Insights From Year One PSMS Implementation Zac Lowe Manager, Compliance & System Integrity Virginia Natural Gas

Outline of Presentation Background of SCG and VNG Initial Pre-Implementation Thoughts and Ideas Implementation and Lessons Learned Results Challenges Ahead Path Forward

Southern Company Overview Background of SGC and VNG Southern Company Overview Figure 1. Southern Company operational overview.

Virginia Natural Gas Background Background of SGC and VNG Virginia Natural Gas Background Virginia Natural Gas (VNG) is an LDC in Central and Southeast Virginia. Operates as an LDC within the Southern Company Gas footprint. Approximately 325,000 services and 5,400 miles of main. 190.4 miles of intra-state transmission pipelines. VNG operates locally-run departments and shared-service departments. Figure 2 Virginia Natural Gas service territory.

Southern Company Gas Values Background of SGC and VNG Southern Company Gas Values

Why Southern Company Gas Decided to Implement PSMS Initial Pre-Implementation Thoughts and Ideas Why Southern Company Gas Decided to Implement PSMS Southern Company Gas executive leadership and VNG executive leadership pushed for the early and voluntary adoption of API RP 1173. Leadership recognized the importance of API RP 1173 and how it could positively impact VNG and SCG. VNG was selected to be the “pilot” program for SCG due to: - Regulatory priorities in Virginia; - Relatively small size of VNG allowed for progress without crippling effect; - Idea to expand the program across SCG footprint after lessons learned from VNG; - Virginia Commission Order of Settlement.

VNG’s Pilot Program: Initial Thoughts on PSMS Initial Pre-Implementation Thoughts and Ideas VNG’s Pilot Program: Initial Thoughts on PSMS Contains 10 Essential Elements Categorized into the PDCA Cycle Figure 3. Essential Elements of API RP 1173 organized in PDCA cycle. American Petroleum Institute. 2015. Pipeline Safety Management Systems. First Edition.

SCG’s View: What is Safety Management Systems? Initial Pre-Implementation Thoughts and Ideas SCG’s View: What is Safety Management Systems? Pipeline Safety Management Systems (PSMS) is an organizational-wide approach to business operations through the consideration of risk-management in all operating decisions. Pipeline Safety Management Systems provides an in-depth analysis of an organization’s culture as it pertains to pipeline safety and how that culture affects decisions made/actions taken. Safety Management Systems Programs are already required in: - Nuclear Industry; - Chemical Industry; - Aviation Industry. Figure 4. Southern Company Vogtle 3 & 4 Construction

VNG’s Pilot Program: Implementation Plan & Strategy Initial Pre-Implementation Thoughts and Ideas VNG’s Pilot Program: Implementation Plan & Strategy VNG started with a blank canvas and multiple ideas on where and how to start. Personnel attended 2016 AGA PSMS Roundtable and Workshop in Dallas, TX; Approved a full-time position for a Manager of the PSMS Program; Planned to conduct a Gap Analysis and Safety Culture Assessment; Decide which “Element” to start with. One Issue: Linear approach to SMS, as opposed to a “macro-view.”

VNG’s Pilot Program: Implementation Steps Initial Pre-Implementation Thoughts and Ideas VNG’s Pilot Program: Implementation Steps VNG hired a Manager of the PSMS Program who began to dissect the elements and requirements of API RP 1173. VNG began to build the framework of processes utilized in order to complete the Gap Analysis so that the overall PSMS Plan could be developed. VNG decided to implement PSMS in a multi-phased approach: Phase I – Identification of Stakeholders Phase II – Document Gap Analysis Phase III – Gap Analysis and Safety Culture Assessment

Methodology of Conducting Gap Analysis and Safety Culture Assessment Document Review API RP 1173 Requirements ISO 55000 Framework Prior Experience Industry Leading Practices High Level Maturity Assessment + API 1173 Maturity Survey + Interviews High Level Recommendations and Roadmap 13 functional group interviews; >45 PSMS Stakeholders + Safety Culture Assessment. Figure 5. Overall Process of VNG PSMS Gap Analysis

VNG’s Implementation Process Implementation and Lessons Learned VNG’s Implementation Process PSMS personnel engaged with VNG and SCG leadership about proposed path forward: - Communication with internal and outside counsel; - Start with the identification of key internal stakeholders; - Assign responsibilities of key stakeholders within RACI matrix; - Conduct a Gap Analysis relative to API 1173 documentation requirements; - Employ a consultant to conduct face-to-face interviews and develop questionnaires; - Conduct interviews and administer questionnaires for Gap Analysis and Safety Culture Assessment; - Document processes along the way to develop the PSMS plan. Figure 6. Five roles of respondents identified based on job function.

