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GLENVILLE, N.Y. (AP) - A financial backer of a proposed power plant has canceled its agreement to purchase the project, but talks are continuing with the developer.

Duke Energy Schenectady asked the state Public Service Commission to withdraw the company's petition to purchase the Glenville Energy Park near Albany.

GEP spokesman Jon Pierce said Duke ``still sees merit in this project,'' but is negotiating a new relationship, The Daily Gazette of Schenectady reported Wednesday.

The cost to build the 520-megawatt natural gas-fired power plant had been estimated at $350 million, according to GEP officials.

The company is ``restructuring'' the deal because of changes in the market, said Lea Gibson, a spokeswoman for Duke Energy. She said the current energy market is flat and they will evaluate the project as the market changes.

General Electric spokeswoman Jan Smith told the paper that her company, which has a financial stake in the project, is interested in keeping the discussions going. GE has paid legal, engineering and consulting fees to help develop the plant.

``If it's true, it's happy news to us,'' said Neil Turner, the president of a grass-roots organization fighting the power plant.

``If Duke falls out of the loop, we have GE and GEP sitting there without any financial backing,'' he said.

Duke, a Charlotte, N.C.-based global energy company, said earlier in the week that hundreds of workers would be laid off because of continued weakness in the wholesale power market in North America.

The company also temporarily halted construction of three power plants in the western U.S. until market conditions improve.

HARTFORD, Conn. (AP) - State officials on Wednesday said they believe a proposed natural gas pipeline under Long Island Sound cannot go forward because federal regulators did not take into account Connecticut's environmental laws when approving the plan.

In a letter to Islander East Pipeline Co. LLC Tuesday, Department of Environmental Protection Commissioner Arthur Rocque Jr. said the state does not support granting federal permits for construction because the pipeline proposal violates state environmental laws.

``Essentially, this is a deal breaker,'' state Attorney General Richard Blumenthal said. ``In my view, this move stops the project dead in the water.''

A spokesman for Islander East's owners did not immediately return a telephone message seeking comment Wednesday night.

Rocque said in his letter that construction of the pipeline would harm water quality in the sound because of dredging and plowing. He also said the project would endanger shellfish living in the water and harm two tidal wetland areas near the proposed construction site.

``The Department has determined that the proposed work would cause significant adverse environmental impacts on coastal resources,'' the letter reads.

The $185 million, 22.6-mile pipeline gained federal approval from the Federal Energy Regulatory Commission last month. It would run between Branford and Long Island, N.Y.

But the state claims the decision was made improperly and didn't take federally approved state environmental guidelines into account.

State officials claim that FERC was required to consult state environmental guidelines before the proposal was approved. FERC traditionally has waited until state regulators give the OK before approving such projects, Blumenthal said.

The state has asked FERC to reconsider its approval.

``As it stands now, we believe that their FERC license is illegal and ineffective, and so they will have to challenge our denial,'' said Jane Stahl, deputy commissioner of the Department of Environmental Protection.

Islander East has 30 days to appeal the DEP's decision to the U.S. secretary of commerce. Federal law says that for the state decision to be overruled, the federal commerce secretary must find the pipeline meets state and federal guidelines or is necessary for the interest of national security.

FERC may also appeal the ruling to the secretary of commerce. A spokeswoman for the agency did not immediately return a call seeking comment Wednesday night.

John Sheridan, a spokesman for Duke Energy, which co-owns the Islander East line with KeySpan Corp., has said his company typically meets or exceeds all state and federal environmental requirements.

He has also said the environmental detriment to the Sound would be minimal. He did not immediately return a phone call seeking comment Wednesday night.

Also in the letter, Rocque said that the state prefers building an extension to the Iroquois pipeline, which currently runs from Milford to Northport, N.Y. He said that by tapping into an existing pipeline at an offshore location, all nearshore impacts are eliminated.

``This is a real victory for Connecticut residents,'' said 3rd District Congresswoman Rosa DeLauro. ``This decision is a clear indication that the Islander East pipeline project is not in the best interests of Connecticut residents or the health of Long Island Sound.

Stepping up efforts to recover money in the collapse of the Reliance Insurance Company, insurance regulators in Pennsylvania have turned their sights on the company's auditor, Deloitte & Touche, one of the country's largest accounting firms.

In a civil suit filed in a state court on Tuesday, Pennsylvania's Insurance Department accused Deloitte & Touche and one of its actuaries, Jan A. Lommele, of inflating the insurer's financial statements by $1 billion and filing misleading reports as Reliance's executives were draining cash from the troubled insurer.

Because of the firm's actions, the regulators said, it was more than a year before investors realized that Reliance, one of the country's largest commercial insurers, was in trouble. The regulators seized control of Reliance on May 29, 2001, with hundreds of millions of dollars in claims on its books that it could not pay.

