20150608Mahlum Direct Redacted.pdf

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BEFORE THE IDAHO PUBLTC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION )oF rDAHO POWER COMPANY FOR AN )
ORDER AUTHORIZING THE APPROVAL ) CASE NO. IPC-E-15-17
oF A LONG TERM PROGRAM CONTRACT )
WITH SIEMENS ENERGY, INC., AND )
DEEERRAL OF ASSOCTATED COSTS. )
)
IDAHO POWER COMPANY
REDACTED DIRECT TESTIMONY
OE
TREVOR MAHLUM
1 Q. Pl-ease state your name and business address.
2 A. My name is Trevor Mahlum and my business
3 address is 7221 lilest ldaho Street, Boise, Idaho 83102.
4 Q. By whom are you employed and in what capacity?
5 A. I am employed by Idaho Power Company ("Idaho
6 Power" or "Company") as a Power Pl-ant Area Maintenance
7 Leader in the Power Supply Department.
8 Q. Pl-ease describe your educational background.
9 A. I graduated from the University of Idaho in
10 2004 with a Bachelor of Science degree in Mechanical
11 Engineering. After receiving my degree, I began my career
12 working as an Experimental Power Reactor Operator at the
13 Idaho Natlonal- Laboratory (*INL"). I spent approximately
t4 two and a half years at the INL working for Battelle Energy
15 before beginning work at Idaho Power.
1-6 O. Pl-ease describe your work experience with
77 Idaho Power.
18 A. I joined Idaho Power in June of 2007 as an
19 Engineer I in the Power Productj-on Engineering group. As a
20 mechanical engi-neer, I supported the gas turbine fleet
27 through construction, contracti.g, project modifications,
22 outages, and envj-ronmental reporting. Beginning in 2008, I
23 lead the effort to obtaj-n a Permit to Construct through the
24 Idaho Department of Environmental- Qual-ity for the
25 construction of the Langley Gulch power plant ("Langley
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o.
A.
Gu1ch" )From 2009 through 2013, T assisted with the
Langley Gulch construction through contract support,
specifj-cations revj-ew, reporting, on-site construction
help, and plant commissioning. In 2013, f was promoted to
the position of Power Plant Area Maintenance Leader where
my current responsibilities i-nclude both maintenance and
project improvements at the Langley Gu1ch, Danskin, and
Bennett Mountaj-n facilities. In addition, f am the lead
technj-caI reviewer for the Long Term Program (*LTP")
Contract.
What is Idaho Power requesting in this case?
Idaho Power is requesting (1) approval of the
LTP Contract with Siemens Energy, Inc. ("Siemens"), (2)
approval of the transfer and sale of certain assets to
Siemens pursuant to Idaho Code S 61,-328, and (3) approval
of the Company's proposed accounting treatment of costs
associated with the LTP Contract.
a.What is the purpose of your testimony in this
case?
A.My testimony in this case will describe Idaho
Power's current management of its gas plant maintenance
program and the benefits that would exist with gas plant
maj-ntenance provided for under the LTP Contract with
Siemens. Company witness Courtney E. lilaites will describe
Idaho Power's request for approval of the transfer and sale
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of certain assets to Siemens pursuant to ldaho Code
S 67-328 and its request for approval of the Company's
proposed accounting treatment.
a.
A.
Please describe the Company's gas fleet.
Idaho Power owns and operates three natural-
gas-fired facilities: the Langley Gulch combined cycle
combustion turbine (*CCCT"), the Danskin simple cycle
combustion turbine (*SCCT"), and the Bennett Mountain SCCT.
The Langley Gulch plant consists of one 180 megawatt (*MW")
Siemens STG-5000F4 combustion turbine and one 96 MW Siemens
SST-700/SST-900 reheat steam turbine and i-s l-ocated south
of New Plymouth in Payette County, Idaho. Located northwest
of Mountain Home, Idaho, the Danskin facility consists of
one 169 MW Sj-emens 501-E and two 44 MW Siemens-Westinghouse
W2578L2A combustion turbines. The Bennett Mountain plant
is located east of the Danskin plant in Mountain Home,
Idaho, and consists of one 162 MW Siemens-Westinghouse 501F
SCCT.
O. How does Idaho Power currently maintain its
gas fleet?
