Summary of Independent Monitor’s critical report regarding the Kemper project

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Company said Kemper COULD have a catastrophic explosion… But, not to worry…

Summary by Charles Grayson | Bigger Pie Forum | October 24, 2014

Mississippi law established the Public Service Commission (PSC) with regulatory and quasi-judicial functions.

The legislature also established the Mississippi Public Utilities Staff (MPUS) separate from the PSC.  The primary functions of the MPUS are to investigate and advise.  In those roles MPUS has access to all information filed with PSC and in addition has the authority and budget to hire independent outside experts.  MPUS provides much of the detailed support for PSC.

In 2010 MPUS hired POWER Burns and Roe (BREI), a private New Jersey based engineering company specialized in utility projects, to serve as Independent Monitor (IM) of the construction of Mississippi Power Company’s Kemper lignite project.  The IM’s role is monitor activities, review records and issue monthly reports to the MPUS.  The IM had no role in the decision to build Kemper and was not tasked with judging the soundness of that decision.

July 21, 2014 BREI filed with the PSC a damning and highly critical report on the Kemper project.  That report highlights three (3) serious issues:

1.      MPC and Southern delayed acknowledging major cost increases and delays to plant startup long after they knew or should have known of those changes.

2.      MPC and Southern Company management of the project has been incompetent.

3.      There were safety issues with the plant design caught late in the project.

Quotes from the “Surrebuttal Testimony of POWER Burns and Roe on behalf of Mississippi Public Utilities Staff” filed July 21, 2014, PSC Docket No. 2013-UA-2013.

Delayed Acknowledgement of Costs and Schedules

Pg 43.  BREI has broken out the reported cost of the Project,…5 June 2010 through May 2014. While the chart clearly shows an upward trend in engineered  procured materials, it shows a corresponding decreasing trend in construction costs. These  trends are illogical and should have been examined by SC Sand MPC management. In fact, MPC/SCS did not report a growth in total project cost until May 2012.

Pg 42.  … it was reported in the September 2011 monthly Independent Monitor’s report that MPC was projecting an overrun of its certification estimate for early construction work …  These were all trends reported as early as  September 2011, however, it was not until May 2012 that SCS/MPC acknowledged and reported that the Project would not be completed within the $2.4billion certified estimate.

Pg 37. In its November 26, 2012, Independent Monitor’s Project Schedule and Cost Evaluation Report, BREI predicted that the May 2014 COD [commercial operation date] was not achievable. Finally, in October 2013, MPC recognized and acknowledged that the original schedule was not achievable …

Pg 27. Despite these facts, the overall cost and schedule projections continued to predict no overruns in schedule and no overruns in cost until the first cost overrun was acknowledged in May 2012, two years in to the Kemper Project.   …, only ten months prior to the targeted COD of May 1, 2014.

Incompetent Project Management by MPC and Southern

Pg. 14-15.  Yes, FOAK and First Movers refer essentially to the same type of project where a new technology that has not been applied before at a commercial scale is executed for the first time. One of the more significant FOAK risks is that of commodity growth, which has occurred on the Kemper Project. Technology Risk is usually referred to on FOAK projects and is a measure of whether or not the technology being applied actually achieves the desired performance, availability, etc., which is typically extrapolated first from test results at a pilot facility (PSDF) and then at an intermediate-sized demonstration facility. The Kemper Project issues, to date, are the result of the FOAK application of the TRIG technology on a commercial scale. The Technology Risk (i.e., Will it work?) cannot be determined until the facility enters startup and testing, since, in the case of the Kemper Project, there was no intermediately-sized demonstration facility to first verify the performance of the pilot facility.

Pg 22. ….the Kemper Project was placed on a fast track schedule, but industry standard practices to reduce the risk of a fast track project were not implemented.

Pg 19.  The Kemper Project Team visited the Edwardsport IGCC project on October 18, 2010.  …, the team… reported that, “[a]ccording to Duke, 90% of their issues were design related” relative to commodity growth.  The lessons learned  from Edwardsport, as well as the very nature of a FOAK [first of a kind] project, should have alerted the Project  Team of the need to be very aware and conservative when forecasting and planning for the potential growth of commodities….

Pg 11.  Since there was little contingency in the $2.4 billion number and only a very high-level Basis of Estimate, the resulting basis for planning, scheduling, and earned value measurement was insufficient.

Pg 12.  BREI reviewed the Basis of Estimate in the August 2009 FEED package to establish whether it served this purpose and need. It did not. The Basis of Estimate was a ½ page, high-level summary of the basis of the cost estimate. Given the magnitude of the Kemper Project, better documentation was not only desirable but was necessary. [August, 2009]

Pg13.  The lack of appropriate contingency in the $2.4billion estimate had a negative effect on the up-front planning of the Kemper Project and the development of reasonable  baseline project plans which should have included an “allowance for indeterminates.”” An example of this is commodity growth, which should have been recognized by the Project Team from the Edwardsport lessons learned.

Safety

Pg. 55-56.  Huggins and Owen state that the Process Development Allowance items, including the Sour Water Stripper Corrosion Stress Cracking Protection, were done to optimize the design and make the plant more economic and thus should be eligible for Process Development Allowance (p. 104). Do you agree?

No. SCS learned during detailed design that oxygen could be introduced into the sour water/wastewater system, especially during startup and that the materials specified for the sour water strippers were inappropriate and subject to stress corrosion cracking, a phenomenon that can lead to unexpected, undetected and catastrophic failure of the vessels. SCS presented its justification for changing the materials within the sour water system to the Independent Monitors in a presentation dated March 19, 2013, titled “Review of Metallurgy in Sour/Wastewater Service.” SCS elaborates on the concerns stating:

Some failures can be sudden and catastrophic. Of most concern are the syngas scrubbers which are directly coupled to the gasifier and syngas system at over 600 psig. Major loss of containment on the syngas scrubbers would likely result in explosion due to large release of toxic syngas and could cause rapid depressurization of the gasifier, causing ash to inflate/expand and violently push its way through the syngas coolers, PCD and syngas scrubbers, creating steam explosion and uncontrolled ejection of 1,800 deg. F ash into the gasifier structure and onto the plant site.

The design changes were made out of necessity and were required to assure the safe operation of the facility. They were not driven by future operation and maintenance (O&M) cost savings. BREI does not consider this to be a Process Development Allowance modification, but a modification that was needed due to unknowns inherent in the FOAK nature of the process that were identified during detailed design and that should have been addressed by contingency.

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