### THE STATE OF NEW HAMPSHIRE

BEFORE THE NEW HAMPSHIRE PUBLIC UTILITIES COMMISSION

PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE

PREPARED TESTIMONY OF WILLIAM H. SMAGULA

INVESTIGATION OF MERRIMACK STATION SCRUBBER PROJECT

AND COST RECOVERY

Docket No. DE 11

- 250Testimony of William H. Smagula Docket No. DE 1 1

- 250 June 1 5 , 2012

Page 2 of 25



### TABLE OF CONTENTS

Page PREPARED TESTIMONY OF WILLIAM H. SMAGULA

I. Introduction

................................ ................................ ................................ ......... 3

II. Backgrou nd on the Clean Air Project

................................ ................................ .. 5

III. Clean Air Pr oject Design and Construction

................................ ......................... 6

IV. Projec t Management and Philosophy

................................ ................................ ... 12

V. Ongoin g Operation of the Scrubber

................................ ................................ ..... 22Testimony of William H. Smagula Docket No. DE 1 1

- 250 June 1 5 , 2012

Page 3 of 25



### I. INTRODUCTION 1
Q. Mr. Smagula, please state your name, position, employer and address. 2

A. My name is William H. Smagula. I am Director of Generation for Public Service 3
Company of New Hampshire, ( “ PSNH ” or the “Company” ), a subsidiary of Northeast 4
Utilities (NU). My business address is 780 North Commercial Street, P.O. Box 330, 5
Manchester, New Hampshire 03105. 6

Q. Please provide a brief summary of your background. 7

A. I received a Bachelor of Science degree in Mechanical Engineering from the University 8
of New Hampshire and a Master of Science degree in Mechanical Engineering from 9
Northeastern University. I have worked for Public Service C ompany of New Hampshire 10

and then Northeast Utilities since 1978. I am a Registered P rofessional Engineer in the 11
states of New Hampshire, Connecticut and Massachusetts. My duties have included 12
Manager of Generation Training for the PSNH system, Station Ma nager

- Merrimack 13
Station, Steam Production Manager

- PSNH, Director Fossil Generation

- The 14
Connecticut Light and Power Company, and Director, Manage and Operate Services

- 15
Northeast Generation Services Company. In June 2001, I assumed the responsibiliti es of 16

Director

- PSNH Generation in New Hampshire. 17Testimony of William H. Smagula Docket No. DE 1 1

- 250 June 1 5 , 2012

Page 4 of 25

. Q. Please describe your responsibilities as Director

- PSNH Generation. 1

A. In my present position as Director

- PSNH Generation, I am responsible for the operation 2
and maintenance of PSNH’s generatin g stations. I have responsibility for three fossil

3
fired, steam electric generating stations, nine hydroelectric generating stations, two 4
remote combustion turbine/diesel generator sites and most recently a new biomass

- fueled 5

boiler. PSNH Generation main tains a diversified fuel portfolio including gas, oil and 6

coal

- fired units as well as hydro and renewable biomass with a total generation capacity 7
of approximately 1150 MW. 8

Q. Have you ever testified before this Commission? 9

A. Yes. I submitted testimony in support of the Company’s request for temporary rates in 10

this docket, and have testified in many previous Commission proceedings regarding the 11
operation of PSNH’s fossil

- fired and hydroelectric generating plants. 12

Q. What is the purpo se of your testimony? 13

A. The purpose of my testimony is to provide support for the Company’s request under RSA 14

125

- O:18 that the Commission find that costs associated with the Clean Air Project 15
involving the design, construction and operation of the wet fl ue gas desulfurization 16

system (the “Scrubber” or “FGD” ) at PSNH’s Merrimack Station in Bow, New 17
Hampshire were prudently incurred and are recoverable through the Company’s D efault 18

E nergy S ervice rate. My testimony is organized into the following sections: (1) 19
Background on the Clean Air Project ( “ CAP ” ) ; (2) C AP Design and Construction ; (3) 20
Project Management and Philosophy , and ; (4) Ongoing O peration of the Scrubber

. 21Testimony of William H. Smagula Docket No. DE 1 1

- 250 June 1 5 , 2012

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### II. BACKGROUND ON THE CLEAN AIR PROJECT 1
Q. Was the construction of the Scrubber mandated by law? 2

