ML023240316
| ML023240316 | |
| Person / Time | |
|---|---|
| Site: | Diablo Canyon  |
| Issue date: | 11/12/2002 |
| From: | Schaffer J Howard, Rice, Nemerovski, Canady, Falk & Rabkin, Pacific Gas & Electric Co |
| To: | Office of Nuclear Reactor Regulation, US Federal Judiciary, Bankruptcy Court, Northern District of California |
| References | |
| 01-30923 DM, 94-0742640 | |
| Download: ML023240316 (9) | |
Text
1 JAMES L. LOPES (No. 63678)
JEFFREY L. SCHAFFER (No. 91404) 2 HOWARD, RICE, NEMEROVSKI, CANADY, FALK & RABKIN 3 A Professional Corporation Three Embarcadero Center, 7th Floor 2 375 4 San Francisco, California 94111-4065 32.3 Telephone: 415/434-1600 5 Facsimile: 415/217-5910 6 Attorneys for Debtor and Debtor in Possession PACIFIC GAS AND ELECTRIC COMPANY 7
8 UNITED STATES BANKRUPTCY COURT 9 NORTHERN DISTRICT OF CALIFORNIA 10 11 In re Case No. 01-30923 DM 12 PACIFIC GAS AND ELECTRIC Chapter 11 Case COMPANY, a California corporation, November 27,2002 13 Date:
HOWAM RiCE Debtor. Time: 9:30 a.m.
. 14 Place: 235 Pine Street, 22nd Floor e'RAaN*N San Francisco, California AP =. ,."a 15 Federal I.D. No. 94-0742640 Judge: Hon. Dennis Montali 16 17 18 DEBTOR'S NOTICE OF MOTION AND MOTION FOR ORDER APPROVING EXPENDITURE OF FUNDS TO RETROFIT 19 SIX LOW-PRESSURE TURBINES AT THE DIABLO CANYON POWER PLANT; SUPPORTING MEMORANDUM OF POINTS AND AUTHORITIES 20
[SUPPORTING DECLARATION OF LAWRENCE WOMACK FILED SEPARATELY]
21 22 23 24 25 26 27 28 DEBTOR'S NOT. OF MOT., MOT. & MPA FOR ORDER APP. EXPEND. OF FUNDS TO SUPP. DCPP TURBINE RETROFIT PROJ.
S 1 NOTICE OF MOTION AND MOTION 2 PLEASE TAKE NOTICE that on November 27, 2002, at 9:30 a.m., or as soon 3 thereafter as the matter may be heard, in the Courtroom of the Honorable Dennis Montali, Electric 4 located at 235 Pine Street, 22nd Floor, San Francisco, California, Pacific Gas and case 5 Company, the debtor and debtor in possession in the above-captioned Chapter 11 for entry of 6 ("PG&E" or the "Debtor"), will and hereby does move the Court (the "Motion")
7 an order authorizing PG&E to enter into binding agreements and incur capital expenditures 8 not exceeding $110 million to retrofit six low-pressure turbines at its Diablo Canyon Power 9 Plant ("DCPP") in support of a project known as the Diablo Canyon Turbine Retrofit Project accompanying 10 (the "DCPP Turbine Retrofit Project") as more particularly described in the 11 Memorandum of Points and Authorities incorporated by reference herein.
12 This Motion is made pursuant to Sections 105 and 363 of the United States on the facts and law set forth in the BMW 13 Bankruptcy Code (11 U.S.C. §§105 & 363) and is based m 14 attached Memorandum of Points and Authorities, the Declaration of Lawrence Womack at or prior to 15 filed concurrently herewith, the record of this case and any evidence presented 16 the hearing on this Motion.
17 PLEASE TAKE FURTHER NOTICE that this Motion is being noticed for 18 hearing on ten (10) business days' notice pursuant to the above-captioned Court's Order Re 19 Motion For Authority To Make Capital Expenditures In The Ordinary Course of Business does not 20 dated June 29, 2001 (the "Omnibus Cap Ex Order"). The Omnibus Cap Ex Order both 21 specify the time for filing any written opposition to this Motion; nonetheless, because to the 22 the Court and PG&E should have the opportunity to review any written opposition written 23 Motion prior to the hearing thereon, parties in interest are advised to file any no later 24 opposition to the Motion and the relief requested therein with the Bankruptcy Court upon 25 than two business days prior to the hearing, and to serve any such written opposition of 26 counsel for PG&E, the Office of the United States Trustee, and the Official Committee to the 27 Unsecured Creditors by hand service on the same date. If there is no timely objection hearing.
28 requested relief, the Court may enter an order granting such relief without further DEBTOR'S NOT.'OF MOT., MOT. & MPA FOR ORDER APP. EXPEND. OF FUNDS TO SUPP. DCPP TURBINE RETROFIT PROJ.
