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University of Pittsburgh School of Law Energy Law and Policy Institute Challenges in Electricity Planning, Project Execution, and Operation. Ingmar Sterzing Director, Commercial Operations Westinghouse Electric Company August 1, 2013. Westinghouse Electric Company.

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ingmar sterzing director commercial operations westinghouse electric company august 1 2013

University of PittsburghSchool of LawEnergy Law and Policy Institute Challenges in Electricity Planning, Project Execution, and Operation

Ingmar Sterzing

Director, Commercial Operations

Westinghouse Electric Company

August 1, 2013

westinghouse electric company
Westinghouse Electric Company

Westinghouse Electric Company provides fuel, services, technology, plant design, and equipment to utility and industrial customers in the worldwide commercial nuclear electric power industry

Nearly 50 percent of the nuclear power plants in operation worldwide are based on Westinghouse technology

Westinghouse Electric Company Headquarters

Cranberry Township Pennsylvania, USA

westinghouse product lines
Westinghouse Product Lines

Nuclear Services

Nuclear Power Plants

Focused on operating plant success through reliable operation, maximized power output and better (shorter, more predictable) outages

Specializing in the technology

of new nuclear power plants and component manufacturing

Nuclear

Fuel

A single-source fuel provider for PWR, BWR, VVER, AGR and Magnox reactors worldwide

Nuclear Automation

Instrumentation and control solutions to enhance the reliability of nuclear plant control and safety systems

ap1000 tm designed for greater certainty simple practical standardized and innovative
AP1000TM: Designed for Greater Certainty Simple, Practical, Standardized and Innovative
  • Passive Safety replace mechanical & electrical systems -- results in fewer materials and equipment
  • Modular design drives faster, predictable construction schedule
  • Reduced Operations and Maintenance Cost versus other plant designs
  • Majority of design utilizes proven Westinghouse experience and technology
  • Result:
  • Reduced Construction Time, Greater Schedule Certainty, and Lower Costs
  • Enhanced Financing and Lower Investment Risk
  • Greater Levels of Safety and Quality
slide5
AP1000TM Addresses Investment Risk ReductionReduction of risk is the key to new plant construction
project technical and commercial factors are aligned for project success and certainty
Project Technical and Commercial Factors are Aligned for Project Success and Certainty

Project Planning and Development

Inputs

Output

  • Customer Inputs & Requirements
  • AP1000 Standard Model and Lessons Learned
  • Site Specific and Local Experience
  • Customer and Vendor Alignment
  • Price and Delivery Certainty
  • Value Optimized Project

Progressive Elaboration

ap1000 epc delivery model
AP1000 EPC Delivery Model
  • Ensures employees and stakeholders have a clear understanding of how Westinghouse will deliver the AP1000 plant on budget and schedule
  • Provides consistent delivery of AP1000 Projects meeting customer and stakeholder requirements and exceeding expectations
  • Consists of standard processes and procedures which are used to deploy projects globally building on prior projects’ lessons learned
  • Project specific processes are developed or incorporated into the existing processes as unique project conditions require
epc delivery model project plans
EPC Delivery Model-Project Plans

Standard set of project plans built on prior project lessons.

ap1000 risk management
AP1000 Risk Management
  • Advanced risk management is necessary for the successful execution of multi-billion dollar projects
  • Failure to manage risk on projects of this magnitude would have a significant impact to the project, to Westinghouse, to partners, to the industry, and to our customers
  • Advanced risk management capabilities are needed to manage uncertainty, prevent unplanned costs and help achieve project objectives with high confidence
  • Westinghouse has established an advanced risk management culture and a dynamic and continuous risk management system across the organization

AP1000 customers want confidence in Westinghouse’s ability to deliver and fulfill contractual obligations.

project risk management lifecycle processes
Assign dedicated risk lead(s)

Prepare preliminary plan

Perform comprehensive execution risk assessment

Incorporate lessons learned

Incorporate response activities into plan

Align and assess risk with proposed delivery model

Project Risk Management Lifecycle Processes

Pre-Proposal Phase

Proposal Phase

Execution Phase

  • Work with partners and customers to Identify potential risks
  • Respond to capture potential benefits and mitigate threats
  • Perform early work to reduce uncertainty
  • Prepare final Project Risk Management Plan
  • Charter project risk team
  • Continually identify, assess and respond to project risk
  • Monitor and control project risk management activities and risk areas
  • Document and incorporate lessons learned