A. Yes. I n June 2006, the New Hampshire General Court enacted a law requiring PSNH to 3
reduce mercury emissions on an annual basis by 80 percent of the aggregated mercury 4

content of the coal burned at all of PSNH ’s coal

- fired plants 1 no later than July 1, 2013

. 5

To achieve the statutorily

- required mercury reduction, the law required PSNH to install a 6
wet flue gas desulfurization system at Merrimack Station by July 1, 2013. The law is 7
unique in that it requires the installation and operation of specific technology ( a wet FGD 8

system ) at a specific site

-- at Merrimack Station

-- to achieve the mandat ed mercury 9

emissions reductions. The law re quiring this technology has generally been referred to as 10
the Mercury Emissions Reduction law or, more colloquially, the Scrubber law (RSA 125

- 11
O:11 through 18). 12

Q. What was the purpose of the Scrubber l aw ? 13

A. The stated purpose of the Scrubber law is set forth in a series of findings which include 14
the following: 15

• “ It is in the public interest to achieve significant reductions in mercury emissions 16 at the coal

- burning electric power plants in the state as soon as possible. The 17 requirements of this subdivision will prevent, at a minimum, 80 percent of the 18 aggregated mercury content of the coal burned at these plants from being emitted 19 into the air by no later than the year 2013. To accomplish this objective, the b est 20 known commercially available technology shall be installed at Merrimack Station 21 no later than July 1, 2013.” RSA 125

- O:11,I 22

1 Merrimack Station 1 and 2, Schiller Station 4, 5 and 6.Testimony of William H. Smagula Docket No. DE 1 1

- 250 June 1 5 , 2012

Page 6 of 25

• “The department of environmental services has determined that the best known 1 commercially available technology is a wet flue g as desulphurization system, 2 hereafter ‘ Scrubber technology,’ as it best balances the procurement, installation, 3 operation and plant efficiency costs with the projected reductions in mercury and 4 other pollutants from the flue gas streams of Merrimack Units 1 and 2. Scrubber 5 technology achieves signific ant emission reduction benefits, including but not 6 limited to, cost effective reductions in sulfur dioxide, sulfur trioxide, small 7 particulate matter, and improved visibility (regional haze). ” RSA 125

- O:11,II 8

• “To ensure that an ongoing and steadfast effo rt is made to implement practicable 9 technological or operational solutions to achieve significant mercury reductions 10 prior to the construction and operation of the Scrubber technology at Merrimack 11 Station, the owner of the affected coal

- burning sources sha ll work to bring about 12 such early reductions and shall be provided incentives to do so. ” RSA 125

- O:11, 13 IV 14

• “The installation of such technology is in the public interest of the citizens of 15 New Hampshire and the customers of the affected sources.” RSA 125

- O:11,VI 16

Q. Have these legislative objectives been met by the Clean Air Project? 17

A. Yes. As described later in my testimony, the Scrubber has been operat ing and has 18
significantly reduc ed mercury, sulfur, and other combustion gas emissions. In short, the 19

CAP has been a success and is providing the benefits that the Legislature had envisioned 20
not only to PSNH’s customers but to all of the citizens of our state

. 21



### III. CLEAN AIR PROJECT DESIGN AND CONSTRUCTION 22
Q. When did the C lean Air Project begin? 23

A. As noted in the Company’s September 2 , 2008 report filed in DE 08

- 103 ( and 24
subsequently filed in this docket ) , activities to comply with the Scrubber law began as 25

soon as the law was enacted in 2006. In the fall of 2007, the C ompany engaged 26
Washington Group Internation al (now URS) as the Project Program Manager for the 27Testimony of William H. Smagula Docket No. DE 1 1

- 250 June 1 5 , 2012

Page 7 of 25
Clean Air Project. URS , working with PSNH, developed the overall FGD scope, design 1

basis , and final cost estimate in 2008

. This effort provided the technical b asis for the 2

Scrubber that was constructed. 3

Q. Please descri be the Scrubber technology that was constructed

. 4

A. The wet FGD process uses crushed limestone mixed with water to form limestone slurry 5
that is sprayed into an absorber vessel. The flue gas from the boilers of both units is 6

directed to the absorber where it mixes with the limestone slurry (calcium carbona te)

. 7

Mercury and sulfur in the flue gas makes contact with the slurry and becomes absorbed 8

into the limestone slurry solution. A portion of the water in the slurry solution is 9
evaporated and is released to the atmosphere up the chimney while the remainde r is 10

removed as liquid b low down from the absorber vessel . The liquid blow down is used to 11
form synthetic gypsum and a liquid effluent to be processed at the Project’s waste water 12
treatment facility. SO 2 from the flue gas reacts with the calcium carbonate and forms 13

calcium sulfite. The calcium sulfite is oxidized with air to form calcium sulfate 14

