An agreement reached between the City of San Francisco and Mirant Corp. could permanently shut down a controversial 50-year-old natural gas and diesel-burning power plant by the end of 2010 and force the Atlanta-based company to pay the city $1 million to address pediatric asthma in nearby communities.

The accord follows nearly a decade of contentious legal, political, and regulatory maneuvering by San Francisco City Attorney Dennis Herrera, Supervisor Sophie Maxwell, former Board of Supervisors President Aaron Peskin, the San Francisco Public Utilities Commission, and many other community leaders to finally close the 362-MW Potrero Power Plant—the city’s last remaining large power plant. Mirant will also pay the city $100,000 in legal fees and costs under the agreement, Herrera’s office said in a press release Thursday.

Officials call the plant the dirtiest in the state because it emits particulates from a bayside smokestack, and because its cooling system kills fish larvae when it takes in and discharges heated water from the bay.

The city attorney said that efforts in recent years to speed up closure of the facility have included “opposing the renewal of the state permit for its antiquated ‘once-through’ cooling system, and working to install cleaner, municipally-owned replacement generators that had been secured in a 2002 legal settlement to meet state-mandated electricity generation requirements.” Earlier this year, Herrera also filed a civil lawsuit against Mirant for violating the city’s “Unreinforced Masonry Buildings” ordinance at the Potrero site.

Under terms of the proposed settlement (PDF), Mirant has agreed to permanently and irrevocably shut down the entire plant—including the large once-through cooling plant known as Unit 3 and all three combustion turbines (Units 4 through 6)—as soon as the plant is no longer needed for reliability purposes. According to the city attorney’s office, the city has agreed, in exchange, to support interim operating permits for the plant through the end of 2010 if the plant is required to continue operating, consistent with Mirant’s plant shutdown obligation.

The California Independent System Operator (ISO) will have final say on whether it will allow the closure, however. The agency is expected to make the decision based on whether or not it would jeopardize electricity supply to the San Francisco region. The ISO, which ensures that cities have reliable energy supplies, has demanded that San Francisco have some power generation within city limits, reported the San Francisco Chronicle.

Herrera expects to present a formal plan to the ISO in the coming months, telling the agency that it can meet energy reliability requirements through renewable sources and a planned 53-mile transmission cable that will run under the bay to Pittsburg, the newspaper said.

Sources: Office of the San Francisco City Attorney, San Francisco Chronicle