The bullish prospects for natural gas-fired power generation andthe robust market developing in the merchant plant sector were bothunderscored last week by Duke Energy Power Services’ plans toinvest $700 million in state-of-the-art gas-fired units at two ofits recently purchased merchant sites in California.

With fewer environmental and infrastructure requirements than insimilar greenfield projects, Duke expects to take less than fouryears for permitting and construction to add a net 1,100 MW to theCalifornia grid by mid-year 2002. Payback for typical gas-firedplants of this size runs about 15 years, according to Dukeofficials.

The modifications and development of the new generation willtake place at the central California-coast plants at Morro Bay andMoss Landing, the two largest of three plants that Duke bought for$501 million last year from Pacific Gas and Electric Co. Dukeintends to file detailed plans with the California EnergyCommission in April 1999, seeking a permit to begin construction.In the meantime, it will continue to operate the existing plantsand modify them as needed to comply with increasingly morestringent air quality requirements.

“We’ve got plants that we think are very well maintained andthat have operated very successfully in the first six months of ourventure into this new market,” said Bill Hall, vice president ofDuke’s California operations. While Duke has no plans formodifying a small (165 MW) Oakland peaking plant it bought in theSan Francisco Bay Area, it will be looking at options for thatfacility and it will be looking for other merchant opportunitiesthroughout California and the West, according to Hall. In SanDiego, Duke is in the process of finalizing a contract to operatean existing 1,000 MW gas-fired plant that San Diego Gas andElectric Co. sold to a local port authority as the first step inthe process of eventually retiring the facility when comparable newgeneration capacity is brought on line in the area.

“Duke has made the commitment nationally to be a significantplayer in the generation market,” Hall said. “We obviously have agreat deal of confidence in our engineering, construction andoperations expertise, so we’re looking for opportunities on theWest Coast generally. We evaluate acquisitions, greenfields andthose types of opportunities all the time, but there is nothing onthe immediate platform to announce. We will continue to pursuethose activities, though. “California has one of the largesteconomies in the world and has been very robust in recent years,and we see no reason why it won’t continue to grow. So we do see acontinuing growth in energy needs (in the state). In fact, bothwithin the PG&ampE and state ISO (independent system operator)grids, new record peak loads for power were reached this summer. Inaddition, there is an aging fossil-fuel system throughout thestate.

“So, we think it is a great opportunity to enter this market. Wesee a lot of brownfield developments that have existing natural gaslines, so we think there is a lot of value that we bring to thesesites. Generally, we’ve been pleased with our operations to date inCalifornia.”

With its two central coast sites, Duke is proposing to retireand dismantle 1950-60 era units and related oil storage facilities,replacing them with gas-fired, combined-cycle units that aresmaller, quieter, more efficient and less polluting on adjacentspace. For Morro Bay, that means retiring two units totaling 340 MWand replacing them with a 530 MW plant. At Moss Landing, Dukeproposes to remove exhaust stacks and oil storage tanks and spendan additional $50 million in emission improvements for two 1,478 MWunits and add a new 1,060 MW unit adjacent to the site.

State energy officials noted that there will be a lot of use ofexisting facilities at the two sites, such as a substation andwater cooling systems at both projects, meaning the permittingprocess could be streamlined.

“It’s the same process (as for greenfield projects),” said RogerJohnson, power plant siting program manager at the state energycommission. “But this project could have fewer issues because thereare existing facilities already in place. There is a lot ofexisting infrastructure so there is probably no need to addtransmission lines. “They just have to deal with some air qualityand the visual impact issues, and that’s why they’re proposing totake down some of the existing exhaust stacks.”

Richard Nemec, Los Angeles

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