1 MEMORANDUM OF POINTS AND AUTHORITIES 2 I.
3 INTRODUCTION 4 By this Motion, Pacific Gas and Electric Company, the debtor and debtor in 5 possession in this Chapter 11 case ("PG&E" or the "Debtor"), seeks an order pursuant to 6 Sections 363 and 105 of the Bankruptcy Code (11 U.S.C. § §363 & 105)1 authorizing PG&E 7 to enter into binding agreements and incur capital expenditures not exceeding $110 million 8 to retrofit six low-pressure turbines at its Diablo Canyon Power Plant ("DCPP") in support 9 of a project known as the Diablo Canyon Turbine Retrofit Project (the "DCPP Turbine 10 Retrofit Project").
11 DCPP is a nuclear power plant located in San Luis Obispo County, California.
12 The plant is the largest generating station on the PG&E electric system and provides power HOWARD 13 1 for over two million northern and central Californians from its two 1,100 megawatt units.
14 The two units at DCPP utilize six low-pressure turbines and two high-pressure turbines to
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,*..d,- 15 generate electricity. The low-pressure turbine rotors and blades have cracked, due to a 16 design and/or workmanship flaw. In the 1990's, PG&E implemented a turbine maintenance 17 program in response to this turbine degradation. The ongoing maintenance program 18 includes extensive inspection, analysis and repair. Still, the low-pressure turbines must be 19 retrofitted to avoid forced outages and to ensure the reliability of this critical generating 20 resource. If the retrofitting is not done, there will be a significantly higher risk of forced 21 outages. In addition to ensuring reliability, the retrofitting will bring the added benefit of 22 increased efficiency. This is anticipated to increase DCPP's output by approximately 50 23 megawatts.
24 PG&E brings this Motion because the requested $110 million capital expenditure 25 exceeds the project limit authorized without further Court approval in PG&E's Motion for 26 27 'Unless otherwise indicated, all statutory references in this Motion are to the United States Bankruptcy Code (Title 11 of the United States Code).
28 RETROFIT PROJ.
DEBTOR'S NOT. OF MOT., MOT. & MPA FOR ORDER APP. EXPEND. OF FUNDS TO SUPP. DCPP TURBINE 1 Authority to Make Capital Expenditures in the Ordinary Course of Business filed in this case 2 on June 6, 2001, which was approved pursuant to the Court's Order thereon dated June 29, 3 2001 (such prior Motion and Order hereinafter are collectively referred to as the "Omnibus 4 Cap Ex Motion and Order"). In broad outline, pursuant to the Omnibus Cap Ex Motion and 5 Order, PG&E is authorized to proceed (a) without notice to or approval of the Court or the 6 Official Committee of Unsecured Creditors (the "Committee"), with any project costing less 7 than $10 million, (b) with notice to and no objection by the Committee, with any project 8 costing more than $10 million and less than $50 million, and (c) only upon a motion noticed 9 to the Committee and the United States Trustee on at least 10 business days' notice and 10 approval of the Court, with any project anticipated to cost more than $50 million.
11 II.
12 2
HOWARD 13 FACTUAL BACKGROUND RKE CAN~.D 14 A. The Diablo Canyon Turbine Retrofit Proiect.
Ah-O 15 The two units at DCPP each have a turbine generator train that consists of a high 16 pressure (HP) turbine, three low-pressure (LP) turbines and a generator/exciter. The six 17 installed LP turbines were purchased in the late 1960s from Westinghouse Electric 18 Corporation as part of DCPP's construction. In addition, PG&E purchased three location 19 specific LP turbine rotor spares in 1979. Each spare is interchangeable with one location 20 (designated A, B and C) in either unit. As a result, there are presently three LP-A rotors, 21 three LP-B rotors and three LP-C rotors. All nine of these rotors are experiencing stress 22 corrosion cracking ("SCC") of the rotor in the blade attachment area and/or high cycle 23 fatigue cracking of the blades themselves. The estimated remaining life of the rotors is three 24 refueling cycles (approximately five years) or less. Maintenance costs are increasing 25 dramatically, reliability is a concern and the risk of a forced outage due to blade detachment 26 27 2The evidentiary basis and support for the facts set forth in this Motion are contained in the Declaration of Lawrence Womack, filed concurrently herewith.
28 DEBTOR'S NOT. OF MOT., MOT. & MPA FOR ORDER APP. EXPEND. OF FUNDS TO SUPP. DCPP TURBINE RETROFIT PROJ.
1 has become more significant. As discussed below, some additional problems with the LP 2 turbines have recently become apparent.
3 The DCPP Turbine Retrofit Project has been designed to address and remedy the 4 problems with the LP turbines. More specifically, the DCPP Turbine Retrofit Project 5 provides for the design, fabrication, delivery and installation of six LP Turbine retrofits.