"Risk factors and red flags were ignored by Deloitte," the regulators said in their lawsuit. "Instead, Deloitte and Lommele, in exchange for millions of dollars in fees, facilitated and prolonged Reliance's ability to continue operating."

Deloitte issued a strong denial. "This suit relates to matters the Department of Insurance has been familiar with for years and is a cynical attempt to exploit the current environment by seeking to shift blame for a business and regulatory failure to the independent auditors," said Deborah Harrington, a Deloitte spokeswoman.

David F. Simon, the chief counsel for the Insurance Department, countered that the lawsuit resulted from "a lengthy and thorough investigation and includes input from qualified accounting and actuarial experts."

Mr. Lommele was traveling and could not be reached for comment.

In the lawsuit, the regulators also contended that in 2000 Reliance executives and directors, including the former chief executive, Saul P. Steinberg, "stripped nearly $200 million in cash from Reliance in the form of dividends, purported tax payments and loans," adding that they "continued to remove as much cash as possible from Reliance in the form of excessive salaries and bonuses, misuse of corporate property and preferential payments."

The regulators said Deloitte helped make all this possible by propping up the insurer's financial position and deflecting "regulatory scrutiny."

The suit filed Tuesday expands on a lawsuit filed against Reliance in June. In that suit, M. Diane Koken, the Pennsylvania insurance commissioner, sued Mr. Steinberg and 17 other senior executives and directors, saying they contributed to the company's failure in part by shifting money needed for paying claims to a holding company that then paid extravagant dividends to shareholders.

Mr. Steinberg and his family owned about a third of Reliance's stock and depended heavily on the dividends for personal income, said Jerome R. Richter, a private lawyer working with the regulators.

So far, the regulators said, no criminal charges have been filed against any of Reliance's executives or directors.

The accounting industry has been under close scrutiny recently because of the involvement of Arthur Andersen in several large corporate scandals, including Enron. But accounting specialists said that it was unusual for an insurance regulator to go after the accountants in the failure of an insurance company.

Mr. Simon acknowledged that such lawsuits were "not common practice," but he also said that they were not unprecedented.

"Our standard operating practice is to determine who may be legally liable for the insolvency," he said. "Ultimately, we want to recover money we can then use to pay claims."

Arthur W. Bowman, the publisher of Bowman's Accounting Report, a monthly newsletter in Atlanta, suggested that the regulators might be overreaching in their latest lawsuit.

"In a fraud, especially a fraud at the top level, it is nearly impossible for an auditor to find any of these things because the people inside know where to hide the dead bodies, so to speak," he said. "An auditor doesn't test every transaction."

Previous article about Duke Energy’s auditor

3 More Duke Suits; Stock Hits 52-Week Low

(10/16/02) - To understand why Duke Power Co. is laying off hundreds of its workers, consider the meter reader who used to trudge behind textile plants with a clipboard and pen.

That job is almost extinct.

Scores of area textile plants have closed forever, shrinking Duke's profits and leaving less work for meter readers. High-tech trucks, which can read meters from the street with computers, have also taken much of the remaining work from their human counterparts.

Duke has also moved away from using in-house meter readers; it instead saves money by hiring contractors. The utility -- the Carolinas' largest, with 2 million customers -- has also introduced e-billing, which lets customers pay bills online and may ultimately replace some humans.

Duke said Monday it will eliminate hundreds of positions over the next few months because of more efficient technology, less demand from industrial customers and the centralization of some work groups.

Company spokesman Tom Williams said it doesn't have a final layoff number, but it began telling workers of the impending cuts Monday. It will offer severance packages to the laid-off workers, based on years of service and current wage.

Duke Power, part of Duke Energy Corp., has trimmed its payroll to 10,300 from about 18,000 a decade ago. The demise of textile companies, which can use as much electricity and water as some small towns, has slashed into Duke's bottom line.

Last year, textile companies paid $353 million in power bills to Duke. That's almost a quarter less than they had paid just three years before, $456 million.

Besides textile companies, many other manufacturers have closed because of cheaper foreign imports and inventory difficulties. The Hickory area last year had the nation's highest growth rate in unemployment, with its heavy dependence on furniture and optical-fiber manufacturing.

This year, industrial customers -- which include textile, furniture and other manufacturing companies -- account for 35 percent of Duke Power's revenue. Last year, they were at 37 percent.

"That's our customer base; we feel those," Williams said.

Thus, Duke is streamlining its divisions and consolidating some back-office departments. Instead of the retail services, distribution and transmission divisions each getting a budgeting department, all three could share one.

"These are really agonizing decisions for us to make," Williams said.

It's even harder for the Duke workers, said Benny Hunnicutt, international representative of the International Brotherhood of Electrical Workers, which represents about 1,400 Duke Power workers.

