N.J. Power Firm to Buy Morro Plant: It’s Not Clear What the $1.5 Billion Deal Means for the Proposed Modernization of the 50-Year-Old Gas-Fired Plant
By Abraham Hyatt and Sarah Linn, The Tribune, San Luis Obispo, Calif.
Jan. 10–Duke Energy has announced it will sell eight of its natural gas power plants — including its 50-year-old Morro Bay facility — to investment firm LS Power Group for about $1.5 billion.
Morro Bay city officials haven’t been in contact with the firm yet, but based on the company’s history of running power plants, City Manager Bob Hendrix hopes it will follow through with a proposed $800 million plant upgrade that could change the face of the town’s waterfront.
The planned sale will not affect a recent agreement between the city of Morro Bay and Duke on the lease for the plant’s outfall, where seawater used to cool turbines is sent back to the ocean. The lease calls for the city to get $1.5 million by Jan. 21, and $750,000 a year beginning in 2007.
The purchase is subject to federal approval. Duke Energy said it expects to complete the sale by June.
A spokesperson for New Jersey-based LS Power did not return calls Monday.
In September, Duke Energy announced it was losing money on six power plants between Maine and California (including the Morro Bay site), and intended to sell them, along with its stakes in two other plants.
About the same time, LS Power announced that it had raised $1.2 billion for power-generating purchases from a variety of endowments, foundations, pension plans and corporations.
LS Power is a 15-year-old private firm that owns and manages at least 10 independent power facilities across the country.
It recently bought a $22 million gas-fired plant in Pennsylvania, and it’s building a coal-fired plant in Alabama and a combination coal-fired plant and wind farm outside Ely, Nev.
Plant was not profitable
The Morro Bay plant was among Duke’s unprofitable facilities.
According to the company, it lost an estimated $1 million a month until Duke and Pacific Gas and Electric Co. signed a deal in early 2005 that let the utility buy energy from the plant when needed.
Duke public affairs manager David Hicks could not say how often the plant ran last year but said it has remained profitable since the deal was made.
The Morro Bay plant employs about 40 people, Hicks said. It has the potential to produce 1,002 megawatts of electricity, enough to power 400,000 to 900,000 homes.
However, two of the plant’s four aging generators have been mothballed, and the plant currently produces about 650 megawatts when it runs.
Modernization unclear
Hicks confirmed that until the purchase deal was struck, Duke was pursuing a final state permit that would allow it to start on the plant modernization project.
The new owner will have to decide if it wants to pursue that plan, which would involve replacing the facility with a new one with four smaller smokestacks.
Some critics — who are opposed to the potential environmental impacts of a new plant — would rather see the facility and its three landmark 450-foot-tall smokestacks torn down and be replaced by a marine museum, convention center or other type of tourist destination.
“What it (the sale) means to Morro Bay in the long run is hard to tell,” Morro Bay’s Hendrix said.
Duke bought the Morro Bay plant from PG&E for $501 million in 1998, in the middle of a more robust energy market, as part of a package deal with facilities in Moss Landing in Monterey County, and Oakland.
LS Power did not disclose how much each plant in the deal is worth. City officials have estimated the Morro Bay plant is worth about $50 million.
Abraham Hyatt can be reached at 781-7924 or ahyatt@thetribunenews.com.
See Duke Energy’s announcement about the sale of Morro Bay power plant at sanluisobispo.com
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Copyright (c) 2006, The Tribune, San Luis Obispo, Calif.
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