Lakeland Electric's new power plant is $29.3M over budget and more than a year delayed

Correction: Lakeland Electric is running nearly $29.3 million over its initial budget, not $47.3 million as first reported. The utility's staff reviewed its financial spreadsheet presented Friday morning and saw that the $47.3 million figure The Ledger quoted incorrectly included the $18 million contingency that was purposefully built into the original cost estimate for cost overruns and unexpected needs. LAKELAND — Lakeland Electric staff let the city know they are running $29.3 million over their initial budget and a year behind schedule in building their newest power plant.

David Holdener, LE's power plant construction manager, gave an update on construction of the six reciprocating internal combustion engines, also called RICE engines, purchased to help replace the power-generation capacity lost when C.D. McIntosh Unit 3 was decommissioned in April 2021.

Three city commissioners were present: Chad McLeod, Mike Musick and Sam Simmons.

"Mr. Musick, you asked me a couple months ago what happens when we get to the point we run out of money," Holdener said. "...[W]e are at that point with things."

Lakeland Electric staff estimated it will take two and a half years to build its new power plant. The municipal-owned utility initially budgeted about $145 million to purchase the six, natural-gas powered RICE engines from MAN Energy Solutions in Germany, ship them to Florida and construct the operational base for the new power plant. The initial budget included a cushion of an $18 million contingency fund.

The utility originally had hoped to have the engines start providing power to Lakeland customers this month. Now, Lakeland Electric's revised estimate is the power plant will cost roughly $174.4 million to construct and they hope to have it running in mid-November 2024.

"I hope our estimate right now is very close, but I cannot guarantee that," Holdener said. "We do not want to come to you for additional money. If we do come to you, it will be for good cause."

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What are the problems?

Lakeland Electric got approval from the City Commission to begin the process of decommissioning coal-powered Unit 3 in January 2021. It then put out a request for proposals to purchase the major generator equipment it needed, including the RICE engines, to build the new power plants.

In February 2021, the utility did soil borings to determine whether it could safely build its new power plant. The initial proposed site didn't work, said Chuck Beitel, senior vice president of Sargent & Lundy, a Tampa-based firm hired as the city's consultant for this project. The location would have needed more than $10 million in site work because of poor soil conditions.

"We had all these challenges out there, then we started purchasing major equipment probably about the time COVID hit," Holdener said. Holdener later clarified, while the COVID-19 pandemic started in March 2020, Lakeland and many other areas of the country were hardest hit by the Delta variant of COVID in the summer of 2021.

The spike in COVID-19 cases meant major suppliers and engineers were home sick and others were working from home. Holdener said the expected time frame to get engineered drawings increased from four to six weeks, to upwards of 24 weeks.

Beitel said that as COVID died down and business began to "return to normalcy," many industries began ramping up their production concurrently, creating a shortage of workers and a backlog of projects. This has allowed contractors to pick and choose what projects they work on, he said.

Holdener said the city sent its request for bids on the pre-engineered building to house the RICE engines out to 23 companies. He said he personally called five firms. The city received a single bid for nearly $5.4 million, roughly 54% higher than its estimate of $3.5 million.

The City Commission will vote Monday on whether to award a contract for all the above-grade contracting and RICE equipment installation to Rayco Industrial Inc. out of Selma, Alabama. It was the lowest of three bidders for the project at a total cost of nearly $62.8 million — the city had budgeted $26.5 million for this phase.

Holdener said the substantially increased costs are caused by a supply shortage, existing labor market and inflationary forces.

"It's due to the cost of materials, due to the cost of labor. You see help wanted signs everywhere and you have to pay more to get people to work," he said. "We are feeling all those effects like everyone else."

These costs may continue to rise as the project drags on because of delays. LE officials will ask city commissioners to approve a contract extension with consultants Sargent & Lundy through May 2025 or until the power plant is commissioned at the cost of an additional $1.87 million.

Holdener said Lakeland Electric staff are doing what they can to save money, but the utility won't be cutting corners.

"Our goal is to build a sustainable, operable, maintainable plant with those things that protect us and keep us running in the forefront to make the plant reliable and serve us for a very long time," he said.

Where does the project stand now?

Lakeland Electric has finished driving all its pilings and completed all its underground work. The utility has the structural steel frame constructed that will house the six RICE engines permanently.

Holdener said he expected to have most of the equipment ship this month, with the RICE engines shipping over from Germany in September.

Lakeland Electric will exercise its one-year extension to the power purchase agreement with the Orlando Utilities Commission to keep buying energy as needed to power residents' homes through December 2024. Holdener said OUC will not agree to extend the contract past that, if needed, as it has its own priorities and projects headed into 2025.

Sara-Megan Walsh can be reached at swalsh@theledger.com or 863-802-7545. Follow on Twitter @SaraWalshFl.

This article originally appeared on The Ledger: Lakeland Electric's new power plant is delayed and $29.3M over budget