VNG’s Implementation Process Implementation and Lessons Learned VNG’s Implementation Process VNG utilized online surveys to conduct its Gap Analysis and Safety Culture Assessment. A sample question/response string is below: VNG’s consultant and PSMS Personnel incorporated their notes, as well as respondent comments to assess maturity in addition to survey results. Figure 7.Sample survey question from respondents and PwC Figure 8.Sample survey notes from respondents and PwC

Lessons Learned From Gap Analysis Implementation and Lessons Learned Lessons Learned From Gap Analysis Due to time constraints, there was a lack of communication to VNG personnel about PSMS, its importance, and how it will impact them. Survey Participation: - 100% of groups and departments were represented; - 63% of employees participated in online Gap Analysis; - 56% of employees participated in online Safety Culture Assessment. VNG was initially disappointed with these results. It was evident that employees were not aware of the PSMS and viewed this survey as another annual safety survey. No formal communication had occurred from the Manager, PSMS Program prior to surveys being released. Little planning had occurred for VNG “FSR’s,” who need scheduled time during the day to complete non-field tasks.

Lessons Learned From Gap Analysis (cont.) Implementation and Lessons Learned Lessons Learned From Gap Analysis (cont.) The Gap Analysis survey was administered first, and took about 30 minutes to complete. The language was specific to PSMS, but likely confused field personnel. - Word spread quickly that the survey was “hard” and “long,” likely discouraging participation. - The Safety Culture Survey was much shorter and “easier” to understand, but it was administered after the Gap Analysis survey. Takeaways: - Front-end communication is essential! - Plan time for employees to participate – Union.. - Ensure employees understand what PSMS is prior to implementation. VNG discovered that it should not approach element by element at this stage.

Virginia Natural Gas Overview Results VNG utilized a consultant to conduct the baseline Gap Analysis and Safety Culture Assessment Developing Level 3 Prioritize resourced plans are in placed to close gaps in the PSMS Processes and procedures exist but are not fully documented or uniformly implemented Some decision making is made incorporating risk Continuous improvement is incorporated in some but not all tasks Innocent Level 1 No awareness of missing capabilities Aware Level 2 Management is aware of the need to improve and has begun to develop an improvement plan Inconsistent processes, informal processes with limited data and resources Optimizing Level 4 PSMS program fully aligned with strategic plan for organization Processes and procedures are fully documented and have been implemented Risk management and part of daily routine All major decisions incorporate risk Continuous improvement is a formal process that is incorporated in most but not all areas Excellent Level 5 Consistent processes exist across organization Data available and used for metrics and operating decisions Resources, training, procedures, and guidance is readily available All decisions incorporate risk Risk management and continuous improvement integrated into routine for all areas of organization VNG VNG is currently at a Level 3 maturity Maturity Stage Figure 9. Current VNG maturity level determined by PwC.

Virginia Natural Gas Baseline Gap Analysis Results 5 4 3 2 1 Figure 13. PwC Baseline Gap Analysis Maturity Assessment

Three Major Themes Emerged From Analysis Results Three Major Themes Emerged From Analysis There is a need to improve process standardization and to formalize leading practices that are informally implemented. There is a need to establish a formal communication plan and a feedback loop. The PSMS needs to be developed and managed as a holistic program outside of processes and procedures. Many of the requirements are cross-cutting that “choosing an element” could require re-work when another element was chosen. A foundation needs to be built prior to looking at individual gaps. Holistic processes need to be developed to better understand what the issues truly are on a detailed level.

Figure 14. Proposed next steps laid out on an Impact vs. Effort scale. Challenges Ahead VNG’s Path Forward Figure 14. Proposed next steps laid out on an Impact vs. Effort scale.

Challenges Ahead Current Challenges Based on the results, VNG needed to determine where to start in remediating “gaps” identified: Virginia-specific gaps involving VNG; Company-wide gaps involving shared service departments; Risk vs. Reward strategy; Balancing “Quick-Wins” and longer-term risks. Making changes in one department may have an immediate effect on another department. Where can we find more time for key stakeholders to complete their PSMS tasks? Figure 15. Sample initiatives recommended as a result of the Gap Analysis.

Current Challenges (cont.) Challenges Ahead Current Challenges (cont.) If VNG is the “pilot” program, how can we continue to advance VNG’s PSMS and also begin implementation across SCG’s footprint? Which SCG LDC should be next on the implementation schedule? In order to address these issues, SCG is developing a “steering committee” involving key PSMS personnel, executive leadership, and counsel to determine appropriate next steps at VNG and SCG. VNG has also begun the recruitment process for a full-time PSMS Analyst to assist the PSMS Manager. Figure 16. Sample initiatives across business capability elements.

Figure 14. Proposed next steps laid out on an Impact vs. Effort scale. Path Forward VNG’s Path Forward Figure 14. Proposed next steps laid out on an Impact vs. Effort scale.

PSMS Path Forward and Quick Win Opportunities Establish foundational elements of PSMS program. - Define program mission, objectives and program governance structure; - Identify metrics, accountabilities, and opportunities to align resource and performance management practice with PSMS objectives. Formalize PSMS program communication and awareness plan - Institute program-wide communications plan, identifying key stakeholders and communication channels; - Establish formal and periodic leadership communications with the organization; - Develop PSMS program education materials, including program overview, mission, goals. Provide employees feedback from PSMS and Safety Culture Assessments. Brand the PSMS program. Figure 17. Recommendation with a proposed timeframe for completion.