20190924Avista to Staff Attach McClain Crow.Rpt 7.pdf

Main Office:
24919 Canston Court
Spring, Texas 77389
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McLain Crow & Associates,LLC
www.mclaincrow.com
Insurance Loss, Management & Consulting Services Branch Office:
26423 Hidden Timber Ln.
Katy, Texas 77494
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Fax: [phone]
13 March 2008
Underwriters and Insurers at Interest
REPORT NO.7
INTERIM
INSURED :Avista Corporation
1411 East Mission Avenue
Spokane, WA 99220
INSURERS/POLICY NOS.:AIG –2611149 –40%
Lloyds c/o R.K. Harrison –NRS10610147 –25%
AEGIS –L0149A1A06 –20 %
Starr Tech –EUTN01938630 -11%
Energy Insurance Mutual –310218-06GP–4%
POLICY TERM :November 25, 2006 to November 25,2007
LOCATION OF LOSS :Coyote Springs Substation
Near Boardman, OR
DATE OF LOSS :March 23, 2007
TYPE OF OCCURRENCE :Electrical Arcing of Transformer
CLAIM OR REF.NUMBER :AIG –229-006448
Lloyds c/o R.K. Harrison –150174(3220)
AEGIS –38920
Starr Tech -253
Energy Insurance Mutual –903921-06GP
MCA FILE NO.:07MCA01 87RC
Ladies &Gentlemen:
We respectfully submit our interim report in connection with the above referenced matter.
AVISTA Corporation 13 March 2008
MCA File # 07MCA0187RC Page No.2
ENCLOSURES
1.None at this time.
REQUESTED INFORMATION:
1.The estimated costs to repair the transformer.
2.The estimated costs for transportation to and from the repair facility.
3.The cost of the replacement transformer.
4.All costs incurred for the removal of the damaged transformer.
5.The estimated costs of the installation of the new transformer.
6.The salvage value of the damaged transformer.
DEVELOPMENTS:
It was reported that on March 23, 2007 at 7:05 AM the Coyote Springs transformer was taken off line due to
alarms that indicated the presence and then rapid increase of Acetylene in the oils.This increase in the gas was
noted on the Serveron Unit, the Buchholz relay and the Hydran Gas indicator. Oil samples were also taken and a
Dissolved Gas Analysis was performed. This analysis confirmed the increase gas in the oil.Following initial
inspection to locate the source and extent of problem that caused elevated gassing, it was apparent that
investigation of the transformer problems to affect potential repair could only be conducted only in a controlled
factory environment.Based on the forensic examination, complete rebuild of the transformer would be
necessary to restore it to serviceability.
Following our conference call of 11 December 2007 we were instructed by the markets to proceed with the
adjustment of the claim.We have requested the cost estimates to repair the transformer along with the costs
associated with transporting the transformer to and from the repair facility. We have also requested the costs
incurred to date and the estimated cost of installation of the transformer. In addition we requested the salvage
value received for the damaged transformer.
Following our conference call we informed the insured that this claim would be considered covered under the
policy and that we would proceed with our settlement.The valuation would be limited by the deductible and
determination of the relative cost for repairing compared to replacement costs of the transformer.It is our
understanding that the insured has requested repair cost estimates from Areva however as of this date Areva has
not responded.The insured is aware of our estimate to repair the transformer as presented by Mr.Feloni
however they maintain that the estimated costs of repair are highly uncertain and that they must be considered in
light of the unlikelihood that an effective repair could be accomplished.
The insured has indicated that they considered the availability of qualified repair facilities, the cost of
transporting the unit to such a repair facility and back to its service location, difficulties in obtaining warranty
and other factors.With unknown costs to investigate the problem and affect the repair, together with the
absence of qualified repair facilities,the insured decided to minimize expenditures on the Areva unit and
evaluated a replacement alternative.
