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Duke offers deal 

Duke and Morro Bay appear to be close to reaching agreement

Morro Bay City Attorney Rob Schultz received another proposed lease agreement from Duke Energy's Vice President Randall Hickok this week. Morro Bay and Duke have been negotiating a lease agreement for the natural-gas-powered plant since the outfall lease expired last fall. The latest Duke proposal is much closer to what the city had originally demanded.

The outfall is where cooling water from the plant is discharged into the ocean. The city administers the land where the outfall lies on behalf of the State Tidelands Trust. City officials have repeatedly said the outfall lease is worth between $750,000 to $1 million. Duke's latest offer is now $750,000, up from the previous offer of $400,000, said City Attorney Rob Schultz.

The letter comes days after the Morro Bay City Council approved a budget that cut 20 percent of its expenses.

The latest proposal comes after months of negotiations, speculation that Duke would sell the aging plant, and threats of eviction from the city of Morro Bay.

"I think both sides have put a lot of work into negotiations and I think we've gotten to a place where we can reach an agreement and move ahead," said Duke's director of public affairs, Kate Perez. Perez added she hoped a deal with the city would be finalized soon.

Under the latest proposal, Duke would transfer multiple pieces of property to the city. The properties include the Den Dulk property, a seven-acre lot that would allow the city to reroute Embarcadero Road and create a park; and the Trailer Park property, another 8.5-acre lot.

Under the proposed agreement, Duke would also put $500,000 a year into Morro Bay's Community Development Fund (CDF). According to Duke's proposal, the CDF payments would be made through 2007 because Duke has an exclusive contract to sell energy to PG&E through that time.

‘I think both sides have put a lot of work into negotiations, and I think we've gotten to a place where we can reach an agreement and move ahead.'

Kate Perez, director of public affairs for Duke Energy

Duke has also said that it will now accept the demolition obligation, which would require Duke to pay for the demolition of the plant if it proceeds with the proposed plan to build a new plant. If Duke does not build a new plant or sell the existing plant, the city would be able to buy the plant for $1 in 15 years.

But Schultz said this point still needs to be ironed out to ensure that both sides agree on what exactly the demolition obligation requires.

The letter also contains many items that Duke would fulfill if it goes ahead with the plant modernization plan. These items include money for a bike path and a one-time mitigation payment of $4 million to the city.

According to the letter from Duke to Schultz, with the rent and money for community development fund, Duke estimates that the city would gain $980,000 a year.

Rob Schultz said the latest offer is "real close" to what the city has been requesting.

The city has maintained that it must uphold its obligation as stewards of the estuary, a State Land Trust property, and Duke's previous offers would not have allowed them to do that.

"From a legal standpoint it meets the parameters to the State Land Trust for just and fair compensation," said Schultz. Shultz hopes to prepare Duke's offer for the council to vote on sometime in early August.


Staff Writer John Peabody can be reached at

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