2018 General Rate Case. Power Supply (PS) Volume 01 Nuclear (Palo Verde)

Transcription

1 Application No.: A Exhibit No.: SCE-0, Vol. 01 Witnesses: T. Champ (U 8-E) 018 General Rate Case Power Supply (PS) Volume 01 Nuclear (Palo Verde) Before the Public Utilities Commission of the State of California Rosemead, California September 1, 016

2 SUMMARY Palo Verde O&M This Volume presents SCE request for $76.7 million in operation and maintenance (O&M) expense for the 018 Test Year (TY) (Constant 01 $, SCE share). o Includes SCE oversight costs SCE s 018 TY O&M forecast is a more than percent decrease below 01 recorded expense. Nuclear (Palo Verde) O&M Expenses 018 Forecast (Constant 01 $ in Millions, SCE Share)

3 Palo Verde Capital SCE requests capital expenditures of $6. million in 016, $6. million in 017, and $9. million in the 018 TY (Nominal $, SCE share). o Post TY capital expenditures are $7.9 million in 019 and $7.9 million in 00 (Nominal $, SCE share) The major projects in the period are the Main Generator Stator Rewind projects for Palo Verde Units 1,, and. Nuclear (PV) Capital Expenditures Forecast (Millions of Nominal $, SCE Share)

4 SCE-0: Power Supply (PS) Volume 01 Nuclear (Palo Verde) Table Of Contents Section Page Witness I. INTRODUCTION PALO VERDE...1 T. Champ A. Testimony Organization... B. Background Information On Palo Verde Operations... C. SCE Risk Mitigation... D. SCE S Oversight Responsibilities for Palo Verde... II. COMPLIANCE... A. Comparison of 01 Authorized to 01 Recorded O&M Expense - Palo Verde... B. Comparison of 01 Authorized to 01 Recorded Capital Expenditures...7 III. PALO VERDE - O&M EXPENSES...9 A. O&M Budget Process...9 B. O&M Cost Control Process...9 C. Palo Verde (FERC Account ) Activity Description...10 a) Plant Operating Expense...10 b) Refueling and Maintenance Outage Expense...11 (1) RFO Plans...1 () Development of an RFO Plan...1. Palo Verde FERC Account Forecast...1 a) Historical Variance Analysis...1 (1) Labor...1 () Non-Labor...1 -i-

5 SCE-0: Power Supply (PS) Volume 01 Nuclear (Palo Verde) Table Of Contents (Continued) Section Page Witness b) Forecast...1 (1) Labor...1 () Non-Labor...1 IV. PALO VERDE CAPITAL EXPENDITURES...1 A. Palo Verde Capital Budget Process APS Capital Project Approval Process Work Authorization Process Annual Capital Budget Capital Budget Categorization SCE Capital Cost Classifications...18 B. Summary of 018 Palo Verde Capital Forecast...18 C. Palo Verde Capital Forecast Plant Modifications...0. Equipment and Replacements...0 a) Tools & Equipment...1 b) Replacements...1 c) Other Equipment & Replacements...1 (1) Main Generator Stator Rewind Projects -- Units 1,, and...1. Water Reclamation Facility.... Buildings.... Fukushima General Plant... -ii-

6 SCE-0: Power Supply (PS) Volume 01 Nuclear (Palo Verde) Table Of Contents (Continued) Section Page Witness 7. Computers Emergent Work Fund Overheads & Distributables... Appendix A (Main Generator Stator Rewind Summary) -iii-

7 1 6 I. INTRODUCTION PALO VERDE This volume presents SCE s 018 Test Year (TY) Palo Verde Nuclear Generating Station Units 1,, and (Palo Verde) O&M and capital expenditure requests. As shown in Figure I-1 below, SCE s TY 018 forecast for Palo Verde O&M expense is $76.7 million (Constant 01 $, SCE share). This forecast represents an approximately $.0 million decrease below 01 recorded costs. Figure I-1 Palo Verde 1,, and Adjusted O&M Expense FERC Account Recorded and 018 Forecast (Constant 01 $000, SCE Share) This volume also presents SCE s request for $188 million (Nominal $, SCE share) of capital expenditures for the forecast period , including $11.1 million from 016 to 018, and $7.9 million per year for 019 and 00 (excluding corporate overheads), as shown in Table I-1 below. 1 1 Refer to WP SCE-0 Vol. 01, pp

8 Table I-1 Palo Verde Units 1,, and Capital Expenditures Detail (Nominal $ in Millions, SCE Share Without Corporate Overheads) Prior Costs 016 Forecast 017 Forecast 018 Forecast 019 Forecast 00 Forecast Total Project Total Plant Modifications Equipment & Replacements Water Reclamation Facility Buildings Fukushima General Plant Computers Emergent Work Fund Overheads & Distributables Grand Total A. Testimony Organization Chapter I provides background information on Palo Verde operations, including an overview of the Palo Verde budget and control process. It also describes the annual budget development cycle and methods for identifying and assessing funding needs. SCE is not the operating agent of Palo Verde; therefore, SCE must rely on Arizona Public Service s (APS) understanding of Palo Verde requirements. Chapter I also describes how SCE performs oversight over Palo Verde operations and expenditures. Chapter II presents SCE s response to the Commission s compliance requirement issued in SCE s 01 GRC Decision (D ) for SCE to provide a comparison of Palo Verde s 01 authorized expense to recorded O&M and capital expenditures. Chapter III presents SCE s 018 TY forecast of Palo Verde O&M expense, including Palo Verde s refueling and maintenance outage (RFO) expenses, which are a significant driver of Palo Verde s TY O&M forecast. Chapter IV presents and explains SCE s request of $188 million for SCE s Palo Verde capital expenditures. B. Background Information On Palo Verde Operations Palo Verde is one of the largest nuclear installations in the United States, and is located on a,000 plus acre site, approximately 0 miles west of Phoenix, Arizona. Palo Verde consists of three

