Audit Report 

 

 Austin City Council Fayette Power Project Scrubber Costs 

 

 Mayor October 3, 2006 

 Will Wynn

 Mayor Pro Tem 

 Betty Dunkerley 

 Council Members 

 Sheryl Cole 

 Jennifer Kim 

 Lee Leffingwell 

 Mike Martinez 

 Brewster McCracken 

 

 

City Auditor 

Stephen L. Morgan 

 

 Deputy City Auditor Office of the City Auditor 

 Colleen Waring Austin, Texas
Audit Team 

Gustavo Rodriguez, CIA, CGAP, CISA 

Russell Needler, CPA, CGAP 

Additional Contributors 

Navigant Consulting Inc. Team

Dan Stathos 

Brian Feldmann 

Assistant City Auditor 

Taylor Dudley, CGAP, CFE 

A full copy of this report is available for download at our website: 

http://www.ci.austin.tx.us/auditor/reports. You may also contact our office by 

email at oca_auditor@ci.austin.tx.us. 

Please request Audit No. AU06113. 

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To: Mayor and Council Members 

From: Stephen L. Morgan, City Auditor 

Date: October 3, 2006 

Subject: Fayette Power Project (FPP) Scrubber Costs 

I am pleased to present this report on the FPP scrubber project. This audit was included 

in our FY 2006 Service Plan. 

Background

The FPP, located at La Grange, Texas, consists of three coal-fired generating units with 

an output of nearly 1,750 MW. Austin Energy (AE) and Lower Colorado River 

Authority (LCRA) own equal shares of Units 1 and 2, which have a combined output of 

1,272 MW. LCRA owns one-hundred percent of Unit 3, with an output of 475 MW. 

The LCRA and AE plan to install new pollution control technology (“scrubbers”) on 

FPP Units 1 & 2. The technology is expected to control sulfur dioxide (SO2) emissions 

and help FPP meet the U.S. Environmental Protection Agency’s Clean Air Interstate 

Rule (CAIR), which calls for electric utilities to reduce SO2 emissions by 50 and 65 

percent by 2010 and 2015, respectively. 

In 2004 the Office of the City Auditor (OCA) analyzed the total cost of operation for 

FPP based on actual costs for 2000-2003 and projected costs through 2007 (“Fayette 

Efficiency and Safety Report”). The analysis showed projected increases in costs in 

2004-2007, driven mainly by increased capital costs. A further review highlighted that 

the costs were mainly related to the new scrubbers to be installed on FPP Units 1 and 2. 

Therefore, OCA determined that these costs should be included in the scope of any 

future audit work related to costs at the plant. 

Objective, Scope, & Methodology

The objective for this project was to review the LCRA’s estimated cost for the scrubbers 

at FPP to determine whether it is reasonable. Our scope of work included FPP estimated 

major costs for future periods (2006-2011). We hired an engineering firm with expertise 

City of Austin MEMO

Office of the City Auditor 

301 W. 2nd Street, Suite 2130 

P. O. Box 1088 

Austin, Texas 78767-8808 

(512) 974-2805, Fax: (512) 974-2078 

email: oca_auditor@ci.austin.tx.us, 

web site: http://www.ci.austin.tx.us/auditor 
 

 2 

in analyzing power plants to assess the FPP estimates of these future costs for 

reasonableness. The firm interviewed FPP and AE staff involved in the scrubber project 

and analyzed project specifications from LCRA’s Request for Proposal. This audit was 

conducted in accordance with generally accepted government auditing standards. 

Findings

The LCRA estimated cost for new scrubbers to be installed on Units 1 and 2 is 

reasonable, although at the high end of the range of reasonable costs. The LCRA’s 

estimate for the City of Austin’s 50 percent portion of the scrubber project cost is $142.5 

million. To assess the accuracy of LCRA’s estimate, OCA hired a consultant to 

independently develop a second estimate. 

