Morro Bay reaches new deal with power plant operator

A major source of revenue for the city of Morro Bay will continue because of a new deal with the Morro Bay Power Plant approved by city leaders this week.

In a special meeting Wednesday, with City Councilman Noah Smukler teleconferencing into the session from Hawaii, the council approved a lease extension with power plant owner Dynegy, ending months of negotiations.

The agreement brings in $800,000 annually for various types of payments and concessions to the city, according a report prepared by City Attorney Rob Schultz.

The agreement was crucial to the power plant’s operation in the small coastal town.

The lease allows Dynegy to operate the plant and regulates the cooling water it discharges back into Estero Bay through an outlet next to Morro Rock.

The terms include certain concessions, such as two land deeds to come in lieu of a partial payment from Dynegy next fiscal year, and mean new projects for the city, Mayor Bill Yates said.

The property concessions are “something we’ve wanted forever,” he added. “It’s a great deal for us to finally get ownership of that.”

The land includes a triangle-shaped property on two acres adjacent to the power plant, which the city could use for parking, and a Front Street parcel below the Surf Street stairs slated for a future maritime museum.

The council is slated to meet with museum organizers in 2013 so they can begin fundraising for that project, Yates said.

The power plant lease also includes monthly rent payments and annual sums for fire protection and activities, such as neighborhood workshops to brainstorm future options for the site when the antiquated plant eventually closes.

In May, Dynegy officials formally notified the California Energy Commission that it would not modernize the power plant, open since the 1950s. The company also announced that it plans to operate the existing facility for as long as possible.

Since 2004, the city has collected $750,000 a year in fees on the plant’s leases. 

Dynegy will also continue its 10-year lease to the city for Lila Keiser Park and the adjacent land on J Street, which allows Morro Bay to apply for park improvement grants, Schultz said.