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HomeMy WebLinkAboutMiddle Kuskokwim Regional Energy Project Construction Phase Jan-Mar 2005Middle Kuskokwim Regional Energy Project Construction Phase AEA Project Number 380329 Quarterly Report January 1, 2005 through March 31, 2005 Submitted April 1, 2005 Arctic Ocean Barrow Pacific Ocean a 1S) = fe) om = a oT a D) fn aa) rs S k= oly D) aa k= ° = - 2 A ae) ke Alaska Energy Authority / Rural Energy Group Mike Harper, Deputy Director Rural Energy 813 West Northern Lights Boulevard Anchorage, Alaska 99503 Phone: (907) 269-3000 Fax: (907) 269-3044 MKREP EXECUTIVE SUMMARY This quarterly report serves as a Project Status Update for the period January 1, 2005 through March 31, 2005 with regard to project funding, scope, budget, schedule and related issues. The baseline for this update is the Middle Kuskokwim Regional Energy Project (MKREP) Project Statement presented to the Denali Commission August 10, 2004. All necessary Business Operating Plans, Grant Agreements, and necessary related documents have been fully executed by all parties. Construction funding of $12,500,000 was secured by AEA through the Denali Commission in two allotments. The first was for $900,000 as a re-allocation dated November 10, 2004. The balance of $11,600,000 was conveyed to the Authority on November 30, 2004. Asa result, all funds necessary to commence the project were in place by early December 2004. The scope of this project is based on the August 10, 2004 Project Statement and specified in the October 22, 2004 Design Documents (Issued for Construction). The scope of this project has remained substantially the same. Several Value Engineering study recommendations have shifted certain scope items from field assembly to off-site facility manufacture. Attached are photos of on-going shop fabrication. The construction budget for this project was estimated to be $12,500,000. As of March 31, 2005, approximately $5,500,000 of contracts has been issued. These contracts have all been competitively bid and are mainly for major material procurement. As these contracts have been only recently awarded, actual invoicing is still under $1,000,000. The cost of these materials has been averaging 9% over the estimated budgeted values. As the major commodity procurements are almost complete, we do not see this trend continuing. The most likely scenario is that the volatility experienced in these procurements dissipates as the project moves into the more predictable phase of labor and assembly. We anticipate the final budget to be within 5% of the initial estimate. Generally the project schedule remains unchanged — in terms of overall project length. However, the projected completion date has been revised due to a 3-month delay in the availability of full construction funding. The delay has resulted in an anticipated substantial completion date of December 31, 2005 rather than October 31, 2005, and a final completion date of June 30, 2006 rather than December 31, 2005. Related Issues: Sustainability Quality Assurance/Quality Control Value Engineering Program Commodity Prices (steel and fuel) Equipment Shortages River Levels Apprentice Training Program January — March 2005 Quarterly Report Page 1 of 7 MKREP SCOPE The MKRE Project consists of the following seven Grant participants: Kuspuk School District (Bulk Fuel) City of Chauthbaluk (Bulk Fuel) Middle Kuskokwim Electric Cooperative (Bulk Fuel and Powerhouses) ‘Thomas Trading Post (Bulk Fuel) Takotna Community Association (Bulk Fuel and Powerhouses) The baseline for the scope of this project is the August 10, 2004 Project Statement. The following scope changes have occurred since that statement was issued: e The Stony River Traditional Council’s proposed bulk fuel storage was eliminated due to concerns about the village’s capacity to sustain the facility, a net loss of one 12,000 gallon storage tank to the project. e The Iditarod Area School District’s proposed bulk fuel storage in Takotna was transferred to the Takotna Community Association due to operational concerns. The net scope change is insignificant. The following summary table reflects these revisions: Distribution of Facilities 2 = vo 3 2 Uv 2 S . « Se 2 ge 3 8 gs 4 & 3 < Oo O° [4 D ”n HH = Be School Tank Farm(s) 2 1 1 1 1 1 7 Powerhouses 1 1 1 1 1 5 Powerhouse Tanks 1 1 1 1 1 5 Village Tank Farms 1 1 1 3 Other 1 1 1 3 Total 2 4 4 2 3 3 4 1 23 Through the use of on-going Value Engineering (VE) analysis, modifications to the project scope have been made in the area of material fabrication and coating systems. Please see the section on RELATED ISSUES for more information. As a result of Life Cycle Costing (LCC) analysis, pre-manufactured galvanized coating systems have been introduced to critical components. While this type of system is slightly more in cost than the conventional coating system (paint), the life expectancy is considerably longer on items that have significant system criticality. January — March 2005 Quarterly Report Page 2 of 7 MKREP SCHEDULE Task Planned Actual Projected Variance (days) 65% Design 7/15/04 7/15/04 0 Final Design Documents 10/22/04 10/22/04 0 Funding Secured 9/15/04 $900,000 11/10/04 