( synthetic gypsum). Th is gypsum is removed from the absorber, dewatered and filtered, 15

and conveyed as a damp
, granular material to an adjacent storage building prior to being 16

sold to an area compan y to make drywall sheets. Liquid that is processed in the waste 17
water treatment facility is cleaned and recycled for reuse. Any solidified elements from 18

the waste wat er treatment system will be collected and transported to an appropriate 19
licensed solid waste facility. 20
The FGD process is depicted graphically in Attachment WHS

- 0 1

. 21Testimony of William H. Smagula Docket No. DE 1 1

- 250 June 1 5 , 2012

Page 8 of 25

Q. Please describe the major components of the Scrubber Project

. 1

A. The Clean Air Project is comprised of numerous components

. First, there are four major 2
elements or “islands” which comprise the core portion of the Project. These are the 3

Scrubber Island which includes the FGD vessel and support systems ; the M aterial 4

H andlin g Island which includes limestone and gypsum system ; Chimney Island 5
comprised of a 445

- foot high chimney ; and a state

- of

- the

- art Scrubber W aste W ater 6

T reatment P lant. These four islands were designed and built to be interconnected. In 7
support of the oper ation of these four islands, numerous other Project elements are 8
needed: duct work and booster fans, a service water pump house, a 115 KV hi

- yard 9
expansion and 115 KV to 4160v substation, a warehouse, as well as other equipment, and 10
interconnection and sup port systems. 11

The Scrubber Island includes the limestone preparation equipment , absorber vessel , and 12
gypsum dewatering systems with all auxiliary support equipment . Equipment elements 13

and auxiliaries include: the limestone day silo s and feed conveyors, b all mills, flue gas 14

inlet duct to the absorber vessel
, outlet breeching to the chimney, recycle pumps, 15
oxidation air blowers, process tanks, gypsum dewatering equipment
, electrical 16

distribution room s, and other support equipment . All interconnecting piping systems, 17
electrical system s ( instrumentation ), and buildings are part of the complete system. The 18
scope also includes all necessary instrumentation and a control system which is integrated 19

with the two Merrimack Station units. 20Testimony of William H. Smagula Docket No. DE 1 1

- 250 June 1 5 , 2012

Page 9 of 25

The Material Handlin g Island includes the limestone rail and truck unloading equipment
, 1
storage silos, reclaim system , transfer conveyors/towers, gypsum conveyors, and a 2

gypsum storage building along with all auxiliary support equipment/systems. All water, 3

air, and electrica l system s and buildings are part of the complete system. 4
The Chimney Island includes a complete 445

- foot concrete chimney outer shell and a 5
fiberglass liner (flue) from the absorber outlet to the top of the chimney and all 6
appurtenances such as aircraft li ghting, lightning protection, elevator
, and upper elevation 7

work platforms. 8

The CAP Waste W ater Treatment System (WWTS) is designed to treat waste water from 9
the FGD process. The WWT S Island includes all treatment equipment and systems to 10
comply with t he discharge limits proposed by the NHDES in accordance with stringent 11

state water quality standards . All interconnecting piping systems, electrical and control 12
equipment and a building are part of the complete system. 13

Q. Please explain the U.S. Environmental Protection Agency’s (EPA) Region I position 14
regarding a modification to the existing station National Pollution Discharge 15
Elimination System (NPDES) Permit to accommodate the Clean Air Project ? 16

A. The EPA has long known of the Scrubber Projec t via direct co mmunications with the 17
PSNH personnel involved with a long overdue NPDES Draft Permit. Also, as PSNH and 18
its consultants worked with the New Hampshire Department of Environmental Services 19
regarding water treatment discharge permits, the EPA was further aware of the Scrubber

. 20
As has been the case in past efforts, satisfying the strict NHDES standards has typically 21Testimony of William H. Smagula Docket No. DE 1 1

- 250 June 1 5 , 2012 Page 10 of 25
been the challenge with final adjustments or acceptance by the USEPA. However, that 1
was not the case on this Project. Numerous r epresentatives from PSNH and the NHDES 2

met with the EPA in November of 2010 at which time the EPA clearly indicated they 3
could not agree to grant PSNH an NPDES Permit modification or any other means to 4

allow it to have an approved new site discharge, even if it met NHDES standards and 5
approval. Rather the lead EPA officials indicated that “most clients usually go back and 6
find a way ...... if a permit modification is not granted”. Thus PSNH had to “ find a 7

way ” to get the C AP online and do so while sustaining the overall schedule. In this way, 8

costs to customers could be minimized by avoiding millions of dollars in AFUDC 9
expenses caused by schedule delays that would otherwise occur, and air quality could 10
improve early in fulfillment of the underlying principle s of RSA