"Lots of them came straight out of high school and had planned to make a career working for Duke," he said.

Union officials speculated Duke Power is cutting workers to help make up for the losses of its sister wholesale power business.

Duke Power has traditionally been a workhorse division for Duke Energy. The regulated utility earns a limited rate of return, set by state utilities commissions.

It doesn't experience the tremendous growth that Duke Energy's unregulated wholesale power division did the past few years. But it also avoids the troughs, as the wholesale business is in this year.

That sector has been walloped by weaker demand for power, fewer traders in the energy market and lower profit margins.

Duke Energy cut its profit outlook by 20 percent last month.

Duke spokesman Williams dismissed such a theory, saying the two units start the year with different earnings targets.

"The two sides are totally separate," he said.

GREENVILLE, S.C. (AP) - The federal government is questioning plans to build a community at Lake Keowee in Pickens County because planned dredging could endanger preservation of a Cherokee village containing human remains.

The U.S. Department of the Interior wants to intervene, saying the proposal to remove about 3,300 cubic yards of sediment from the bottom of the lake could disturb human remains, objects and structures ``of great importance to Cherokee peoples and to the United States.''

The motion is contained in Federal Energy Regulatory Commission documents obtained by The Greenville News.

Dredging would provide safe access for boats trying to reach previously approved docks serving the Cliffs at Keowee Vineyards subdivision, the documents say. Boat access is difficult when water levels are low.

Developer Jim Anthony said he didn't know Indian remains were near the subdivision. Anthony said he will call federal officials to get help determining exactly where the remains are located.

``We'd be the first ones to want to protect them,'' Anthony said. ``That, quite frankly, would probably be as advantageous to our development as anything else, having authentic Indian burial grounds.''

If federal officials don't want the dredging, ``then we won't do it,'' he said.

Duke Energy Corp., which owns the land under the lake, proposed the permit for the subdivision.

FERC must approve the project because of its potential impact on water quality, fish habitat and shorelines, said Celeste Miller, an agency spokeswoman.

The agency is accepting comments about the proposed dredging, she said.

Duke says it will work with state officials to determine what should be done with the Indian remains.

``As we've purchased property for generating facilities or any other related facility for Duke and have identified or uncovered Indian artifacts, we have proceeded by state guidelines,'' Duke spokeswoman Guynn Savage said.

Cherokee Chief Gene Norris of Greenville said the remains shouldn't be disturbed.

``Leave those people where they are,'' he said. ``What purpose is it going to serve for them to dig up sediment?''

Norris is chief of the Piedmont American Indian Association - Lower Eastern Cherokee Nation of South Carolina.

Norris said his people, even though they are not a federally recognized tribe, should be notified of any activity affecting former tribal lands in the South Carolina foothills.

More than a dozen of the 309 Indian remains that are in state custody were unearthed in 1967 when Duke Power Co. stripped the Keowee-Toxaway basin to create Lake Keowee.

Tribal leaders want those remains returned for proper burial. Gov. Jim Hodges has asked Interior Secretary Gale Norton to help clear bureaucratic hurdles set up by federal law that requires tribes to be federally recognized and to prove ancestral heritage. Most of the remains held by the state are unidentifiable.

Disposition of the remains is governed by the federal Native American Graves Protection and Repatriation Act, which requires the state to consult with all potentially related Indian groups before deciding the appropriate custodian. That includes 21 federally recognized tribes outside South Carolina, in addition to numerous groups within the state. The Keowee-Toxaway remains might never be tied with certainty to the Cherokee, even though that was the tribe inhabiting the region at the time of European contact.

Exact number is unknown; department heads are meeting now; first step will be to ask for volunteers

(10/15/02) - Duke Power Co. will lay off hundreds of workers in the next few months. Department managers began meeting Monday to decide who goes.

A weakening economy, use of more efficient technology, and centralization of some work groups are triggering the layoffs, Duke spokesman Tom Williams said Monday.

Williams declined to specify how many workers would lose their jobs, except to say that the number would be in the hundreds. When asked to quantify the layoffs, Williams said: "Hundreds, not thousands."

The company began meeting Monday with employee groups to explain its layoff policy and to ask for volunteers in some divisions. The forced cuts will begin in several weeks.

Duke will invite laid-off employees to apply for jobs in other areas of the company. It also will offer severance packages to those let go.

Duke Power is the largest utility in the Carolinas, with 2 million customers in the region. The company has been trimming its work force steadily over the years. It employs about 10,300, down from 18,000 a decade ago.

Now Duke is looking to consolidate some back-end office operations, such as finance departments.

Some areas of the utility have different target numbers for layoffs, while others will remain unscathed. Not every group has figured out whom or how many to let go, Williams said.

