Duke Shrinks Merchant Operations, Leaves California Alone

By Published On: January 17, 2004

Despite no end of local opposition, a delayed California Energy Commission siting process, and a headquarters that is lopping off one-third of its national merchant generation, Duke Energy insists that doing business in California remains worthwhile. Duke announced last week that it is reducing the value of its merchant plants by $3.3 billion and reassigning its executive officers. Yet California operations appear unscathed. ?There?s no changes in management in California,? said Pat Mullen, Duke spokesperson. The company still expects to repower its Morro Bay plant, though the project is being delayed at the California Energy Commission. ?California may be more [politically] challenging than in other parts of the country, but it?s also where we see lower resource margins and we see older plants needing to be modernized,? Mullen added. Duke?s strategy is to instead divest in the Southeast. ?The Southeast is more overbuilt,? Mullen explained. The company announced it is taking a $3.3 billion pretax charge for the fourth quarter of 2003 for truing up the current value of its plants. Standard & Poor?s reaction is that the charge ?reflects poorly on strategic decision-making in the past? and that in the near term, Duke?s merchant operations will continue to ?adversely affect? its business. S&P added, however, that the move reflects a ?more focused merchant generation approach.? Although the repower at Morro Bay appears to be a constant thorn in the company?s side, with local activists countering the company at every step, Duke appears sanguine that it will finally be approved. In April 2003, the energy commission approved the repower using local water sources on the coast for cooling?a year and a half after Duke filed for permission to gut the old plants and rebuild them with current technology. The first proposed decision by the commission was supplanted by another one in November 2003. The second noted that despite the new plant?s predicament that it would kill 16.2 percent of susceptible marine species, not using seawater?dry cooling?is not feasible. Duke, a North Carolina?based company, has 4,400 MW in this state. It has another 2,400 MW planned for New Mexico, Arizona, and Washington. Those plants are deferred, according to the company, until it can either sell their rights or find a business partner for development. On January 12, Duke announced that Duke Energy North America and Duke Energy International will be brought together into one organization under Bobby Evans, president of Duke Energy Americas. The reorganization eliminated Robert Ladd, Duke North America president.

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