- 125

- O. 11

Thus it became fully evident that, without the ability to discharge a fully treated effluent, 12

additional treatment was needed. An approach to proceed with added treatment 13
technology had been conceptually ready to be deployed and PSNH proceeded to hire an 14
engineering company with relevant experience to develop a plan promptly to procure and 15
build a Secondary Waste Water Treatment System (SWWTS) to supplement the original 16
or Primary Waste Water Treatment System (PWWTS). The SWWTS will take the 17
treated effluent from the PWWTS and produce a clean water stream which is recycled 18
into the station for reuse, with any remaining dry solids collected for disposal at a 19
permitted landfill. 20Testimony of William H. Smagula Docket No. DE 1 1

- 250 June 1 5 , 2012 Page 11 of 25

Until the SWWTS was fully function al , an interim means of removing treated water was 1
developed which included bringing this liquid to any of a number of facilities after all the 2
necessary permits and approvals were obtained. 3

It should also be noted that there is no chang e to the Merrimack River water being used 4
by the Station

. The existing station treatment pond was utilized as the source of make

- up 5

water for the Scrubber which provides use of 100 percent reused or recycled water for the 6

FGD make

- up water system. 7

In s ummary, no NPDES permit changes were needed for the Clean Air Project. 8

Q. Has the progress of the construction of the Scrubber been chronicled along the way? 9

A. Yes. The progress of the Scrubber’s construction has been well documented in regular 10

progress reports to the Commission on September 2, 2008, March 19, 2101, October 15, 11

2010, November 10, 2011
, November 18, 2011 and March 22, 2012. Copies of these 12

reports are on filed in this docket. 13

Q. Please explain what work remains to be done on the Scrubber’s construction since 14

the last Project report on March 22, 2012? 15

A. As of the end of March
, any remaining tasks were identified that required equipment 16
adjustment s or final completion. This is typical of any large capital project and the work 17
involved is typically referred to as remaining “ punch list ” items. Similar to someone 18
building a new home, there are final touch

- up and completion tasks such as paving, paint 19Testimony of William H. Smagula Docket No. DE 1 1

- 250 June 1 5 , 2012 Page 12 of 25

touch

- up, or f ixing a valve that is not working properly , etc . In the context of the CAP, 1
examples of these types of tasks include replacing certain equipment elements
, final 2

installation and adjustment of equipment, operational tuning of equipment, final paving
, 3

etc . Some of this work falls in the category of warranty repairs at no additional cost 4

while other tasks are expected and planned work as part of the Project original scope

. 5

The only remaining element of the Project to be placed into service is a few pieces of 6
equipment that are associated with the Secon dary Waste W ater Treatment System. This 7
is expected to have commissioning, testing, and performance demonstrations completed 8

in June

. 9

Upon completion of this step of placing the final element of the Project in service, the 10
only remaining work will be punch list tasks and some final site clean

- up . As you might 11
expect, for a Project of this size, the punch list of items was large but is being steadily 12

reduced . We currently expect all punch list items to be completed by the third quarter of 13

2012 . The Project is currently considered 9 9 % complete. 14



### IV. PROJECT MANAGEMENT AND PHILOSOPHY 15
Q. What was the Company’s overall management philosophy regarding management 16
of the Clean Air Project? 17

A. The Company understood the importance and complexity of this Pro ject from the onset. 18

As a result, t he Project Team developed what was referred to as a Culture of 19
Preparedness which is essentially an overarching, proactive philosophy to ensure that all 20Testimony of William H. Smagula Docket No. DE 1 1

- 250 June 1 5 , 2012 Page 13 of 25
aspects of the Project were carefully and deliberat e ly managed with attention to current 1

and future risk management, while striving to optimiz e efficiencies and productivity . A 2
high priority was placed on establishing and sustaining the complex, integrated Project 3
schedule and budget

. This a pproach was applied to all Project

- related work whether 4
performed by internal or external parties. 5

Internally, all appropriate corporate departments were involved in the Project as needed 6

to en sure thoroughness of review and proper attention to detail w as sustained to meet 7

appro priate expectations of the C ompany and customers. This included support from 8
numerous departments : legal, procurement, contracts, insurance, accounting, design, 9
engineering, environmental, and budgeting, among others. 10

Externally, the Company engaged appropriate expertise to best manage the technical 11

work of the CAP with a focus on achieving the required outcome on emissions at the 12

lowest cost and managing to a well

- developed , integrated schedule. This included 13
support from numerous companies on desig n, engineering, contracts, procurement, 14
construction, commissioning, permitting, environmental, and legal , among other areas