The impending layoffs come at a difficult time for the energy industry.

Throughout the country, energy companies have been hobbled by a slumping economy, weak demand for power, fewer traders in the wake of Enron's collapse last year, and lingering political and legal fallout from controversial power dealings that exacerbated California's 2001 energy crisis.

Shares in Duke Energy Corp., the parent company of Duke Power, closed Monday at $19.12, down 22 cents, after hitting a 52-week low of $16.42 on Oct. 9.

Last month, Duke Energy lowered its profit outlook by 20 percent, citing weak demand for energy. The company said it would lay off an unspecified number of its 25,000 employees.

The Carolinas' other two principal utilities said they have no plans for layoffs.

South Carolina Electric & Gas, which serves 560,000 electric customers in South Carolina, employs 2,700.

Carolina Power & Light, which serves 1.3 million customers in the Carolinas, said it plans no layoffs among its 5,500 employees.

(10/15/02) - CHARLOTTE, N.C. (CBS.MW) -- Duke Power Co. expects to lay off hundreds of employees, in part due to the slow economy in the Carolinas, a spokesman for the utility said Tuesday.

Tom Williams said Duke Power, a unit of Duke Energy, will likely complete the layoffs by the first quarter of 2003, with the bulk of them done by the end of this year.

"This is a very tough process, and it's been an emotional process for us to go through," he told CBS.MarketWatch.com.

Williams said the layoffs, both voluntary and involuntary, follow a review of Duke's work force that began at the start of this year.

The sluggish economy in the Carolinas, as well as improvements in technology and work processes, among other things, contributed to Duke Power's decision, Williams said.

The utility currently has about 10,300 employees, down from 18,000 in the early 1990s, according to Williams.

Duke Power's "intent is not to make reductions in areas that would affect customer satisfaction," he said.

In regard to the effect on the parent company's earnings, Williams said there will be cost reductions with a positive effect, though he said Duke is not sure when the charges will be booked.

Last month, Duke Energy announced that it would fall short of analyst expectations for the full year. Duke has been hurt by the same factors affecting the same business divisions at other companies: the prolonged economic downturn, which has allowed supply to catch up to demand, continued low natural gas prices, and decreased market liquidity.

(10/6/02) - A proposed natural gas pipeline that would cross Virginia as it stretched from Tennessee to North Carolina would do little harm to the environment, federal regulators said in their final environmental impact statement. The greatest impact of the Patriot Extension, a pipeline proposed by a Duke Energy subsidiary, would be the loss of forests, the report released last week said. During construction, 922 acres of forest habitat would be cleared if the project is approved.

The 24-inch-diameter pipeline would cross the New River and come right through the middle of the New River Trail State Park and a planned campground. It would cross the Appalachian Trail, the Blue Ridge Parkway at about milepost 180 in Patrick County and 243 water bodies. Some of the route will require horizontal drilling, meaning holes will be bored underneath the river and the parkway, for example.

East Tennessee, the Duke subsidiary, maintains that the pipeline is needed to meet increased demand in the natural gas local distribution market and to provide gas to two proposed gas-fired power plants in Henry and Wythe counties. The $289 million gas transmission line could eventually carry more than 700 million cubic feet a day to all its customers.

The environmental statement from the Federal Energy Regulatory Commission is yet another milestone in the regulatory process, said Robert Evans, president and chief executive officer of Duke Energy Gas Transmission.

"We appreciate the conclusion FERC staff has given the Patriot project after this thorough environmental evaluation," said Evans in a statement.

Earlier this year, the pipeline received a preliminary determination from FERC that confirmed the market need for the project. The final step is getting a certificate from FERC to build the Patriot Extension pipeline.

The project has outraged many landowners, some Virginia county and state officials, and environmental groups. They've argued that the pipeline provides no benefits to Southwest Virginia. Instead, they contend that it would allow Duke to ship gas from a storage facility in Virginia to lucrative markets in North Carolina, lining the pockets of Duke's shareholders.

"It is hard to believe that after months of so-called 'careful' study and delay, the Federal Energy Regulatory Commission appears on the verge of granting Duke Energy and East Tennessee Natural Gas a permit to push through the very unpopular Patriot Extension natural gas pipeline," said Darryl Holland, a landowner in Henry County. His mother, landowner Shirley Holland, said the final environmental impact statement is a rehash of the draft statement.

"It's almost like Duke Energy wrote this book and FERC rubber-stamped it," she said.

Darryl Holland said the pipeline is being pushed forward because:

North Carolina wants it.

Duke Energy is going to make a fortune.

Various politicians in both parties are in favor of this project, even though a number are not.