9 nuclear units, with a total rated output of about,97 megawatts electric (MWe) net. SCE s share of the energy output is approximately 6 MWh of net baseload generation when all Palo Verde units are operating at full power. The three Palo Verde units typically operate at a combined average capacity factor greater than 90 percent per year. Palo Verde operation benefits from both the economies of scale and its large site. The plant also has an innovative feature. It uses reclaimed treated sewage water from the City of Phoenix and other local surrounding cities as cooling water because it is not located near a large body of water. SCE owns 1.8 percent of Palo Verde (proportional to SCE s share of the energy output), and there are six other participants in the plant. C. SCE Risk Mitigation SCE s GRC request supports SCE s portion of oversight functions and ability to mitigate environmental, safety, financial, and compliance risks. As a minority owner, SCE is contractually responsible for compensating APS for our 1.8 percent share. Failure to meet our contract terms could lead to litigation between and among APS and the other participant owners. Further, Palo Verde is regulated by the U.S. Nuclear Regulatory Commission (NRC), and must meet requirements set by other federal and state agencies. If the plant is found uncompliant with any of these agencies requirements, SCE could be subject to financial penalties and/or an increased level of regulatory scrutiny. Therefore, evaluating SCE s O&M and capital forecast should consider not only the support levels required for Palo Verde s operations, but must also consider safety, environmental, financial, and compliance issues. D. SCE S Oversight Responsibilities for Palo Verde SCE oversees and reviews Palo Verde operations and expenditures through participation in two committees comprised of representatives of each of the seven Palo Verde participants. The Palo Verde participants are: Arizona Public Service Company (9.1 percent); Salt River Project (17. percent); El Paso Electric (1.8 percent); Southern California Edison (1.8 percent); Public Service New Mexico (10. percent); Los Angeles Department of Water & Power (.7 percent); and Southern California Public Power Authority (.9 percent). In addition to these two committees, Palo Verde Participation Agreement established an Audit Committee, through which the six non-operating participants audit recorded Palo Verde O&M and capital expenditures; and a Termination Funding Committee, through with the Palo Verde participants evaluate future decommissioning requirements and costs, and help ensure the accumulation of sufficient decommissioning funds.

10 The Palo Verde Administrative Committee is chaired by an APS officer/chief Nuclear Officer. The Administrative Committee also has other members as appointed by the participant owners. SCE s member of the Palo Verde Administrative Committee is SCE s Chief Nuclear Officer & Vice President. The Palo Verde Administrative Committee meets quarterly to focus on the strategy and planning for the station. The Palo Verde Engineering and Operations (E&O) Committee is responsible for reviewing and approving the annual O&M budget as prepared by APS, reviewing O&M budget status and variance reports, and reviewing and approving recommended corrective actions to budget variances. The E&O Committee is also responsible for reviewing and approving RFO schedules and plans. Similarly, the E&O Committee is responsible for reviewing and approving Palo Verde capital projects. SCE s Palo Verde project manager represents SCE on the E&O Committee. The project manager participates in E&O Committee meetings discussing and approving significant cost, schedule, and resource issues. The project manager provides oversight by confirming that Palo Verde s development, approval, monitoring, and control of the O&M and capital budgets are acceptable to SCE and comport with prudent utility practices. The Palo Verde E&O Committee typically meets about eight times per year. Palo Verde has a comprehensive budget development, approval, and cost-control process. SCE and the other owners participation in the E&O and Administrative Committees provides assurance that APS properly plans and controls Palo Verde O&M and capital expenditures in a way consistent with prudent utility practices, and meets the objectives of excellent safety performance, regulatory compliance, and cost effective maximization of generation. In addition to oversight of Palo Verde O&M and capital expenditures, these two committees also provide oversight of engineering, plant operations, nuclear fuels, audits, and switchyard issues. The committees receive reports from Palo Verde and review plant information at committee meetings, usually at Palo Verde or APS headquarters. The 018 TY O&M funding request includes costs for SCE s Palo Verde oversight functions described above.

