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Planning a Fossil Teardown

Decommissioning and remediation of coal- and oil-fired plants.

April 2012

the desirability of removing an aging structure that might become unsafe and that, almost certainly, will present safety, vandalism, and theft risks if abandoned and left unoccupied over a long period of time. Stakeholder outreach during the planning phase can reduce glitches and avoid delays.

Site security: As any operator of a power plant knows, site security is a 24-7 challenge that requires money and manpower. An abandoned power plant, particularly near an urban area, becomes the ultimate attractive nuisance, one which likely becomes even more attractive as demolition plans become announced in the media. Scrap metal prices are at all-time highs. Amateur or professional metal thieves can break into an abandoned facility with relative ease. Outside a plant, cooling water ponds, coal piles, underground tanks, old transformers, stacks and rigging, drains, sumps and cooling water intake lines all present potential safety and security issues. It’s also essential to safeguard equipment used by the demolition contractor.

Rate recovery: While some regulated utilities have established—or been required to establish—reserves to fund demolition of a decommissioned plant, in most cases the reserve falls far short of the $30 to $60 million or more that could be required to perform asbestos and lead abatement and then take down a large legacy power plant. Thus, for regulated utilities that own a number of these aging facilities, qualifying for rate recovery becomes a critical issue that will determine whether demolition is even feasible. The case for rate recovery likely will turn on a number of factors, including a demonstrated need to address safety concerns, the cost of ongoing maintenance and repair, the ability to offset demolition costs through salvage at a time when materials prices are high, and lastly, any possible benefits from future use of a cleared and remediated site.

Contractual risk: The risk allocations in a complex demolition contract are similar to those in a typical engineering, procurement, and construction (EPC) contract. They involve responsibility for site safety, indemnification, termination for convenience and default, etc. Negotiating a lump sum or not-to-exceed price for a demolition contract can present challenges different from a construction contract, for reasons such as detailed as-built drawings might no longer exist and the difficulty of predicting the environmental components. However, particularly for rate recovery reasons, there’s a strong business incentive to seek price protection in the form of a guaranteed maximum price (GMP) or lump-sum contract.

Recovered materials: Many industrial demolition contracts today utilize salvage provisions that require the demolition contractor to recover as much metal as possible from the structure and to offset the cost of demolition with the value of the recovered materials. These considerations require the inclusion of measurement and verification provisions in the contract and specifications, along with post-completion audit rights.

RFPs and Bid Solicitation

While the utility owner likely has detailed knowledge of the plant, it might lack in-house engineers with the necessary experience or available time to put together the type of detailed information and specifications that will be needed to obtain quality bids with lump-sum, GMP, or other types of