Gashouse Cove Bribe
How negotiating power and outright bribery were used by a utility company to convince a City department to turn its back on the environment.
Three appeals were made in January 2023 concerning an alleged bribe between PG&E and the San Francisco Recreation and Parks Department.
- The first was an ethical appeal to a Commission that establishes policy for Rec and Park. The appeal can be found here.
- The second was the allegation and request for investigation made to the Attorney General of California. It can be found here.
- The third appeal was to the Bay Conservation and Development Commission to honor its conservation mission. It asked BCDC to uncouple the change-of-use from the requirement to clean-up Gashouse Cove, and to hold PG&E and RPD to the clean-up. It can be found here.
The bribe is intertwined with a twenty-year power struggle between the San Francisco Rec and Park and PG&E. The story is told below.
Introduction
Gashouse Cove is a small boat harbor built in the 1960s on the north shore of San Francisco. It is located in the San Francisco Marina district and sometimes called San Francisco Marina East Harbor. Manufactured Gas Plant contamination was first discovered in the Marina in 1977 and in Gashouse Cove in 1994. MGP contamination consists of chemicals in concentrations that the EPA has determined are hazardous to health and the environment. Numerous investigations have determined that Gashouse Cove is extensively contaminated from two MGPs that operated in the Marina a century ago. At one location, contamination that has been in the ground for over 100 years is still seen bubbling to the surface during low tides today. Unseen, toxic chemicals continually enter San Francisco Bay from large deposits of contamination in Gashouse Cove and in upland areas immediately adjacent to it. An Environmental Impact Study in the mid-2000s included both Gashouse Cove and San Francisco Marina West Harbor. The EIS was necessary to prepare for major refurbishments to both harbors, but Gashouse Cove was quietly dropped from consideration during the process. Old-timers said the reason was that Gashouse Cove was a well-known “toxic waste dump.” West Harbor was renovated but Gashouse Cove was left untouched.
San Francisco’s Recreation and Parks Department (RPD) is the owner and operator of the small boat harbor in Gashouse Cove. The harbor has not been dredged for a long time because of contamination and is becoming unusable. RPD asked PG&E, the responsible party for MGP contamination in this area, to pay for cleaning-up Gashouse Cove. When PG&E refused, RPD took the utility to court. That was in 2000. A judge dismissed the lawsuit in 2003 because the claim was for monetary damages that had not yet occurred. The judge’s ruling gave PG&E significant negotiating power.
PG&E’s negotiating power is a money and risk hurdle that RPD could not overcome. To explain: the lawsuit was dismissed without prejudice which meant RPD could still win its claim that PG&E was responsible to pay for the clean-up. To win, however, RPD would have to spend a very large amount of money and take the risk the court would agree it was entitled to reimbursement from PG&E. More details and the amounts of money involved are provided in the next section.
PG&E's power over RPD
After the judge’s ruling in 2003, PG&E and RPD entered into a cost sharing agreement to do further investigations. They then tested and retested Gashouse Cove to refine what they knew about the locations and volumes of toxic sediment because that information is critical for determining costs. PG&E was not in a hurry and the effort dragged on for about fifteen years. The buildup of sediment eventually made Gashouse Cove virtually useless and made RPD desperate to do something. When RPD was sufficiently desperate, PG&E pressed for what it wanted. PG&E was willing to pay if — and only if — it was given the right to leave most of its contamination in place in Gashouse Cove. Subsequent sections discuss the negotiation, the bribe, and the change-of-use which was necessary to allow the contamination to remain. The remainder of this section looks at the different alternatives considered and the costs for each alternative. These costs are the key to understanding PG&E’s negotiating power over RPD.