The consultant developed the second estimate based upon a comparison to construction 

costs at other coal-burning generation units. The consultant’s estimate is based on 

projects of similar scope to FPP and ranges from $240 million to $284 million with a 50 

percent portion range of $120 million to $142 million. The LCRA’s estimate for the 

City of Austin’s 50 percent portion is at the high end of this range. The details of the 

cost estimate developed by the consultant are attached to this report. 

The consultant provided our office with studies, research papers, and articles to support 

their analysis of LCRA’s estimated cost for the new scrubbers. OCA reviewed this 

information and found the results of their work to be adequately supported. 

We appreciate the opportunity to assist Austin Energy in evaluating the scrubber project 

cost estimates. If you have any questions about this audit, please do not hesitate to call. 

Sincerely, 

Stephen L. Morgan CIA, CGAP, CFE, CGFM 

City Auditor 
 

ATTACHMENT A 

SCRUBBER COST ESTIMATE REVIEW 

98 San Jacinto Ave. 

Suite 900 

Austin, TX 78701 

512/493-5400 (ph) 

512/472-7721 (fax) 

September 2, 2006 

Mr. Clyde Canady 

Austin Energy 

721 Barton Springs Rd 

Austin, TX 78702 

Dear Mr. Canady: 

Fayette Units 1 & 2 FGD Cost Estimate Review

Navigant Consulting Inc. (“NCI”) is pleased to submit this Letter Report on our review of the LCRA’s $142.5 

million budget estimate for Austin Energy’s 50 percent portion of the proposed Fayette Units 1 & 2 FGD 

Project. NCI’s review is based on information provided by the Austin Energy, publicly available information, 

and the experience of our consultants within the allowed time limits. We have also reviewed the updated 

information forwarded to us by the Office of the City Auditor on July 11 and 31 and August 30, 2006 by email. 

FGD system estimates are sensitive to a number of factors including fuel heating values, sulfur content, and 

sulfur removal percentage. Retrofit estimates also bring system sharing, original plant design basis, and site 

specifics into play. To precisely validate such an estimate would require an assessment in much greater detail 

than this evaluation allows. NCI has attempted to develop an opinion regarding the reasonableness of the 

Fayette 1 & 2 total FGD Project estimate by a more general validation based on FGD system costs from 

previous studies and published data. NCI developed both a generic retrofit cost range estimate and a more 

specific independent estimate. The details of these approaches and results are included in this letter report. 

Background

Units 1 & 2 at the Fayette Station are two 600-MW coal-fired electric generating plants originally installed in 

1979 and 1980. Ownership of these units is 50% by the Austin Energy and 50% by Lower Colorado River 

Authority (LCRA). Each unit is a sub-supercritical (2400 psig) design with a Combustion Engineering (now 

Alstom) boiler and a General Electric (4-flow) steam turbine. Units are reported to be burning coal with a 

heating value of 8,000 – 9,000 Btu/lb and a sulfur content of up to 1 percent. 

Page 1 of 7 
Documents Reviewed

NCI has performed a brief review of the following documents provided by the Austin Energy: 

• LCRA Specification C101 

• LCRA00400.101 

• LCRA19000.101 

• LCRA19100.101 

• LCRA19200.101 

• Scrubber Worksheet 

• Fayette Units 1 & 2 Plot Plan 

• Excerpts from COA 2005 Business Plan 

• S&L Project 09290-123 FGD Report 

• LCRA Burns & McDonnell Rev3 Estimate 

• LCRA Absorber Contract Evaluation 

• FY 2007 Spending Plan Budget 

LCRA Specification C101 Scope of Work

The project is retrofitting a wet LSFO (Limestone Forced Oxidation) FGD Project to units 1 & 2. The scope of 

the FGD specification (LCRA C101) is for supply of FGD equipment only and does not include: 

• Construction Labor 

• New stack 

• Concrete foundations & floors 

• Existing gypsum dewatering system modifications 

• Process & Interconnecting Piping 

• Electrical wiring, conduit, cable trays, and motor starters 

• FGD controls and instruments 

• Traction elevator 

• Heat tracing and insulation 

It is assumed that these remaining components will either be included in future specifications and RFP’s, or 

existing facilities at the plant site, with some retrofit, will be used. 

