council is scheduled to consider approval of the APA. Council question: What are the current TMPA plans/prospects for sale of the remaining 10k acres of Gibbons Creek land? What is TMPA's current perspective on proposals to create a regional park? Staff response: The TMPA board authorized staff to issue an RFQ for brokers for the project last year. Qualifications were submitted but the final broker(s) have not been selected. TMPA has retained a ranch and large land real estate expert to provide consultation on when the best time is to enter the market, who the property should be marketed to and the strategy to bring the land to the market. The TMPA board has not authorized the sale of the mine properties but have provided guidance to staff to make all preparations necessary for a sale. The TMPA board has not provided direction and there have been no discussions by the board of the potential to dedicate any of the mine lands to parks or other recreational uses over the last 18 months. Council question: Can staff look over this article and summarize why we would or would not be vulnerable to the same problems? https://www.texastribune.org/2019/10/30/how-texas-lets-coal- companies-leave-behind-contaminated-land/?fbclid=IwAR2od7Quq-dG0xN4buz- ET_VIwB07FZDRQk4pTUKQvoSAQViC3X_koq-X7I Staff response: Mining and reclamation in Texas are regulated by the Texas Railroad Commission. The lignite mine adjacent to Gibbons Creek Steam Electric Generation Station ceased operation in 1996. TMPA has competed 95% of the reclamation activities and has placed performance bonds against the properties as required by Texas RR Commission. TXRR Commission is releasing the remaining performance bonds associated with the competed reclamation this month. The sale of the plant site (6200 acres) does not include any mine property. Ash from the combustion of lignite and coal was never disposed of in the mine. TMPA Date: January 8, 2020 Report No. placed the ash in engineered landfills during the operation of the Gibbons Creek plant. Landfill site A and F are where the disposal occurred and are part of the sale transaction. The disposition of the mine property is not part of the posting that will be discussed with the City Council on January 5, 2021. Council question: What future earnings does a company, like Charah, see in cleaning up and redeveloping this site? Are they earnings that the City or any of the four cities could be missing out on? Staff response: Charah is being paid by TMPA to clean up the site and any sale of property and redevelopment revenues they may gain will be based upon how well they clean it up. TMPA is paying them $36 million. The remediation of coal combustion waste sites is a core competency of Charah who has a stable of project managers and contractors who have expertise in this area. Were TMPA to self-perform the decommissioning and remediation, our engineers have estimated the cost to be as high as $108 million over the next 30 years. TMPA does not know the economics that Charah believes they can achieve for the redevelopment and sale of the property. However, the TMPA board, in consultation with the member municipals, outside environmental counsel, real estate experts and legal counsel believe that the risk/reward trade off of the proposed sale is in the best interest of the member cities. As shown in the ISR, AIS and the presentation, the value of the plant site is projected to be $24 million after the site is remediated. If we assume this price for the sale of the remediated site then Charah’s economics would see revenues of $36 million plus $24 million = $60 million. TMPA’s self-performance cost (option 3) has net costs of $86.3 including the sale of the property for $24 million. These economic differences are compelling. Council question: Is there a correlation between this sale and any potential major coal ash deregulation? Staff response: These coal ash regulation (CCR) have been in development for over 10 years at the federal level. The request by TCEQ to take primacy for the federal regulations is the normal course of action for federal regulations. By law, when Texas takes primacy for the federal CCR regulations, the TCEQ will enforce these federal regulations and, if TCEQ determines that additional requirements are needed that are more stringent than the federal CCR rules, they can promulgate such new regulations for public comment and subsequent adoption. Rules adopted and enforced by TCEQ cannot be less stringent than the federal regulations. Thus the public is protected to the same level as if the USEPA had primacy if not more so. Council question: What are the implications of the City keeping this land, which includes land along the Navasota River, to create recreational and environmental opportunities? Additional information about the Park development can be found here: https://urldefense.proofpoint.com/v2/url?u=https- 3A__drive.google.com_file_d_1SfLbhj4Fsyb5g8l6ElQnogGSC2YwvJ12_view-3Fusp- 3Ddrivesdk&d=DwIFaQ&c=PGEdd_LbwtbJ8FAF3ggtJmXVn0VbaqibWUEPk1jFH8E&r=Tf2- aWcRRWU5hq8tLvKU338qZx1unG1Gth0vpYVcEBs&m=Y9-YMW- Date: January 8, 2020 Report No. IPs3bZ63BMjeAsCSoeCAZwtSOYMjOO4dI-B4&s=b98jlR89ReP0jfxMzLAdCRmybV8lV3Uj- oD9gnryt_M&e= Staff response: Were TMPA to keep this property in the public domain and set it up as a park or natural area, there would be significant ongoing operating and maintenance costs. 