11 II. COMPLIANCE Pursuant to D Ordering Paragraph, this Chapter compares Commission-authorized 01 O&M expense and capital expenditures to SCE s recorded 01 O&M and capital expenditures for SCE s Palo Verde facility, as shown in Figure II- and Figure II- below. In Section III.C of this testimony, SCE also describes activities and customer benefits related to SCE s participation with the Nuclear Energy Institute (NEI), consistent with D (006 GRC Decision). A. Comparison of 01 Authorized to 01 Recorded O&M Expense - Palo Verde Figure II- Comparison of Palo Verde 01 Authorized vs. Recorded O&M Expenses (Constant 01 $000, SCE Share) SCE requested $77.9 million for Palo Verde s 01 TY forecast in the 01 GRC and the Commission adopted $77.8 million. In 01, SCE recorded approximately $79.7 million, $1.9 million over SCE s 01 authorized O&M expenses. This variance occurred in part due to a higher-thananticipated payout for employee incentives paid by APS for outstanding Palo Verde performance. The Palo Verde employee incentive score card includes performance indicators, whereby thresholds are established for each indicator. The employee incentive budget is based on meeting the target thresholds for each indicator. In 01, Palo Verde achieved the maximum thresholds for 1 of the indicators and

12 the target threshold for one of the 17 indicators. The outstanding performance resulted in a higher-thanbudgeted employee incentive payout. Palo Verde also incurred increased costs for contractor labor and APS overtime that was required to support the Unit Cycle 19 RFO during the fall of 01. In addition to routine RFO activities such as offloading and loading fuel, the work included scheduled preventative maintenance tasks on the primary, secondary, and electrical systems. The Unit Cycle 19 RFO work scope also included, but was not limited to: (1) Fixed Incore and Excore Detector replacements; () Reactor Coolant Pump A Motor and Pump replacement; () Containment Integrated Leak Rate Test; () Main Transformer B replacement; () Low Pressure Turbine A inspection; and (6) other equipment repairs and replacements. APS completed the Unit Cycle 19 RFO in thirty-six days, six days longer than scheduled. The six-day outage extension was primarily attributed to fuel assembly grid strap damage that occurred during the core reload sequence, and reactor head assembly sequence that included a stuck reactor head stud and failure of the multi-stud tensioner. This six-day outage extension increased contractor labor and APS overtime costs. See SCE s 01 ERRA Review Proceeding Application filed on April 1, 016 (A ). 6

13 1 B. Comparison of 01 Authorized to 01 Recorded Capital Expenditures Figure II- Comparison of Palo Verde 01 Authorized to Recorded Capital Expenditures (Nominal $000, SCE Share) In the 01 GRC, SCE requested $1.8 million for Palo Verde s 01 capital expenditures, which was authorized by the Commission. SCE recorded approximately $6.9 million in 01 capital expenditures, approximately $.1 million above SCE s 01 forecast in Figure II- above. New NRC requirements arising from the Fukushima event were the primary driver to the variance. In March 011, an earthquake and tsunami devastated northeast Japan and led to an accident at Tokyo Electric Power Co. s Fukushima Daiichi nuclear energy facility. The U.S. electric industry conducted rigorous reviews at the Japanese facility and compiled lessons learned from that event. On March 1, 01, the NRC issued Order EA-1-09, Order to Modify Licenses with Regard to Requirements for Mitigation Strategies for Beyond Design Basis External Events and Order EA-1-01 Order to Modify Licenses with Regard to Spent Fuel Pool Instrumentation, which were applicable to Palo Verde, and other orders that were not applicable to Palo Verde. In the past five years, companies that operate U.S. reactors have taken wideranging actions to further enhance the safety of American reactors. Refer to WP SCE-0 Vol. 01, pp

14 In response to the Fukushima event, the NRC directed U.S. nuclear facilities to develop strategies for coping with beyond design basis events. These included directives to: (1) develop improved spent fuel pool monitoring methods, () re-evaluate spent fuel pool design bases for seismic and flooding hazards, and () to perform staffing and communication studies to verify that each site has adequate emergency response personnel and equipment to mitigate a beyond design basis event. The magnitude and scope required to address these directives were not known at the time SCE filed its 01 GRC Application. The total cost to engineer, design, and implement the measures required to meet the NRC directives exceeded the rough order of magnitude estimate that was included in SCE s 01 GRC Application. 8

15 III. PALO VERDE - O&M EXPENSES A. O&M Budget Process APS develops, monitors, and administers budgets at Palo Verde, using a methodology and process consistent with prudent industry practices. The budgeting process considers Palo Verde operational needs and cost experiences, and other industry experience. The process also considers the level of funding necessary to achieve high levels of electricity production, consistent with safe, compliant, and reliable long-term operation. The cost professionals who support the budgeting process are part of a centralized cost organization that provide effective budget and cost control services for the entire Palo Verde organization. APS develops annual O&M work and staffing requirements based on input of line management. This approach allows APS to define a scope of work and budget that maintains safe, reliable, and efficient plant operations while generating electricity at the lowest possible cost. The line managers identify specific needs of their organization for the upcoming year. They also evaluate the impact of the next year s anticipated work activities to identify needs for resources other than manpower. They consider such things as: (1) RFO schedules, () operating and support requirements, () future staffing development needs, () efficiency improvements in their particular work areas, and () information technologies to further improve work processes. The APS cost professional staff considers all inputs available from the line managers and determines the resource needs. From this information, they forecast costs for each group at Palo Verde. They organize these costs into an overall budget for the plant that reflects the total resource requirements and costs for the upcoming budget year. All organizations systematically review budget performance throughout the year to identify budget adjustments (i.e., increases or decreases) that may be achieved without compromising the safety and reliability of operations. B. O&M Cost Control Process To monitor O&M costs, Palo Verde produces monthly reports that identify the variance between budgeted and recorded costs. Palo Verde management holds meetings with the E&O Committee (which includes representatives from each co-owner) to formally review this information, and to discuss any unbudgeted or emergent work. Line managers address potential budget changes that may affect costs. A key function of these meetings is for the E&O Committee to agree on budget plans and set priorities, 9