6 PG&E has conducted a competitive bidding process, and its team of engineering, business 7 and technical experts have thoroughly evaluated various proposals. At the moment, PG&E 8 is in final contract negotiations with a highly regarded multinational firm.
9 SCC in the blade attachment area of nuclear steam turbines has been an industry 10 wide problem with rotors of the design of those in use at DCPP.3 To address this problem, 11 PG&E has been performing major inspections, analyses and maintenance on the existing 12 nine rotors. At each outage, PG&E removes one rotor and replaces it with a spare. The as HQRD 13 removed rotor is inspected for cracks, analyzed for estimated time to failure and repaired RDE
"' 14 necessary to restore a minimum level of short-term reliability. The repaired rotor is then DUJ.
,*,o. 15 used to replace the next rotor of identical design (LP-A, LP-B or LP-C) when that rotor is, in 16 turn, removed for inspection, analysis and repair.
17 The maintenance program used to date merely monitors, and sometimes 18 postpones, the time to failure. The program does not provide a long-term solution to the 19 SCC problem. A long-term refurbishment fix for the SCC design defect would cost more 20 than $44,000,000 for the nine rotors. This type of approach would not address the additional 21 problem of the high cycle fatigue design defect, discussed below.
22 In addition to the SCC problems on the rotor discs, DCPP is also experiencing 23 numerous instances of high cycle fatigue ("HCF") in the blade roots, where the blades attach 24 to the rotor. HCF cracking could result in one or more blades separating from the rotor.
25 26 3PG&E is currently involved in litigation with the supplier of the existing LP rotors, Siemens-Westinghouse Power Corporation (formerly Westinghouse). This litigation is not 27 expected to have a material impact on the need for the proposed DCPP Turbine Retrofit 28 Project.
DEBTOR'S NOT. OF MOT., MOT. & MPA FOR ORDER APP. EXPEND OF FUNDS TO SUPP. DCPP TURBINE RETROFIT PROJ 1 This would most likely result in a forced shutdown and outage of 60 days or longer.
2 Because of the geometric constraints of the existing turbines, a long-term 3 refurbishment fix addressing the HCF may not be possible. For the short term, PG&E has 4 undertaken a program of increased inspections and major, temporary repairs, as necessary to 5 restore a minimum level of acceptable reliability. The temporary repairs consist of complete 6 replacement of selected rows of blades on each turbine rotor. This program reduces, but 7 does not eliminate, the probability of a forced outage. While the program restarts the clock 8 relative to time to failure, it does not fix the underlying problem. Continued DCPP 9 operation without LP turbine replacement would require periodic, repeated, full row blade 10 replacements. The estimated cost of such a re-blading program is $35,000,000.
11 Recently, one blade in a rotor with only one cycle of operation developed a crack.
12 Crack morphology in progress may suggest that the current frequency of blade replacement HWOM 13 is inadequate. If this is the case, maintenance expenditures would have to be increased. The RIM cAIM. 14 HCF problem discussed above has only become apparent in the last few years. PG&E can
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, . 15 likely expect additional problems with the turbine rotors in the future.
16 Nuclear power plants operate within strict regulations and are closely monitored.
17 A turbine-failure-induced forced outage at DCPP would be closely scrutinized by the 18 Nuclear Regulatory Commission ("NRC"), the Institute of Nuclear Power Operations 19 ("INPO"), the media and the general public. While there would be no nuclear safety risks 20 associated with a turbine failure, the NRC would likely require PG&E to either shut down 21 DCPP's other unit to enable inspections of its turbine rotors, or demonstrate why a similar 22 problem would not occur on that unit.
23 24 B. Expected Cost Of PG&E's Contemplated Work.
25 On October 16, 2002, PG&E's Board of Directors approved a capital expenditure 26 of $110 million for the DCPP Turbine Retrofit Project. These funds are expected to cover 27 the anticipated work supporting the DCPP Turbine Retrofit Project.
28 Based on PG&E's evaluation of bids submitted pursuant to a competitive bidding DEBTOR'S NOT. OF MOT., MOT. & MPA FOR ORDER APP. EXPEND OF FUNDS TO SUPP. DCPP TURBINE RETROFIT PROJ 1 process, PG&E estimates that the DCPP Turbine Retrofit Project will cost approximately 2 $110 million. Approximately $700,000 is included in the 2002 budget, with the balance 3 presently anticipated to be incurred in the next four years, consistent with the DCPP Retrofit 4 Project's current targeted completion date in 2006.
5 The costs associated with the DCPP Retrofit Project were included in both the 6 2003 General Rate Case filing before the California Public Utilities Commission and the pro 7 forma financial analysis underlying PG&E's proposed Plan of Reorganization.
