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Mark Cohen, Moderator Director Deloitte Transactions and Business Analytics LLP
Power Breakout
Strategic Considerations of Major Capital Projects
Table of Contents
• Session Overview • Panelists Introductions • Setting the Stage • Evolving project delivery systems and
inherent risks • Interactive Discussion • Questions
Session Overview
Mark Cohen
Introductions
Mark Cohen
Introductions
Mark W. Cohen, PE, PMP
Deloitte Transactions & Business Analytics LLP
Harborside Plaza 10 Jersey City, NJ 07311 Telephone: 212-436-7206 E-mail: [email protected]
• Mark is a Director in the Capital Projects Practice in the Jersey City Office of Deloitte Transactions & Business Analytics LLP
• He is a registered professional engineer and certified project management professional with over 20 years of dispute resolution, project advisory, and risk management experience spanning a wide range of domestic and international engineering and construction projects. He has managed the performance of construction and engineering analyses including schedule delay, disruption, acceleration, early completion, change orders, productivity and inefficiency, causation and responsibility, cumulative impact, differing site conditions, workmanship, damage quantification, lost revenue/business interruption, project controls and management systems, termination, and other issues.
Albert Bates, Jr.
Duane Morris LLP 600 Grant Street, Suite 5010 Pittsburgh, PA 15219-2802 Telephone: 412 497 1053 Email: [email protected]
• Albert is a Partner with Duane Morris LLP
• He is the Chairman of the Duane Morris Construction Group. While Mr. Bates focuses his practice on the resolution of domestic US and international construction claims, he also advises clients on project planning and execution strategies, project management and project controls strategies, and change management on large construction projects. He has significant experience with megaprojects, EPC projects, and alternative project delivery systems, particularly in power generation, infrastructure, and heavy industrial process facilities.
Jimmy Addison
SCANA Corporation
220 Operation Way, MC D-304 Cayce, SC 29033 Telephone: 312-486-2311 E-mail: [email protected]
• Jimmy is the Chief Financial Officer for SCANA Corporation
• As CFO, he is responsible for planning, directing, and overseeing the organization’s finance functions, along with oversight of information services and technology. He has seven years past experience working at Deloitte in Charlotte and Columbia, as well as one year of experience at a Columbia CPA practice.
Melissa Jones
Bechtel Power Corporation 5275 Westview Dr. Frederick, MD 21703 Telephone: 301-228-6000 Email: [email protected]
• Melissa is the CFO of Bechtel Power Corporation
• As business manager and chief financial officer (CFO) of Bechtel Power Corporation, Melissa Jones is responsible for commercial management of all work performed by Bechtel’s Power global business unit (GBU). She establishes and reports on the operating plans and forecasts for Power and is the primary conduit of financial analysis and reporting to the Power president. She also works closely with Power’s business line presidents, providing consultation and guidance to ensure that financial reporting aligns with accounting practices and procedures.
Setting the Stage
Mark Cohen
Setting the stage
• This discussion will focus on the evolution of the marketplace through an owner, EPC, and legal perspective
• Through this discussion, we will cover multiple topics including; nuclear, gas-fired, T&D, contracting, and claims management
• Evolution of the marketplace
Evolving Project Delivery Systems and Inherent Risks
Jimmy E. Addison Executive Vice President and CFO SCANA Corporation
Strategic Considerations of Major Capital Projects
AP 1000
• Two 1,117 MWs units
• Signed EPC in May 2008
• PSC Approval in February 2009
• NRC License received March 2012
• 55% SCANA
45% Santee Cooper (State of SC)
Key Factors
• Customer Driven
• CAPEX Funding
• Regulatory Pre-Approval
• Recovery Mechanism
Customer Driven • Economic expansion in state
• > 50% of SC electricity from nuclear already
2013 2018 2019 2020Alt. Resources 1% 1% 1% 1%Coal 45% 34% 23% 23%Gas 26% 22% 12% 14%Nuclear 24% 39% 60% 58%Hydro 4% 4% 4% 4%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%By Dispatch
Non-emitting 62%
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15
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19
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200
5
200
6
200
7
200
8
200
9
201
0
201
1
201
2
201
3
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201
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202
0
202
1
202
2
M T
on
s
Actual Projected
Note: Reflects emissions as filed February 2014 in the 2014 Integrated Resource Plan.