A systematic and continuous model for managing and reducing uncertainty in the successful execution of an AP1000 project

project optimization and risk response
Project Optimization and Risk Response
  • Risk Response Planning is the process of developing options or actions to enhance opportunity capture and to reduce threats to the objectives.
    • Avoid
      • Either take significant action to reduce the threat risk factor to zero or revise program criteria to eliminate the exposure to the risk
    • Transfer
      • Delegate the ownership of the risk to a third party
    • Mitigate
      • Taking early actions to reduce the probability and/or impact of the risk to a more acceptable level.
    • Accept
      • Some risks cannot be eliminated or addressed through a viable strategy. These risks must be managed effectively or provisioned.
  • Westinghouse seeks to first mitigate risk through design and effective execution.
  • Westinghouse prefers to align scope and risk with the party best capable of managing the scope and mitigating the risk.
risk management and ap1000 pricing
Risk Management and AP1000 Pricing

Uncertainty for Planned Events

Uncertainty for Un-planned Events

Risk allowance accounts for the potential cost exposure of unplanned activities and events

Risk allowance may include cost allowances for areas such as:

Defects liability

Performance guarantees

Schedule guarantees

Force Majeure Events

Regulatory Changes

Catastrophic loss

Permitting uncertainty

The use of risk allowance by the project is not expected

The level of risk allowance required is dependent on the project delivery model, risk tolerance, and the commercial arrangements

  • Contingency is a cost factor used to account for uncertainty in the cost estimate, and includes cost allowances for areas such as:
    • Design uncertainty
    • Equipment cost estimates
    • Labor productivity
    • Wage rates
    • Commodity costs
  • Contingency does not include any allowance for risk items
  • The use of contingency funds by the project is expected
  • The level of confidence in the amount of contingency needed changes as the project progresses

Residual project delivery uncertainties can be managed collectively with reserve funds (risk and contingency) to minimize the overall cost impact associated with distributed and uncoordinated risk provisioning.

project cost and price terms and concepts
Project Cost and Price Terms and Concepts

Fee/Profit

Management

Reserve

(Contingency and Risk)

Risk

Contingency

Actual Costs and Planned Committed Costs

Estimate

At

Completion

(EAC)

Price

Total Allocated

Budget (TAB)

Budget at

Completion (BAC)

uncertainty of achieving project cost objective
Uncertainty of Achieving Project Cost Objective

Management Reserve

Fee/Profit

Loss Contract

Range of

possible Cost

Budget at

Completion

(BAC)

Total Allocated

Budget

(TAB)

Break Even

Low Cost

High Cost

  • Desired outcome
  • There is a probability that the project will be completed with a total cost less than the Budget at Completion (BAC)
  • Effective project performance can enhance the probability that this occurs
  • Acceptable outcome
  • There is a probability that the project will be completed with total cost greater than the BAC but within budgeted reserves (TAB)
  • Effective project performance can enhance the probability that this occurs
  • Business can decide to allocate reserves to mitigate or accommodate risks
  • Unacceptable outcome
  • There is a probability that the project will be completed with total cost greater than the Total Allocated Budget (TAB)
  • Total project costs will exceed budgeted limits established for the project and may exceed risk tolerance of the organization
  • Business must be willing to sustain or accept the potential for such a loss or seek to mitigate this potential outcome
  • Devastating outcome
  • There is a probability that the project will be completed with a total cost beyond the capability of the business to accept such a loss
  • Total project costs will far exceed the risk tolerance of the organization
  • Potentially unlikely outcome but given the impact, the business should protect itself to the extent possible (Force Majeure, Insurance, etc.)
innovative commercial approach to new plant development
Innovative Commercial Approach to New Plant Development
  • New nuclear plant stakeholders want confidence that their investment will provide a return in balance with the level of risk
  • The AP1000 program was founded on the principle of re-building confidence in new nuclear projects
  • Westinghouse seeks
    • to be flexible and innovative in order to arrive at a balanced approach
    • to work in an open, transparent manner to build trust and confidence
    • to align scope and risk with the party best capable of managing the scope and mitigating the risk
    • to arrive at a delivery approach that optimizes the value of the overall project and gives the stakeholders the appropriate incentive to help assure high quality, on-time, on-budget delivery

The right technology, the right team, and an effective commercial approach is necessary element for the successful execution of multi-billion dollar projects

slide16

A Successful Risk Management Culture… Integrity, Transparency, Flexibility, Diversity

Georgia, Plant Vogtle 3 and 4 with

1 and 2 in the Background, July 2013

ap1000 standard model improve certainty
AP1000 Standard Model Improve Certainty
  • AP1000 program was designed with standardization as a foundation principle
    • Standardization eliminates risk and increases stakeholder confidence
  • Standardization provides for increased certainty in all aspects of project delivery that relate directly to improved project financing
    • Licensable design
    • Finalized design
    • Demonstrated equipment fabrication
    • Proven construction techniques and execution plan
    • Repeatable processes and procedures
  • Lessons learned are continually incorporated from the experience gained on China and US projects

Westinghouse is confident in the standard plant model which will provide a high level of commercial certainty for standard plant scope