Motivation
Many Americans are living in working class households, and are acutely attuned to the importance of affordable and reliable power for the survival and comfort of their friends and families. When pursuing a research topic, my work experience within the power industry was used as a point of take-off to understand how to best serve the societies we live in when planning for and executing additional capacity and flexibility projects within power and pipeline industries. While regulating bodies such as FERC are in place to serve and protect customers from a monopoly’s power, it has alternatively been argued that rate of return regulation encourages regulated firms, such as power and pipeline utility companies, to overcapitalize on projects that could be executed at a lesser cost. The upfront costs of these capital projects directly influence the rate that customers are charged per kilowatt hour of power. Understanding the current cost and schedule performance of these projects, the planning metrics used, and the risks associated with these projects provide a deeper understanding into how to better plan for and execute power and pipeline projects in the future.
Research Aims and Questions
The overarching aim of this research is to contribute to the construction management and engineering body of knowledge by explicitly comparing the capital project performance and planning of power and pipeline projects in both regulated and non-regulated environments. We critically assessed one highly regulated industry, nuclear power, to document risks inherent in that sector. To achieve this aim, we took a multi-pronged approach, rooted academic literature, but explored in both practice and non-academic literature, as described in the methodology section. From this, the following three research hypothesis are proposed: Hypothesis (1) postulates that the performance of non-regulated projects is statistically significantly different from the performance of regulated projects in the power and pipeline sectors. Hypothesis (2) postulates that the planning processes, such as stakeholder involvement, percent time spent in project planning, and project definition score are statistically significantly different in non-regulated projects in power and pipeline sectors than their regulated counterparts. Lastly, hypothesis (3) postulates that there are unique risks that are captured in nuclear power plant construction and they are unique to the time and location the plant is constructed in, as well as the reactor manufacturer the unit is constructed by.
Research Question 1:
Is project performance different in regulated power environments vs. nonregulated power environments?
Research Question 2:
Is the project planning process different in regulated power environments vs. nonregulated power environments?
Research Question 3
What are highly unique risks that present themselves on a highly regulated power project?
Project One
Research Methodology
We used a quantitative approach to data collection and data analysis, utilizing the performance numbers (cost and schedule) to compare how power projects perform in both regulated and non-regulated environments.
Data was collected, stored, and analyzed in STATA.
Results
For regulated and nonregulated power projects, we tested the correlation between regulation and: (1) estimated cost, (2) actual cost, (3) cost growth, (4) schedule growth.
Results show, with statistical significance, that the estimated costs of power projects of similar scope, were higher in regulated environments than their nonregulated counterparts.
Comparison of the Estimated Cost Index for Nonregulated and Regulated Power Projects
Results show, with statistical significance, that the actual costs of power projects of similar scope, were higher in regulated environments than their nonregulated counterparts.
Comparison of the Actual Cost Index for Nonregulated and Regulated Power Projects
We found, with statistical significance, that both regulated and nonregulated environments saw little to no cost growth or schedule growth .
What this means, is that power projects, regardless of regulation, were accurate in their cost/schedule projections.
Why do we care?
If nonregulated power projects (of similar scope) were able to be estimated and completed at a lower cost, what prevents regulated projects from performing the same? Here is where we began to explore the differences in the planning processes in each environment.
Project Two
Research Methodology
We used a qualitative approach to data collection and data analysis, utilizing the process data (interviews and survey responses) to compare how power projects perform in both regulated and non-regulated environments.
Data was collected, stored, and analyzed in STATA.
Results
In terms of people involved in the project process, we found that both regulated and nonregulated projects generally had the same roles involved for generally similar amounts of time.
Project Team Role Contribution Through Project
However, we did find that regulated projects on average spent less of their budget on the process design, which could mean that they have less certainty built into the planning process, which could account for their higher estimated cost.
Total Budget Spent in Front End Loading (FEL)
Why do we care?
If regulated projects are not spending as much time or money in planning, and padding their estimates to account for this lack of planning, these costs are being trickled down to their customers.