Morro Bay Power Plant to cease operations in February

Iconic facility that came to define Morro Bay will close in February, the owner announces

ppemberton@thetribunenews.comNovember 8, 2013 

The Morro Bay Power Plant, which became a fixture of the city’s landscape and a significant slice of the local economy 60 years ago, will be retired in February, a spokeswoman for the plant’s owner confirmed Friday, pleasing those who have dreamed of a plant-free future for the city by the sea.

“It opens the door we’ve been hoping to open for so long,” said Jack McCurdy, spokesman for the Coastal Alliance on Plant Expansion — formed in 1999 to oppose the plant’s growth. “But what’s on the other side is undetermined.”

Houston-based Dynegy, which owns the plant, announced plans to retire it Thursday.

“We sent our companywide third quarter earnings (Thursday), and included in that we announced that we would be filing paperwork … with the various state agencies to notify them of our intention to retire that facility,” said Katy Sullivan, a spokeswoman for Dynegy, which has owned the plant since 2007.

In December, the City Council signed a new lease agreement with Dynegy that extends until the end of 2017, unless the plant ceases operating.

In 2000, former owners Duke Energy proposed spending $800 million to modernize the plant, known for its trio of 450-foot stacks that have become as much of a Morro Bay landmark as the 580-foot Morro Rock, which sits in the ocean nearby.

The modernization was never done because of uncertainties in the power market and local opposition. Instead, the plant has operated intermittently, typically only during times of peak power demand.

While the plant adds about $750,000 in leases and fees to the city budget every year, an amount that was set to increase slightly in January, Mayor Jamie Irons said the city has planned for the possibility of losing that money for the past five years.

“From a city standpoint, we haven’t been relying on that as a revenue source,” said Irons, a former employee of the plant.

Roughly $500,000 from the power plant had at one time gone into the city’s general fund while another $250,000 went to the harbor fund. But in 2010, City Manager Andrea Lueker recommended that Dynegy money go into the reserve fund, and since then, increasing amounts have been added.

“The point was when it did close we didn’t want to say, ‘Wow, it’s a half-million dollars — what are we going to do now?’ ” Lueker said.

The reserve fund has about $2.7 million.

About 40 employees will be affected by the plant’s retirement. Those employees might be offered jobs elsewhere or a severance, Sullivan said.

News of the retirement will please some environmentalists; however, it does not necessarily mean those stacks will be gone any time soon.

“There are no immediate plans to demolish the structure while we explore future uses of the site,” Sullivan said.

Dynegy has yet to decide what to do with the plant, she said. One option being considered would entail producing renewable energy at the site in conjunction with Starwood Energy Group, a Connecticut-based private equity firm that specializes in energy infrastructure investments. Starwood has recently acquired a wind energy project in Texas, a solar project in Ontario and partial ownership of a biomass power plant in Florida.

The plant’s fate had a much different outlook a few years ago. In 1999, former owners Duke Energy had discussed a modernization proposal that would have replaced the plant’s three 450-foot stacks with four 125-foot towers. The proposal, which would have added new gas-powered generators, promised to bring millions of dollars in revenue to the city, creating close to 1,000 jobs during portions of the construction. 

But even then, critics such as McCurdy said continued operation of the plant would be nearly impossible because of new environmental laws that required expensive upgrades and the fact that the plant was not economically viable as it was.

In 2006, Duke, which purchased the plant from PG&E in 1998, sold the facility and seven other natural gas plants to LS Power Group, saying the Morro Bay plant had not been profitable.

Dynegy acquired LS Power in 2007.

While Dynegy had no plans to modernize the plant, it has continued to operate. Under new laws, though, the company would have to spend millions of dollars to either eliminate or drastically reduce the amount of seawater it uses for cooling by 2015. That cooling, it
was determined, damages microscopic ocean life.

With the plant’s future uncertain and with no commercial buyer for its electricity, Dynegy offered power on an as-needed basis each day to the state Independent System Operator, which manages the state’s electrical grid.

“We’ve continued to operate it on a merchant basis and seek long-term commercial arrangements,” Sullivan said. “But we were unable to secure commercial arrangements, and it became not economically viable to continue to operate the facility on a merchant basis, so we proceeded with retirement.”

PG&E began constructing the plant in 1953, and it officially opened two years later.

In 2006, the City Council established the New Futures Committee, gathering citizen input on what they’d like to see at the site should the plant one day be demolished. Citizen suggestions included everything from a park and bowling alley to a conference center and casino.

Irons said it’s too early to think about what the city would prefer. For one thing, Dynegy still has a lease, and it’s pursuing more energy production.

“They’re planning for a transition,” he said. “So the city will start to have that kind of dialogue with them and work with them in that transition.”

McCurdy, who had long criticized that the plant was polluting the city, said renewable energy production would be an improvement. But he said he thinks the retirement announcement was the first step toward demolishing the plant and its towering stacks.

“It used to be a dream,” he said. “Now it’s a real possibility.”

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