GE GE Aerospace

By Thomas Gryta and Russell Gold 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (September 21, 2018).

General Electric Co. discovered a flaw in its newest power-plant turbines after a key part failed earlier this month, forcing utility Exelon Corp. to temporarily shut two Texas plants while GE makes repairs.

GE said the problem is an "oxidation issue" related to a metal alloy that could cause distress on the fan blades of its HA gas turbine, hulking machines that generate electricity for thousands of homes. GE spent years developing the HA turbines, and the more-efficient design is central to GE's efforts to compete with rivals such as Siemens AG in a difficult power market.

The issue was found after "an event" a few weeks ago at Exelon's Colorado Bend plant near Houston, where the utility had installed two of the new turbines in June 2017, an Exelon spokeswoman said. As a result, Exelon shut down the new turbines at the plant and two HA turbines at a second gas-powered plant Wolf Hollow near Fort Worth.

"We have identified the solution and have a plan in place to address the issue," the Exelon spokeswoman said. "We expect the unit to return to service soon."

The two plants operate in the deregulated Texas power markets. While the outages likely push up wholesale prices marginally, there haven't been any significant price spikes since the turbines were taken offline for repairs.

The problem is the latest for the GE Power unit, which has been at the center of GE's financial and operational woes. The century-old business has struggled with deep losses amid a global drop in demand for power-generating equipment. The unit slashed 12,000 jobs last year as part of a broader restructuring that has also resulted in the slashing of GE's dividend, the sale of the company's locomotive business and a plan to split off its health care unit.

Chicago-based Exelon was among the first utilities to install the new class of GE equipment, which promises to boost efficiency. GE has sold about 80 of the HA units and about 30 are currently in operation; the first HA turbine went into operation in June 2016. GE plans to have more than 60 in operation by 2020.

GE said it expects the oxidation issue to affect other HA turbines, but said it's not uncommon for new equipment to have "minor adjustments" after they are put into service. The repair can take the turbines offline for several weeks, the company said. The cost of the fix isn't clear.

"We have been proactively working with customers on a case-by-case basis to address any impacted unit," the company said.

Shares of GE, which fell 3.1% to $12.46 on Thursday, are off by about half over the past year.

GE has known about the oxidation problem for months and has been working on the solution with customers, according to people familiar with the situation. The weakening of the part -- one of the many spinning blades inside the turbine -- shortens the equipment's expected life. While GE knew of the problem, the people said, the failure occurred even sooner than expected. Because the problem is related to the age of the part, GE will address fixing customers based on risk.

JPMorgan analyst Stephen Tusa, who wrote about the issue in a research note to investors, said GE was seeking to play down the issue, but said it is material enough for Exelon to have to shut two power plants.

If not remedied quickly, he said it could be a drain on the GE Power division. GE typically has service contracts on its turbines, and unplanned outages or problems can cut the profitability of that arrangement.

GE Power CEO Russell Stokes discussed the issue in a post on LinkedIn Wednesday, classifying it as a "teething" problem, an issue with a new complex product early in its launch. He said such setbacks are normal as GE engineers "fine-tune and adjust the technology."

"Obviously, this was a frustrating development, for us, as well as for our customers," he said.

Other utilities that are rolling out the HA turbine said they were aware of the issue and were working with GE.

Public Service Enterprise Group Inc. in June started up a gas plant near Woodbridge, N.J., using the new turbine. "We have not had any issues to date," a spokesman said. "We are aware of the issue and will work with GE as a warranty item as needed."

Invenergy said a power plant near Scranton, Pa., scheduled to begin operations in January will also run an HA turbine. "We are working with GE on a blade replacement plan which is scheduled for the spring of 2019," a spokeswoman said.

A GE spokeswoman said the problem was limited to this model and isn't expected to affect other products.

Write to Thomas Gryta at thomas.gryta@wsj.com and Russell Gold at russell.gold@wsj.com

(END) Dow Jones Newswires

September 21, 2018 02:47 ET (06:47 GMT)

Copyright (c) 2018 Dow Jones & Company, Inc.