SCE&G O2 Emissions
2013 2018 2019 2020Alt. Resources 1% 1% 1% 1%Coal 41% 33% 28% 27%Gas 32% 30% 27% 27%Nuclear 12% 22% 31% 32%Hydro 14% 14% 13% 13%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%By Capacity
Balanced Portfolio
Hydro Nuclear Gas Coal Alt. Resources
CAPEX Funding
•Designed to be financed in public markets
•11% of SCANA stock held by insiders
• Incremental equity <10% of market cap
Regulatory Pre-Approval
NRC Combined License: Construction Operating
SC PSC Combined Approval: Construction Operating
Recovery Mechanism
SC Base Load Review Act (BLRA) • Up front prudency • Annual cash rate increase for financing costs • Minimizes capitalized interest (<5%) • Allows for escalation • Quarterly public filings of status, areas of focus, etc…
How are we doing?
Note: Reflects new nuclear projected costs as estimated for May 2014 BLRA Quarterly Report; SCE&G 55% share * SCE&G’s additional 5% ownership interest in the New Nuclear project does not impact the BLRA Projected Cost Calculation
$3
$4
$5
$6
$7
$8
Order No.2009-104(A)
Order No.2010-12
Order No.2011-345
Order No.2012-884
February 2014BLRA Report
May 2014 BLRAEstimate
Capital Cost, 2007 Dollars AFUDC Escalation
~$623M
New Nuclear Total Projected Costs (SCE&G 55% Share)*
$5.787
$5.680 $5.755
$6.875
$6.313
$5.690
• 2/3’s of the contract are fixed or firm with escalators
Global Sourcing
NND Site Aerial View
Unit 3
HLD
MAB
Cooling Towers
CR-10
Unit 2
Turbine Building
Training & Storage
1000 + Cars
CV Fabrication
Concrete Plants
Post concrete pour and placement of CR-10 module
Placement of the Containment Vessel Bottom Head
First nuclear concrete pour
Nuclear Island Walls
Unit 2 Nuclear Island
Unit 2 CA-04 Reactor Vessel Cavity Lift
Post concrete pour and placement of CR-10 module
Unit 3 Nuclear Island (1st Nuclear Concrete Pour)
www.duanemorris.com
Managing Project Risk:
The Importance of the
Project Delivery System and
the Project Controls Strategy
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Albert Bates Jr. Duane Morris LLP
www.duanemorris.com
Project Risk Management Considerations
Select appropriate contracting structure
Define project scope Allocate “All” risks by contract Develop project controls systems Integrate the project controls
system requirements into the contract
Ensure adequacy of project management resources
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Typical Project Delivery Systems
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“Traditional” or General
Contractor Model
“Turn Key” or EPC Model
“Hybrid” Model- Multiple Prime
Contractors
Cost Reimbursable
Model
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Project Timing
Project Cost
Status of Preliminary Engineering
Financing Limitations/ Constraints
Project Type
Owner Project Management Capabilities
Owner Risk Profile
Project Delivery
System Selection
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EPC Model Advantages
Reasonable cost certainty at time of contracting
Typically performed on lump sum, target price or guaranteed maximum price basis
Preferred by Lenders Lower risk profile for the Owner Contractor responsible for overall
delivery of engineering, procurement, and construction
Owner is insulated from most construction claims
Project duration is typically reduced
Disadvantages
Owner typically pays a “Risk” premium
Owner cedes control of various aspects of the Project to EPC Contractor Selection of Engineer Equipment vendor &
technology selection Constructor & Subcontractors
Fewer potential bidders “All of the eggs are in one basket” Potentially catastrophic
consequences if EPC Contractor or a Major Supplier Defaults
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Prudency – Initial Considerations 1. Have appropriate processes and approvals been established for
technology selection, initial scope, budget and schedule development, and financing decisions?
2. Which project delivery systems are appropriate for this project? 3. Which project delivery system was selected? 4. Were reasonable alternatives considered? 5. Has each step of the decision-making process been adequately
documented? 6. Have appropriate internal controls and procedures been implemented? 7. Has an appropriate internal project management team been selected and
staffed? 8. Should outside expertise be engaged to assist the internal project
management team (legal, project management, scheduling and project controls, engineering, auditing, risk management, document retention, and other functions)?
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www.duanemorris.com
Claims Mitigation
• “E and P Come Before C” • Establish project controls
that allow “Real-Time” project status monitoring
• Proactively mitigate impacts to schedule, cost, and performance
• Early identification and mitigation is the key to effective claims management
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Mark Cohen
Interactive Discussion
Consortium Challenges
All Panelists:
• Advantages/Disadvantages
Proactive Risk Management & Control Frameworks
• What cutting edge methods and/or technologies is your organization using? (i.e. data management, reporting systems)
• How is the portfolio of projects managed with respect to risk?
Project Prudency
• What kinds of systems and processes are in place to ensure that project costs are recoverable?
• Legal perspective
Questions?
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