Bonus policy faulted

ST. LOUIS — When Ameren Corp. officials faced the prospect of closing the Taum Sauk reservoir in the months before its December collapse, they had more than just safety to consider. That’s because Ameren’s annual bonus policy strongly favors keeping plants running over closing them for safety concerns.

A two-month-long investigation revealed a policy for plant managers that pays out 60 percent of annual operating bonuses for generating profits, meeting budget and keeping plants open. Twenty percent is given for safety issues like avoiding lost-time accidents. The remaining 20 percent is tied to pollution control.

Ameren officials say the policy played no role in the Dec. 14 collapse of the upper reservoir at the Taum Sauk hydroelectric plant near Lesterville in southeast Missouri. Federal and state agencies are investigating the accident.

Other findings from interviews with several current and former Ameren employees, internal e-mails and documents include:

n Ameren managers delayed critical repairs for months at Taum Sauk before the collapse and were ever-conscious that closing down the plant, or even reducing its production, would crimp profits.

n Taum Sauk was built as a backup energy source decades ago, but was eventually used every day to generate electricity that was often sold for a profit on the open market.

Operations at Taum Sauk highlight the balancing act between safety and profits played by publicly traded energy companies like Ameren. The St. Louis-based utility uses more than two dozen power plants, including a nuclear plant, to provide electricity for about 2.4 million customers across Missouri and Illinois while providing healthy profits for shareholders.

A family of five was injured but survived when the Taum Sauk reservoir breached, sending more than 1 billion gallons of water rushing through Johnson’s Shut-Ins State Park. Had the accident occurred during a warm-weather month, hundreds of campers and day-trippers could have lost their lives.

Months before the collapse, Taum Sauk superintendent Richard Cooper warned Ameren managers in an e-mail that water level gauges were malfunctioning, making it difficult to determine how much water was in the 55-acre basin.

The reservoir had overflowed, Cooper wrote in a Sept. 27 e-mail. He wrote that such overflowing could cause a collapse.

On Oct. 7, Cooper warned Mark Birk, Ameren vice president, in a separate e-mail that the level gauges were bent and needed repairing, possibly requiring a shutdown. In the meantime, the reservoir’s water level would be lowered slightly to compensate for questionable readings. Cooper’s e-mail said the temporary fix should be adequate.

The plant was never shut down to repair the gauges. On Dec. 14, those gauges incorrectly showed that water levels were at safe levels until the moment of overflow and collapse.

Birk said Taum Sauk wasn’t closed because he relied on Cooper’s assurances that a temporary fix would be adequate. Ameren managers were designing and scheduling repairs, Birk said.

“I believe that at the point those (problems) were noticed, as the e-mail says, we truly felt we were making the right decision — the safe decision — at the time. In hindsight, it didn’t turn out that way,” Birk said.

Other messages show Cooper and his colleague Jeffrey Scott considered cost concerns when it came to repairs at Taum Sauk. Even the temporary fix of lowering the water level by one foot would crimp generation capacity.

“Moving the current operating level from 1596 to 1595 (feet) wouldn’t be popular. I’m not sure what that would mean in $$ of generation,” Cooper wrote Sept. 27.

Scott sent an e-mail to Ameren’s energy trading unit on Nov. 9, explaining that Taum Sauk might be taken out of production for repairs. The response from energy traders: Scott should do the repair if he was “100 percent sure” it would not disable the plant for a night. Otherwise the work would have to be delayed from Monday until the weekend.

The repair was delayed, although e-mails don’t indicate who made the decision to do so.

Energy traders play a key role in deciding which plants are turned on and off during any given day, according to Ameren. The traders first help schedule enough electricity to supply Ameren’s customers. Extra capacity can be sold on the open market. Ameren’s plants are scheduled to produce extra electricity if the market is favorable.

Such an arrangement is typical of big energy companies, said Ashley Brown, executive director of the Harvard Electricity Policy Group at the John F. Kennedy School of Government.

“You’d be stupid if you didn’t do that,” Brown said, adding that the arrangement helps coordinate power generation while boosting profits.

But Brown said it’s not unusual for companies to focus too much on generation and profits while cutting corners on repairs. That behavior doesn’t usually persist for long, he said, because it causes accidents or cripples power plants.

Utility deregulation allowed Ameren to sell power on the open market, and changed Taum Sauk’s role within the company, said Randall Hyde, who retired as an Ameren power dispatcher in 2003. The plant could generate power on short notice when prices were high, he said.

Taum Sauk was built in 1963 and was intended to be used roughly 100 days a year, according to documents from the time. Operating logs show it was used virtually every day before its failure.

“Instead of being a one-cycle (a day) plant, it became two or even three cycles if they thought they could sell it off for a profit,” Hyde said.

Steady production is a key focus of Ameren’s bonus system, which is based on Key Performance Indicators, or KPIs. An Ameren spreadsheet shows 60 percent of KPI bonuses are tied to meeting goals for profit, budget compliance and plant availability. An Ameren document says KPI bonuses account for half of a manager’s total annual bonus. The other half is given for personal performance.

The bonus system increased pressure to keep plants running, said Gary Girard, who retired in 2003 as an operator at Ameren’s Meramec coal plant in St. Louis County.

“We’ve run equipment sometimes the rest of the week that wasn’t running correctly,” Girard said. “But they would say, ‘Wait until the weekend, until the load wasn’t as much.”’

Birk said repairs are never delayed if safety is in question. He said the KPI bonus structure is misleading because safety concerns are built into bonuses for meeting budget and keeping plants running. Budgets include safety spending and plants must be run safely to stay open, he said.

“I believe it’s a balanced scorecard,” Birk said. “We have a number of things we have to focus on. We still have an obligation to run our plants reliably and we can’t dismiss that obligation.”

Utility companies commonly tie bonuses to performance measurements like KPIs, but each weighs bonuses differently between safety and profit goals, said Lawrence Makovich, a director at Cambridge Energy Research Associates Inc. who didn’t believe Ameren’s system was out of balance.

“The parameters tell you what people are kind of emphasizing as targets and goals,” Makovich said.

An Ameren plant can do well under the KPI system even if its safety performance is poor, according to a year-end memo sent to all employees at the Meramec plant.

“2005 was a very good year!” reads the March 2 message from plant manager Osbert Lomax. “On the plus side was Record generation, we met our budget, we had exceptional outages. On the down side we’ve got the highest employee injury rate of all the plants.”

The e-mail said Ameren’s goal is to reduce accidents, encouraging employees and managers to improve safety. But the accident rate didn’t hurt KPI bonuses — employees received a 100 percent payout, according to the e-mail.

Birk said the bonus was given because the Meramec plant met its worker safety goal, which decreased the number of accidents from the year before.