The alternatives are:
- “Rebuild” was RPD’s plan from when it first sued PG&E in 2000. Rebuild would return Gashouse Cove to its same functionality by replacing the old piers and docks with similar facilities. The reason to do that is simple. Gashouse Cove is a self-sustaining part of the park system. It generates income by renting boat slips and that income is used to maintain the harbor. At present, the harbor has silted up to the point it’s hardly usable, income is down, and there’s little money to maintain it. It is important to understand that, with Rebuild, RPD is acting as an owner maintaining its property. In Rebuild, only the contamination necessary for boats to maneuver would be removed and deeper contamination would be left in place. Some contamination would be removed in the process but, in contrast to the next alternative, RPD is not acting as a steward of the environment in Rebuild.
- “Max Removal,” too, would return Gashouse Cove to its same functionality. But it would do more. Max Removal would remove as much contamination as is feasible to remove during the dredging. Instead of dredging a little, Max Removal would dredge a lot. In Max Removal, RPD would be acting both as an owner maintaining its property and as a steward of the environment.
- “Renovation” is a marketing name, it should be called Min Removal. Renovation would return roughly half of Gashouse Cove to its former functionality as a small-boat harbor. The other half would be given a new name but left untouched physically. Renovation is the only alternative that requires a change-of-use. In Renovation, RPD is acting primarily to save money. As illustrated below, most of the money saved goes to PG&E, but RPD gets a cut of the action through a special arrangement with PG&E which amounts to a bribe. It is true that RPD is acting as an owner in Renovation, but it is as an owner willing to sacrifice the health of San Francisco Bay for money.
The following shows the costs for each alternative. The explanation follows the table.
Estimated total cost for each alternative when Renovation’s construction-only is cost set at $190M, the value for PG&E/RPD agreement.
| Alternatives: | Renovation | Rebuild | Max Removal |
| Total cost +50% * | $110M | $230M | $420M |
| Derived scale factor for PG&E costs | 1.00x | 2.09x | 3.82x |
| Total cost ** | $190.0M | ||
| PG&E Share of cost ** | $160.6M | ||
| RPD Share of cost ** | $29.4M | ||
| RPD non-construction cost estimate *** | $20.0M | ||
| RPD nominal cost | $49.4M | $49.4M | $49.4M |
| Scaled value of PG&E’s cost | $160.6M | $335.6M | $613.5M |
| Totals: | $210.0M | $385.0M | $662.9M |
| RPD final cost, including the bribe **** | $29.4M | $49.4M | $49.4M |
| PG&E final cost, including the bribe **** | $180.6M | $335.6M | $613.5M |
| Totals: | $210.0M | $385.0M | $662.9M |
* Source: 20221220 “Gashouse cove FS,” table 11. The term “total cost” may be misleading. It is a roll-up of the bare bones estimates for the tasks involved. Even with +50% added, it is far less than the total costs expected.
** Source: 20210325 “Settlement Agreement and Full and Final Release,” section 3.2. This is a more-realistic total cost expected (for construction only). The $190M is the “not-to-exceed” agreement amount that originally came from the $110M “total cost +50%” with multiple layers of contingency added on top. The $160.6M and $29.4M shares are “not-to-exceed” numbers negotiated between PG&E and RPD. Note that the last two numbers are rounded to $160M and $30M in the discussion for simplification.
*** The author’s estimate of additional costs unrelated to construction, e. g. design, outfitting, other misc. Note that RPD has already committed $6.5M for design PSC No. 46491 – 21/22, unrelated to construction.
**** The bribe is worth $20M to RPD when the NPV of a $30M, 30 year “loan” with zero interest, etc., is accounted for. See the separate section for explanation.
Note: The table shows different ‘total costs’ because one source gives numbers for the different alternatives ($110M, $230M, $420M) while another source gives a number for the PG&E/RPD final agreement ($190M) for Renovation. Calculating a scale factor for PG&E’s costs enables an apples-to-apples comparison for the final costs. In addition, all of the source numbers are for the construction work mostly related to dredging which PG&E is involved with. An estimated $20M is added for RPD’s sole costs not related to dredging.
