Shifting Out of Neutral

Issue 10 and Volume 108.

Emerging from a difficult period in its history, the power industry is once again looking to the future. In this preview of several papers to be presented at POWER-GEN International, the future is coming into focus.

After several years of scandal, market weakness, and regulatory uncertainty, the power industry has re-established stability and is now looking once again for growth opportunities. While the high-flying days of 1998-2002 are unlikely to ever return, a period of modest growth appears to be materializing.

Culture Change

Amid the travails of the past few years, mere survival often held greater importance than plant and system-level optimization. Long-term initiatives received little to no attention and continuous process improvement became decidedly discontinuous. To operate most effectively in the restructured competitive landscape, however, long-term change is needed, particularly in terms of organizational structure and company culture.

“Through our performance improvement assessments, we have observed generation plants with strong defensive cultures having greater hierarchy, higher staffing and costs, and difficulty sustaining performance. When management at these plants acknowledged the impact of culture and implemented a performance improvement approach that integrated culture, process and technology initiatives, they significantly improved and sustained higher levels of performance,” says Martin Marquardt of TOSAN Inc., who will present a paper on this subject at POWER-GEN International in Orlando, Fla., Nov. 30-Dec. 2.

Marquardt will profile the PPL Susquehanna nuclear facility in Berwick, Pa., to demonstrate how cultural changes there have returned the plant to best-in-class performance. Like many tenured industry leaders, Susquehanna had fallen prey to its own success, growing autocratic, insular and increasingly rules-driven. As a result, the organization’s culture, once described as “team-focused, family oriented and having pride in ownership,” had become “avoidant, cynical and full of blame.”

To compete in a changing environment, Susquehanna recognized that it needed a new culture characterized by shared leadership, increased accountability for operational performance, and greater cross-functional cooperation between management and employees. To assess the state of its own culture, Susquehanna completed a comprehensive evaluation, which turned up a number of concerns around leadership styles. “For example, most operational decisions required the approval of the Chief Nuclear Officer, often without input from others,” says Marquardt. “Not only did this result in poor execution, it did little to encourage leadership behavior or initiative in others.”

Bargaining unit employees perceived management as disloyal and indifferent to their issues. Middle managers and first-line supervisors felt equally disenfranchised. One supervisor summed up the plant mindset as, “I do exactly what they [management] tell me to do – no more, no less.”

Susquehanna management implemented TOSAN’s Building Leadership Capacity process to shift leadership styles, help managers build stronger relationships with peers, and break down barriers between departments. Multiple training sessions provided leaders with practical tools for improving feedback and coaching skills. Susquehanna also offered Building Team Capacity training sessions to all 1,200 employees at the plant. “The sessions replicate major elements of leadership training with an emphasis on assisting people in letting go of the past, gaining alignment to a new vision and building teamwork across departments,” says Marquardt.

In the midst of the leadership training sessions, Susquehanna had a challenging opportunity to “walk the walk and talk the talk.” Plant management decided to restructure the organization and reduce the workforce by 200 people. Executives feared the decision would reinforce the negative perceptions of an already disengaged employee body, as well as undermine efforts to transform the organization’s culture. However, education provided on the psychological responses people naturally go through when organizational change is announced helped leaders better understand and respond to employee reactions. Management also decided to support employees by openly acknowledging people’s thoughts and feelings.

One of the most effective ways to demonstrate culture change is by recruiting and promoting employees who embrace and model desired behaviors – and to phase out those who don’t or won’t. At Susquehanna, tough decisions resulted in replacing key managers who resisted adopting new leadership styles, including several senior leaders.

While anecdotal evidence strongly supports the cultural change at Susquehanna, quantitative performance gains can be measured as well:

• Production cost reduction of 15%, total production increase of 9%.

• Overall improvement in the INPO index, a cumulative score of key performance indicators, from 85.9% to 99.3% over a three-year period.

• Significant decrease in human performance errors from 1.17 to 0.38 incidents per 10,000 employee work-hours.

• A reduction in maintenance backlog over three years from 400 items to 21 items.

Susquehanna recognizes that the success of change initiatives is measured in years, not weeks or months. “It takes years of sustained change to get people to buy in,” said one senior manager. “We need to be willing to stay with it in terms of our succession planning, development plans and the changes in infrastructure and reward systems that support the cultural change. If we revert, we fail.”