Public apathy. Very few people are getting involved who do not live in the pipeline right-of-way. But the pipeline has far-reaching effects in Southwest Virginia, said Shirley Holland, who's also a member of the Blue Ridge Coalition, a group opposing the pipeline.

"If Duke cannot successfully drill under the New River, will Virginians stand by and calmly watch as this energy company dynamites a trench across the floor of the New River, just to get their gas line across from the other side? Surely not," she said.

"If the governor, George Allen and John Warner can sit in Richmond and Washington in their ivory towers and turn a blind eye on what is being done to our state park, Blue Ridge Parkway, Appalachian Trail, the New River, it's a state and national disgrace," she said. "They ought to be run out of Virginia on a rail. Their interest is not with the people because big business is more important to them than their citizens who elected them to their office."

East Tennessee says it's not a charity, but the community benefits through taxes the company will pay and potential economic development.

"We have shareholders who buy our stock," spokeswoman Gretchen Krueger said. "We are responsible to our shareholders." By the same token, Krueger said, "We are going to pay taxes to the county and state. We will be paying landowners for easements. And, again, there's the potential for new businesses.

WASHINGTON, Oct 9 (Reuters) - Connecticut officials said on Wednesday that the Federal Energy Regulatory Commission lacked key environmental data before approving a $150 million pipeline project to ship natural gas to markets in Connecticut and New York.

The state's attorney general and environmental commissioner asked FERC to rehear the Islander East pipeline project planned by Duke Energy and KeySpan Corp.

Last month, FERC gave final approval for the 51-mile (80-km) pipeline that will transport Canadian natural gas to markets in Connecticut, New York City and Long Island.

Environmentalists have tried to block the pipeline or change its route, citing potential harm to oyster and clam beds on the seafloor and emissions from compressors. Shellfishing is also an important industry in Connecticut.

Attorney General Richard Blumenthal and Environmental Protection Commissioner Arthur Rocque said in a joint filing that FERC made its September decision even though "critical baseline environmental data is lacking and necessary scientific reports have not been completed."

The U.S. Environmental Protection Agency found that the project would impact more than 3,100 acres of open water, 125 acres of forest, 83 acres of open land and 30 acres of wetlands, the Connecticut officials said.

FERC's decision also raised a constitutional issue, revolving around Islander East's power of eminent domain to build the pipeline, he said.

"To the extent that the order is deemed to permit Islander East the authority to install this pipeline on state public trust land in contravention of a denial of permission of the state as landholder, the order is flatly unconstitutional," Blumenthal said.

The two Connecticut officials also said FERC's hasty decision failed to compare and consider another pipeline proposal from Iroquois Gas Transmission Co.

The case is pending before FERC in docket CP01-384.

(9/27/02) - Three top West Coast employees spearheading Duke Energy Corp.'s plan to modernize and enlarge the Morro Bay generating plant have been abruptly laid off, including the project's manager.

The layoffs occurred during widespread company belt tightening. Duke is cutting or slowing down more than $2 billion in planned power plant projects, according to the Charlotte Business Journal.

Andy Trump, who had been in charge of Morro Bay's plant expansion project for the past three years, was let go recently along with his two top lieutenants, Wayne Hoffman and Bob Cochran.

Duke's local spokesman, Pat Mullen, downplayed the importance of the men's departures and said plans for the plant are unaffected.

"There are no changes to the [Morro Bay] project schedules," he said. "No one wants to build it more than we do. We have spent lots of time, energy, and money trying to get the project to reality."

Duke has been seeking the needed permits to expand its present Morro Bay facilities by an additional 170 megawatts of capability. The plant presently produces 1,030 megawatts at peak production. The company has said it plans to spend $800 million for the plant's enlargement.

Trump, Hoffman, and Cochran were expected to present Duke's plans on habitat enhancement at a final evidentiary hearing conducted by the California Energy Commission (CEC) on Oct. 17. Trump was scheduled to be the energy company's lead witness. All three men have been central to public hearings and workshops on the proposed plant expansion in which Duke has participated.

At a meeting Wednesday in Sacramento, Duke officials were to be asked to describe the status of the Morro Bay project. No information about that meeting was available at press time.

The North Carolina-based power company recently has put the brakes on several giant plant construction projects in Washington, Nevada, and New Mexico, with budgets totaling $1.15 billion. The projects were 40 percent completed. Another billion dollars in funding for new project construction in Arizona, Illinois, and Florida has been withheld during the past month.

The Wall Street Journal reported Wednesday that the company is planning to sell 52 million shares of stock to raise $1 billion to repay commercial debt for its $8 billion acquisition of Westcoast Energy Inc., based in Vancouver, British Columbia.

Duke's ongoing heavy financial obligation in Morro Bay, meanwhile, incurred as a result of stringent state environmental laws, delays, and planning, has affected the company's perception of the project.