8 9 III.
10 THE DIABLO CANYON TURBINE RETROFIT PROJECT SHOULD BE AUTHORIZED PURSUANT TO SECTIONS 363 11 AND 105 OF THE BANKRUPTCY CODE.
12 As described in the Omnibus Cap Ex Motion, PG&E makes approximately $1.5 HOVY7M 13 billion in capital expenditures annually in the ordinary course of its business. These capital RICE 1 14 expenditures cut across PG&E's utility functions, including the distribution and transmission A,tz.*b* . 15 of gas and electricity and the generation of electricity. PG&E's capital expenditures 16 generally fall into one or more of three general categories: (1) emergency/safety projects; 17 (2) projects mandated by regulatory or legal orders (including projects undertaken to remain 18 in compliance with regulatory and legal requirements); and (3) other projects which may not 19 be mandated by specific performance requirements, including projects designed to improve 20 the reliability of PG&E's distribution and transmission systems. See Omnibus Cap Ex 21 Motion at 3:19-4:4.
22 The DCPP Turbine Retrofit Project fits into category 3 above because it is a 23 project designed to improve the reliability of PG&E's electric generation system.
24 As previously discussed in the Omnibus Cap Ex Motion, PG&E believes that 25 expenditures on virtually all of its capital projects, as described above, are within the 26 ordinary course of its business. As such, PG&E understands that such expenditures should 27 be permitted without notice, hearing or any Bankruptcy Court approval, pursuant to 11 28 U.S.C. Section 363(c). Recognizing, however, its rare position as a debtor in possession DEBTOR'S NOT. OF MOT., MOT. & MPA FOR ORDER APP. EXPEND. OF FUNDS TO SUPP. DCPP TURBINE RETROFIT PROJ.
1 required to make over $1 billion in annual capital expenditures, PG&E has already agreed to 2 apprise the Committee of capital expenditures above certain thresholds, and seek the Court's 3 approval of any capital expenditure project over $50 million. Although the DCPP Turbine 4 Retrofit Project would be undertaken in the ordinary course of PG&E's business, PG&E 5 asks for this Court's authority to proceed with the project, as its anticipated cost exceeds $50 6 million, and therefore requires a motion and Court approval, pursuant to the Omnibus Cap 7 Ex Motion and Order.
8 PG&E has demonstrated in Part II above that the DCPP Turbine Retrofit Project 9 is reasonable and appropriate to avoid forced outages and ensure reliability. This Court, 10 therefore, can and should use its authority under Section 363 of the Bankruptcy Code to 11 approve this capital expenditure.
12 Furthermore, Section 105(a) of the Bankruptcy Code authorizes this Court to HCVA& 13 "issue any order, process, or judgment that is necessary or appropriate to carry out the RI' "NF ' 14 provisions of this title." Section 105 is meant to "assure the bankruptcy courts' power to
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- . 15 take whatever action is appropriate or necessary in aid of the exercise of their jurisdiction."
16 2 Lawrence P. King Collier on Bankruptcy ¶105.01 at 105-5 to 105-6 (15th ed. rev. 2000).
17 For the reasons set forth above, the capital expenditure authorization for the DCPP Turbine 18 Retrofit Project requested by the Motion will clearly serve the interests of the Debtor, its 19 creditors and its customers, and will not violate any principle or precept of the Bankruptcy 20 Code. Accordingly, pursuant to the Court's authority and discretion under Section 105(a) of 21 the Bankruptcy Code, the Court can and should grant this Motion.
22 23 CONCLUSION 24 For all of the foregoing reasons, PG&E respectfully requests that this Court make 25 and enter an order granting the Motion, thus authorizing PG&E to enter into contractual 26 27 28 DEBTOR'S NOT. OF MOT., MOT. & MPA FOR ORDER APP. EXPEND OF FUNDS TO SUPP. DCPP TURBINE RETROFIT PROJ.
1 commitments for, and incur the expenditure of funds up to, a maximum of$110,000,000 in 2 connection with the DCPP Turbine Retrofit Project.
3 4 DATED: November 12, 2002.
5 Respectfully, 6 JAMES L. LOPES JEFFREY L. SCHAFFER 7 HOWARD,RICE, NEMEROVSKI, CANADY, FALK & RABKIN 8 A Professional Corporation 9
By: . L' 10 11 Attorneys for D'6btor and Debtor in Possession PACIFIC GAS AND ELECTRIC COMPANY 12 13 TM 14 EUK
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. . 15 16 17 18 19 20 21 22 23 24 25 26 27 28 WD III 102/2-1419905/Y911029008/v5 DEBTOR'S NOT. OF MOT., MOT. & MPA FOR ORDER APP. EXPEND OF FUNDS TO SUPP. DCPP TURBINE RETROFIT PROJ