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Transcript of 1 Ingmar Sterzing, August 1, 2013 Changes in Electricity Planning, Project Execution, and Operation...
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Ingmar Sterzing, August 1, 2013Changes in Electricity Planning, Project Execution, and OperationUniv. of Pittsburgh School of Law 2013 Energy Law and Policy Institute
University of PittsburghSchool of Law
Energy Law and Policy Institute
Challenges in Electricity Planning, Project Execution, and Operation
Ingmar SterzingDirector, Commercial OperationsWestinghouse Electric Company
August 1, 2013
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Ingmar Sterzing, August 1, 2013Changes in Electricity Planning, Project Execution, and OperationUniv. of Pittsburgh School of Law 2013 Energy Law and Policy Institute
Westinghouse Electric Company
Westinghouse Electric Company Headquarters
Cranberry Township Pennsylvania, USA
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
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Ingmar Sterzing, August 1, 2013Changes in Electricity Planning, Project Execution, and OperationUniv. of Pittsburgh School of Law 2013 Energy Law and Policy Institute
Westinghouse Product Lines
Focused on operating plant success through reliable operation, maximized power output and better (shorter, more predictable) outages
A single-source fuel provider for PWR, BWR, VVER, AGR and Magnox reactors worldwide
Specializing in the technology of new nuclear power plants and component manufacturing
Nuclear ServicesNuclear Power Plants
Nuclear Fuel
Nuclear AutomationInstrumentation and control solutions to enhance the reliability of nuclear plant control and safety systems
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Ingmar Sterzing, August 1, 2013Changes in Electricity Planning, Project Execution, and OperationUniv. of Pittsburgh School of Law 2013 Energy Law and Policy Institute
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
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Ingmar Sterzing, August 1, 2013Changes in Electricity Planning, Project Execution, and OperationUniv. of Pittsburgh School of Law 2013 Energy Law and Policy Institute
AP1000TM Addresses Investment Risk ReductionReduction of risk is the key to new plant construction
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Ingmar Sterzing, August 1, 2013Changes in Electricity Planning, Project Execution, and OperationUniv. of Pittsburgh School of Law 2013 Energy Law and Policy Institute
Project Execution
Plans
Cost Estimate and
Price
Commercial Terms and Conditions
Scope and Division of
Responsibility
Project Technical and Commercial Factors are Aligned for Project Success and Certainty
Customer Inputs &
Requirements
AP1000 Standard
Model and Lessons Learned
Site Specific and Local
Experience
Inputs
Progressive Elaboration
Customer and Vendor
Alignment
Price and Delivery Certainty
Value Optimized
Project
OutputProject Planning and
Development
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Ingmar Sterzing, August 1, 2013Changes in Electricity Planning, Project Execution, and OperationUniv. of Pittsburgh School of Law 2013 Energy Law and Policy Institute
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
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Ingmar Sterzing, August 1, 2013Changes in Electricity Planning, Project Execution, and OperationUniv. of Pittsburgh School of Law 2013 Energy Law and Policy Institute
EPC Delivery Model-Project Plans
ProjectExecution
Plan
Regulatory/Licensing
ManagementPlan
Contract/SubcontractManagement
Plan
ConfigurationManagement
Plan
ResourceStaffing
ManagementPlan
CommunicationPlan
StandardizationPlan
InformationManagementSystem Plan
ProjectCompletion& Closeout
Plan
Startup &Commissioning
PlanSystem
TurnoverPlan
SchedulePlan
Risk &OpportunityManagement
Plan
Supply Chain/Procurement
Plan
ConstructionExecution
Plan
ProcessImprovement /
LessonsLearned Plan
QualityAssurance
Plan
ModulePlan
EPCAgreement
ProjectControls
Plan
ProjectEH&S Plan
ProjectEngineering
Plan
Standard set of project plans built on prior project lessons.
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Ingmar Sterzing, August 1, 2013Changes in Electricity Planning, Project Execution, and OperationUniv. of Pittsburgh School of Law 2013 Energy Law and Policy Institute
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.
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Ingmar Sterzing, August 1, 2013Changes in Electricity Planning, Project Execution, and OperationUniv. of Pittsburgh School of Law 2013 Energy Law and Policy Institute
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
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
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Ingmar Sterzing, August 1, 2013Changes in Electricity Planning, Project Execution, and OperationUniv. of Pittsburgh School of Law 2013 Energy Law and Policy Institute
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.
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Ingmar Sterzing, August 1, 2013Changes in Electricity Planning, Project Execution, and OperationUniv. of Pittsburgh School of Law 2013 Energy Law and Policy Institute
Risk Management and AP1000 PricingUncertainty for Planned Events• 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
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 arrangementsResidual 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.
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Ingmar Sterzing, August 1, 2013Changes in Electricity Planning, Project Execution, and OperationUniv. of Pittsburgh School of Law 2013 Energy Law and Policy Institute
Project Cost and Price Terms and Concepts
Actual Costs and Planned Committed
Costs
Contingency
Risk
Budget at Completion
(BAC)
Total AllocatedBudget (TAB)
ManagementReserve
(Contingency and Risk)
Fee/Profit
Price EstimateAt
Completion
(EAC)
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Ingmar Sterzing, August 1, 2013Changes in Electricity Planning, Project Execution, and OperationUniv. of Pittsburgh School of Law 2013 Energy Law and Policy Institute
Uncertainty of Achieving Project Cost Objective
Budget at Completion
(BAC)
Total AllocatedBudget (TAB)
Break Even
Range of possible Cost
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.)
Management Reserve
Loss Contract
Fee/Profit
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Ingmar Sterzing, August 1, 2013Changes in Electricity Planning, Project Execution, and OperationUniv. of Pittsburgh School of Law 2013 Energy Law and Policy Institute
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
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Ingmar Sterzing, August 1, 2013Changes in Electricity Planning, Project Execution, and OperationUniv. of Pittsburgh School of Law 2013 Energy Law and Policy Institute
A Successful Risk Management Culture… Integrity, Transparency, Flexibility, Diversity
Georgia, Plant Vogtle 3 and 4 with 1 and 2 in the Background, July 2013
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Ingmar Sterzing, August 1, 2013Changes in Electricity Planning, Project Execution, and OperationUniv. of Pittsburgh School of Law 2013 Energy Law and Policy Institute
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