Energy
Outlook
at Duke

by
Don Boatman
and
Jack McCurdy

Don Boatman and Jack McCurdy not only summarize the falsities of the mainstram coverage of the energy 'crisis' but unveil the truths of what's happening at the Duke Plant in Morro Bay.

California's so-called energy crisis is awash in myths.

The biggest ones are:

• Demand has outstripped supplies of electricity in the state.

• The power plant owners and the big three utilities are innocent victims of a surging demand spurred by the state's rapid growth.

• A catastrophe is on the horizon because we aren't building enough power plants to supply the energy we need.

• Duke Energy's proposed expansion of the Morro Bay Power Plant is badly needed to help provide additional supplies of electricity and relieve the crisis.

• The Morro Bay Power Plant is needed to provide electricity to Morro Bay and the Central Coast.

      Duke Energy and other plant owners create and perpetuate these myths through advertising and public relations campaigns.

      But Gov. Gray Davis isn't a believer. As reported in last Nov. 17's Los Angeles Times, he said, 'There is no question in anyone's mind in California that the market here and the rules it operates by have been manipulated to generate obscene profits.'

      And the profits have been incredible.

      Last year, Duke Energy North America showed a 153 percent increase in earnings before interest and taxes, while Duke Energy International showed a 560 percent increase and Duke Energy Field Services showed a 106 percent increase. Duke revenue reached $49.3 billion in 2000, up 127 percent from 1999. Its stock split two-for-one on Jan. 26. The new total appears likely to place Duke among the top 15 companies in the Fortune 500.

      Based on the skyrocketing prices of electricity in the deregulated state market, we figure Duke has been making as much as $24 million A DAY on the Morro Bay plant alone. We had estimated a profit of $20 million A YEAR before last summer's runup in prices.

      Others who don't believe these myths are skeptical political leaders, cities like San Francisco, energy experts, consumer groups, some news media and even the public. Despite the confusion in media coverage over causes of the energy 'shortages' and the power plant operators' propaganda, the public believes California is experiencing 'an artificial electricity shortage driven by greed' of the power companies, according to a Los Angeles Times poll reported on Nov. 7.

      San Francisco became the first city in the state to sue energy providers, claiming on behalf of all Californians that more than a dozen companies'including Duke'had colluded to fix prices and restrict the energy supply. Three San Diego municipal water districts earlier filed similar suits.

      Writing in The Nation magazine, Harvey Wasserman, author of a book on deregulation, said, 'There is no electric supply shortage threatening California (or the nation), only a series of complex, cynical manipulations that have ramped prices sky high, yielding enormous profits for a few distributors and generators.' The Los Angeles Times reviewed a half dozen studies and discovered a 'pattern of suspicious activity at crucial moments in the crisis, beginning last summer.' It noted in a Jan. 14 article that government and private researchers concluded that California's deregulated market 'has been toyed with in ways that have kept prices substantially higher than the cost of production.' These researchers cited 'a sharp increase in unscheduled plant shutdowns and unusual production cutbacks that dried up supply and helped push prices skyward.'

      Gov. Davis has ordered the state attorney general to investigate the allegations of collusion or market manipulation by energy companies. Other governmental agencies also are investigating.

      The Wall Street Journal on Jan. 25 reported that power companies last summer in California began to avoid advance auctions of their electricity and, instead, saved it for sale by the California Independent System Operator (ISO) on a spot or emergency basis. The companies 'realized they would get even higher prices if they waited until the ISO commenced its panic buying each day.' Thus, the ISO wound up purchasing as much as one-third of the power 'in this frenzied fashion,' compared to only about five per cent in the early days of the deregulated market.

      NBC reporter George Lewis reported that 'a handful of companies legally cornered the electricity market. Six of them are now generating 40% of the state's power.'

      The power companies deny wrongdoing. Duke vice president Bill Hall told NBC that Duke 'does not withhold electricity from the market. We're running our generators at full capacity right now.'

      But Lewis found this explanation to be disingenuous.

      The power companies can be running full throttle and still be manipulating through 'megawatt laundering,' Lewis said. 'An energy provider in California might take a block of electricity that costs $50,000 to generate and sell it to a power broker in Arizona for $300,000. Later, when supplies are tight, the broker sells it back to the California power grid for $600,000. It's perfectly legal.'

      One question is whether Duke might be selling the electricity to an out-of-state subsidiary to sell back into California at a huge profit.

      Stanford University economist Frank Wolak said, 'This is just a classic case of withholding capacity to create an artificial scarcity, which then allows you to earn a much higher price for your product.'

      Such schemes create the illusion of a shortage, but the facts tell a different story.

      The California Public Utilities Commission's reports show that Californians used about the same amount of electricity in the year 2000 as they did in 1999, belying a surge in demand.

