Morro Bay's use of power plant revenue is questioned

The California State Lands Commission is reviewing complaints that Morro Bay officials may have improperly used some revenue related to leasing state tidelands within the city.

Over the last few years, several individuals contacted the commission — which oversees state tidelands — and raised questions about the city’s use of money received from the Morro Bay Power Plant, said Sheri Pemberton, chief of external affairs.

Specifically, the individuals alleged that hundreds of thousands of dollars received from power plant owner Dynegy and its former owner, Duke Energy, should not have gone into the city’s general fund.

Morro Bay officials said the city had two separate agreements with the energy companies.

One was a lease of some state tidelands so the power plant could extend a pipeline from the plant to the ocean to release cooling water. That lease allocated $250,000 a year from the power plant to the harbor operating fund.

The second agreement required the power plant to pay $500,000 a year to the city, with the money going into the general fund for purposes such as public safety, parks and other public services.

“At this point our staff is still looking into the inquiries,” Pemberton said. “It hasn’t progressed any further than that.” She said that limited staffing has delayed completion of the review.

Tidelands were designated as public trust lands owned by the state in the 1950s and 1960s. In 1964-65, Morro Bay became trustee of the tidelands in the city on behalf of the state, with the ability to lease the sites for specific uses such as fisheries, navigation, recreational purposes, public access, commerce, and environmental protection or enhancement.

The city’s harbor department manages and receives revenue from about 35 leases that represent about 90 businesses located within the tidelands, an area west of Embarcadero Road along the waterfront, harbor director Eric Endersby said.

The revenue received from the leased tidelands — about $2 million a year, including the $250,000 from Dynegy — goes into the harbor department’s enterprise fund for maintenance and capital improvement projects, staffing, public safety, special events and public education, according to the city’s website.

The money must be used within the tidelands area and “can’t be used for a library or police services or any municipal services that a city is required to provide,” Pemberton said.

The city entered into the second agreement with Duke Energy in 2004 after the company proposed modernizing the power plant. That agreement included “community benefit payments” including $500,000 a year that didn’t appear to have any restrictions, Interim City Attorney Anne M. Russell said.

“The two fees were intended to be totally different,” she said Wednesday.

Since 2009, some of the $500,000 has been placed into a reserve fund, rather than the general fund, as city officials prepared for the possibility that the power plant might be retired, City Manager Andrea Lueker said. That has now come to pass, since Dynegy recently announced it will shutter the plant in February.

When asked whether the $500,000 payment needed to be used within the tidelands area, Lueker said, “That’s not how it was interpreted and the agreement doesn’t read that way.”

Prompted by the complaints, Pemberton is reviewing the two agreements the city has with the power plant. She also plans to study the power plant’s boundaries and whether any of it falls within the tidelands.

Any property outside the tidelands is outside the commission’s jurisdiction, Pemberton said.