55 ) $11,600,000 11/30/04 73 ¢ : . Procurement (minot) 10/15/04 10/15/04 0 b =e Procurement (major) 10/15/04 12/15/04 60 Shop Fabrication begins 11/1/04 1/15/05 45 \ Field work begins 3/1/05 6/15/05 105 Substantial Completion 10/31/05 Aniak 9/15/05 <45> >) Chuathbaluk 10/1/05 <30> / Crooked Creek 10/15/05. <15> AL Red Devil 9/15/08 <4s> |) g Lt Sleetmute 10/31/05 0 Stony River 10/1/05 <30> Takotna 10/31/05 0 Intertie 3/1/06 120.) \/ Final Completion 12/31/05 6/30/06 180 The Baseline Schedule (Planned Date) for this project was presented to the Denali Commission in the August 10, 2004 Project Statement. The schedule has experienced slippage on critical path items such as funding and procurement. To regain lost time the sequencing of the work was fast tracked by paralleling tasks. While this has picked up time, it has also increased risk. The dates of Substantial completion have not materially changed. We anticipate being mostly on-schedule with the exception of the intertie. The intertie will need to be built when the ground freezes, and the delay from the 2004-05 winter season to the 2005-06 winter season is responsible for the approximately 120 day anticipated delay. The intertie being delayed is the primary cause of the Final Project Completion being rescheduled by 180 days. We feel it is prudent to finish this project and conduct final inspections when weather and ground conditions permit a more accurate assessment. The projected schedule for field work start date variance will accommodate site surveying which is a non-critical path item that will not affect overall project mobilization or completion. This item was rescheduled as a matter of convenience and economies. January — March 2005 Quarterly Report Page 3 of 7 MKREP BUDGET | Project Budget vs Actual Expenses | | $14,000,000 sas pate ———_____________| April 1, 2005 $12,000,000 + | $10,000,000 - | $8,000,000 + po see | > § Field Construction $6,000,000 + — $4,000,000 ; : | Procurement Phase = —® Actual Cost | $2,000,000 —— : —™ Budget —— : _ Estimated | $0 + + - at 8/1/04 11/9/04 = 2/17/05 5/28/05 9/5/05 = 12/14/05 = 3/24/06 | Major procurement began in December 2004 and will finish by June 15". All contracts let to date have been competitively bid using Alaska Statute 36 protocol. Starting mid-June the project will shift from procurement to field construction. The construction budget for this project was established in August 2004 at $12,500,000. As of March 31, 2005, approximately $5,500,000 in contracts has been issued. The budget for this work was approximately $5,100,000, resulting in variance of $400,000 (9%). As the above graph depicts, we anticipate that the continued expenses should closely follow the original budget, being elevated by the current and future variances. We anticipate that the project construction costs will now be approximately $13,100,000 or $600,000 (4.8%) over the original budget estimate; however, we hope to realize economies during construction that may reduce this figure. There are various reasons for this variance. The following section on RELATED ISSUES details some of these reasons. In general materials have cost more than anticipated. However, once field construction starts we do not anticipate this budget trend to continue. In addition to the construction budget (AEA project number 380329) the following amounts have been previously encumbered or expended on activities in support of this project: e Bulk Fuel Design (Phases 1 through 3) AEA 340227 $1,332,242 e Power System Upgrade Design AEA 350259 $465,000 e AEA Project Administration AEA 380330 $275,000 January — March 2005 Quarterly Report Page 4 of 7 MKREP RELATED ISSUES The following issues warrant addressing in this report: Sustainability Quality Assurance/Quality Control Value Engineering Program Commodity Prices (steel and fuel) Equipment Shortages River Levels Apprentice Training Program e SUSTAINABILITY As part of the ongoing effort to ensure sustainability five Business Plans have been fully executed by all parties. The Kuspuk School District is considered to be a sustainable entity and does not require a business plan but has executed a grant agreement with AEA. Business Plans Denali Participant Plan Date Commission Signature Date Kuspuk School District na na City of Chuathbaluk 10/22/04 2/24/05 Thomas Trading Post 10/22/04 2/24/05 Middle Kuskokwim Electric Cooperative 10/22/04 2/24/05 Takotna Community Association (Power) 10/22/04 2/24/05 Takotna Community Association (bulk fuel) 10/22/04 2/24/05 © = QA/QC In the area of Quality Assurance/Quality Control (QA/QC), AEA has retained the services of an Independent Cost Estimator (ICE) to independently verify contract values. AEA also has retained independent certified inspectors to site-inspect fabricated materials to ensure adherence to specifications. The Quality Assurance for this project uses industry standards specifications, value engineering (VE) and ICE, while quality control is maintained by ongoing site inspections, qualified independent Subject Matter Experts (SME) and certified inspectors. e VALUE ENGINEERING Through the use of on-going Value Engineering analysis, modifications to the project scope have been made in