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New power plant owners generate new questions 

The deal is done. Four months after Duke said it would sell its Morro Bay power plant, officials announced that LS Power, a relatively unknown company headquartered in New Jersey, would purchase the natural gas power plant, along with seven other Duke plants around the country at a total cost of $1.5 billion.

Morro Bay city officials and energy experts say they don’t know much about the new owner, partly because it’s a privately held company, which frees it from disclosing financial statements (calls to LS Power were not returned as of press time).

Bob Hendrix, Morro Bay city manager, says he only knows what he read in a Duke press release and research he’s done on the Internet. Morro Bay has not yet been in contact with LS Power. “They buy and sell power plants,� says Hendrix. “What appears to be the case is they pretty much deal with [the plants] at an arm’s length…although we don’t really know what their approach will be.�

One approach favored by some Morro Bay residents, and explored by the city council, would entail demolition of the plant to make way for private development of the 107-acre site on the Embarcadero. After all, at more than 50 years old, the power plant’s future would seem sketchy, an argument Duke often invoked during discussions with the city.

But fantasies of parks rising from the rubble may be just that — fantasies. According to Catherine Wolfram, assistant professor of economics at Berkeley’s Haas School of Business and a research associate at UC Energy Institute, operating the old plant may still be feasible. Wolfram says she too knows little about LS Power: “I read they’re only in power generation and they’re an investment firm.�

Wolfram adds the sale price looks like a bargain. “LS Power bought a big bundle of plants from Duke. Some are aging, some are quite new,� notes Wolfram. “The price — it was like $250 per megawatt — struck me as kind of low. So an aging power plant is an aging power plant, but if you get it for a song, it’s still a good deal.�

The high cost of natural gas, post-Katrina, may have something to do with the low sale price, adds Wolfram. “They’re old plants but that’s what we have in California. It’s not like they’re not going to be run or not going to be profitable,� she says. “And demand is always growing.�

Natural gas plants, unlike nuclear power plants, can operate on-demand. “These plants, you turn it on and run it for four hours, cover the peak, and that’s when energy prices tend to be high,� Wolfram explains. “So they’re not losing money by running in the middle of the night when prices are low. They can really time when they want to participate in the market.�

Hendrix, who has spoken with current staff at the plant, wonders if a representative from LS Power will visit sometime soon. “It looks like there will be very little change, but I don’t know. I’m speculating.�

—J.P.

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