1 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 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

2 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 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

3 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 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 Services Nuclear Power Plants Nuclear Fuel Nuclear Automation Instrumentation and control solutions to enhance the reliability of nuclear plant control and safety systems

4 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 AP1000 TM : 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

5 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 AP1000 TM Addresses Investment Risk Reduction Reduction of risk is the key to new plant construction

6 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 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 Output Project Planning and Development

7 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 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

8 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 EPC Delivery Model-Project Plans Standard set of project plans built on prior project lessons.

9 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 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.

10 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 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

11 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 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.

12 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 Risk Management and AP1000 Pricing Uncertainty 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 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.

13 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 Project Cost and Price Terms and Concepts Actual Costs and Planned Committed Costs Contingency Risk Budget at Completion (BAC) Total Allocated Budget (TAB) Management Reserve (Contingency and Risk) Fee/Profit Price Estimate At Completion (EAC)

14 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 Uncertainty of Achieving Project Cost Objective Budget at Completion (BAC) Total Allocated Budget (TAB) Break Even Range of possible Cost Low CostHigh 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

15 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 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

16 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 Integrity, Transparency, Flexibility, Diversity A Successful Risk Management Culture… Integrity, Transparency, Flexibility, Diversity Georgia, Plant Vogtle 3 and 4 with 1 and 2 in the Background, July 2013

17 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 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