16 so that all work performed is not only necessary, but justified in relation to other emergent work requirements. C. Palo Verde (FERC Account ) 1. Activity Description SCE s 1.8 percent share of Palo Verde s labor and non-labor expense are presented in GRC FERC Account. 6 SCE records costs based on billing information provided by APS, and therefore, this testimony does not describe trends or averages of any account. SCE s 018 TY forecast of $76.7 million is shown below in Figure III- and primarily includes plant operating expense and RFO expenses as further described below. Figure III- Palo Verde 1,, and Adjusted O&M Expense FERC Account Recorded and 018 Forecast (Constant 01 $000, SCE Share) a) Plant Operating Expense Operating a three-unit nuclear facility such as Palo Verde requires highly-skilled personnel. Examples of the major staffing categories include but are not limited to Operations, Engineering, Maintenance, and Support. Palo Verde staff performs activities that range from highly 6 See WP SCE-0 Vol. 01, pp

17 technical and specialized functions that are specific to operation of a nuclear plant (e.g., radiation protection, nuclear plant system engineering, instrument and technology technicians) to corporate support functions (e.g., IT, training, finance, regulatory, legal, safety, and security). 7 The personnel costs for these ongoing onsite and corporate support functions is the largest cost driver of Palo Verde O&M expenses. Other expenses such as material, contract, NRC fees, and vendors are also included in Palo Verde O&M expenses. b) Refueling and Maintenance Outage Expense In addition, each Palo Verde unit undergoes a planned RFO once every 18 months. These outages are required to replenish the inventory of fuel used in each unit s nuclear reactor, and to perform other necessary maintenance activities that can only be performed when the unit is offline. 8 RFOs are part of the total O&M funding request consistent with the plan for two RFOs each year. A primary goal at Palo Verde is to avoid summer outages because all participants are southwestern U.S. utilities that typically experience their peak load periods during the summer months (June-September). For this reason, Palo Verde plans its fuel cycles so one unit refuels in the spring each year and another refuels in the fall. These RFOs rotate among the three units in an approximately 18- month period for each unit, resulting in two RFOs per year. Palo Verde has used this rotation for many years. Therefore, SCE reasonably expects that the plant will experience two RFOs per year. RFOs for Palo Verde Unit (spring) and Unit (fall) are forecast for 018 TY. 7 Additional examples of Palo Verde staffing includes plant managers; nuclear reactor operators; nuclear, electrical, mechanical, civil, and environmental engineers and specialists; skilled craft personnel (e.g., electricians, boiler and condenser mechanics, welders); chemistry technicians; radiation protection specialists; computer and telecommunications technicians; quality control and quality assurance personnel; project managers; regulatory specialists; communications specialists; training instructors; work planners and schedulers; cost analysts; emergency preparedness and fire protection personnel; security officers; etc. 8 Fossil-fueled generating plants can be refueled continually while they are operating, therefore, fossil plant outages are generally scheduled around the need to perform maintenance on the plant. In contrast, nuclear units can only be refueled when they are offline. After a nuclear unit is refueled, it contains a finite quantity of fuel to consume during that fuel cycle before it must again be refueled. The forecast rate of consumption for this quantity of nuclear fuel determines the scheduling of the next refueling outage. Maintenance work that is required to be performed while a nuclear unit is offline is performed during scheduled refueling and maintenance outages. 11

18 (1) RFO Plans Each RFO plan identifies the work and schedule for the corresponding refueling outage. Palo Verde establishes a cost forecast using historical RFO costs as a basis. Palo Verde removes the costs for cycle-specific activities from the historical costs for past years, and averages the historical costs. Palo Verde then adds costs for the planned cycle-specific activities for the planned RFO to the average historical costs to determine the total RFO cost. () Development of an RFO Plan APS plans each RFO with three major parameters in mind: scope, duration, and cost. APS bases its initial RFO planning on the prevailing work processes and procedures in effect at Palo Verde, the demonstrated organizational capabilities, and the required work scope. The foundation of an RFO is the work scope or activities to be performed. Besides refueling activities, a typical Palo Verde RFO work scope includes over,000 maintenance orders and over 10,000 individually identified activities. Planning the duration of an RFO is complex. Every RFO includes refueling activities similar in scope and outage time requirements, such as: (1) shut down and cool down of the reactor, () remove the reactor vessel head and fuel replacement, () reassemble the reactor vessel, and () heat-up and start-up the reactor. Other activities in an RFO are one-time projects or follow a periodic cycle. Each RFO has a work scope consisting of generic work activities and cyclespecific activities (i.e., plant modifications, surveillances, and corrective maintenance). Before detailed planning of an RFO can begin, Palo Verde determines cycle-specific activities to be performed with the generic activities; therefore, each RFO scope is unique. Within the framework of the generic work activities, Palo Verde creates a RFO plan, based upon the particular work scope. This plan begins with the generic refueling activities and standard work windows, 9 which allow access to specific plant systems. Palo Verde adds cyclespecific activities to this plan, including surveillance tests, 10 preventive maintenance, plant 9 Work Windows are periods of time when work can be performed on specific plant systems. During a work window, the system is usually removed from service and placed in a condition safe for work activities (i.e., cooled down, depressurized, and deenergized). This process allows the aggregation of work activities with similar plant status requirements. 10 Surveillance tests are required by Nuclear Regulatory Commission-approved technical specifications. 1