A. At this time, Idaho Power sel-f-manages its
natural gas fleet through a collaborati-ve effort between
the Company and the original equipment manufacturer
(*OEM") . The Company's OEM for al-l- its combustion turbines
is Siemens. Idaho Power's combustion turbines are subject
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1 to required maintenance outages at OEM-recommended
2 intervals based upon each plant's primary mode of
3 operation. Based on Idaho Power's historj-cal operating
4 profj-le, the Danskin and Bennett Mountain SCCTs have
5 maintenance intervals based on the number of plant start-
6 ups and Langley Gulch has a maintenance schedule based on
7 hours of operation.
8 Currently, each outage has been contracted to
9 Siemens for service on a case-by-case basls. The service
10 includes an outage field engJ-neer that oversees the outage,
11 a service crew that performs the work, and the rental of
t2 specialized tooling required for the removal and subsequent
13 installation of the turbj-ne components. Under the self-
1,4 manage approach, Idaho Power's only option is to buy parts
15 at the manufacturer's ful-l list prices. In addition to the
16 contract for OEM service, Idaho Power may be required to
71 contract for ancillary services or equipment for each
18 outage, such as mobile cranes, insulation crews,
79 scaffolding crews, and sanitary facilities, depending on
20 the scope of each outage.
27 O. Does the Company's self-management of its gas
22 plants include any other maintenance requirements?
23 A. Yes. fn addition to the OEM servj-ce, turbine
24 components(i.e., turbine blades, combustor baskets, and
25 fuel nozzles) need to be replaced at their respective
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individual service intervals. These turbine components are
costly, proprietdry, and have lead times up to 48 weeks.
Idaho Power's current practice is to purchase the parts
from Siemens in advance of the outage, all-owing adequate
time for delivery and possession of the parts prior to
commencement of the outage, and, upon receipt, are
capitalized. During the outage, the exj-sting parts are
removed and the replacement parts are installed, resulting
in short outage windows and earlier plant availability.
o.What does Idaho Power do with the parts that
have been removed from the combustion turbines?
A.The removed parts are retired from Idaho
Power's books and sent to Siemens' service shop where they
are inspected and repaired. Once refurbished, the parts
are returned to the Company, capitalized, and ready for use
again.
a.Are there any other maintenance tasks required
for Idaho Power's gas fleet?
A.Yes. The maintenance of the Company's gas
fl-eet also requires various addj-tional tasks to be
performed by both Idaho Power and contractor personnel.
Idaho Power completes pre- and post-inspection work while
also performing other facility maj-ntenance and repairs
(i.e., exhaust repai-rs, fuel fil-ter replacements, valve
repairs) during turbj-ne outages to maximize the
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fdaho Power Company
1 availability of the plant. Work on the turbine al-lows for
2 a complete combustj-on inspection, includj-ng, but not
3 limited to, the removal and reinstallation of new or
4 refurbished pilot nozzles, support housings, combustor
5 baskets, transition sealsr ds well as some consumable parts
6 like bolts, washers, and gaskets. Because these additlonal
7 tasks requlre schedul-ed outages, Siemens often performs
I supplementary work as an adder to the base cost of an
9 inspection, typically at a discounted price.
10 O. Vfhat prompted Idaho Power to ]-ook at other gas
11 plant maintenance options?
72 A. Idaho Power began looking at other maintenance
13 options for its gas fleet during construction of the
!4 Langley Gulch pIant. Langley Gulch is the Company's only
15 CCCT and uses some of the newest, most technologically
16 advanced parts on the market. Idaho Power recogni-zed that
Ll its employees do not have aI1 of the necessary technical
18 skills to maintain the plants to the 1eveI offered by
t9 Si-emens.
20 O. Did the Company issue a request for proposal
2L for the services provided for under the LTP Contract?
22 A. No. However, Idaho Power did contract with a
23 professional knowledgeable in long-term program contracts
24 who contacted multiple third-party providers of gas plant
25 maintenance as part of a formal request for information
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process. Those third-party proposals were analyzed by both
the Company and the contracted professional and it was
determined that there are currentl-y no other third-party
maintenance providers that could provJ-de servj-ces
equivalent to those provided under the LTP Contract with
Siemens. Because Siemens is the OEM for all of the
Company's gas plants and is the industry leader in gas
plant maintenance, the only available alternative to the
LTP Contract with Siemens would be the continuation of a
Company-managed maintenance program with technical- support
and parts purchased from Siemens.
o.Prior to the execution of this agreement, was
a LTP Contract with Siemens an option?
