The Morro Bay Power Plant: Past, Present and Future - Part 3
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(Continued)
Meantime, the Central Coast Regional Water Quality Control Board, which must issue a new discharge permit to allow the Duke project to go forward, started its review of the case before the CEC decision was final. It probably figured CEC approval was all but wrapped up after the preliminary PMPD called for licensing the plant.
At the first opportunity after that preliminary decision, David Nelson, co-president of CAPE, and I went to a regional water board meeting to inform board members about what the CEC had done. The hope was that those members would show integrity and act on the factual evidence to require closed-cycle cooling if a new plant were to be permitted. That evidence would be presented during planned hearings on the discharge permit Duke was seeking.
One big reason we were eager to lay out our case - and expose the CEC record - to the board stemmed from indications that at least some of its members had regretted their approval of a permit for two large new cooling units at the Duke plant in Moss Landing, just northwest of Salinas, in 2001. Voices of the Wetlands, a citizens group in that area, sued the water board on grounds that use of larvae-carrying water from Elkhorn Slough to cool the new units fails to conform to federal law requiring best technology available - the same argument against the Duke project in Morro Bay. And also that the water board did not analyze and review such an alternative technology, such as closed-cycle cooling.
In issuing its decision in 2002, the Monterey County Superior Court quoted Gary Shallcross, who is still a board member, as saying during a hearing on the Moss Landing permit: "My one disappointment in this whole process, and I certainly hope that maybe we can look at this in future situations, is . . . the way that the whole . . . technological alternatives were handled . . . I would have liked to have seen an equal sort of in-depth presentation on the technological alternatives because . . . avoiding the detriment or the damage (to the Slough) is much more preferable . . . I think what we did here was - or what it looked like happened - was that the technological alternatives were set aside rather quickly. And all the time was spent on developing the mitigation plan . . . (I) think . . . that's a little backwards . . . "
That sounded much like what the CEC did and what we wanted the water board to avoid.
At the board meeting, in the three minutes each of us had, we highlighted the flaws in the CEC decision - mainly those flaws identified by CEC staff. We got an enthusiastic welcome from several members (Shallcross had left the board, but he was reappointed later)! Chairman Jeffrey Young kept heaping praise even after we had finished speaking and sat down. He even invited us to place the entire CEC record into the water board record for the review of the Duke permit application! (There were more stone faces from the water board staff.)
Well, the upcoming review by that board looked very promising!
CAPE was prepared, as official intervenor in the review process, with Deborah Sivas of the Stanford University Environmental Law Clinic as CAPE's attorney and biological experts all lined up. But then, just as the first water board hearing was scheduled to take place in early 2004, Duke cancelled. No reason was given. This was the first of a string of surprises.
But the cancellation did come a few weeks after a landmark decision by the United States Court of Appeals for the Second Circuit (called Riverkeeper I) was issued. The decision required the best technology available for cooling new power plants and prohibited habitat restoration as mitigation for the killing of marine life by once-through cooling, which the CEC favored for the Duke project and the water board staff supported. (Technically, Duke's project was considered under Environmental Protection Agency [EPA] regulations to be a replacement of the existing Morro Bay plant, not a new plant.) CAPE and others argued that the decision would invalidate the pending CEC decision and require the EPA to change its regulations. CAPE attorney Babak Naficy called for reopening the case, contending it would apply to the Duke project. Duke denied that it would and the CEC panel reviewing the project agreed, refusing to reopen.
Since the decision was still subject to appeal to the U.S. Supreme Court, no one could be completely sure.
The water board then rescheduled the hearing on the plant permit for later in 2004. And, at the last minute, Duke cancelled again. As it turned out, that was it for Duke seeking to win approval of its Morro Bay plant project, although the corporation didn't close the door publicly. They said only that construction of the new plant would depend on whether there was sufficient demand for energy at the time final approval is granted, other economic considerations, and the regulatory climate in the state. Of course, Duke would have had to seek that approval to have the board take up the permit again, and it wasn't going to do so (and Duke didn't show any signs that it was going to seek board reconsideration) - and never did.
Little by little it seeped out, mostly through the business media, that Duke was (a) in financial trouble and (b) had been left behind in the scurry to build new plants or replace old ones.