19 modifications, corrective maintenance, and fuel cycle-specific activities. Palo Verde then establishes the planned duration for each RFO based on the work necessary for safe, compliant, and reliable operations. Prior to each outage, the planned scope, duration, and costs are reviewed with the participants.. Palo Verde FERC Account Forecast a) Historical Variance Analysis (1) Labor Palo Verde labor expenses include the costs for SCE employees who perform oversight and accounting functions related to SCE s Palo Verde ownership share. As shown in Figure III- above, Palo Verde labor expense trended downward from 011 through 01, due to a decrease in Palo Verde-related work hours by SCE employees, as some SCE employees who provided support to both Palo Verde and SONGS were severed with the permanent closure of SONGS & in 01 and 01. Additionally, some employee positions were eliminated as part of SCE s companywide Operational Excellence (OpX) staffing reductions, resulting in exceptionally low labor expense in 01. In 01, some of the remaining personnel at SONGS were reassigned to spend a portion of their time performing Palo Verde oversight functions. () Non-Labor Palo Verde O&M expense, invoiced to SCE by APS, are recorded by SCE as non-labor expenses. Palo Verde non-labor expenses trended slightly lower from 011 through 01 as improvements were made in RFO performance and productivity improvements were implemented. Non-labor expenses increased by less than one percent in 01, but increased more substantially in 01. As described in Section II.A, the increase in 01 was attributable to an increase in employee incentives for outstanding Palo Verde performance, based upon the achievement of nearly all of the maximum thresholds for Palo Verde s performance indicators. In addition, non-labor expense increased as a result of more contractor labor and APS overtime that was required to support the Unit Cycle 19 RFO. b) Forecast (1) Labor SCE will require $0.1 million (Constant 01$, SCE share) in 018 for Palo Verde O&M labor costs, as shown in Figure III- above. SCE s forecast is based on the last- 1

20 recorded-year forecast methodology. As explained in Section III.C..a, SCE s Palo Verde-related labor costs decreased from period due to staffing reductions resulting from the permanent closure of SONGS & and other SCE-wide cost reduction initiatives. SCE s 01 labor expense reflects a slight increase above 01 to account for the reassignment of employees who provide oversight functions for Palo Verde and will continue to do so in the 018 TY period. Therefore, SCE s recorded adjusted 01 labor expense is a reasonable and sustainable estimate for future steady-state Palo Verde oversight. () Non-Labor In D , the CPUC stated that if recorded expenses in an account have fluctuated over three or more years, an averaging methodology is appropriate for determining a base estimate. Because non-labor costs have fluctuated over the last three to five years, we have chosen the three-year average forecast method, which provides the lowest forecast amount of the averaging methodologies. Based on this methodology, SCE is requesting $76.6 million 11 (Constant 01$, SCE share) in 018 for Palo Verde O&M non-labor costs, which is $.1 million less than the 01 recorded expenses of $79.7 million as shown in Figure III- above. 11 The forecast includes approximately $7,000 (Constant $, SCE Share) for NEI dues, an organization that promotes the beneficial use of nuclear energy and technology in America. One example of how this benefits customers is NEI s efforts with regulators to confirm safety-focused resource allocations and improved efficiencies in the nuclear industry. Refer to WP SCE-0 Vol. 01, p.. 1

21 IV. PALO VERDE CAPITAL EXPENDITURES As the operating agent for Palo Verde, APS identifies and implements capital projects to support safe operation of the plant to meet regulatory requirements, optimize overall cost-effective plant operation, and provide reliable plant operation. APS has developed and utilized a budgeting and costcontrol program to implement an optimum level of capital expenditures. This Chapter describes the capital budgeting and approval process, identifies the categorization of capital investments, and provides the capital expenditure forecast for years A. Palo Verde Capital Budget Process APS plans capital expenditures to address changing regulatory requirements, emergent work, and plant reliability or operability issues. The capital budgeting process considers the results of benchmarking and feasibility studies, conceptual or preliminary engineering, industry developments, replacement energy costs (used in cost-benefits analyses), and other evolving factors. APS does not rigidly fix the scope of capital work to be implemented in future years. Prudent management of capital expenditures includes flexibility in deferring or substituting projects as needed to respond to emergent work, changing priorities, and other factors. SCE and the other participants approve necessary individual capital improvement projects and necessary revisions to the capital budget to respond to changing conditions. APS categorizes capital work by project type, and the participants approve the work under E&O Committee procedures. The E&O Committee is responsible for reviewing and approving the annual capital and O&M budgets prepared by APS, and periodic review of the status of those budgets and any variances with actual costs. APS documents justification for proposed capital work and, where appropriate, develops engineering cost evaluations of alternatives. The Palo Verde capital program contains the following elements for project and expenditure prioritization: (1) System Engineering, Plant Health Committee Sub-Committee (PHCSC), Plant Health Committee (PHC), Management Review Committee (MRC), and Long Range Plan (LRP); () the Work Authorization (WA) process; and () the Annual Capital Budget. 1

