POWER GENERATION

1. American Bar Association Forum on the Construction Industry POWER GENERATION Presented By: David Crouse Sithe Global Daniel M. Drewry Drewry Simmons Vornehm, LLP

2. Statistics • U.S GENERATED 4,143 billion kilowatt hours of electricity in 2011 (1.5kW/person) • Sources Generating Electricity • Coal 41.6% • Natural Gas 25.5% • Nuclear 19.1% • Hydro 7.8% • Renewable/Other (Solar/Wind ) 6.0%

3. U.S. ELECTRIC POWER PRODUCTION 2011 2011 STATISTICS (ROUNDED)

4. POWER GENERATION TRENDS

5. POWER GENERATION TRENDS

6. POWER GENERATION TRENDS Source Trend Reason Coal decline Enviro Nuclear decline Enviro/Regulatory Gas CC growth Price/Efficiency Hydro decline Enviro/Cost Wind growth Regulatory/subsidy PV Solar growth Regulatory/Price

7. FOSSIL/NUCLEAR ELECTRICITY GENERATION

8. COAL

9. COAL PLANT PROCESS (RANKINE CYCLE)

10. NATURAL GAS COMBINED CYCLE

11. COMBINED CYCLE (BRAYTON+RANKINE) PROCESS

12. NUCLEAR

13. HYDRO

14. WIND

15. SOLAR SOURCE: GTM Research and SEIAM Research and SEIA

16. BUILDING THE PLANT Developing, designing, purchasing, constructing, and starting up a large power generation facility is a complex, risky business that involves the management of thousands of interface points and requires extensive planning and coordination.

17. Development Considerations • Pro Forma comparing cost to revenue for the facility life cycle • Life cycle of a plant is about 40 years • Revenue Stream from generation will last 40 years (projected demand) • Current cost is as much $ 1.7 million per megawatt

18. What to Build? • Considerations • Site Location & Space Considerations • Fuel Source and projected cost/availability • Water Source and projected cost/availability • Schedule & Cost • Environmental &Regulatory Concerns • Public/Social Considerations

19. Levelized MWh Cost by Type Energy Information Administration, Annual Energy Outlook 2012. June 2012, DOE/EIA-0383(2012).

20. STEPS IN CONSTRUCTING A POWER PLANT • Regulatory Approval and Permits • Design/Purchase of Generating Equipment • Design of Fuel Delivery System • Electrical Transmission Considerations • Design of the Facility • Construction • Startup, Commissioning & Testing • Operation & Maintenance

21. Regulatory Approval & Permits • Vary by State & locality • EPA & Regulatory Considerations • Air Pollution (Sox, Nox, Particulates, Carbon) • Grey water treatment • Ground Water • Wet lands • Other (Noise, aesthetics, social benefits, etc.)_

22. Design and Pre Purchase of Generating Equipment • Major Equipment is Designed & Manufactured by OEM Vendors (Boiler, Steam Turbine, Combustion Turbine, AQCS) • Equipment can take years to Design and Manufacture long lead deliverables • Equipment is often assigned to EPC Contractor • Performance guarantees, delivery lead times, constructability, warranties and long term maintenance agreements are critical purchase considerations

23. Power Transmission • Age (technology of transmission system) • Capacity / Constraints of Transmission System • If New Transmission is required. How long to Build (Right of Ways)? • Other (Interconnect studies, VAR support)

24. Facility Design • Power generating facilities are huge complex projects that demand extensive experience and coordination from the designer, builder and OEM vendors. • Previous era plants were constructed as “Design-Build” where all aspects of the design and procurement were completed before construction began. • Today contracts are often awarded on an EPC (Engineer, Procure, Construct) basis with a “fast track” schedule where construction often begins before all systems are designed. This reduces cost (IDC) but can add risk. • A Reference Plant, a 1,000 MW (2x500) generating plant was estimated to require 898,200 man hours for design.

25. Construction • Schedule (CPM) • EPC Contractor develops Baseline Schedule • EPC Contractor provides Periodic/regular schedule updates identifying problems and projecting final completion • Budget (LSTK, Cost Plus, Gmax) • EPC Contractor develops Baseline Budget • EPC Contractor provides Periodic/Regular Budget revisions identifying contract changes and projecting final project cost.

26. Construction Risks • Differing Site/Design Conditions • Labor dispute/Productivity • Design/Manufacturing Errors & Omissions • Quality Assurance/Quality Control • Regulatory Approvals • Safety/Injuries • Shipping/Storage Damage/Loss • Commissioning errors • Performance Shortfalls

27. Construction2x500 Reference Plant • Mobilization, General Conditions, Demobilization • Project Duration Approximately 4 years

28. Site Work

29. Site Work2x500 Reference Plant • Site Work includes: • Clear and Grub • Site and Building Excavation • Sewer, Water and Storm Sewer • Streets, Sidewalks and Landscape • Stormwater Retention • Cost can vary by location

30. Civil Work

31. Civil Work • Civil Work Includes • Building & Equipment Foundations • Building Structural Concrete • 1,000 MW reference plant requires over 130,000 cy. • Trades involved : ironworkers, carpenters, cement masons, laborers, operators, electricians.