Technology Change

Culture change can facilitate company performance improvement, but technological change is often required to address broader industry issues. Coal gasification – integrated gasification combined cycle in particular – is one such technological change agent.

Its superior environmental performance and high efficiency, coupled with access to ample fuel supplies, promise significant commercial opportunity, but acceptance has been slow to materialize.

Eastman Chemical Company has more than 20 years of experience operating a commercial-scale coal gasification facility. The facility, in Kingsport, Tenn., converts about 1,250 tons/day of coal into methanol and acetyl chemicals for use in Eastman’s manufacturing plant. While the facility does not produce electric power, the experience gained with the gasification system should provide end users contemplating IGCC a sense of confidence in the technology’s reliability.

For the three-year period of July 1, 2001 through July 1, 2004, Eastman’s uptime (on-stream time) was 97.98%. Aside from a once every three-year planned maintenance shutdown, all other downtime is categorized as unplanned or as forced outage. There is never a time at Eastman where the gasifier is not needed.

Identifying the reasons for why IGCC has not blossomed is not difficult. A survey conducted on behalf of the Department of Energy revealed four primary challenges: 1. Higher capital costs than competing technologies; 2. Doubts about plant viability without subsidies; 3. Increased risks associated with upfront development costs; and 4. Low plant availability in the early stages of operation. Based on its experience and analysis, Eastman believes each of these barriers is coming down.

“While it is difficult to make a true ‘apples-to-apples’ comparison among the technologies, it is generally accepted that IGCC plants are more expensive to build than supercritical pulverized coal (SCPC) plant,” says Nathan Moock with Eastman Gasification Services Company, who will deliver a paper on Eastman’s gasification experience at POWER-GEN International. The average capital cost differential between IGCC and SCPC, based on limited data, is about $120/kW. Moock points out, however, that IGCC plants have been relatively small and have not enjoyed any significant economy of scale benefits. AEP’s recent announcement to build a 1000 MW facility by 2010, therefore, will provide a better test of IGCC’s economics (see figure).

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With regard to concerns about plant viability without subsidies, Moock points to Eastman’s own gasification facility. It has been such an economic success that the company expanded the operation in 1991 and is now totally dependent on coal gasification for the manufacture of its acetyl line of chemicals (acetic acid, acetic anhydride and their derivatives). IGCC holds an advantage over other coal-based power technologies because it can co-produce chemicals, improving the economic viability. A chemical co-product will allow the gasifier to operate at full output regardless of the downstream power demand.

To address upfront risk, particularly the front-end engineering design costs, developers should involve an experienced gasifier operator, which can act as the owner’s engineer during design and shorten the development time by focusing on the key operability issues. With this approach, the developer can receive a realistic assessment of proven vs. first-of-a-kind technology, a realistic estimate of staffing requirements, and access to actual reliability data to make decisions about vendor selection and equipment redundancy.

Finally, worries about low plant availability in the first few years of operation are directly related to the quality of engineering, construction and functional check-out activities prior to start-up. Eastman has identified several key focus areas to ensure high reliability. First, because a gasifier is more like a chemical process than a power process, the coal should be treated as a feedstock rather than a fuel. As such, feedstock characteristics must be incorporated into the design. Second, functional check-out activities must include field operators to ensure familiarization with equipment and controlled start-up sequencing. Third, in-depth DCS (distributed control system) training is essential to facilitate smooth start-up and operation. Fourth, efficient maintenance programs are critical to keeping availability high. Planning and scheduling software should be used to develop standardized turnaround checklists and templates.

“In the final analysis, the focus around any new power plant is ultimately related to those things which influence the overall NPV (net present value) of the project,” says Moock. Eastman analyzed the relative effect of six key parameters on the overall NPV of a generic 560 MW IGCC plant. “Electricity price and capital costs were the top influencing variables, but the importance of reliability should not be missed. A 10% change in reliability can nearly equal a 20% change in capital costs. These effects should be understood when trying to evaluate the different IGCC technologies. Some technologies may offer marginally better heat rates but at the expense of capital cost and operability. Likewise, O&M costs for IGCC plants are typically higher than for traditional PC plants, but it had the lowest relative effect of all the parameters studied.”