22 SCE reviews monthly variance reports, reviews and approves the annual capital budget, and reviews and approves individual projects (WAs) to oversee the capital expenditures at Palo Verde and to verify that APS is effectively administering budget and cost control processes. 1. APS Capital Project Approval Process Each proposed Palo Verde capital project undergoes a thorough multi-step review process before it is submitted to the E&O Committee. The Palo Verde System Engineering Team identifies each proposed project and submits a package/presentation to the Plant Health Committee Sub- Committee (PHCSC) for review and ranking. The PHCSC reviews each plant modification project and assigns an implementation priority and schedule based on the following criteria: * A ranking between two and seven is established based on the project s importance to safety (nuclear and personnel), reliability improvements or production. * A multiplier applies to the ranking: - Short-term implication or limited option needed to correct existing or imminent condition. Failing to implement may affect the health or safety of public/plant personnel; result in plant shutdowns, or delay start-up or plant return to service. - Aggressive completion is necessary to prevent future significant or adverse conditions, or hinders response to design basis or critical plant transients. - Items that improve/maintain equipment reliability, plant operation or worker condition economically justified but not urgent to resolve. - Plant improvement/betterment item that provides short term benefit. May include intangible benefits such as improvement in employee morale and plant appearance. 1 - Item might add value, but shows little short-term benefit. Following PHCSC s initial ranking and approval, the proposed project proceeds to the Plant Health Committee (PHC) for implementation approval and then to the Management Review Committee (MRC) for funding approval. After the MRC approves funding for a project, Palo Verde assigns WA numbers to the capital project and processes the project for approval via the WA process. The Palo Verde Long Range Plan (LRP) schedules and tracks current and future capital projects and requirements, including PHCSC / PHC approved projects. The LRP incorporates a cost 16

23 estimate for capital work and is periodically updated as necessary. The LRP documents deferral of scheduled projects and identifies and/or substitutes new projects in response to changing regulatory requirements, and other evolving factors. The LRP database cross-references projects to the NRC and other regulatory agency commitments.. Work Authorization Process Palo Verde develops a WA package for each new or revised capital project and routes it internally for review and approval. Each WA package includes the description, justification, and cost estimate for the project. Palo Verde-approved WA packages are then submitted to the E&O Committee for review and approval. WA packages include descriptive documents and justification for review and approval. A capital project is justified if it is: (1) required for personnel, public or plant health and safety, () necessary to meet regulatory requirements, () necessary for continuing reliable plant operation, or () a cost-effective plant betterment. The E&O Committee reviews WA packages on an ongoing basis and approves them on a monthly basis. If the cost of a project exceeds its approved budget by at least $00,000 (100% share), Administrative Committee 1 approval is required.. Annual Capital Budget Palo Verde prepares an annual capital budget for each year and processes it for APS and E&O Committee approval. The annual capital budget is based on the LRP and contains APS-approved projects planned for the upcoming year and conceptual projects expected to be approved during the year. Some projects may require several years to complete. APS also presents a forecast for the year following the upcoming budget year. E&O Committee approval of the budget provides acceptance of the total dollar value for the annual budget, but does not constitute final approval of the line items within the budget. This is because the WA process controls individual project approval. Typically, during the budget year, APS may change the timing of some individual projects to allow other emergent, higher priority work to be performed. APS only implements projects approved through the WA process. 1 The Administrative Committee consists of one representative appointed by each co-participant who is an officer or the general manager of their company. This committee has various functions, including but not limited to: (1) providing a liaison between the co-participants and the management team at Palo Verde; () considering and resolving matters referred to it by other committees; and () reviewing, discussing, and acting upon disputes among the co-participants. 17

24 Throughout the year, APS manages its expenditures within the budget approved by the E&O Committee, using the WA process to obtain approval for any timing or funding changes that become necessary. SCE and the other participants provide continuous oversight of this process.. Capital Budget Categorization APS groups its Palo Verde capital projects by reason or type of expenditure. There are nine categories, which are described in Section IV.C below. The capital budget includes known projects, identified by category, for the upcoming budget year. The budget also includes costs for nuclear support organizations that perform administrative support activities directly related to the capital projects. Palo Verde classifies this support as overheads and distributables and identifies the costs for these support activities in its own category.. SCE Capital Cost Classifications SCE reviews the Palo Verde annual capital budget through participating in the E&O Committee s review and approval of the Palo Verde budget, including WA packages already approved by APS management and conceptual projects forecast for approval. SCE tracks each Palo Verde project individually by creating an SCE internal order to mirror each capital project. SCE develops its work orders and forecast expenditures within SCE s budgeting system consistent with: (1) approved budget information provided by APS, and () SCE s forecast of Palo Verde budget changes. B. Summary of 018 Palo Verde Capital Forecast Table IV- Palo Verde Units 1,, and Capital Expenditures Detail (Nominal $ in Millions, SCE Share Without Corporate Overheads) 18

