Strategic Considerations Of Major Capital Projects - Deloitte

Power Breakout Strategic Considerations of Major Capital Projects Mark Cohen, Moderator Director Deloitte Transactions and Business Analytics LLP

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 is a Director in the Capital Projects Practice in the Jersey City Office of Deloitte Mark W. Cohen, PE, PMP Transactions & Business Analytics LLP Deloitte Transactions & Business Analytics LLP He is a registered professional engineer and certified project management professional with Harborside Plaza 10 over 20 years of dispute resolution, project advisory, and risk management experience Jersey City, NJ 07311 spanning a wide range of domestic and international engineering and construction projects. He Telephone: 212-436-7206 has managed the performance of construction and engineering analyses including schedule E-mail: markwcohen@deloitte.com 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: abates@duanemorris.com Albert is a Partner with Duane Morris LLP Jimmy Addison SCANA Corporation 220 Operation Way, MC D-304 Cayce, SC 29033 Telephone: 312-486-2311 E-mail: JADDISON@scana.com Jimmy is the Chief Financial Officer for SCANA Corporation Melissa Jones Bechtel Power Corporation 5275 Westview Dr. Frederick, MD 21703 Telephone: 301-228-6000 Email: majones@bechtel.com Melissa is the CFO of Bechtel Power Corporation 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. 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. 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

Strategic Considerations of Major Capital Projects Jimmy E. Addison Executive Vice President and CFO SCANA Corporation

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 Non-emitting 62% Balanced Portfolio SCE&G O2 Emissions 100% 90% 90% 80% 80% 70% 70% 60% 60% 50% 50% 40% 40% 30% 30% 20% 20% 10% 10% 0% Alt. Resources Coal Gas Nuclear Hydro 2013 2018 2019 2020 1% 41% 32% 12% 14% 1% 33% 30% 22% 14% 1% 28% 27% 31% 13% 1% 27% 27% 32% 13% Hydro Nuclear 0% Alt. Resources Coal Gas Nuclear Hydro Gas Coal By Dispatch 21 19 17 15 13 11 2013 2018 2019 2020 1% 45% 26% 24% 4% 1% 34% 22% 39% 4% 1% 23% 12% 60% 4% 1% 23% 14% 58% 4% Alt. Resources 9 7 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 By Capacity M Tons 100% Actual Projected Note: Reflects emissions as filed February 2014 in the 2014 Integrated Resource Plan.

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? 2/3’s of the contract are fixed or firm with escalators 8 New Nuclear Total Projected Costs (SCE&G 55% Share)* 7 6.875 6.313 5.787 6 5.755 623M 5.680 5.690 5 4 3 Order No. 2009-104(A) Order No. 2010-12 Order No. 2011-345 Capital Cost, 2007 Dollars Order No. 2012-884 AFUDC February 2014 BLRA Report May 2014 BLRA Estimate Escalation 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

Global Sourcing

NND Site Aerial View Concrete Plants Cooling Towers 1000 Cars Unit 3 MAB CR-10 HLD Training & Storage Unit 2 CV Fabrication Turbine Building

Unit 2 Nuclear Island First nuclear concrete pour Post concrete pour and placement of CR-10 module Placement of the Containment Vessel Bottom Head Nuclear Island Walls

Unit 2 CA-04 Reactor Vessel Cavity Lift

Unit 3 Nuclear Island (1st Nuclear Concrete Pour) Post concrete pour and placement of CR-10 module

Managing Project Risk: The Importance of the Project Delivery System and the Project Controls Strategy Albert Bates Jr. Duane Morris LLP 22 www.duanemorris.com

Project Risk Management Considerations 23 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 www.duanemorris.com

Typical Project Delivery Systems “Traditional” or General Contractor Model Cost Reimbursable Model “Turn Key” or EPC Model “Hybrid” ModelMultiple Prime Contractors 24 www.duanemorris.com

Project Delivery System Selection Project Timing Project Cost Status of Preliminary Engineering Financing Limitations/ Constraints Project Type Owner Project Management Capabilities Owner Risk Profile 25 www.duanemorris.com

EPC Model Advantages 26 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 www.duanemorris.com

Prudency – Initial Considerations 1. 2. 3. 4. 5. 6. 7. 8. 27 Have appropriate processes and approvals been established for technology selection, initial scope, budget and schedule development, and financing decisions? Which project delivery systems are appropriate for this project? Which project delivery system was selected? Were reasonable alternatives considered? Has each step of the decision-making process been adequately documented? Have appropriate internal controls and procedures been implemented? Has an appropriate internal project management team been selected and staffed? 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)? www.duanemorris.com

Claims Mitigation 28 “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 www.duanemorris.com

Interactive Discussion Mark Cohen

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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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: markwcohen@deloitte.com Mark is a Director in the Capital Projects Practice in the Jersey City Office of Deloitte