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Inventory Management Program
The purpose of this presentation is to provide the TTF with some background information on the Inventory Management program being proposed by TCPL and to present the program to the TTF and to have the program raised and accepted as an issue. TTF Meeting - April 18, 2001 Mike Quesnel - Procurment DRAFT
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Program Objectives Cost effectively reduce inventory levels to reflect Operational Excellence strategy (lowest cost) Establish inventory levels consistent with top quartile industry performers (benchmarking) Eliminate inventory associated with equipment retirements The main objective of the Inventory Management program is to reduce inventory levels to reflect our strategy of Operational Excellence - that is, finding the lowest overall cost of doing business. This is necessary in today’s competitive operating environment. The reality of the current situation is that TCPL earns a return on inventory. However, we recognize that we will need to forego this revenue if we want to achieve our objectives of being competitive and ensuring the lowest overall cost to our customers. There will also be costs involved in managing the inventory reduction and resulting from material disposition. We need to find the right balance that considers the operational requirements for maintaining inventory while ensuring operational integrity. We want to establish inventory levels that are consistent with the top performers in our industry. Benchmarking would be used to identify best practices and to help us establish appropriate inventory levels. The company is in the process of optimizing compression equipment on the system. Inventory that is currently required to support this operating equipment can be reduced or eliminated as part of the system optimization program.
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Purpose of This Presentation
Describe program tactics Present a forecast of program costs Identify toll impacts of the program Present benchmarking information (pending availability) Generate review and discussion leading to a resolution to proceed with the program A Statement of Principles regarding the Service and Pricing Settlement for the TransCanada Mainline was established in February. This directs the stakeholders to refer the Inventory Management program to the TTF. Over the next 3 months, TCPL proposes to present details of the program with respect to the size and cost of the program and the methods for material disposal and cost recovery. It is anticipated that cost recovery would begin in 2002 based on program guidelines agreed to by the stakeholders.
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Scenarios 5 cases considered for material reconciliation and cost recovery Case 1 - Material reconciled in 1 year, costs recovered in 1 year Case 2 - Material reconciled in 1 year, costs amortized over 2 years Case 3 - Material reconciled in 1 year, costs amortized over 4 years Case 4 - Material reconciled over 2 years, costs amortized over 2 years Case 5 - Material reconciled over 2 years, costs amortized over 4 years
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Recovery Value
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Cost Forecast - Summary
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Cost Forecast - Case 1
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Cost Forecast - Case 2
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Cost Forecast - Case 3
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Cost Forecast - Case 4
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Cost Forecast - Case 5
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Toll Impact - Summary
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Toll Impact - Case 1
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Toll Impact - Case 2
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Toll Impact - Case 3
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Toll Impact - Case 4
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Toll Impact - Case 5
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Benchmarking Information
Pending Based on AGA/SGA profiles supplemented with inventory data How are we proposing to address this issue? We will be doing industry benchmarking to help us define what the appropriate levels of inventory should be to support our operational needs while ensuring operational integrity is maintained. Through a review of inventory at all stocking locations we will identify surplus, obsolete and duplicated material. At the same time we will be looking at market opportunities for divestment of these materials with the main objective being to obtain fair market value, minimize writedowns and maximize revenue
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Next Steps Presentation of benchmarking information
Further review of cost forecast with TTF members as required Agree on cost recovery mechanism and amortization (if appropriate) Present resolution to TTF on cost recovery The next steps to progress this issue include development of the program specifics related to the total dollars being addressed through the program, the expected recovery value through asset sales, the cost of the program and the treatment of those costs. Over the next 3 months, it is proposed that the program details be worked through the TTF with the expectation that an agreement that is acceptable to all stakeholders can be reached. Some discussion is needed on how these details would be worked with the TTF. Subject to reaching an agreement, TCPL would proceed with the program through the remainder of 2001 and, as necessary, into 2002, with cost recovery beginning in A deferral account could be used to collect costs as required for handling in subsequent years. The agreement may also consider a period of time over which to amortize the costs.
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Proposed Timeline Today (March 6) Raise issue at TTF
Present program details Work program details Present recommendations and resolution Resolution vote Program implementation Cost recovery Today (March 6) April TTF meeting April and May May TTF meeting June TTF meeting During 2001 2002 forward This is a proposed time line for going forward with this issue, recognizing that there will be resource constraints with other issues also up for discussion at the same time. We’re here today to bring the Inventory Management Program as an issue to the TTF. In April we propose to present the details of the program and to discuss how this would be best worked through the TTF. Once the details have been worked, and assuming an acceptable solution can be reached, recommendations and a resolution would be presented at the May TTF meeting with a vote on the resolution to be scheduled for the June meeting. Program implementation would then be carried on throughout the remainder of 2001 and into 2002 if necessary with cost recovery beginning in 2002.
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