California PUC eyes formal approval for Morro Bay plant retirement

The California Public Utilities Commission at its Dec. 18 meeting will look at a resolution that would allow Dynegy Morro Bay LLC to permanently close its already shut Morro Bay Power Plant.

The Morro Bay facility is located in the City of Morro Bay, San Luis Obispo County. The 976-MW plant has four generating units. Pacific Gas and Electric (PG&E) built the plant in the 1950s. In 1997, after California restructured the electric market, PG&E sold the plant to Duke Energy. In 2007, Dynegy (NYSE: DYN) bought and operated the plant.

Due to old technology and inefficiency, the plant cannot effectively compete with cheaper, combined-cycle power, said the resolution up for approval by the commission. In 2004, the plant operator put two units in cold storage as they were deemed no longer economically viable.The plant stayed open with the other two generating units, and operated briefly under Resource Adequacy (RA) contracts with the utility companies. After the contracts ended, the plant reverted back to a merchant plant, and again, found itself unable to compete and operate in the open market.

Burdened by increasingly more stringent regulations from the State Water Resources Control Board, Dynegy decided to permanently close Morro Bay. In November 2013, Dynegy notified the commission in a formal letter of its intent to retire Morro Bay by Feb. 5, 2014.

The commission consulted the California ISO, who is the Control Area Operator. CAISO confirms that Morro Bay is not needed for local reliability and does not have a Reliability-Must-Run (RMR) contract. On Feb. 6, 2014, CAISO approved the plant’s retirement outage request.

The California Energy Commission (CEC) has approved several projects that will add over 600 MW of capacity in the region, the resolution noted. These include the 600-MW Avenal Energy Project, and 25-MW combined-cycle upgrades at GWF’s Hanford and Henrietta power plants. All of these projects are located in adjacent Kings County.

In May 2010, the State Water Resources Control Board adopted a new policy to reduce harmful effects on marine life caused by plants using once-through cooling (OTC) technology. The policy establishes closed-cycle cooling as the best technology available. Coastal power plants which draw ocean water for equipment cooling must either adopt this technology or reduce aquatic impacts by other means. The deadline for Morro Bay to comply is Dec. 31, 2015.

“The plant’s inefficiency makes it unable to compete and operate in the open market as a merchant plant,” the resolution said. “Without a power purchase agreement, and with the looming 2015 deadline to replace OTC, the plant is no longer economically-viable to operate. Due to economic reasons, Dynegy decided to permanently close Morro Bay.”

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.