Beginning in 2003, Duke's stock declined by 71% since peaking in 2001. Standard & Poors lowered its outlook for Duke from stable to negative because of concern over "a weaker-than-anticipated economic environment in its service area, which is likely to lessen the cash flow." That includes California.
Also, buried in a CEC staff report in 2002 were data showing that power plants were being built at a rapid pace: more than 12,000 MW (megawatts) of power generating facilities had been approved, 10,000 MW were under construction and another 12,000 MW were in the CEC siting process. "These projects are being built in response to statewide demand for market power." (That's about 23 power plants at 1,000 MW each, either approved or pending.)
Then, another surprise hit: Duke reached a settlement in December, 2004, to pay $207.5 million to the U.S. Energy Regulatory Commission over legal action by the state of California and most of the state's public utilities seeking reimbursements for electricity overcharges "stemming from the California market disruptions during 2000 and 2001," the Commission said. But the settlement was not discovered until later since the local media didn't report it. (Dynegy, the current owner of the Morro Bay plant, was forced by the federal Energy Regulation Commission to pay $281 million to settle similar charges, Commission records show.)
In 2001, it was revealed that Duke had been involved in another shady exercise. The office of Gray Davis, who was governor then, made public a letter from Duke to Davis, offering financial support for "the governor's political and public relations needs" in return for "prompt suspension of state investigations, lowering of rhetoric and a stay of state litigation," as well as dropping state-related claims at the federal energy commission. The quotes are from a New York Times article of May 2, 2001, but the letter was read by some CAPE members, which Davis' office said it got Duke to post on its web site - very briefly.
The letter was also reported by the Los Angeles Times but not locally. Energyonline, an industry web site, said Duke had been "accused of attempted bribery" by making the offer to Davis. The matter was referred to the attorney general's office by Davis, but no action was ever taken against Duke.
CAPE and its supporters paid only passing attention to the letter because it was not a subject of wide discussion, Duke was not prosecuted by the attorney general and because the CEC review of Duke's project dominated all attention at that time. But now, coupled with Duke's $207.5 million settlement on market manipulation charges, the letter may invite a different perspective: could the two incidents have compromised Duke's reputation and trustworthiness so much that the prospect of doing business in California as a merchant plant operator dependent on energy contracts from the state's powerful public utilities - the very utilities that had suffered at Duke's hands in 2000-01 - may have come to seem unfavorable? Especially given all the new plants coming on line as competitors.
Given that context, what seemed like a big surprise shouldn't have been in September, 2005, when Duke announced it would sell the Morro Bay plant along with all the others it owned in the western and northeastern U.S., including Moss Landing and smaller ones in Oakland and San Diego. As one financial analyst pointed out, Duke had a rare tradition of paying quarterly dividends to investors dating back more than three quarters of a century and, given its extensive financial troubles, had begun paying those dividends from asset sales to keep its stock price from falling further.
Duke's mission to build a new Morro Bay power plant had been defeated - or Duke had defeated itself. At Moss Landing, the citizens group, Voices of the Wetlands, wasn't even organized when the CEC held hearings on Duke's license to build two new 500-MW generating units there and quickly approved them. Voices only got involved after the regional water board approved a discharge permit for the plant and appealed it to the state water board. But CAPE had been been involved in monitoring Duke's plans for the Morro Bay plant even before they were formalized, had attorneys, retained air quality and biological experts, had active and able members working on the case every day and raised more than $50,000 to make sure Morro Bay and environs could live - literally - with what Duke wanted to build.
When Pam Soderbeck, a former attorney, told the CEC panel in 2003 that its pending decision was ripe for litigation, Duke could see where the case was headed, if the CEC and the regional water board authorized a plant without adequate air quality controls and protections for the Estuary's aquatic life. Whether CAPE's role played a part in Duke's abandonment of its goal to build the plant, no one but Duke will ever know.
But when Duke sold the plant, what that meant for the plant's future was unfathomable. A new owner could want to pursue Duke's goal. Why else would a power company buy the existing plant? Of course, as Duke had once pointed out, the 107-acre hillside on the north shore of the Estuary where the plant is located on a small section is very valuable, choice land. So a new owner could have in mind development of the property for some completely different use.
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