Interpreting the table illustrates why PG&E has such greater negotiating power than RPD. Here is the explanation:
If there were no contamination, reconstructing Gashouse Cove to its original function as a small-boat harbor would cost RPD some amount of money. That fact is the basis for a cost sharing arrangement where PG&E pays for cleaning up the contamination and RPD pays what it would have paid were there no contamination, RPD’s rightful share. RPD’s rightful share is estimated at $50M, roughly $30M related to construction and $20M for other costs. RPD’s rightful amount remains the same regardless of the alternative. PG&E’s amount varies based on the volume of contaminated sediment removed. To understand the power PG&E has over RPD, answer this question: What if RPD were to choose Rebuild or Max Removal and take PG&E back to court to recover the amount PG&E is responsible for?
- If RPD were to act as an owner simply wanting to return its property to its former function, it would choose Rebuild and spend $385M. Then it would take PG&E back to court to get reimbursed $335M.
- If RPD were to act not just as an owner but also to protect the environment, it would choose Max Removal. In that case, RPD would have to spend $663M and then take PG&E back to court to get reimbursed $613M.
These are very large sums of money. They illustrate the hard truth that resulted from the judge’s ruling: if RPD didn’t give PG&E what it wanted, RPD would have to spend these very large sums of money upfront and then ask for reimbursement through the court. While the case for reimbursement is strong, any action through the court has risk. For what should be a relatively modest $50M project, RPD would have to risk eight to thirteen times that amount. As one of many City departments competing for a share of the overall budget, RPD had no realistic way to overcome this hurdle.
The table also illustrates the final cost for Renovation with and without the bribe factored in. Without the bribe, RPD’s costs stays fixed at $50M. The difference in cost for each alternative impacts PG&E and only PG&E because the difference in alternatives is directly related to the volume of contaminated sediment removed which is PG&E’s sole burden. With the bribe, however, $20M of RPD’s rightful share is taken on by PG&E. The reason PG&E is willing to give RPD $20M is because the utility is saving $175M vs Rebuild or $453M vs Max Removal, as calculated directly from the table. PG&E had power over RPD but it also had a strong incentive to close the deal on Renovation. And $20M was not a hurdle to PG&E.
In short, the power PG&E had over RPD was a money and risk issue for RPD. The $20M bribe was incidental, a sweetener that closed the deal. More about the negotiation, the way the $20M was moved from RPD’s side of the ledger to PG&E’s side, and the approvals are described in the next section.
The Bribe
After the judge dismissed the case in 2003, many years went by during which PG&E and RPD talked sporadically and a number of technical investigations were made to refine cost estimates. It wasn’t until 2018 that the parties began negotiating an agreement. It began in January when PG&E made an appeal to the RPD Commission. PG&E said it wanted to reassure the Commission of its commitment to the environment while it suggested exactly the opposite. PG&E downplayed the benefit of dredging contaminated sediment and instead recommended a change-of-use for Gashouse Cove. PG&E then made the false-choice argument that is still being used to today: greater-public-access versus a-small-number-of-boaters. The false choice argument will be discussed later.
PG&E’s January 2018 appearance before the RPD Commission was the first time it was proposed in public that both PG&E and RPD could share in the financial benefit that PG&E would reap if contamination didn’t have to removed from Gashouse Cove. That is, this is the first mention of what would eventually become the bribe. PG&E didn’t directly offer a bribe at the Commission meeting. Instead, it said its proposal “could save tens of millions of dollars for both the city and for pg&e.” The implication is clear. If RPD gives PG&E what it wants there’s a financial benefit in it for RPD.
To be clear, PG&E is solely responsible for the contamination in Gashouse Cove. PG&E is solely responsible for the cost of removing that contamination. RPD might legitimately save money through decisions it makes. For example, RPD might save money by replacing only half the piers and boat docks. But RPD cannot legitimately save money by leaving contamination in Gashouse Cove. Yet, that is precisely what PG&E was hinting at when it appeared before the Commission in January 2018. Nothing has happened at this time because it was the early stages. Nonetheless, even at this point it’s obvious that PG&E is suggesting there’s something of value, “tens of millions of dollars,” in it for both RPD and PG&E. The negotiation for the bribe was begun in January 2018 and concluded by September 2019 when PG&E and RPD signed a term sheet for the agreement.
