I really hope that "this is all about money" line was tongue-in-cheek. KCLU has precious little to do with the fact that they're based at Cal Lutheran University.
Anyways, the old 89.7 - according to the article - was a Harold Camping/Family Life station. They've been slowly selling off a lot of signals in the wake of the world not ending. I didn't drive up to SLO all that often, but IIRC there aren't any true Santa Maria stations that get into SLO all that well because of the terrain. The reverse is not true because most SLO stations are on Cuesta Peak, which is high enough to get a look-angle into Santa Maria.
However, in addition to the former KHFR 89.7, KCLU is also getting a translator on Cuesta Peak, which is just north of...and overlooking...San Luis Obispo. So yes, KCLU now has coverage along the 101 from Ventura/1000 Oaks all the way to SLO, excepting Gaviota and Lompoc. That's impressive coverage; virtually all the population centers are along the 101 (the terrain dictates it).
I have friends at both KCBX and KCLU and this is most definitely a direct challenge by the latter to the former. KCBX has enjoyed largely competition-free operation for years, and that's about to end. Oh sure, they've "competed" in Santa Barbara for years. But KCLU is the NPR news station of record in SB and has been ever since they started broadcasting on 1340AM there a few years ago; that dinky little 600 watt station has amazingly good coverage thanks to saltwater propagation and the terrain forcing all the population (and highways) to be within 1/2mile of the ocean.
For a long time, KCBX has been content to go after the more eclectic connoisseur with their mix of news and music...certainly SB has plenty of those listeners! Although more recently they dropped classical from the afternoons. They had a great fund drive after that, but with KCLU in town they'll probably have to work really hard to distinguish themselves now.
As I said: every community along the coast tends to be very provincial; they distinguish themselves as much by what they are as by how they're not any of the other towns. Santa Barbara especially, but SLO too. (along SLO's too laid-back to admit it

) The fact that KCBX is the "local" station carries a lot of weight, as will their superior signal in the region. But KCLU managed to convince Santa Barbara they were "local" enough (I cannot overestimate how big a deal that is) I'll bet they'll manage to do so in SLO, too.
In the main, I'm sure KCBX would prefer to have SLO to themselves, but in the abstract I think it's better when there's two *competing* pubradio outlets in town. Tends to lead to better experience for the listener...ASSUMING, of course, the market is big enough to really financially support two full-fledged competing pubradio outlets.