32. Structural Steel

33. Structural Steel2x500 Reference Plant • Structural Steel Work Includes • All Building Structural Systems • Most Work is performed By Iron Workers • Major Equipment (cranes etc.) is required • Typical 100 MW plant requires about 25,000 tons

34. Architectural • Then:Design Build, Brick & Mortar, Overbuilt, Cheap Labor, Long Schedules • Now:Fast Track, Prefab Steel, Structurally optimized, Critical Path Schedule

35. Architectural Work2x500 Reference Plant • Architectural work includes all interior and exterior architectural elements. • Work is performed by carpenters, drywallers, painters, floor installers, plumbers, HVAC installers and electricians

36. Generating Equipment • The most expensive and critical aspect of the plant • Long lead • Exotic precision design, delicate • Basis of plant performance production

37. Major Equipment • Major Generating Equipment • May be Pre-purchased by Owner • Designed & Manufactured by Vendor (OEM) • & Assigned to EPC Contractor • Work is performed by pipefitters, steamfitters, millwrights, electricians.

38. Piping Work2x500 Reference Plant • Piping Work Includes • Water, Steam, Fuel and Exhaust Piping • Work is performed by Pipefitters, Steamfitters and Plumbers • Advanced metallurgy requires specialty welding skills and procedures (P91) • Typical plant requires about 771,365 linear feet of pipe.

39. Electrical and Cabling2x500 Reference Plant • Over 6 million linear feet or over • 1000 miles of cable and wire. 1,110 miles of cable and wire may be used. This much wire would stretch from Denver to Chicago.

40. Electrical Work2x500 Reference Plant • Electrical and Cabling work includes • Internal Plant wiring • Internal Power Distribution Cabling & Supports • Exterior Transmission interface • Control Wiring • Work is performed by Electricians and Linemen • Typical plant requires over 6 million lineal feet of cable and wire.

41. Instruments and Controls2x500 Reference Plant • Work includes all control system installation for mechanical and electrical systems. • Distributed Control Systems (DCS) is the brain and nervious system of the power plant. • Work is performed by specialized control technicians, electricians, HVAC and plumbers.

42. Power Plant Totals

43. Coal, Nuclear, Gas • U.S. Coal plants are aging and though fuel source is plentiful, environmental concerns will hinder future growth of coal plants in the U.S. “Clean coal” technologies are complex, expensive and inefficient. • U.S. Nuclear plants are aging and regulatory and complexity will hinder future growth of Nuclear plants in the U.S. • Natural gas combined cycle plants are very efficient, flexible and cost effective to build. With the advent of advanced gas recovery techniques (Fracking) the U.S. is poised to have a new resurgence of combined cycle plant construction in the U.S.

44. Hydro, Wind, Solar • Hydro capacity is not likely to increase in U.S. Large dams will not be built in the U.S. in the near future due to environmental, regulatory and cost constraints. • Wind technology is well developed but over all costs are still higher than fossil plants and this source is largely subsidized. • Solar technology is still developing and is largely subsidized but PV panel costs are falling fast and both utility and distributed (rooftop) scale implementations are promising • Storage/availability remains a significant issue for windand to lesser degree solar

45. Legal Issues Presented by Power Construction Projects

46. Owner-Furnished Equipment • Power plants are primarily equipment plus connections and controls. • Equipment costs are the largest single component of construction costs. • Owners often prefer to purchase the major equipment directly. • Owner-Furnished equipment presents unique problems.

47. Owner-Furnished Equipment • Worst-case scenario for contractor: • Owner furnishes equipment. • Contractor responsible for delays in delivery. • Contractor responsible for inspection of equipment upon arrival. • Contractor responsible for storage of equipment. • Contractor responsible for defects in equipment not discovered in initial inspection.

48. Owner-Furnished Equipment • More reasonable approach: • Owner furnishes equipment. • Delays are compensable. • Owner and contractor responsible for inspection upon arrival for physical damage. • Owner responsible for storage until project is ready to accept equipment. • Owner responsible for latent defects in equipment.

49. Owner-Furnished Equipment • Warranties should always be the responsibility of the party furnishing the equipment. • May be complications due to equipment connections. • Best solution: contractor warrants connections, owner warrants equipment • Ditto for manuals, training, spare parts.

50. Any Questions?