The amount of the bribe, twenty-million-dollars, was decided between January 2018 and September 2019. The form of the bribe had to be somewhat obscure because it meant transferring illegitimate money between two public institutions. The form that was decided was a “loan.” The so-called loan has such fantastic terms that it functions as a gift of monetary value. The not-to-exceed total project cost in the term sheet is one-hundred-ninety-million-dollars. Assuming, as is likely, that the not-to-exceed total project cost is reached, the principal of the so-called loan will be thirty million dollars. The fantastic terms of the so-called loan are: thirty years, zero interest, no payment for three years, repayment solely out of Gashouse Cove Marina’s revenue. The twenty-million-dollar monetary value is the difference between the loan’s principal and the net present value of a “loan” with those fantastic terms. (Note: the NPV calculation requires an interest rate. This analysis uses 7% because that is the rate set by the California Civil Code when the debtor is a local government entity.) Simply stated, being given thirty-million-dollars now and repaying thirty-million-dollars over thirty years at zero interest, etc., is the same as being given thirty-million-dollars now and repaying ten-million-dollars now. It’s a gift of monetary value, plain and simple. In addition, the twenty-million-dollar value of the bribe will increase if RPD uses the repayment-solely clause to delay or forgo payments.
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The loan and its terms are specified in section 3.3 of “Settlement Agreement and Full and Final Release” executed March 25, 2021 That agreement settled a twenty-year-old lawsuit in which RPD tried to compel PG&E to pay for the clean-up of PG&E’s contamination in Gashouse Cove. The reason RPD could not compel PG&E was discussed in the previous section. The settlement is a financial win-win for both PG&E and RPD made at the expense of a healthy San Francisco Bay. Settling the lawsuit made sense from RPD’s perspective. RPD had no practical way to get Gashouse Cove back into shape on its own, but it had an offer to make a deal that would take twenty-million-dollars off its anticipated fifty-million-dollar cost. All RPD had to do was forgo its obligation to protect the environment.
The so-called loan, or bribe, described above is part of the financial terms in the settlement of a lawsuit. The settlement agreement has an overall ‘not-to-exceed’ amount of one-hundred-ninety-million-dollars. PG&E and RPD agreed on percentages to split the actual costs determined on completion. The splits are 91%/9% up to one-hundred-sixty-million-dollars and 50%/50% between one-hundred-sixty and one-hundred-ninety-million-dollars. This is how the agreement limits the maximum amounts PG&E and RPD are required to pay:
“In no event short of the Parties agreeing to a formal modification of this Agreement shall the City be obligated to pay costs in excess of $29.4M. In no event, short of the Parties agreeing to a formal modification of this Agreement shall PG&E be obligated to pay costs in excess of $160.6M.” [Source: Settlement Agreement and Full and Final Release section 3.2]
It would not be unusual for a project of this nature to reach the ‘not-to-exceed’ amount. For simplicity, this discussion has assumed the final cost will be one-hundred-ninety-million-dollars and rounded PG&E’s share to one-hundred-sixty-million-dollars and RPD’s share to thirty-million-dollars. The thirty-million-dollars is the outcome of a negotiation and memorialized in the formal settlement agreement; it is RPD’s rightful share.
When PG&E gives RPD a thirty-million-dollar loan with those fantastic terms, it swallows twenty-million-dollars. Despite what the settlement agreement says, when the costs reach one-hundred-ninety-million-dollars, PG&E’s share will be one-hundred-eighty-million-dollars and RPD’s share will be ten-million-dollars. Why would PG&E be willing to pay twenty-million-dollars of RPD’s rightful share? Because RPD is giving PG&E what it has wanted for a long time: the right to leave large quantities of contamination in place under the sediment in Gashouse Cove. And when PG&E avoids cleaning-up large quantities of its contamination, PG&E saves between one-hundred-seventy-five-million-dollars and four-hundred-fifty-three-million-dollars as detailed in the previous section.