A.Yes. However, when Idaho Power operated only
the Danskin and Bennett Mountain plant SCCTs, an LTP
Contract was not an economical- alternative because of the
limited frequency of maintenance outages for those plants.
SCCT outages are based on the number of start-ups so
multiple years exist between scheduled outages at the
Danskin and Bennett Mountain plants. Until the addition of
the Langley Gulch CCCT, contracting for gas plant
maintenance services with Siemens at each outage interval-
has been the most cost-effective approach. With the
construction of Langley Gu1ch, a baseload CCCT whose
maintenance is based upon run-time hours, the Company
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anticipates more frequent gas plant maj-ntenance activj-ties
to exist going forward. With this in mind, Idaho Power
began evaluating and negotiating an agreement with Slemens
for a LTP.
o.Is there a difference in cost to Idaho Power
between the self-management option and a LTP Contract?
A.Yes. The LTP Contract wj-Il provide a l-ower
I priced alternatj-ve to the maintenance of the Company's gas
9 plants; Idaho Power estj-mates the cost to continue with
10 self-management woul-d be approximateJ-y over
11 the life of the contract while the LTP Contract would cost
L2 approximately over the comparable time
13 period, a savings of
14 agreement.
over the life of the
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o.Please describe the LTP Contract the Company
is requesting approval of in this proceeding.
A.Under the LTP Contract, Siemens wj-l1 provide
18 schedul-ed maintenance on a1I three combustion turbines,
19 including program parts or repairs, shi-pping, services,
20 Iabor, engj-neering services, and program management
27 services. Program parts consist of the major combustion
22 turbine parts provided by Siemens, including the locking
23 hardware used to affix the parts, the parts installed in
24 the combustion turbine upon the effectj-ve date, all- initial
25 spare parts, and all parts changed during the length of the
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contract ("Program Parts"). Some of these Program Parts
are the latest technology Idaho Power would not otherwise
have access to and thej-r superiority eliminates the need
for two combustor inspection outages at Langley Gu1ch.
Moreover, they are avail-able under the LTP Contract at a !
I discount from the rist price.
Siemens will also perform unschedul-ed maintenance on
al-l- three combustion turbines to the extent such work is
not covered by Siemens' other warranties under the
contract. Leveraging Siemens' pool of regional inventory,
outage resources, and technical- expertise will result in
lower overall costs to Idaho Power and its customers.
O.Aside from lower costs over the life of the
contract, how does the LTP Contract differ from the
Company' s current self-managed maintenance practice?
A.The following chart provides a high leve1
comparison of Idaho Power's current maintenance practices
compared to offerings under the LTP Contract:
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Current Maintenance
Practice
Proposed LTP
Contract
Scope of Work As established in each
individual purchase
order.
Scheduled and
unscheduled maintenance
at a1I three qas
facilities.
Term As established in eachindividual purchase
orderi on a case-by-
case basis.
Up to 25 years
Warranties Equipment: the lesser
of 18 months from
delivery ox 1,2 months
from installation.
Software: 12 months
from date of shipment.
Shop Repair/
Modernization: 12
months from shipment.
Technical services: 12
months from completion.
Program Parts: during
the term of the LTP
Contract.
Open/Close Hardware and
non-Program Parts: up to
for Langley
GuIch 5nd up to Ifor Danskin and
Bennett Mountain.
Includes a post-term
parts warranty after end
of LTP Contract.
Scheduled outage
duration guaranty.
Warranty response
guaranty.
Reliability guaranty.
Li-mitation on
Liability
In aI1 circumstances,
Siemens' Iiability is
Iimited to the totalprice paid to Siemens
under the applicable
purchase order giving
rise to the claim.
Total aggregate
liability during
calendar year is anylimited
. Further
there is a lifetime cap
equal to 100 percent of
all amounts paid to
Siemens under the LTP
Contract.
Price As established in eachindividual purchase
order.
Per unit initiation fees
combined with large
milestone amounts due at
or near actual outage
events.
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Idaho Power Company
I As shown above, the LTP Contract will- provide Idaho
2 Power with both scheduled and unscheduled maintenance
3 activities for an extended period of time while offering
4 enhanced prj-ce predictability. In addition, provisions
5 with respect to performance obligations, guaranties,
6 warranties, liquidated damages, and limitation on liability
7 will mitigate risk.
