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Duke CA Plants to Get Big Ticket Makeover

December 14, 1998
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Duke CA Plants to Get Big Ticket Makeover

The bullish prospects for natural gas-fired power generation and the robust market developing in the merchant plant sector were both underscored last week by Duke Energy Power Services' plans to invest $700 million in state-of-the-art gas-fired units at two of its recently purchased merchant sites in California.

With fewer environmental and infrastructure requirements than in similar greenfield projects, Duke expects to take less than four years for permitting and construction to add a net 1,100 MW to the California grid by mid-year 2002. Payback for typical gas-fired plants of this size runs about 15 years, according to Duke officials.

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

"We've got plants that we think are very well maintained and that have operated very successfully in the first six months of our venture into this new market," said Bill Hall, vice president of Duke's California operations. While Duke has no plans for modifying a small (165 MW) Oakland peaking plant it bought in the San Francisco Bay Area, it will be looking at options for that facility and it will be looking for other merchant opportunities throughout California and the West, according to Hall. In San Diego, Duke is in the process of finalizing a contract to operate an existing 1,000 MW gas-fired plant that San Diego Gas and Electric Co. sold to a local port authority as the first step in the process of eventually retiring the facility when comparable new generation capacity is brought on line in the area.

"Duke has made the commitment nationally to be a significant player in the generation market," Hall said. "We obviously have a great deal of confidence in our engineering, construction and operations expertise, so we're looking for opportunities on the West Coast generally. We evaluate acquisitions, greenfields and those types of opportunities all the time, but there is nothing on the immediate platform to announce. We will continue to pursue those activities, though. "California has one of the largest economies 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 a continuing growth in energy needs (in the state). In fact, both within the PG&ampE and state ISO (independent system operator) grids, new record peak loads for power were reached this summer. In addition, there is an aging fossil-fuel system throughout the state.

"So, we think it is a great opportunity to enter this market. We see a lot of brownfield developments that have existing natural gas lines, so we think there is a lot of value that we bring to these sites. Generally, we've been pleased with our operations to date in California."

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

State energy officials noted that there will be a lot of use of existing facilities at the two sites, such as a substation and water cooling systems at both projects, meaning the permitting process could be streamlined.

"It's the same process (as for greenfield projects)," said Roger Johnson, power plant siting program manager at the state energy commission. "But this project could have fewer issues because there are existing facilities already in place. There is a lot of existing infrastructure so there is probably no need to add transmission lines. "They just have to deal with some air quality and the visual impact issues, and that's why they're proposing to take down some of the existing exhaust stacks."

Richard Nemec, Los Angeles

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