Page 2 of 7 
Current Fayette FGD Project Budget Estimate

The LCRA and Burns & McDonnell have established a budget for the Fayette Units 1 & 2 FGD Project of 

approximately $142.5 million, which would represent 50 percent of the total project estimate. Austin Energy 

has performed some external research and suggests that a review of current FGD costs and the budget is 

warranted. 

NCI Opinion Methodology

NCI used two approaches to develop an opinion of the $142.5 million budget estimate (50 percent of total 

project) for the Fayette Units 1&2 FGD Project. The first using published generic retrofit total cost ranges with 

project specific adjustments and the second developing an independent estimate. 

Generic FGD Costs

New wet FGD costs are reported to be in the range of $100/kW - $175/kW. NCI believes there are several 

adjustments for a comparative Austin Energy FGD project estimate. These include: 

1. New to Retrofit adjustment 

2. PRB Coal Adjustment 

3. Hurricane Katrina Construction Labor impacts 

4. Increased FGD Industry Activity Impacts 

New to Retrofit Adjustment

Retrofit projects typically are expected to run between 10 percent and 25 percent higher due to dealing with 

existing structures and underground issues. There have been cases where the combination of sulfur content, 

site specifics, and other unusual circumstances have reportedly increased project costs by up to 60%. 

PRB Coal Adjustment

The previously published ranges of new costs were for a wide range of projects. However, many of the earlier 

new and retrofit projects were eastern Appalachian coal projects with high BTU fuel values and high sulfur 

contents. Projects with western fuels (moderate BTU contents and lower sulfur contents) might increase project 

costs by up to 10 percent. 

Page 3 of 7 
Hurricane Katrina Construction Labor Impacts

Due to the Hurricane Katrina rebuilding efforts in Louisiana a greater than normal amount of construction 

labor crafts are being used in the Louisiana area. This could have a slight impact on construction costs. Such an 

impact might be in the range of 2-3 percent of project costs. 

Increased FGD Industry Activity Impacts

The 2005 EPA changes to the Acid Rain Program will result in increased SO2 emissions reductions between 

2010 and 2014. This has generated an increase in FGD Industry activity, which may make manufacturers less 

aggressive in pricing projects than when the industry was less active. This might increase pricing by up to 5 

percent. 

Based on these four adjustment factors NCI has prepared the table below which reflects low medium and high 

$/kW values for a generic western fuels FGD project: 

Description Low Range 

$/kW 

Mid Range 

$/kW 

High Range 

$/kW 

New FGD Estimates $100 $150 $200 

Retrofit Adjustment (10-25%) $10 $26.3 $50 

PRB Fuel Adjustment (0-10%) $0 $7.5 $20 

Construction Labor Adjustment (0-4%) $0 $2 $5 

Increased FGD Activity Adjustment (0-5%) $0 $0 $0 

Expected PRB Retrofit Estimates $110 $185.8 $275 

Based on these adjusted FGD retrofit project $/kW estimates, the Fayette Units 1&2 FGD (1200 MW) project 

low, mid, and high estimates would be approximately $132 million, $223 million, and $330 million retrofit, 

Austin Energy’s portion of the FGD project range of costs would be $66 million to approximately $165 million. 

The Austin Energy’s budget estimate of $142.5 million is within this range. 

NCI Independent Estimate of Fayette

As a second approach to validating the Austin Energy budget estimate of $142.5 million, NCI has developed a 

total project estimate of similar scope to that of the Fayette Project. 

Page 4 of 7 
A summary of the revised estimate is provided below. 