The bribe is unethical and possibly illegal. PG&E’s action is characteristic because the company is relentless in pursuing all possible ways to avoid responsibility for its MGP contamination. RPD’s mission states “… and preserve the environment for the well-being of everyone in our diverse community” so its action contradicts the image it wants to project. The truth is that RPD yielded to PG&E’s negotiating power and rationalized the bribe as just compensation. The problem with that is the bribe is not just compensation for anything. The bribe is wrong in itself, and it’s a sure sign of wrongdoing. It is unscrupulous for PG&E and RPD to allow so much contamination to remain in Gashouse Cove where toxic chemicals will continue to enter San Francisco Bay for centuries to come. It’s a financial win-win for PG&E and RPD but the harm is to the environment and that means to everyone.
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In order for RPD to fulfill its side of the bargain it had to give PG&E the right to leave its contamination in Gashouse Cove. By itself, RPD doesn’t have the authority to simply grant PG&E that right. What was required was an official “change-of-use” for Gashouse Cove and a little bit of trickery to make the public believe it’s doing good rather than evil. That’s the subject of the next section.
Change-of Use
How was RPD able to grant PG&E the right to leave so much contamination in place? The mechanism is called ‘change-of-use.’ Change-of-use was woven into the “Draft East Harbor Feasibility Study” as part of Renovation. The feasibility study was written by PG&E and submitted by RPD to the San Francisco Bay Water Quality Control Board (Water Board) immediately after the settlement agreement was signed. Renovation requires a change-of-use because one-half of Gashouse Cove will not be dredged and therefore cannot be used as a boat harbor. Instead, the half of the cove that is not dredged will be relabeled a “shallow-water-paddlecraft-recreation-area.” Shallow-water? The name betrays the ruse. Renaming the area is an attempt to make a feature out of a decision not to dredge toxic chemicals concentrated in an accessible location. It’s an attempt to hide the decision not to protect San Francisco Bay.
Some will fall into the trap of thinking this discussion is about boats or about paddlecraft. It’s not. It’s about cleaning up contamination or not cleaning up contamination regardless of what the area is used for. The shallow-water-paddlecraft-recreation-area will be sold to the public as something new and improved. “Greater public access” is already being touted to support the change-of-use. There is a false choice argument shaping up. The false choice will pit ‘greater public access’ against a few privileged boat owners. All this is just a way to divert attention from the real choice: to remove toxic chemicals from San Francisco Bay or not to remove them.
The table below shows the amounts of contamination removed for each alternative. The lower the amount removed the lower the cost. Removing the least amount of contaminated sediment is the true motivation for the change-of-use.
TABLE: Comparison of contamination removed for each alternative.
Alternatives: | Renovation | Rebuild | Max Removal |
Change-of-use necessary? | Yes | No | No |
|
|
|
|
Contaminated sand (cu yds) * | 35,700 | 100,700 | 241,000 |
Contaminated wet sand (tons) ** | 57,834 | 163,134 | 390,420 |
Contaminated dry sand (tons) ** | 48,195 | 135,945 | 325,350 |
|
|
|
|
Contamination removed *** | 15% | 42% | 100% |
* Source: 20221220 “Gashouse Cove FS,” table 9b [13].
This is the volume of contaminated material that would be dredged under each alternative. This material is designated “not suitable for beneficial use,” meaning it cannot be deposited anywhere in water. It would be dewatered and sent to an upland disposal facility permitted to accept hazardous waste.
** Calculated, 1 cu yd of sand weighs 1.62 US tons wet or 1.35 US tons dry
*** Calculated with Max Removal set at 100%