6.19 STUDENT/READER ASSIGNMENT 1. What overall action should the board of directors of the PG&E Company have taken with regard to this major project when it was initiated? 2. What project management principles were not followed in the management of this project? 3. What do you believe to be the most serious omission in the management of this project by the senior managers and directors of this company? 4. What philosophy of project management" should the senior managers and board members have followed with respect to the project? 5. The PG&E Company had an excellent "track record" in the design and construction of fossil-fueled power plants. Why did they have major problems on the Diablo Canyon project? 6.18 PROJECT MANAGEMENT SITUATION-BOARDS OF DIRECTORS' INADEQUACIES In the material that follows, some of the key testimony presented by an expert witness on the prudence and reasonableness of the role of Pacific Gas & Electric Company (PG&E) in the design and construction of the Diablo Canyon nuclear power plant is presented. This testimony, along with other expert witness testimony, was presented during the period when the State of California was involved in evaluating the utility's request for rate charges to offset the cost of the plant's design and construction of approximately $5 billion. The Diablo Canyon nuclear power plant is located in San Luis Obispo, California. Nearly 20 years elapsed before the plant became operational. It was the first nuclear power plant constructed by PG&E-who did the design engineering for the plant. Other plants that were built by the company were traditional "fossil-fueled" power plants. Excerpts from the expert witness testimony follow: . "The evidence is clear, however, that neither the Board nor the Executive Committee played any significant role in directing and controlling Diablo until late in the project." "Because they lacked adequate information, PG&E Directors were unable to take appropriate action in the strategic management of the Diablo Project until late in its history." "My further review of all the meeting minutes of the Board of Directors and Executive Committee cited by PG&E's witnesses indicates that major periods passed during which these senior executive bodies took no action on the Diablo Project." "...the Board's effectiveness was limited severely due to its failure to insist upon timely, easily understood information on the project." "The Major Construction Report (in both its weekly version given to the Executive Committee and the monthly version provided to the Board) was deficient in at least the following significant respects: It did not distinguish between Diablo and other, much less significant jobs. The report provides no basis for comparing planned and actual costs of the job. The report provides no basis for comparing the planned and actual schedule. The report did not identify key problems, events or issues that could affect cost or schedule. The report totally neglected consideration of technical performance, including quality assurance and quality control. . The report did not facilitate identification of project trends." ...PG&E failed to develop an effective project information system for the Diablo Project until 1982. "At PG&E, however, such informational material and agenda items were typically not presented to the Board until the outset of the meeting." "My review of a number of key strategic decisions and actions on the Diablo Project indicates little, if any, involvement by the Board of Directors and the Executive Committee." "These decisions and actions included: Approval of a strategic plan for Diablo; PG&E's decision to act as its own architect, engineer and construction manager (AE/CM); Choice of a basic organizational structure for the project; Assessment of the suitability of the Diablo Canyon site; Assessment of the implications of the Hosgri fault; Full assessment of the implications of the Mirror Image Error; and Selection of Bechtel Power Corporation as Project Completion Manager." "Conclusion: The most crucial questions in evaluating the reasonableness of the Board of Directors' performance are: (a) what did the Board know, and (b) what action did it take. It is apparent from PG&E's witnesses' testimony and their voluminous exhibits that the Board knew very little about the most significant project the Company has ever undertaken. It is also apparent that the Board was little more than a passive onlooker at key decision-points in the Diablo Project. The PG&E Board's failure to insist upon thorough information and its inaction in the face of various problems were unreasonable.123