25 Table IV- above shows projects by budget category for Palo Verde capital expenditures for As shown in this table, SCE requests $11.1 million for Palo Verde capital expenditures from (Nominal $, SCE share), and $7.9 million per year in both 019 and 00. Table IV- below provides a listing by budget category of Palo Verde capital expenditures forecast for It also delineates projects for which SCE s 1.8 percent share of the cost exceeds $.0 million throughout the period There are three projects where SCE s share exceed $.0 million over the period (i.e., Main Generator Stator Rewind for units 1,, and respectively). These projects are described in Section IV.C. below. Table IV- Palo Verde Units 1,, and Capital Expenditures Detail (Nominal $ in Millions, SCE Share Without Corporate Overheads) Prior Costs 016 Forecast 017 Forecast 018 Forecast 019 Forecast 00 Forecast Total Project Total Plant Modifications (Projects less than $.0M) Plant Modifications Subtotal Equipment & Replacements Main Generator Stator Rewind, Unit Main Generator Stator Rewind, Unit Main Generator Stator Rewind, Unit Other Equipment & Replacements Subtotal Water Reclamation Facility Water Reclamation Facility Subtotal Buildings Subtotal Buildings Fukushima Subtotal Fukushima General Plant Subtotal General Plant Computers Subtotal Computers Emergent Work Fund Subtotal Emergent Work Fund Ovreheads & Distributables Subtotal Overheads & Distributables Grand Total Refer to WP SCE-0 Vol. 01, pp for list of minor projects by budget categories and respective forecasts, which has been provided by APS. 19

26 C. Palo Verde Capital Forecast 1. Plant Modifications Plant modifications projects are implemented for plant system-related upgrades and replacements. They include changes in plant design, including simulator computers, motors, pumps, valves, heat exchangers, breakers, etc. Plant modifications projects help to keep plant operations reliable (at a high capacity factor), safe, and compliant with NRC requirements. Sub-categories of plant modifications projects are listed below: NRC Regulatory Requirements: Plant modifications required by a rule, regulation, or regulatory guides. Other Regulatory Requirements: Plant modifications mandated by any federal, state, or local governmental agency other than the NRC. Non-Regulatory Safety: Plant modifications required to improve the plant industrial and personnel safety, other than items required by the Occupational Safety & Health Administration or other governmental regulatory bodies included in the Other Regulatory Requirements sub-category above. Availability Improvements: Plant modifications, other than those listed above, that are justified based predominantly on improving the availability or capacity factor of the generating units. Economic Improvements: Plant modifications for improvements other than those included in the Availability Improvements sub-category above. SCE s share of the capital forecast for plant modifications during the period is $.1 million (Nominal $, SCE share). No single plant modifications project has a cost greater than $ million. 1. Equipment and Replacements The Equipment and Replacements category covers the items listed below: 1 Refer to WP SCE-0 Vol. 01, pp. -7 & 1-0 (categories 1A-1D). 0

27 a) Tools & Equipment This subcategory includes capitalized tools and equipment used to perform routine and repetitive maintenance, construction, and training activities. It is important to maintain complete sets of working, undamaged tools and equipment so that work can be completed efficiently and worker safety maintained. b) Replacements This includes replacement of retirement units in-kind, excluding items controlled by the Water Reclamation Facility (WRF) Department. c) Other Equipment & Replacements The forecast cost of the capital expenditures for Equipment & Replacements projects during the period is $6. million (Nominal $, SCE share). 1 This includes the Main Generator Stator Rewind Projects for Units 1,, and each have a cost greater than $ million. (1) Main Generator Stator Rewind Projects -- Units 1,, and Each Palo Verde unit has a main generator. A main generator converts mechanical energy from the high and low pressure turbines to electrical energy. This is done by creating an electromagnetic field that forces electrons through stator windings, 16 generating electricity that can be transmitted to the power grid. The life expectancy for the stator windings is approximately 0 years, and is limited by the life of the winding insulation. Stator cooling water leaks may also adversely impact the useful lives of stator windings. Such leaks may result in equipment damage, forced unit outages, and increased maintenance costs. The main generator stator windings for each of the Palo Verde units has either already reached or will soon reach 0 years of service, indicating they are approaching the end of their useful lives. Palo Verde, therefore, plans to perform rewinds for the Unit, Unit, and Unit 1 main generator stators during the fall RFOs of 018, 019, and 00, respectively. The timing of this 1 Refer to WP SCE-0 Vol. 01, pp. 8- & 0-61 (Categories J, K). 16 The stator winding is the stationary winding in an electric generator. 1