. 15

Q. Please describe the contracting process used by the Company to hire vendors to 16
design and construct the Scrubber. 17

A. PSNH foll owed Northeast Utilities (“NU”) Purchasing Manual Policies and Procedures, 18
and the NU System Contract Administration Policy for Large Capital Construction 19
Projects , in addition to general procurement requirements such as issuing R equest for 20Testimony of William H. Smagula Docket No. DE 1 1

- 250 June 1 5 , 2012 Page 14 of 25
Proposals (R FPs ) , formal bid evaluations of commercial and technical terms, contract 1
negotiation strategies and management review. The CAP was segregated into multiple 2
construction work packages that were prepared by URS. The specifications were 3
submitted to suppliers for competitive bids using the NU/PSNH Procurement p rocesses. 4

URS and PSNH evaluated the bids and PSNH issued contracts / purchase orders (POs) to 5

the successful bidders. 6

The decision to use an EPCM (Engineering/Procurement/Construction Management) 7
contracting approach for the Project was reached only after consultation with industry 8
experts familiar with the challenges of such a p roject and factoring in the existing 9

indust ry marketplace. PSNH retained R.W. Beck to identify and evaluate alternative 10
contracting strategies that PSNH could use in implementing the CAP. The contracting 11

strategy utilized was chosen only after a careful assessment of all options. 12

Q. Who was resp onsible for overseeing the contracts? 13

A. The majority of the CAP contracts were managed by URS through its role as CAP 14

Program Manager
, subject to review, oversight and approval by PSNH . All contracts 15

were issued by PSNH. These contracts consisted of the major or minor material / 16
equipment purchases, major and minor services, and all other contracts needed to do the 17
complete Project. 18

PSNH CAP management decided to directly manage a number of contracts. These 19
included contracts issued early in the Proje ct life cycle and those areas of work where 20Testimony of William H. Smagula Docket No. DE 1 1

- 250 June 1 5 , 2012 Page 15 of 25
PSNH CAP management determined such an approach was within the C ompany’s core 1
competencies and area of expertise. PSNH was also able to take advantage of existing 2
relationships with certain contractors. For exa mple, preliminary site surveys and 3
investigations were procured and managed by PSNH. The permanent FGD substation 4

and the 115kV hi

- yard expansion were also directly managed by NU/PSNH because 5
PSNH and NU Transmission had expertise with site electrical tra nsmission and 6
distribution systems. 7

There were certain other tasks not assigned to URS. This included the installation of a 8
Potential Adjustment Protection System inside the absorber vessel to prevent corrosion. 9
This was engineered by Sargent & Lundy due to their depth of knowledge and experience 10

in this area

. In addition, contracts for the SWWTS were also separately managed by 11
PSNH with engineering and construction support provided by Burns and McDonnell 12
engineering due to their unique experti se and experience . The construction of the 13
“Meeting Place” and E Warehouse building s were also managed by PSNH
, using local 14

technical and construction firm s

. PSNH’s efforts to directly manage aspects of the CAP 15
resulted in overall CAP savings. 16

Q. Was there any third party management and technical oversight of the Clean Air 17
Project? 18

A. Yes. In addition to oversight by Company employees, PSNH engaged R. W. Beck Inc. to 19
provide an Independent Engineer’s assessment of the Project , acting in a role often 20

referred to as Owner’s Engineer . The scope of the R. W. Beck independent reviews 21
included engineering, procurement, construction, startup, commissioning, and 22Testimony of William H. Smagula Docket No. DE 1 1

- 250 June 1 5 , 2012 Page 16 of 25
performance testing phases of the C lean A ir P roject . R. W. Beck prepare d an Initial 1
Report covering the period up to October 2009 with monthly site visits and reports issued 2

thereafter. Copies of available reports are included as Attachment WHS

- 0 2

. 3

Q. What is the total cost of the Scrubber Project ? 4

A. The Company projects that the final costs will be no more than $422 million, but the final 5

actual amount will not be known until the final tasks associated with the CAP are 6
complete. As has been noted, a dwindling number of small tasks are still active. We a lso 7
wish to point out that in other reports, the initial cost estimate of $457 Million has been 8
reduced to $422 Million in 2011. The final cost continues to be projected to be no more 9
than $422 Million which is consistent to published cost statements sinc e later 2011. 10

