By Alwyn Scott
NEW YORK (Reuters) - General Electric Co is advising some buyers of its big power turbines to switch out faulty blades sooner than expected and has disclosed that a blade broke in 2015, according to a presentation reviewed by Reuters and people briefed on the matter.
The second blade break, which has not been previously reported, involved an earlier turbine model and was similar to a break last September that severely damaged a turbine in Texas and shut it down for two months of repairs.
The defective blade issue affects GE's newest turbine technology, which cost billions of dollars to develop, and is among the challenges facing new Chief Executive Larry Culp as he tries to revive the profits and share price of the 127-year-old conglomerate.
GE's advice for fixing the problem can curb turbine use by utilities, according to the sources and utilities that use GE turbines, potentially threatening the revenue streams at the power plants.
At private meetings in Florida and London last month, GE executives said the company is offering extended warranty coverage and making spare parts available to ease concerns of insurers, lenders and utilities interested in buying turbines, according to a GE executive's slideshow presentation and three people who attended the meetings. Some said they signed non-disclosure agreements.
GE told participants that turbines with at-risk blades should run for fewer than about 7,000 hours depending on individual plant circumstances, before shutting down for blade replacement, according to two people who attended the meetings. GE said it had advised customers of the change. GE's previous guidance for blades was after 25,000 hours.
The executives also said in the meetings that the blade that broke in 2015 at an undisclosed power plant was in a GE 9FB turbine, which has similar technology to the HA turbine that broke in Texas. The 2015 break prompted GE to work on new protective coatings and alter a heat treatment process for the parts, a second presentation showed.
GE told Reuters that after the blade broke in 2015, GE did not know at first that the problem would also afflict its HA models.
"The HA components were in development before the initial 9FB issue occurred, and the HA units began to ship while the root-cause analysis was in process and before it was determined that it was a component issue that impacted the 9FB fleet and the HA," GE said in a statement to Reuters.
GE declined to provide more detail about the 2015 blade break or usage restrictions, saying some of the information is proprietary.
"We are executing the plan we laid out to fix the (blade) issue," GE said in a statement to Reuters. "The feedback from customers has been positive, and they continue to choose the HA, which remains the fastest-growing fleet of advanced technology turbines in the world today."
The details from GE's meetings come as GE is installing new blades in about 50 9FB and 52 HA turbines, according to a person familiar with the matter, fewer than the 130 estimated after the blade break in Texas prompted it to warn that other turbines are at risk for blade failure.
Reuters previously reported that GE found an oxidation problem, not a break, in 2015 and developed a fix before the failure in Texas.
Scaling back use of GE turbines reduces how much electricity they produce, a threat to revenues and profits for Exelon Corp, PSEG Power LLC, Chubu Electric Power Co Inc and others with the 400-ton GE machines that form the core of modern gas-fired power plants, according to utilities and industry experts.
Japan's Chubu Electric said it learned about the blade problem with its six new GE turbines last October. It is restricting operation time at one of the two plants that use GE's HA turbines, but expects to have "enough reserve capacity to generate sufficient electricity to meet demand during this winter," a spokesman told Reuters. He said Chubu will tally the financial impact "depending on how long the plants would be shut down" to replace blades. It expects repairs to be completed by the end of February.
PSEG Power and Exelon, based in the United States, declined to comment on how restrictions would affect them.
GE is continuing to sell turbines in a slumping market for big power plants, where it has lost share to rivals Mitsubishi Hitachi Power Systems and Siemens AG. GE has said it booked orders for three large turbines last month.
GE's share price fell after GE revealed a blade issue in Texas on September 19, saying such "teething problems" are not uncommon with new technology and would require "minor adjustments" to fix. GE has said it would set aside $480 million for repairs and warranty claims.
Three days after the break in Texas became known, Electricite de France SA shut down its HA turbine to replace blades. EDF did not respond to requests for comment.
At the London meeting, about 100 insurance industry people gathered in the oak-paneled Old Library room of Lloyd's of London on December 13, according to the sources, who spoke on condition of anonymity to discuss confidential information.
GE power executives Marcus Scholz and Tom Dreisbach gave presentations about GE's turbine technology. In its turbine documentation, GE has advised its power customers to inspect turbines with so-called "Generation 1" blades after 25,000 hours of use. GE said its improved blades, known as "Generation 2," are designed to last 25,000 hours or more before being replaced.
According to page 11 of his presentation, Dreisbach said the Generation 1 blade that broke in 2015 failed after 22,000 hours. New parts treated with a special coating were inspected by technicians after about 12,000 and 16,000 hours and "cracking (was) still observed," the presentation said.
GE inspected other turbines at about 7,000 hours and "early stages of cracking (were) observed," the presentation said.
(Reporting by Alwyn Scott; Additional reporting by Yuka Obayashi in Tokyo; Editing by Joe White and Edward Tobin)
Disclaimer: No Business Standard Journalist was involved in creation of this content