I Q. What is the length of the contract with
9 Siemens under the LTP Contract?
10 A. The contract term of the LTP Contract is the
11 time between the execution date and the earlier of the
12 performance end date for each combustion turbine or 25
13 years. Because the performance end date is based on a
1,4 combinatj-on of the number of scheduled outages, equivalent
15 baseload hours or equivalent starts, the expiration of the
16 contract will vary for each combustion turbine; the
l7 estimated expiration date of the LTP Contract for each
18 combustion turbine ranges t8-22 years. When analyzj-ng the
19 LTP Contract, the Company has assumed a contract term of 20
20 years.
27 O. What warranties are provided by Siemens under
22 the LTP Contract?
23 A. Under the LTP Contract, Siemens will warranty
24 al-I Program Parts during the term of the contract. In
25 addition, i-f the LTP Contract is executed, Siemens will
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warranty open and close hardware and non-Program Parts for
the Danskin and Bennett Mountain plants for up to I
and up to I ro. the Langley Gulch plant. After the
end of the contract term, generarry I from the date
of the last major outage, Siemens wiII provide limited
warranty coverage for all- new, repaired, or refurbished
Program Parts, non-Program Parts, and open and close
hardware.
o.What is Siemens' commitment in handling
warranty claims?
A.
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O. What are the limitations of liability under
the LTP Contract with Siemens?
A.The contract contains market Iimitations on
programcertain consequential damages for long-term
contracts for the benefit of both parties.
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o.
Contract?
A.
involves '
milestone
initiation fee is
the LTP Contract.
o.
A.
How is the pricing structured under the LTP
The pricing structure under the LTP Contract
per-unit initiation fees, combined with periodic
amounts due at or near the actual outage events.
O. What are the per-unit initiation fees?
A. In an attempt to more appropriately match
payments made to Siemens with the work Siemens wil-I
perform, the parties negotiated a milestone-based fee
structure as explained above, including the per-unit
initiation fees. Because mil-estone work is expected to
occur every few years, resulting in periodic mil-estone-
based payments, Siemens requires an initiation fee higher
than under a fixed annual, outage, and variable fee-based
pricing structure as a prepayment toward services that wiII
be performed over the life of the agreement. The total
and is due upon execution of
Please describe the milestone payments.
The milestone payments are payments due at or
near actual outage events. The payments incl-ude a
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1 Combustor Inspection Milestone payment, a First Hot Gas
2 Path Mil-estone payment, and Major Inspection Milestone
3 payments, which is an inspection that encompasses the full
4 scope of both the combustor i-nspection and the hot gas path
5 inspectj-on as well as a full compressor inspecti-on.
6 Similar to the accounting for work performed by Siemens
7 under the current self-management of maintenance, a portion
8 of the milestone payments will be capitalized and a portion
9 will- be operation and maintenance ("O&M") expense, which
10 has historically been a capital and O&M split of 89 percent
11 and 11 percent, respectively.
72 O. Pl-ease summarize your testimony.
13 A. Idaho Power currently self-manages its gas
14 plant maintenance through a collaborative effort between
15 the Company and Siemens, contracting for outage and
16 maintenance services on a case-by-case basis. The
17 construction of the Langley Gulch plant employs some of the
18 most technol-ogically advanced parts available, resulting in
19 third-party maintenance provi-sions offered only by Siemens.
20 UntiI now, individually contracting for maintenance
21 services for gas plant maintenance with Sj-emens has been
22 the most cost-effectj-ve approach. Execution of a LTP
23 Contract with Siemens will provide a lower-priced
24 alternative to self-managed maintenance of Idaho Power's
25 gas plants.
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Does
Yes,
this conclude your testimony?
it does.
MAHLUM, Dr 15
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STATE OE IDAHO
County of Ada
SUBSCRTBED AND
June 2015.
ATTESTATION OF TESTIIONY
SWORN to before me this 5th day of
for Idaho
ss.
T, Trevor Mahlum, having been duly sworn to testify
truthfully, and based upon my personal knowledge, state the
following:
I am employed by Idaho Power Company as the Power
Plant Area Mai-ntenance Leader in the Power Supp1y
Department and am competent to be a witness in this
proceeding.
I declare under penalty of perjury of the laws of
the state of Idaho that the foregoing pre-filed testimony
is true and correct to the best of my information and
belief.
DATED this 5th day of June 2075.
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Idaho Power Company
Notary Publi
Residing at:
My commissj-onPunulL