Q. W hat is the process for recovery of those costs? 11

A. RSA 125

- O:18 allows PSNH to recover all prudent costs of complying with the 12
requirements of the Scrubber law. On April 10, 2012, the Commission approved a 13
temporary Scrubber cost recovery rate at 0.98 cents per kWh. Once the Commission 14
issues an order on the prudence of costs, PSNH will then request commencement of 15
recovery via the traditional energy service ratemaking process. Mr. Baumann’s 16
testimony pro vides an estimate of the impact of full cost recovery of the Scrubber 17
through PSNH’s Energy Service rate. 18Testimony of William H. Smagula Docket No. DE 1 1

- 250 June 1 5 , 2012 Page 17 of 25

Q. Did PSNH undertake efforts to manage the costs of the CAP? 1

A. Yes. PSNH aggressively managed the costs of the CAP from Project inception and 2
throughout its execution. Effective cost management was achieved by the establishment 3

of the Project budget and the implementation of a thorough cost monitoring and 4

management process. 5

The selection of URS as the Program Manager was a positive action. PSNH was offered 6
a veteran team which has proven to have been a strength of this Project. PSNH provided 7
goals for the URS team which align with Project success such as cost and schedule 8
management. This also aligns with customer value. 9

A nother key NU/PSNH strategy to manage cost was to reduce cost uncertainty by 10
locking in fi xed priced contacts for key, large contracts

. T he Project team was able to 11
refine expected Project costs through a request for proposal and bidding process for the 12

selectio n of the Program Manager and then the major construction contracts. An overall 13
contract strategy program laid the foundation for good Project management. 14

Other aspects of the project expenditure work included the continued development of 15
sound specifica tions and robust competition for award of construction work and major 16
equipment purchase s . This planned, sequential approach provided greater accuracy in the 17

cost and schedule management at each step of the engineering and construction 18

schedules. 19Testimony of William H. Smagula Docket No. DE 1 1

- 250 June 1 5 , 2012 Page 18 of 25

To br eak this effort down further, PSNH took the following actions to control CAP costs: 1

1. PSNH employed a Project concept of using a Program Manager (URS) to perform 2 design and establish a well

- d efined specification s and the scope of work prior to the 3 selection of equipment suppliers and construction contractor. This enabled refined 4 bids and a basis for comparison between the program manager’s estimate for the 5 work and the bids from the qualified contractors. In October 2007, URS started work 6 on t he preliminary Project cost estimate to incorporate the updated design and scope 7 of the CAP and current market conditions for materials, labor and equipment. To 8 obtain current and accurate data for the preliminary Project cost estimate, URS issued 9 budgeta ry Requests for Information and mini

- specifications for the main CAP 10 Islands. 11 2. The CAP construction strategy divided the core scope of work into specific segments 12 or, “ islands ” such that each island (FGD, Chimney, WWT, and Material Handling) 13 was the respons ibility of an expert and experienced company. 14 3. The overall CAP contract strategy identified qualified contractors and bid the work to 15 obtain fixed price contracts. PSNH management was able to obtain high 16 accountability on contracts, strong performance guar antees and product warranties, 17 and greater price certainty through risk transfer to the suppliers of goods and services. 18 4. PSNH held the selected contractors to tight schedules and provided close oversight of 19 the work. 20 5. PSNH required URS to perform thorough a nalyses and justification of change 21 requests and contract claims prior to approval. 22 6. PSNH back

- charged contractors for work not done and enforced contractual penalties 23 for schedule delays

. 24 7. PSNH directly managed a number of the Project contracts due to the unique nature of 25 the specific work, the availability of previously utilized or known specialty expertise 26 and resources, and other factors. The work directly managed by PSNH included the 27 SWWT system, the Meeting Place building and E w arehouse construction, and 28 electrical power supply scope

. 29 8. Aggressive management of cost saving opportunities such as: 30

a. enforcement of contract de

- escalation provisions for work completed 31 b. utilization of early payment provisions where discounts were available

. 32

c. minimization of AFUDC 33 d. negotiation of insurance cost reductions 34 9. PSNH engaged Power Advocate to contribute its experience to the bidding 35 documents and bidders list as well as to perform an independent review of the Project 36 cost estimate to provide confiden ce in it compared to industry / other projects. 37 10. PSNH conducted periodic assessmen ts and other reviews of the CAP, as well as th e 38 Power Advocate cost review, R.W. Beck oversight, and an independent external 39 review by NU ’s Internal Audit Department. 40Testimony of William H. Smagula Docket No. DE 1 1

- 250 June 1 5 , 2012 Page 19 of 25
Through out the Project , CAP management used both PSNH ’s corporate accounting 1
system and Project

