OCA Audit Reports

Issued: October 2006

SUMMARY

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.

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 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.

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.

Download the entire text of our Fayette Power Project (FPP) Scrubber Costs (Size: 321 KB) in Adobe Acrobat. You will need Adobe's Acrobat Reader to view these files. Or request a hard copy of this audit report, No. AU06113, by submitting this audit report request form.

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