      Public Citizen, which was founded by Ralph Nader, said in a report that the state's power demand during the last six months of 2000 was actually lower than that of the same period in 1999. What has happened, the report said, is that 'plants servicing California with 11,000 megawatts of capacity have been taken out of service for a variety of reasons.'

      Public Citizen said that 'the facts are in, and they prove that power producers have been misrepresenting the energy crisis as caused by increased consumer demand.'

      Authorities also have found that Pacific Gas & Electric and Southern California Edison, the state's two big electricity utilities, distributed billions of dollars in profits to their corporate parents, which helps explain why the utilities are short of money to pay the exorbitant prices charged by the power companies. Both utilities have been facing bankruptcy, but the huge profits they made in the early days of deregulation are gone.

      The media are filled with inaccurate claims that no new plants have been built in California over the last 10 years and that energy shortages will continue because the need is not being addressed.

      But Los Angeles Times columnist George Skelton said, 'There's a myth that California has not been building power plants. Nine have been approved in the last two years, five are under construction and three are expected to be operating by summer.' The California Energy Commission says five new plants are licensed for construction in California and 14 more are on the drawing board, which will more than meet the state's power needs in the coming years.

      The Public Utilities Commission said recently there will be enough supply to meet demand next summer.

      Nevertheless, the power companies, aided by most of the media, have created a climate of crisis, which has convinced many that power plants such as Morro Bay's must be expanded at almost any cost.

      Duke's proposal before the California Energy Commission is to tear down the old plant, which was started in 1954 (without any environmental laws to comply with, incidentally), and build a new one. But the increased generating capacity would only be 170 megawatts'from 1030 to 1200 megawatts'added to the state's 45,000-megawatt system. The present three smokestacks would be replaced by four possibly shorter ones.

      This project would extend the life of the plant for 50 or more years. As planned, it would only marginally reduce its impact on the environment, the health of residents and Morro Bay's economy'all major concerns, which are why the Coastal Alliance on Plant Expansion opposes the project.

      The plant is a moral and ethical abomination that, all agree, could never be built today because of environmental constraints. It lies next to Morro Rock, a state preserve that is the home to peregrine falcons, an endangered species, and pollution from the plant at times falls on the rock and their nests.       

      The current plant can extract about 700 million gallons of water a day from the Morro Estuary, which kills many thousands of fish and marine creatures and contributes to its rapid sedimentation.

      A new plant still could divert nearly 500 million gallons, killing up to 30% of all fish and crab hatched in the Estuary and other sea life.

      In the year 2000, the plant released more than 2100 tons of pollution into the air, and a new plant still would emit about 1500 tons. The pollutants include nitrogen oxides, sulfur dioxides, carbon monoxides, volatile organic compounds and particular matter (10 micron sized), all of which can cause ailments and diseases ranging from respiratory infections to death, and undoubtedly contribute to the contamination of the Estuary.

      There has been no regular monitoring of the Estuary in past years, and it is unclear what the impact of the water diversion and air pollution has had on its health. But the Estuary is in a poor state of health, according to the National Estuary Program's Comprehensive Conservation and Management Plan, which was just approved by the Environmental Protection Agency and Gov. Davis.

      The Estuary suffers from rapid sedimentation and excessive levels of bacteria and heavy metals, which may be linked to the plant's withdrawal of massive amounts of water from each tide. The NEP report states that water diversion threatens the long-term health of the Estuary.

      Studies to try to determine what impact the plant has had on the Estuary, as well as effects of heated water from the plant that is discharged into Estero Bay, are being conducted by state agencies. But long-term, thorough studies are needed to provide answers, which may not be conclusive from the single-year studies under way.

      Another big risk from the proposed plant expansion would be to the Morro Bay economy, which produces most of the city's tax revenue. Under Duke's plans, construction of the new plant and subsequent demolition of the current plant would take seven years. Construction would produce dirt and dust pollution, industrial noise and heavy truck traffic that drive tourists away from the area and reduce city revenues, on which municipal services depend.

      Some believe the plant is needed to provide energy for Morro Bay and the Central Coast, but only 30% of its electricity serves the area. The other 70% of the plant's power is exported elsewhere.

      This area uses less than 1% of the power flowing through the network of plants and transmission lines across the state.

       Thus, the harms and risks outweigh the relatively small amount of additional electricity that would be produced, making it hard to justify keeping a power plant in the heart of a seashore tourist town beside a federally-protected estuary for another half century and more.

The Coastal Alliance needs volunteers to help make sure the Estuary and the environment is fully protected as the plant expansion proposal is reviewed by the state Energy Commission. Contact Don Boatman at 772-9147 or Jack McCurdy at 772-8426. Find out more at the Alliance web site at www.plantexpansion.org.