- specific cost tracking and reporting to closely monitor Project 2
expenditures and cash flow against budget. From the early stages of the Project , PSNH 3

established a Pr oject budget and cash flow which was monitored by the CAP manager, 4

director and others

. 5

Q. Please comment on the craft labor used on this Project

. 6

A. A r eview of craft labor options resulted in the conclusion that union building trades was 7

the best group to build the Project because there would be adequate numbers of 8
construction personnel with the necessary needed skills

. 9

Q. How do th e costs of the CAP compare with experience in the industry in the design 10
and construction of Scrubber technology ? 11

A

. In 2008, PSNH engaged Power Advocate to analyze the $457 m illion budget of the CAP 12
and compared it to industry experience. In June 2008, Power Advocate reported that the 13

Merrimack CAP budget , when compared and normalized to some industry Scrubber 14
Projec t benchmarks, is in line with the costs of similar projects . There were several 15

factors that accounted for this c onclusion. These factors are associated with the scope 16
and complexity of the Merrimack CAP. When Power Advocate incorporated site and 17
Projec t specific adjustments into the cost estimate to make an “apples to apples” 18
comparison, the Merrimack CAP was in the range of comparable FGD projects. A copy 19
of the Power Advocate report is included as Attachment WHS

- 3

. 20Testimony of William H. Smagula Docket No. DE 1 1

- 250 June 1 5 , 2012 Page 20 of 25
Furthermore, the initial report prepared for the Commission by Jacobs Consultancy also 1

indicated an acknowledgement that initial
, conceptual costs can vary from final cost 2

estimates. 3

Q. Did PSNH institute any quality control programs associated with the Scrubber’s 4

construction? 5

A. Yes. As required by PSNH, URS implemented a Q uality A ssurance Program in support 6
of the engineering, procurement, construction management and startup activities to be 7
performed for completion of the CAP. The URS Q uality A ssu rance program provided 8
oversight of the major subcontractors with emphasis on each subcontractor’s 9
administration of their own quality programs to verify required levels of quality and 10
productivity were maintained. Quality oversight companies were hired a s needed to 11
oversee specific technical activities of contractors or subcontractors. Applicable Codes 12
and Standards were defined in the CAP drawings and specifications and were also listed 13
in the material, equipment, and construction contract documents. 14

Q. Did the Commission conduct any audits of the Clean Air Project while it was 15
underway? 16

A. Yes. In early 2010, the Commission engaged the services of Jacobs Consultancy 17

( Jacobs ) to monitor the progress of the CAP and to develop a due diligence report on the 18
completed portions of the Project . Jacobs issued a number of periodic assessments of the 19
CAP including a June 2011 Due Diligence review of the completed portion of the Project 20Testimony of William H. Smagula Docket No. DE 1 1

- 250 June 1 5 , 2012 Page 21 of 25
and quarterly assessments in April 2011, July 2011 , and October 2011 . All of those 1

Jacobs reports are part of the record in this proceeding per Commission Order 25,332. 2

Q. What did the Jacobs review entail? 3

A. Jacobs Consultancy completed a due diligence review of the Scrubber based on a four 4
stage evaluation: (1) Project initiation, (2) investigation, data gathering, and fact

- finding, 5
(3) analysis, and (4) reporting. Jacobs focused its review on contracts , cost estimates, 6
Project schedule, Project management approach, construction approach, and safety. 7

Q. Did Jacobs reach a conclusion as a result of its review? 8

A. Yes. According to Jacobs June 2011 “New Hampshire Clean Air Project Due Diligence 9
on Completed Portion” (page 4) : 10
The project has been a well

- defined and documented effort

. The PSNH team did 11 a thorough a nalysis of the requirements up

- front, availing themselves of various 12 industry specialists to strengthen their findings

. They followed rigid corporate 13 procedures to ensure compliance with regulatory and prudent business 14 requirements. The selection process for a program manger [sic] was an 15 exhaustive and fruitful procedure followed by equally exhaustive processes for 16 selecting equipment suppliers and contractors

. PSNH has strong processes in 17 place to effectively control the project and it appears both the schedule and final 18 project cost estimate are attainable. 19
In Jacobs Consultancy's opinion, the overall Clean Air Project development, 20 execution, and control are a success, with the exception of the poor safety 21 performance. Consequently, Jacobs is making t he following recommendation. 22

Recommendation 23

It is recommended both PSNH and URS management place renewed emphasis on 24 safety for the remainder of the project and additional trained safety professionals 25 be assigned to the project. In Jacobs’ experience, the best arrangement would be 26Testimony of William H. Smagula Docket No. DE 1 1

- 250 June 1 5 , 2012 Page 22 of 25
for a safety professional to be assigned exclusively to one of the four islands 1 working closely with each lead contractor and their sub

