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
Ingmar Sterzing, August 1, 2013
Changes in Electricity Planning, Project Execution, and Operation
Univ. of Pittsburgh School of Law 2013 Energy Law and Policy Institute
1
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
Ingmar Sterzing, August 1, 2013
Changes in Electricity Planning, Project Execution, and Operation
Univ. of Pittsburgh School of Law 2013 Energy Law and Policy Institute
2
Westinghouse Product Lines
Nuclear Services
Focused on operating plant
success through reliable
operation, maximized
power output and better
(shorter, more predictable)
outages
Nuclear
Fuel
A single-source
fuel provider
for PWR, BWR,
VVER, AGR and
Magnox
reactors
worldwide
Nuclear
Power
Plants
Specializing in
the technology
of new nuclear
power plants
and component
manufacturing
Nuclear
Automation
Instrumentation and
control solutions to
enhance the reliability of
nuclear plant control and
safety systems
Ingmar Sterzing, August 1, 2013
Changes in Electricity Planning, Project Execution, and Operation
Univ. of Pittsburgh School of Law 2013 Energy Law and Policy Institute
3
AP1000 : Designed for Greater Certainty
TM
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
Ingmar Sterzing, August 1, 2013
Changes in Electricity Planning, Project Execution, and Operation
Univ. of Pittsburgh School of Law 2013 Energy Law and Policy Institute
4
AP1000TM Addresses Investment Risk Reduction
Reduction of risk is the key to new plant construction
Ingmar Sterzing, August 1, 2013
Changes in Electricity Planning, Project Execution, and Operation
Univ. of Pittsburgh School of Law 2013 Energy Law and Policy Institute
5
Project Technical and Commercial Factors are Aligned for
Project Success and Certainty
Inputs
Project Planning
and Development
Project
Execution
Plans
Customer Inputs
& Requirements
AP1000
Standard Model
and Lessons
Learned
Site Specific and
Local Experience
Scope and
Division of
Responsibility
Progressive
Elaboration
Output
Customer and
Vendor
Alignment
Cost Estimate
and Price
Commercial
Terms and
Conditions
Ingmar Sterzing, August 1, 2013
Changes in Electricity Planning, Project Execution, and Operation
Univ. of Pittsburgh School of Law 2013 Energy Law and Policy Institute
Price and
Delivery
Certainty
Value Optimized
Project
6
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
Ingmar Sterzing, August 1, 2013
Changes in Electricity Planning, Project Execution, and Operation
Univ. of Pittsburgh School of Law 2013 Energy Law and Policy Institute
7
EPC Delivery Model-Project Plans
Project
Engineering
Plan
Contract/
Subcontract
Management
Plan
Resource
Staffing
Management
Plan
Communication
Plan
EPC
Agreement
Project
Controls
Plan
Schedule
Plan
Standardization
Plan
Module
Plan
Project
Execution
Plan
Configuration
Management
Plan
Process
Improvement /
Lessons
Learned Plan
Information
Management
System Plan
Quality
Assurance
Plan
Regulatory/
Licensing
Management
Plan
Project
Completion
& Closeout
Plan
System
Turnover
Plan
Startup &
Commissioning
Plan
Supply Chain/
Procurement
Plan
Construction
Execution
Plan
Risk &
Opportunity
Management
Plan
Project
EH&S Plan
Standard set of project plans built on prior project lessons.
Ingmar Sterzing, August 1, 2013
Changes in Electricity Planning, Project Execution, and Operation
Univ. of Pittsburgh School of Law 2013 Energy Law and Policy Institute
8
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.
Ingmar Sterzing, August 1, 2013
Changes in Electricity Planning, Project Execution, and Operation
Univ. of Pittsburgh School of Law 2013 Energy Law and Policy Institute
9
Project Risk Management Lifecycle Processes
Pre-Proposal Phase
 Work with partners and
customers to Identify
potential risks
 Respond to capture
potential benefits and
mitigate threats
 Perform early work to
reduce uncertainty
Proposal Phase
 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
Execution Phase
 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
Ingmar Sterzing, August 1, 2013
Changes in Electricity Planning, Project Execution, and Operation
Univ. of Pittsburgh School of Law 2013 Energy Law and Policy Institute
10
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.
Ingmar Sterzing, August 1, 2013
Changes in Electricity Planning, Project Execution, and Operation
Univ. of Pittsburgh School of Law 2013 Energy Law and Policy Institute
11
Risk Management and AP1000 Pricing
Uncertainty for Planned Events
Uncertainty for Un-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
•
•
•
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
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.
Ingmar Sterzing, August 1, 2013
Changes in Electricity Planning, Project Execution, and Operation
Univ. of Pittsburgh School of Law 2013 Energy Law and Policy Institute
12
Project Cost and Price Terms and Concepts
Fee/Profit
Risk
Contingency
Actual Costs and
Planned
Committed Costs
Price
Total Allocated
Budget (TAB)
Ingmar Sterzing, August 1, 2013
Changes in Electricity Planning, Project Execution, and Operation
Univ. of Pittsburgh School of Law 2013 Energy Law and Policy Institute
Management
Reserve
(Contingency
and Risk)
Budget at
Completion
(BAC)
Estimate
At
Completion
(EAC)
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Uncertainty of Achieving Project Cost Objective
Management Reserve
Range of
possible Cost
Low Cost
Budget at
Completion
(BAC)
• Desired
outcome
Fee/Profit
Total Allocated
Budget
(TAB)
Acceptable
outcome
Loss Contract
Break Even
High Cost
•
•
Unacceptable
outcome
• Devastating
outcome
• There is a probability
that the project will be
completed with a total
cost less than the Budget
at Completion (BAC)
• There is a probability that
the project will be completed
with total cost greater than
the BAC but within budgeted
reserves (TAB)
• There is a probability that the
project will be completed with
total cost greater than the Total
Allocated Budget (TAB)
• 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
• Effective project
performance can enhance
the probability that this
occurs
• Effective project
performance can enhance
the probability that this
occurs
• Business can decide to
allocate reserves to mitigate
or accommodate risks
• 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
Ingmar Sterzing, August 1, 2013
Changes in Electricity Planning, Project Execution, and Operation
Univ. of Pittsburgh School of Law 2013 Energy Law and Policy Institute
• 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.)
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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
Ingmar Sterzing, August 1, 2013
Changes in Electricity Planning, Project Execution, and Operation
Univ. of Pittsburgh School of Law 2013 Energy Law and Policy Institute
15
A Successful Risk Management Culture…
Integrity, Transparency, Flexibility, Diversity
Georgia, Plant Vogtle 3 and 4 with
1 and 2 in the Background, July 2013
Ingmar Sterzing, August 1, 2013
Changes in Electricity Planning, Project Execution, and Operation
Univ. of Pittsburgh School of Law 2013 Energy Law and Policy Institute
16
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
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•
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
Ingmar Sterzing, August 1, 2013
Changes in Electricity Planning, Project Execution, and Operation
Univ. of Pittsburgh School of Law 2013 Energy Law and Policy Institute
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