 Description Revised Independent 

NCI Summary Estimate 

Process Capital 

 Reagent Feed System 

 SO2 Removal System 

 Flue Gas System 

 Solids/Byproduct Handling 

 General Support Equipment 

 Electrical 

 New Chimney By Others 

 Water Treatment Plant 

 Balance Draft Conversion 

Subtotal Process Capital $134.7 

 Contractor Markup, Contingency & Profit 

 General Facilities 

 Engineering & Startup 

 Technical Direction & Support for Erection Contractor 

2002 NEW FGD CAPITAL COST $183.8 

 Escalation between proposal and equipment delivery (8%) $14.8 

2005 NEW FGD CAPITAL COST $198.6 

 Limited Retrofit Factor (+10%) $19.9 

 Extensive Retrofit Factor (+30%) $59.6 

Fayetteville Limited Retrofit Estimate $218.5 

Fayetteville Extensive Retrofit Estimate $258.2 

 Limited Retrofit Estimate 10% Contingency 

Extensive Retrofit Estimate 10% Contingency 

21.9 

25.8 

Total Fayetteville Supply Only Limited Retrofit Budget $240.4 

Total Fayetteville Supply Only Extensive Retrofit Budget $284.0 

 

Austin 50% Portion of Supply Only Limited Retrofit Budget $120 

Austin 50% Portion of Supply Only Extensive Limited Retrofit Budget $142 

Page 5 of 7 
The NCI independent total cost estimate range was $240 million - $284 million with a 50 percent portion range 

of $120 million - $142 million. These estimates are present day estimates of supply and construction only and 

do not include other owner’s costs or financing charges. 

The Austin Energy ($142.5 million) 50 percent portion of the project budget estimate is adequate to support 

this range. 

Analysis of Additional Data

Drafts of these NCI results were reviewed with the Office of the City Auditor. 

On July 10th and 13th, 2006 the Office of the City Auditor provided a Sargent & Lundy (S&L) assessment of the 

LCRA Rev 3 project estimate and the LCRA Rev 3 estimate respectively. The LCRA Rev 3 estimate, prepared 

by Burns & McDonnell (B&M), indicates a revised project estimate of $285,267,780. 

S&L noted changes and provided comments regarding the increases including higher labor rates. S&L also 

provided two independent estimate summaries based on their data and experience. These estimate summaries 

ranged from $268 to $278 million for the Fayette project. 

NCI Observations and Opinions

Based on NCI’s independent assessment and review of the S&L assessment and the LCRA Rev 3 estimate, NCI 

offers the following observations and opinions: 

1. The LCRA Rev3 estimate is approximately $285 million. 

2. S&L’s review of the LCRA Rev3 estimate comments on changes and provides independent estimates of 

$268-$278 million for FGD projects of similar scope 

3. NCI prepared generic low, mid, and high range estimates of $132 million, $223 million, and $330 

million respectively, which suggests a 50 percent portion of $66 million to $165 million. The Austin 

Energy budget of 142.5 million is adequate to support most of that range. 

4. NCI also prepared an independent estimate range for the Fayette project of $240-$284 million, which 

suggests a 50 percent portion of $120 million to $142 million. The Austin Energy budget estimate of 

142.5 million is adequate to support that range. 

Page 6 of 7 
NCI’s opinions are based on the documents indicated above that were provided by the Office of the City 

Auditor, publicly available information, and the experience of our consultants within the allowed time limits. 

From NCI’s document review it is not clear what recent engineering has been done on this project or the 

details supporting the LCRA estimate prepared by Burns & McDonnell for the Austin Energy. Review of this 

material might afford NCI greater insights into this project and better support NCI’s opinion. However, such 

a review would be beyond the scope of our current assignment. 

We appreciate the opportunity to assist the Austin Energy with this important effort. Should you have any 

questions, please call me at (978) 578-4821 or Dan Stathos at (512) 493-5415. 

Sincerely, 

Brian E. Feldmann 

Associate Director 

Page 7 of 7