Rising commodity prices, design changes boost cost of coal plant

Wednesday, August 23rd 2006

Lamar Light and Power Superintendent Rick Rigel has been called upon to answer some tough questions about project costs for the coal repowering project in recent weeks. Although ARPA (Arkansas River Power Authority) is financing the project and actually owns the new facility, since Lamar Light and Power will be a major consumer of the power generated, the operating agent of the new facility and the owner of existing facilities at the building site, Rigel has been heavily involved in presenting the project and answering questions.

In October, 2004 the estimated construction cost for the project was $66 million. Due to increasing costs however, ARPA members authorized an additional $10 million in financing in October 2005. Current estimates are that the project cost will total about $85 million. Through the sale of premium bonds, the $10 million in additional funding actually raised the total funding available to $86 million, including $3 million in completion bonds. In a recent interview with the (LDN), Rigel outlined some of the reasons for the increasing costs associated with the project and how those costs will be paid.

Rigel pointed to rising prices of critical commodities needed for the project as a key factor in the increase. For example, structural steel has seen a 31 percent hike in price, concrete has gone up 22 percent and recent estimates are that steel piping has seen an increase of as much as 12 percent. Even though the initial plan included a cushion to allow for increases, no one could have anticipated such a dramatic boost in prices, according to Rigel. Commodities used by the construction industry have reflected the escalating prices typical of situations where supply outstrips demand, in this case fed by the tremendous demand created by rebuilding in the gulf coast region after the record-breaking hurricane season of 2005.

Items not included in initial cost estimates include cathodic protection, a system designed to protect the integrity of structural steel piles that will support the foundation, adding an additional $1.2 million to the project cost. Further, the boiler design has been changed to include an additional 200 tons of steel, which in turn necessitates an increase in the amount of steel necessary to support the foundation. After visiting similar, state of the art facilities, the decision was made to create a more robust fire detection and protection system and finally, a change in the design of rail facilities added an additional $1.1 million to the project cost.

Rigel commented that controlling costs has been a constant topic of discussion with project engineers. “We have told them repeatedly they need to sharpen their pencils,” in order to come up with cost-saving measures. In fact, rising costs are part of the reason cited for recent design changes under consideration, such as changing from silos to domes for coal storage and building coal handling facilities just a few feet below ground vs. the more traditional 45 feet below ground.

Rigel presented an update to the Lamar City Council during its work session on August 14, at which time he advised council members that if the project cost exceeds $88 million ARPA may be forced to ask for additional bonding authority. City Attorney Darla Scranton Specht and council members requested that Rigel advise them immediately if additional bonding will be needed. Rigel advised council that he would keep them updated as the project progresses.

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