28 work is important because it will require longer-than-normal outage durations and are unique in that they have a substantially long lead time to manufacture. The performance of stator rewinds will extend the design lives of the main generator stator windings and associated equipment, and mitigate stator water cooling leaks. It will also reduce the ongoing maintenance costs associated with these aging electrical components. Due to the duration of these work scopes, it will be necessary to increase the planned durations of the corresponding RFOs from approximately 0 days to 8- days. SCE includes further detail provided by APS regarding the project need, scope, and cost estimate in Appendix A. SCE s share of the capital forecast for these three projects are $9.6 million (Nominal $, SCE share) during the period. 17. Water Reclamation Facility The Palo Verde Water Reclamation Facility (WRF) category covers WRF plant modifications, equipment, and replacements, and WRF process computers, 18 but excludes items covered by the Buildings, General Plant, and Computers budget categories. Water is essential for safe and reliable plant operations. The WRF provides the reclaimed water that serves as the ultimate heat sink for the plant to maintain cooling. The capital work planned by APS for this project keeps the water source for this purpose secure. The forecast cost of the capital expenditures for WRF projects during the period is $. million (Nominal $, SCE share). No single WRF project has a cost greater than $ million. 19. Buildings The Palo Verde facility includes many buildings located inside the security protected areas that are integral components of the three nuclear units. In addition, the facility includes many other buildings located inside or outside the security owner controlled area that directly support the operation of the nuclear units and the Independent Spent Fuel Storage Installation (ISFSI). From time to 17 Refer to SCE-0 Vol. 01, Appendix A. 18 Computers directly related to WRF operation. 19 Refer to WP SCE-0 Vol. 01, pp. 7-9 & (Category 6).

29 time, these buildings require repairs or modifications so that plant workers have suitable space to plan and perform their work to meet the business needs of the plant. SCE s share of the capital forecast for Building-related projects during the period is $18.7 million (Nominal $, SCE share). No single Buildings project has a cost greater than $ million. 0. Fukushima In response to the nuclear accident at the Fukushima Daiichi nuclear plant in Japan, the NRC released Order EA-1-09 and a 10 C.F.R. 0.(f) letter regarding Requirements for Mitigation Strategies for Beyond-Design-Basis External Events. 1 The Fukushima project involved mandated assessments, walk downs, engineering reviews, evaluations, and preparing responses to meet these new NRC requirements. A substantial expenditure was incurred for the Fukushima project prior to 016. SCE s share of the capital forecast for this project during the period is $0. million (Nominal $, SCE share). 6. General Plant The General Plant category covers furniture, office equipment, communications-related equipment, transportation, and capitalized remodeling. It also covers periodic replacement of van pool and plant vehicles due to age and/or increasing maintenance costs. Periodically, these various items require replacement so that plant workers are able to complete their work at the plant. SCE s share of capital forecast for General Plant projects during the period is $17.9 million (Nominal $, SCE share). No single General Plant project has a cost greater than $ million. 0 Refer to WP SCE-0 Vol. 01, pp. 6-7 & 61-6 (Category ). 1 Refer to WP SCE-0 Vol. 01, pp. 0-. Refer to WP SCE-0 Vol. 01, pp. & 79 (Category 9). Refer to WP SCE-0 Vol. 01, pp. - & 6-68 (Category ).

30 Computers The Computer category covers non-process computer hardware and software including central processing units, personal computers and peripherals. This also includes applications and infrastructure required to maintain plant computers and systems in workable status. The computer work order is used for computer-related upgrades and replacements. Computers are a basic tool used by plant workers for planning and conducting essential plant activities, including operations, maintenance, engineering, security, quality assurance, regulatory affairs and other functions. It is sound business practice to implement a capital program for computer upgrades and replacements. SCE s share of the capital forecast for Computer projects during the period is $8. million (Nominal $, SCE share). No single Computer project has a cost greater than $ million. 8. Emergent Work Fund The Emergent Work Fund is a blanket work authorization for unplanned capital investments at the plant to address: (1) issues raised by the NRC and other regulatory agencies, or () issues discovered during future operation and/or refueling outages. The foregoing issues typically arise at nuclear facilities, including Palo Verde. The Emergent Work Fund appears as a line item in the fiveyear capital forecast for Any capital work item funded from the Emergent Work Fund requires a detailed, work authorization approved by the E&O Committee. The Emergent Work Fund allows APS to keep Palo Verde operations safe, reliable, and compliant with NRC and other regulatory requirements. SCE s share of the capital forecast during the period is $8. million (Nominal $, SCE share) Overheads & Distributables Significant costs are incurred in the overall support of the capital program at Palo Verde. Because it is not practical to assign these costs to individual projects, the Overheads project accounts for them. Various groups, such as Business Operations, Warehouse, Long Range Planning, and Supply Chain, support the majority of the capital projects included in this project category. Similarly, the Computers not directly related to plant operations. Refer to WP SCE-0 Vol. 01, pp. 7-8 & (Category ). 6 Refer to WP SCE-0 Vol. 01, p. 8 & 79 (Category 9).

31 1 Maintenance and Project Engineering Departments incur significant costs to specifically support the categories Plant Modifications and Replacements but it is not practical to assign these costs to individual projects. The Distributables project accounts for them. SCE s share of the capital forecast for Distributable projects during the period is $1.6 million (Nominal $, SCE share). 7 7 Refer to WP SCE-0 Vol. 01, pp. & (Category 7).

32 Appendix A (Main Generator Stator Rewind Summary)

33 A1

34 A

35 A

36 A

37 A

38 A6

39 A7

40 A8

41 A9

42 A10

43 A11

44 A1

45 A1

46 A1

47 A1

48 A16

49 A17