The expansion has been on the planning boards for four years but has so far failed to obtain the necessary permits.

Mullen noted that planning for a similar expansion project in Moss Landing started at the same time as Morro Bay. "The Moss Landing project already is completed and on line," he said.

However, activists opposed to the Moss Landing project are suing the Regional Water Quality Control Board for approving that expansion, which will include increasing use of water from Elkhorn Slough despite studies showing such use would be deadly to fish larvae and eggs.

The lawsuit, on which a decision is imminent, seeks reconsideration of the board's decision. If plaintiffs in the lawsuit prevail, Duke's chances may be undermined for obtaining approval of habitat enhancement and restoration as mitigation for use of Morro Bay estuary water.

According to a Dow Jones news service report last year, Duke is considering selling its California holdings, including generating facilities in Oakland, Moss Landing, Chula Vista, and the Morro Bay plant.

Three years ago, Duke's president was quoted in the Los Angeles Times as saying that California's environmental laws "are the most onerous in the nation."

Kevin Johnson, one of only several employees remaining at Duke's North America offices in Oakland, will take on the duties of project manager for the Morro Bay plant. Tuesday, Johnson referred questions to Mullen.

"Johnson will have the same responsibilities [as Trump]," said Mullen. "He is charged with getting the project permitted."

Johnson is preparing to handle the Oct. 17 CEC hearing in Morro Bay, said Mullen, expressing confidence that Duke's participation will be unaffected by the personnel change.

Mullen said lengthy delays in the Morro Bay expansion have created serious economic problems.

"When a project takes four years to get through the permitting process, you will have changes along the way," said Mullen. "We have had to make difficult personnel reductions, which are decisions no one wants to make," said Mullen.

Mullen said "an extended decline in the energy market and the fact that we haven't come out of a recession" are factors responsible for the changes in key planning staff for the Morro Bay project.

"Unfortunately, business cycles follow market cycles," he added.

Previous Morro Bay article:

More on Morro Bay

(9/12/02) - A California Energy Commission workshop was held in Morro Bay this week on what may be Duke's last hope to get regulatory approval for using estuary water. It wants to buy and restore habitat in and upstream from the estuary at a cost of about $12 million-much less than that for dry cooling-to counteract the buildup of sediment in the bay. The idea is to prevent loss of water volume and generate "biomass" of aquatic life, which would ostensibly compensate for the killing of fish by the plant.

The biggest problem is that the CEC staff and other agencies question whether it actually would do this, although the staff of the Water Board, the other agency with permitting authority over the plant, believes it could.

Duke officials were barraged with questions about the "habitat enhancement" plan during the workshop, which seemed to reflect continuing skepticism despite Duke's determined effort to assure it will work.

Marine scientist Michael Foster, a CEC consultant, seemed to speak for many at the meeting when he said, "I question whether creation of more biomass will replace fish (killed by the plant)."

Foster's comment echoes similarly uneasy feelings expressed in the spring of 1999 in a sparsely attended community meeting called by three nurses. They weren't buying the "don't worry about a thing" reassurances from smiling Duke Energy officials that a new power plant would be good for all of us.

It came not long after Duke bought the old Morro Bay plant from PG&E and announced plans in the aftermath of state energy deregulation to replace it with a bigger, more efficient one.

The nurses were worried about what the chemicals from a new plant's smokestacks would do to their children and others in Morro Bay. They had enough medical training in how power plant air emissions affect young lungs to be wrought-up. They weren't smiling and they weren't reassured after the meeting.

That was unsettling to the rest of us.

In late summer, the Coastal Alliance on Plant Expansion (CAPE) was formed around a kitchen table by the still curious to try to find answers to the nurses' and other questions that began to surface, primarily about the estuary.

Ironically, the fish, not concerns about human health, threaten the plant's future.

The California Energy Commission (CEC) staff has emphasized that "Duke Energy is proposing to build the largest newly constructed power plant in California on one of the smallest National Estuaries in the United States, using the most ecologically damaging cooling option available." That option involves the use of hundreds of millions of gallons of water a day from the estuary, killing nearly one million fish, shellfish, larvae and eggs each year.

The staff has recommended against licensing a plant that would use estuary water and, instead, has proposed "dry cooling," a series of large fans to cool generators. Federal and state agencies with regulatory authority over the project support the CEC findings and recommendations. Environmental laws require it, they contend.

Duke, however, has threatened to abandon the plant unless it can continue to use water from the estuary.

By any reckoning, that regulatory consensus is a formidable obstacle for Duke to overcome if it is to obtain the required license and permit to build and operate a new plant-although new legal, financial and market issues may pose even bigger problems.

CAPE feels vindicated because many of the questions it raised early on about the plant's environmental effects have been raised subsequently by the regulators, which have gone further and concluded that a new plant-as proposed by Duke-would be bad for the environment.

