Reference no: EM132232251

Producing Electricity via Steam-Powered Turbines: A Hypothetical Case Study Sam Martinez is seeking to invest a portion of his considerable assets in the independent electric power production industry in California, a sector projected to experience very rapid growth in the 21st century. He has set up and funded a company, Mexi-Energy, Inc. The intention is to use the company to build and operate an electric power plant, and then form a non-profit organization to donate some of the power to social service agencies serving immigrant families. The large public-sector, (hypothetical), California Energy Resources produces most of the power for California. The main exceptions are co-generation plants associated with food processing, timber and similar industries, some small hydro plants which generate electricity for northern California via turning water into steam, which turns “turbines” in the plant, thus producing electricity. These independents are the basis for Mr. Martinez’ business model but also competition. California Energy operates all long distance distribution, selling electricity to municipal utilities for local distribution; brokering power sales to large industrial customers, and providing electricity wholesale to small rural customers. Privatization of California Energy Resources is being argued by leading environmental groups, with a view that increases in electricity cost per unit would decrease electricity consumption. These probabilities have been calculated as part of California Energy Resources’ financial forecasts but lack any risk management plan. Sam has identified what he believes to be his first big opportunity. It would involve: 1. Producing base load electric power for sale to California Energy in a northern California town using a combined cycle gas turbine (CCGT) set of natural gas powered turbines driving generators with waste heat, producing high pressure steam to drive a steam turbine generator. 2. Providing (for sale) low pressure steam for manufacturing organizations in the immediate vicinity of the CCGT plant. The local city has a natural gas network and supply, but the supply pipeline is not large enough to cope with the proposed CCGT type of natural gas-run turbine. The gas supply company will provide a new main and gas at a price per unit fixed for a substantial time period. However, they require a “take-or-pay” contract with any buyers. If Mexi-Energy decides to contract to take gas from any given date, they will have to pay for the contracted natural gas flow whether they use it or not. A range of established suppliers of CCGT plants would be willing to sell Mexi-Energy its turbine-driven equipment under three design categories: 1. New untested design. Very high fuel efficiency. Initial reliability is uncertain. Likely to be very reliable in the long run. Claimed very low maintenance costs. Low capital cost to encourage purchase. 2. State of the art tested design. High fuel efficiency, high reliability and low maintenance costs. Very high capital cost. 3. Tried and true design. Low fuel efficiency, moderate reliability and maintenance costs. Moderate capital cost. CCGT plant suppliers will install the major plant components on a fixed price basis. MexiEnergy Inc. has revised the scope and contract, with stiff penalty clauses for 1) delays or 2) performance failures, for which the manufacturer must be responsible. However, such penalty clauses may not be operable, for example, if ground conditions actually are not in the condition stated in environmental tests or if electrical grid connections are not in place when required. California Energy will provide grid connections and will not allow anyone else to do so. The plant could be delayed for weather reasons. Start-up could be delayed due to grid hook-ups or electrical black-out failures due to rolling black-outs. Water to turn the CCGT turbines will be taken from a river which flows through the municipality. However, no legal environmental permits have been granted to remove water from these rivers during the several drought years in California. Permit fees statewide are rumored to rise dramatically before construction begins. Extraction of water requires municipal planning permits. Also, state government approval is required for the plant construction using water pipelines, low pressure steam lines, and power lines. All construction must be scheduled, of course, dependent upon approvals from governmental agencies. Use the following scale when formatting your risk register and rating risks for part A of Mid-Term Exam question 3. Probability and Impact Matrix Scale Probability ratings: 1% -39%: Unlikely 40%-69% May or may not occur 70%-89%: Likely to occur 90%-100% Highly probable Impact ratings: 1 Minimal 2 Moderate 3 Significant 4 Catastrophic Color-coding required Final Column in Risk Register: Risk Score is calculated by multiplying ___ x ___ a) Read the Mexi-Energy case below. Format a risk register table (you can use MS Word or Excel). Identify the top six risks facing the project management team. Rate these risks using the scale provided at the end of the case. b) Since there will be expensive penalty clauses in the contract for any delays, explain two methods to mitigate risks to scheduling. Cite your readings.