Basic accounting error led government department to miscalculate ongoing project costs
The document, which examines the restructuring of the FutureGen project in January 2008, found that a basic accounting error led the department to miscalculate ongoing project costs. This led it to drastically alter the nature of the project, delaying its operation by three years.
FutureGen, which was meant to begin operation in 2012, combined integrated gasification combined cycle (IGCC) with carbon capture and sequestration (CCS).
The initiative was designed to be an experimental one for emerging clean coal research, but construction prices had been escalating as material and labour costs increased. The DoE decided to withdraw support for the industry alliance that was partially funding the programme in January last year.
“Contrary to best practices, DoE did not base its decision to restructure FutureGen on a comprehensive analysis of factors, such as the associated costs, benefits, and risks,” says the report.
“DoE made its decision based, in large part, on its conclusion that construction and material costs for the original programme would continue escalating substantially in the definite future and that lifecycle costs were likely to double.”
However, the DoE’s own Energy Information Administration has pointed out that significant cost escalation for building power plants does not continue in the long run.
The department also made a fundamental mistake in assessing ongoing project costs. It said that costs had doubled from original estimates, using that as the key justification for withdrawing funds from the alliance.
But when it compared its original 2004 estimate of the project’s cost with the alliance’s 2006 estimate to reach that conclusion, it did not take into account that the first estimate was in constant 2004 dollars, whereas the latter was in inflated dollars. Had it acknowledged this difference, the project cost would only have increased by 39 per cent ($370m), according to the GAO.
Another good reason to make sure your units balance. I find this explanation of the cancellation barely credible. There must be more to this than meets the eye.