Two years ago, we felt down and almost out. With Duke spending $100,000 to win community support for the new plant, a ballot measure was approved by Morro Bay voters in the 2000 election advising the City Council to back the project. But only if the plant "complies with all regulatory laws, ordinances, regulations and standards." That condition was mostly overlooked then, but now the agencies have determined it won't comply, mainly because of what it would do to the estuary.

During the campaign, Duke had a field day proclaiming that the plant would be "smaller, cleaner, better" than the existing plant. But CEC reports have since concluded that the land area for the plant would be larger, it would use more water and kill more fish and produce more ground-level toxic emissions that pose health risks from more smokestacks, which would increase from three to four.

But the tables turned in May, 2001, when the CEC staff issued its first analysis of the project, which found it would kill between 17% and 33% of the estuary's native fish annually. That would "cause significant damage to the Morro Bay/Estuarine ecosystem" by disrupting its food chain that includes birds and other wildlife, which subsist on the fish that would have grown to mature stages, the report concluded. The ecosystem already is fragile and stressed, and a new plant that would deplete it for another 50 years could have a devastating effect, it added.

The estimates of fish mortality were based on a year-long study by marine scientists hired by the CEC and the Regional Water Quality Control Board-the first of its kind in the estuary-and prompted the recommendation for dry cooling. The CEC finalized its recommendation in June after determining that dry cooling would be feasible at the site, although it would cost more.

Despite the higher cost, the CEC staff has pointed out that dry cooling is widely used around the nation and world, two plants agreed to use it to save ground water in California and Duke itself is building two dry-cooled plants in Nevada. A brief in a suit involving the Duke plant in Moss Landing made this point: Duke should not be allowed "to escape the regulatory costs that most of its competitors are incurring" by using free seawater to gain market advantage when the environment is heavily at stake.

Meantime, energy prices in California and across the nation have dropped, financing for plants has dried up, Duke has cut capital spending and it has canceled or postponed six plants in other states. Duke also reported in a filing with the Securities and Exchange Commission that it is under investigation by federal and state agencies for the alleged unlawful manipulation of the California wholesale electricity market and is the target of more than 30 shareholder suits, charging it engaged in improper energy trades that resulted in a $1 billion overstatement of earnings.

As this was occurring, Duke asked the CEC for a quick decision on key issues that most likely will determine if the Morro Bay plant would be approved for licensing, saying it needed the information to decide "whether, how and when the project moves forward." But the CEC denied the request last week.

Jack McCurdy lives in Morro Bay. He's vice president of the Coastal Alliance on Plant Expansion

Previous Morro Bay article:

Panel Refuses Duke a Quick Decision

(9/25/02) - NEW YORK - Old-fashioned utilities - regulated, to be sure, and some would say downright staid, but at least they have guaranteed revenue, sparing them the ignominy wholesale power producers have faced.

Except that sometimes - more often these days - customers don't pay their bills, meaning even the relatively healthy utilities have financial ills.

Increasingly, the utilities' solution to bad debts is taking a page from the playbook of consumer-lending businesses: sell it.

With unemployment rising, more households are defaulting on bills, including such basics as utilities. That means missed payments, warning notices and eventually shutoffs. Severe winters and spikes in natural gas prices such as those seen two years ago add to the problem.

But utilities are discovering that even after collection attempts have failed, there's still money to be made from delinquent accounts. Companies that for years have been buying credit card, bank and auto debt are now buying utility debt as well, albeit at a considerable loss to the seller.

The discount may vary with the age of the receivable and geography, but most buyers pay utilities less than 10% of the amount owed, said Al Brothers, executive vice president of Cavalry Investments LLC, which has been buying utility debt for the last two years.

Less than 5% of Cavalry's $4.7 billion portfolio of receivables is utility-related, he said.

"The biggest issue we had to overcome was the perception that (utilities) would encounter a significant amount of negative publicity (by selling debt)," said Joel Lewis, president of Inovision, a unit of privately held Marlin Integrated Capital Holding Corp. Inovision has bought uncollected accounts from Duke Power, the regulated utility arm of Duke Energy Corp. (DUK); PECO Energy Co.; and First Energy (FE).

Unlike credit-card companies, however, utilities have to worry about how delinquent customers will be treated by consumer debt buyers, Lewis said.

If customers believe they're not getting a fair shake from the new debt holder, they can file a complaint with the state public utilities commission, which can then take action against the utility.

"At worst, they can sue the utility company for selling unjust debt and the utility gets hung up in litigative action," Lewis explained.

Lewis regards himself as the founder of the growing market. Five years ago, while debt manager for the utility units of Dominion Resources (D), he started to look for ways to increase collections.