the area of material fabrication and coating systems. For example bulk fuel pump boxes have been integrated into the tanks, a design that results in cost savings to the project while retaining the overall performance and quality. Powerhouses will now be January — March 2005 Quarterly Report Page 5 of 7 MKREP modularized, prefabricated and tested prior to shipment to their village locations. Coating specifications have been changed from proprietary to performance-based allowing a broader range of acceptable products to be considered. e COMMODITY PRICES Uncertainty over steel prices has negatively impacted the project budget. Vendors have factored this uncertainty into their bid pricing resulting in significant variances from the original budget estimates. Additionally, increasing oil prices have affected the cost of transportation and material fabrication across the board, which could negatively impact our original transportation estimate. The general overall national economic recovery, particularly in the northwest United States, has negatively impact the project budget. During the past year, there are several significant large-scale infrastructure projects underway in the Northwest including the Seattle Monorail and Light Rail Transportation Project and the Vancouver 2010 Olympic Games, both of which are “buying-up” scarce resources needed for the MKREP. As it appears that steel prices may have peaked (China will soon become a net exporter), vendors are not keeping inventories on hand as they would be holding onto a commodity that may decline in price. This situation has required procurement to be synchronized with steel mill runs to get “just in time” product delivery. Unfortunately, not all procurements can wait for mill runs and due to this new and unique situation, the price of certain steel items has been elevated due to shortages more than base commodity prices. Piling for instance was estimated as recently as November 2004 to cost $196,500, however, the lowest bidder (of 6 bidders) on March 17, 2005 was $291,000! e EQUIPMENT SHORTAGES Equipment shortages have negatively impact the project budget due to increased market pressure on heavy-duty construction equipment from the Middle East war and global market conditions as well as the above mentioned activities. Currently, there is a shortage of spare heavy equipment engines and tires as the military is exercising their national priority of procurement. Additionally, the strong economies of China, India, south Asia, the Middle East and Europe are consuming resources at an unprecedented rate. The equipment bids opened on March 25, 2005 went to the lowest bidder at $566,000 whereas the estimate from August 2004 had the same equipment spread at $456,000. It is interesting to note that stock in the Caterpillar Corporation has risen from $70/share in August 2004 (date of baseline budget) to a recent high of $100/share in March 2005. e KUSKOKWIM RIVER WATER LEVEL Possible low Kuskokwim River water levels during July and August may impact the project schedule. The original project schedule envisioned much earlier barge deliveries and movement between the project villages. This was based upon an advanced procurement schedule that did not materialize (see Schedule Section). The current project schedule now requires significant barge movement from mid-July to early September, a period that has January — March 2005 Quarterly Report Page 6 of 7 MKREP frequently seen low water levels in the past. Adjustments to task sequencing are being made to compensate for this elevated risk, however, lower than usual water levels will be detrimental to the project. e APPRENTICE TRAINING PROGRAM AEA has joined forces with Village Safe Water, Alaska Native Tribal Health Consortium and the U.S. Department of Labor to utilize joint resources and adopting The Rural Alaska Construction Training Apprentice Program (RACTAP). This is a significant step away from traditional “force-account, project-specific” training models used with past rural Alaska infrastructure projects to implementing a registered apprenticeship program. Previously, rural residents participating in On-the-Job Training (OJT) construction projects were given job-specific training that did not necessarily progress from apprentice to journeyman level. At best workers received certificates which may have enhanced their short-term job prospects but did not move them closer to long term employment. The new training model being adopted for this project is specifically designed to provide greater opportunities for its registered apprentices to progress from apprentice to journeyman status. During construction this project will provide documented training hours to rural residents in various trades such as welding and equipment operation. January — March 2005 Quarterly Report Page 7 of 7 MKREP End View of Module, Note Ceiling Panels Installed Front View of Power House Module Framing Photos Page 1 of 3 MKREP Primary ‘Tank Being Rolled & Machine Welded Photos Page 2 of 3 MKREP End View of Bulk Fuel Tank End View of Bulk Fuel Tank Side Elevation of Bulk Fuel Tank Ready for Coating Coated Bulk Fuel Tank Ready for Apurtenance Fitting Photos Page 3 of 3