24% of those costs would be the responsibility of Denton and it is not likely that Dentonites would see the benefit of this parkland due to it distance from Denton. The linked paper does not make any reference to the statement. Both Staff and TMPA are unaware of any agreements for this to be converted into a regional public park. In 2007/2008 The Conservation Fund and the cities of College Station and Bryan, along with several other entities approached the TMPA board with a proposal to purchase the mine properties. The TMPA board choose not to pursue such a transaction at the time. Council question: Does the sale include land that is considered part of the Navasota Ladies’ Tresses orchid? Staff response: TMPA staff is aware of the presence of the Navasota Ladies’ Tresses. The population of these orchids are on properties that are not part of the plant sale. They exist only on the mine property. Council question: Are there any conservation easements, specifically figure 6 in the report? Staff response: There are no conservation easements on the plant property that is part of the sale. Figure 6 in the report depicted areas where the protected orchids are known to exist on the mine property. There are five (5) conservation easements on the mine property that TMPA monitors the orchids on. Three of these conservation easements are on leased land that will revert to the landowner. Two conservation easements are on mine land owned by TMPA. Those parcels will likely be deeded with restrictions to keep the conservation easements in place. Council question: The contract and associated documents mention that the EPA has finalized Coal Combustion Residuals (CCR) rules and therefore clean-up expectations. What happens if a new Federal Level administration increases the regulatory and clean-up requirements of CCR waste? Are there any provisions in the contract that address this issue? Staff response: Charah is required to obtain “closure” as defined by the applicable regulations and to meet any performance bonding requirements imposed by EPA or TCEQ. This contractual covenant protects TMPA and the member cities from changing regulations and definitions and requires the Buyer to achieve whatever level of closure required when the remediation is completed. Council question: Is there anything in the contract that specifically assures that fossil fuel extraction processes or processes that entail fossil fuel combustion as a primary aspect of their operation or for power production will not be done at the site? Date: January 8, 2020 Report No. Staff response: No. However, under current EPA and TCEQ regulations, the permitting of a coal fired power plant anywhere in the United States is virtually impossible. Under the terms of the Asset Purchase Agreement, no limitations are placed upon the use of the property with the exception of the remediated CCR units for which there are restrictions. Council question: Are there provisions that prevent activity at the site that poses potential public health risks and negatively impacts quality of life for those in the surrounding area, such as toxic waste, air pollution, and greenhouse gas emissions? Staff response: Any future land use, including the development of manufacturing industries will be subject to the applicable TCEQ and Grimes county regulations. TECQ and USEPA regulations are developed to be protective of human health and the environment. Council question: The current contract seems to give freedom to the buyer for 7 of the 10 plots of land in terms of what they could plan for future development. Are there any provisions in the contract to assure that the recreational opportunities for camping, fishing and hiking are maintained or even expanded? Staff response: No. The APA does not place any contractual covenants to continue the recreational use of the property. Council questions: Under the current agreement, the surrounding 10,000 acres owned by TMPA, which contain previously mined areas and sensitive ecosystems, are not a part of the acquisition. Would TMPA and the four cities explore retaining the remaining acreage under a conservation easement? Staff response: The ultimate fate of the mine properties will be determined by the TMPA board of directors. The proposed Asset Purchase Agreement in no way reduces the options available to TMPA relative to the mine properties. STAFF CONTACT: Terry Naulty Assistant General Manager of DME Terry Naulty@cityofdenton.com (940) 349-7565 REQUESTOR: Council Member Davis PARTICIPATING DEPARTMENTS: DME, City Manager’s Office STAFF TIME TO COMPLETE REPORT: One hour