Inovision owns more than $5 billion worth of debt, $1 billion to $1.25 billion of it utility-related. PECO Is Early Mover

PECO Energy Co. was one of the first utilities to sell its bad accounts. With 1.5 million electric and roughly 450,000 gas customers in southeastern Pennsylvania, PECO sold its first portfolio, with a face value of $275,000, to Inovision in 1998. Since merging with Chicago holding company Unicom Corp. to form Exelon Corp. (EXC), PECO continues to sell its bad debt.

Bruce Gay, formerly project manager for PECO's debt sales, says it's mostly residential and small commercial customer accounts that are sold, because large industrial customers' debt is viewed as "forever bad" and likely to end up in bankruptcy court.

While utilities often get just pennies on each dollar of debt sold, the returns are usually better when they don't wait as long to sell.

"Some utilities seem to be selling their paper earlier in the delinquency cycle, simply because they can get a higher price closer to the charge-off," said Gay, now president of Monticello Consulting Group Limited in Malvern, Pa. Charge-off accounts are those that have been written down to zero for accounting purposes, typically 180 days after the account is past due.

Gay said that selling an account close to charge-off can as much as double the sales price. Commonwealth Edison, a Chicago utility owned by Exelon, has found that 12 months after charge-off is the optimal point for selling its bad accounts. Up until then the monthly returns on collection efforts outweigh the price it can get from a buyer, said Mark Falcone, director of revenue management for ComEd.

Duke Power, which began selling customer debt in 1997, said the practice is one way it's managed to maintain low electricity rates, at 1986 levels, according to company spokeswoman Paige Layne.

First Energy (FE) has been selling its unpaid electricity accounts in Pennsylvania and New Jersey only in the past few months, and is considering whether to sell uncollected debt in Ohio, said spokesman Scott Surgeoner.

Some utilities even sell off bad accounts on a so-called forward-flow basis, meaning they commit to sell unpaid accounts on a regular basis even before the accounts turn delinquent.

Buyers for these accounts differ on what they're getting and what it's worth paying for, but there are some willing to buy even those accounts that appear hopeless.

For instance, Asset Acceptance Corp. prefers to buy utility accounts that have already been through three collection agencies and can be as much as two years old, initially because it's cheaper, says company president, Rufus "Bud" Rietzel.

Contrary to popular wisdom, Rietzel says he's found most of these customers are willing to pay off debts if Rietzel's company can work with them, sometimes even referring them to non-profit credit counseling centers.

Asset Acceptance Corp. currently owns $1.5 billion of utility paper, compared with about $10 billion in other receivables, including home improvement loans and student loans.

The main disadvantage to buying older accounts is that the utility customers are often hard to track down, presumably having moved soon after the account's been closed. But it's nothing a little skip-tracing of databases for social security or credit-card numbers can't solve.

"The next three months will be the busiest because it's year-end, and lots of companies' fiscal years end in December," Rietzel said. "If they aren't bringing in the profits they've projected, they have to bring money in from somewhere, and a good source is bad debt that's been sitting around."

(9/25/02) - Duke Energy Corp. will sell up to $1.15 billion in stock next week to help pay short-term debt, the company said Wednesday.

Duke had said in March that it would issue additional shares or sell equity-based securities to repay debt it took on to acquire Westcoast Energy Inc., a Canadian pipeline company, for $8 billion.

Management decided to sell only stock and will issue 54.5 million shares Tuesday. It may sell an additional 8.2 million shares if demand is great enough.

Duke, which is based in Charlotte, had 832 million shares outstanding as of June 30.

The announcement pushed Duke's stock down 89 cents Wednesday to close at $18.35, as the new shares will dilute the company's earnings per share.

Like other energy companies, Duke is grappling with a sluggish U.S. economy that's using less power and with dipping prices for wholesale power. The wholesale energy market also has fewer traders, which means less activity.

Because of the industry's struggles, Moody's Investors Service said it may downgrade several of Duke's credit ratings. Standard & Poor's Ratings Services said Wednesday it had anticipated Duke's stock sale and had factored the new shares into its rating.

Last week, Duke lowered its 2002 earnings outlook by about 20 percent, to between $1.95 per share and $2.05 per share.

Those new guidelines took into account the dilutive effect of the new shares, Duke spokesman Terry Francisco said.

Besides cutting its profit outlook, Duke also slashed its capital spending 9 percent this year and 44 percent in 2003, to a combined $9.7 billion.

Also on Wednesday, Duke Power -- the regulated Carolinas utility -- said it struck a deal to buy power from Progress Energy whenever Duke needs extra power.

Buying from Progress during peak periods is cheaper for Duke than building its own plants, the company said.

The contract runs from June 1, 2004 through May 31, 2008. Progress will provide the power from its gas-fired plant in Rowan County.