- contractors. 2

Q. Did PSNH and URS make any changes as a result of the Jacobs recommendatio n? 3

A. Yes. Under oversight by PSNH, URS implemented a comprehensive new safety 4
initiative that included involving and getting full support of the presidents of the major 5
companies installing equipment, all site managers from all companies with active work
, 6

and foremen and craft workers as well as the officers of the N ew H ampshire Building 7

Trades crafts . Also, stepped up efforts were made to have the group of on

- site safety 8
professional s increase efforts to enhance work site safety. This effort took place over 9
many months and was sustained going forward. Positive results were obtained with 10

lower incident rates during the remaining portion of the Project. 11

Q. Is Jacobs ’ work on the Clean Air Project ongoing? 12

A. Yes. Jacobs continues to evaluate the ongoing and remaining work as well as contract 13

and work order status. 14



### V. ONGOING OPERATION OF THE SCRUBBER 15
Q. Please describe the Scrubber’s performance since it came online. 16

A. We are pleased to report exceptional success regarding the performance of the Scrubber 17
in meeting its critical performance obligations and guarantees. PSNH has received 18
results of the mercury reduction testing conducted in January and March 2012 by an 19
independent third party in accordance with a rigorous stack testing protocol. These stack 20
test results show that the Scrubber is reducing mercury emissions in the range of 21Testimony of William H. Smagula Docket No. DE 1 1

- 250 June 1 5 , 2012 Page 23 of 25
approximately 97 % to 98%.

— well above the levels needed to comply with the New 1
Hampshire Clean Air Ac t. This test data demonstrates the Scrubber’s high effectiveness 2
for mercury removal confirming its proper design and construction

. S ulfur dioxide 3

removal from boiler flue

- gas is approximately 96 %

- 9 8 %

-- well above the 90% sulfur 4
dioxide removal objectiv e in Merrimack Station’s Temporary Permit issued by the New 5
Hampshire Department of Environmental Services (“NHDES”). This level of sulfur 6

dioxide removal was demonstrated and recorded via the NHDES and EPA

- approved 7
Continuous Emissions Monitoring Systems (CEMS) which measure sulfur dioxide into 8

and out of the Scrubber absorber vessel. This result also reflects a well designed and 9
constructed Project. 10

The treated liquid effluent from the Primary Waste W ater Treatment System has also 11

been subjected to t esting by an independent third party. The results of this testing show 12

that the liquid effluent meets all system guarantees. This is another extremely positive 13

factor demonstrating that all equipment performance is fully meeting contractually 14
specified requirements and that the system has been designed well , built properly, and is 15
performing exceptionally well with the treated effluent meeting the rigorous standards 16
required by the NHDES. 17

Q. What is the status of other performance obligations and guar antees ? 18

A. All equipment installed must meet guarantees of performance in accordance with 19
specified contractual requirements. For example, p umps must produce flows as 20
specified, controls must work as required, and valves and piping must operate properly

. 21Testimony of William H. Smagula Docket No. DE 1 1

- 250 June 1 5 , 2012 Page 24 of 25
All equipment has some level of guarantee of proper operational ability and a warranty of 1
some period of time. URS and PSNH are continuously monitoring equipment operation 2

to e nsure proper operation and adherence to contract obligations. Some equipment 3
tuning activities have been incorporated in various punch list activities. 4

Q. Now that the Scrubber is constructed and online, please explain what type of 5
ongoing costs are associated with its operation and maintenance ? 6

A. No w that this equipment is in

- serv ic e and under the control of PSNH, PSNH incurs costs 7

to operate it. There are day

- to

- day costs related to equipment maintenance and 8
operation s . There are few maintenance activities due to its relatively new condition but 9

th ere is some level of effort needed . Also, there are added costs when the equipment runs 10

such as the use of limestone and other variable costs related to chemical usage and 11
materials handling. These costs are not included in this review but rather will be the 12
subject of the Company’s annual reconciliation docket. 13

Q. I s there any remaining work to be completed on the Scrubber Project ? 14

A. Yes. Punch li st items are being steadily reduced in number but a number of tasks still 15
remain throughout the Project. All these tasks should be completed in the coming 16

months. Also, a few pieces of equipment associated with the SWWT System ha ve yet to 17
be put in service. This last portion of the Project to be placed in service is expected to be 18

declared used and useful this month , and by the end of the third quarter of this year, the 19
Company expects to finaliz e and clos e all contracts

. 20Testimony of William H. Smagula Docket No. DE 1 1

- 250 June 1 5 , 2012 Page 25 of 25

Q. Does this conclude your testimony? 1

A. Yes. 2