After negotiation,the insured entered into a procurement agreement with Siemens for a new spare unit based on
design of the spare Siemens unit that was now placed into service.The procurement agreement provides for
delivery and final acceptance by July 1, 2009.The new spare unit is to be manufactured by Siemens at their
AVISTA Corporation 13 March 2008
MCA File # 07MCA0187RC Page No.3
facility in Brazil.The contract price for the replacement unit is $4,268,000 with the majority of costs payable
upon shipment and acceptance.This price includes shipping to the facility in Boardman, Oregon .
The insured has indicated that they have incurred costs for failure analysis, removing the Areva transformer
from service, placing the previous spare Siemens transformer into service, and other activities.They also have
indicated that the net proceeds from salvaging the Areva unit are offsetting Avista’s outlays to date.
Based on the maximum nameplate rating for this unit (its ratings are 218/284/355 MVA) and a deductible of
$1.25/kVA, the computed deductible to be absorbed by Avista is $443,750 (= 355MVA x 1.25/kVA x
1,000kVA/MVA).Avista’s expenditures to date do not exceed the deductible.
EXPERTS:
With insurers authorization we retained the services of Mr.Ed Feloni to assist us in this matter.
SUBROGATION AND SALVAGE:
This transformer was manufactured in 2002 at Gebze Turkey. During the initial testing in August of 2002 the
unit failed the impulse test at the factory. The transformer was repaired and passed testing in September of
2002. The transformer was shipped to the US in December of 2002 for installation at the facility. At that time it
was discovered that the transformer had suffered internal core damage during transit. Rather than shipping the
transformer back to Turkey it was decided that the transformer would be shipped to ESI in southern California
and personnel from the repair facility in Turkey would repair the unit. Following this repair the transformer was
returned to the generating facility and commissioned in June of 2003.
In January of 2004, the GE gas monitor picked up hydrogen gas building up in the unit. Alstohm investigated
and recommended that the transformer be shipped back to Turkey for repairs. During the factory teardown, it
was discovered that the H3 winding was damaged as a result of tracking between the bushing to tap winding
lead and the coil insulation. The unit was once again disassembled and reportedly all three high voltage
windings were rewound with additional high voltage insulation added. The transformer was placed back into
service in August of 2004. As outlined above the transformer was taken off line due to alarms that indicated the
presence and then rapid increase of Acetylene in the oils on March 23, 2007 at 7:05 AM the Coyote Springs
transformer.
Both Mr. Feloni and the insured’s consultant, Mr. Raymond have indicated that the damages resulting from the
partial discharge were more that likely caused by either a manufacturing defect in the failure to adhere to the
design tolerances, or in failure to use the appropriate insulating materials.
The insured informed Areva of the situation and invited Areva to participate in failure analysis.Areva declined
to participate in the forensic investigation.
The insured has expressed a willingness to work with the insurers on subrogation claims.With your
authorization we retained the services of Robins, Kaplan, Miller & Ciresi to look in to possible subrogation.Mr.
David Bocan and Mr. William Webester will participate in a conference call with the insured and their
representatives on Monday 17, March 2008.
OTHER INSURANCE:
We are not aware of any other insurance that would apply to this occurrence.
RESERVE:
AVISTA Corporation 13 March 2008
MCA File # 07MCA0187RC Page No.4
We recommend the current net reserve of $3,556,250 be maintained on the file pending developments.
As additional information is developed, we will contact you concerning recommendations of any adjustment of
these reserves.
REMARKS:
We will continue to give this matter our closest attention and will inform you of future developments.Please
advise us if you wish to pursue subrogation in this matter.
Should you have any questions or comments, or wish to discuss any of the above items, please feel free to
contact me.
Please diary your file 30 days pending further activity.
Very truly yours,
McLain Crow & Associates, LLC
Ronald R. Crow, CPCU, ARM, AIC
Executive General Adjuster
Distribution:VIA E-mail
Mr. Patrick Jeremy –AIG
Mr. Simon Dawes RK Harrison on behalf of Lloyds Underwriters
Mr. Paul Carnovale –AEGIS
Mr. Rabindranath Rajkumar –Starr Tech
Ms. Ann Joslin -Energy Insurance Mutual
Mr. David Bocan –RKMC
Mr. William Webster -RKMC