Vendor/Contractor Design Performance

1. Vendor/Contractor Design Performance Xcel Energy – Nuclear Department Adam C. Annis June 26, 2012

2. Presentation Overview • Identified Areas for Improvement in Project Performance (Benchmarking Drivers) • Summary of Industry Benchmarking Observations • Resultant Xcel Energy Organizational Shift • Approach on Providing Vendor Oversight for Projects • Current Challenges at Xcel Energy

3. Identified Need for Benchmarking • Driver #1 – Engineering Support for Projects • Identified organizational inefficiencies • Driver #2 – Improved Organizational Alignment in Support of Project Effectiveness • INPO identified Area For Improvement (AFI) • Driver #3 – Project Schedule and Cost Performance Improvement • Xcel Energy identified areas for improvement in predictability of Capital Projects

4. Driver #1 – Engineering Support for Projects • Other business models may provide high quality engineering products with lower O&M cost and less burden on station engineering than the current structure • The 2010 Xcel Project Engineering business model required a large project engineering staff • 2010 Project Engineering contract staff represented a significant O&M cost burden • Significant company resources spent managing a large number of staff augmentation and vendor contracts • Significant site engineering burden to support orientation of contract and new hire engineers

5. Driver #2– Organizational Alignment Area for Improvement (CO.3-2) The nuclear projects and nuclear operations (fleet, Prairie Island, and Monticello plant operations) organizations have not developed shared roles, responsibilities, accountabilities, and ownership to implement major and routine capital projects effectively. These two organizations are misaligned and a team approach is not modeled or reinforced from the corporate level down to the working level and sometimes results in in ineffective: decision-making, project sponsorship, line engagement, and project coordination.

6. Driver #3 – Xcel Identified Need forProject Performance Improvement • Documented budget and schedule overruns and cost carryovers for Capital Projects • Root Cause Evaluation highlighted several areas for improvement: • Lack of alignment of roles and responsibilities for projects • Poor vendor controls and weak contract development results in high cost • Lack of technical expertise in Site and Project Engineering organizations

7. Overview of Benchmarking • Benchmarking Performed in 1st Quarter 2010 • Formal benchmarking of several Plants with different business models • Informal Benchmarking discussions with: • Xcel Energy (Fossil/E&C) • INPO • Other external stakeholders

8. Benchmarking Observations Plant 1 • INPO AFI for Projects in 2005 →INPO Strength in 2007 [Communication + Integration + Alignment] • Projects organization has strong operational focus and alignment station goals and standards • Strong site leadership engagement in projects priorities, scope, budget • Vendors are qualified to the site processes • 3 primary vendors for design work • Internal focus on beginning and end of project • Planning/scoping and alternative selection by Projects and site engineering is key element in preparation • 15% of total engineering budget for each projects spent on design verification by site design engineering

9. Benchmarking Observations (cont’d) Plant 1 (cont’d) • Project engineering team aligned with Project Mgmt but with significant dedicated support embedded in site engineering • Weekly alignment/status meeting between Projects, Project Engineering, Site Engineering • Capital funding for supplemental staff in site engineering • Capital Projects personnel alignment • Manager of Projects (MoP) under contract • 5 Direct reports to MoP to perform oversight of Projects functions • Scheduler →Long-range resource loaded work plan • All supplemental craft work managed to Site Projects • Evaluation of alternatives and project development done by Projects and engineering before budget development…included in annual budget & planning • Projects are run in accordance with plant procedures

10. Benchmarking Observations (cont’d) Plant 2 • Primary focus is on alignment with operations • No functional differentiation between capital and O&M projects (other than accounting) • Strong engagement from site personnel in project governance • Projects group organized similar to Xcel Energy Nuclear Projects, but higher concentration of contract personnel • Intent of Projects group is to provide project management skills to all work groups and leverage the larger site organization (supply chain, contract management, etc.) • Small Project Engineering group in Site Engineering to manage engineering contracts for many projects (RV Head, License Renewal) • Many capital projects managed within line organization • Projects group includes SG and Turbine Project Management • License renewal resides in Project Engineering organization

11. Benchmarking Observations (cont’d) Plant 2 (cont’d) • Vendor site group dedicated to support site capital projects • Alliance between Plant 2, Vendor and NSSS Supplier; no other engineering firm performing design changes • Vendor manager aligned as direct report to Design Engineering Manager • Vendor site personnel qualified to plant processes, but off-site personnel are not • Vendor contract has incentives & metrics in place to ensure product quality, schedule, and budget • Quality of deliverables continues to be a concern for the plant • Management of Vendor contract within site engineering • 1 – 2 year transition to gain familiarity with site

12. Benchmarking Observations (cont’d) Plant 3 • Entire modification process outsourced to a vendor under a service contract • 75% of onsite vendor staff are former utility staff • All outsourced engineers are in utility ESP program • Contract includes significant commercial stake in plant performance • Technical Conscience Group review of products

13. Benchmarking Observations (cont’d) Company A • Site Design Group retains majority of design work • Approx. 80% of design performed by site design engineering, with 20% of design performed by Site Major Projects group using vendors • Site Major Projects group includes project engineering to oversee implementation and closeout • Project engineer provides vendor interface • Undergoing reorganization to centralized design organization

14. Benchmarking Observations (cont’d) Company B • Project Management performed by Engineers under site Design Engineering Manager • Project Managers perform vendor interface function • Three vendors are contracted for design work • Distribution of workload to maintain stable portfolio • Majority of projects are implemented by utility

15. Benchmarking Observations (cont’d) INPO • Successful organizations have reporting alignment of Site Engineering, Project Engineering, & Site Project Management • Major Capital Projects have a separate reporting structure • Site “Liaison” (see Plant 1 + Xcel Energy E&C) • Regulatory Program is a separate function • Manage staff as a “portfolio” of project and operational resources with focus on plant operations, site responsiveness, and collective execution of projects • Strong focus on leveraging contractors as part of staff

16. Benchmarking Observations (cont’d) Xcel Energy - Fossil • Routine capital projects are run at the station with resource augmentation from E&C as necessary (predominantly contractors) • Major Capital Projects heavily focused on contractor management • Relatively low ratio of FTE/Contractors • Effective tool to manage personnel • Workload-based • Performance-based • Supplemental craft strategy managed by single organization • Effective performance tool (Seabrook) • Station staff assigned to major capital projects and are part of project resource budget

17. Benchmarking Observations (cont’d) Observations of other external stakeholders • Ineffective teamwork between Projects and Site at PINGP having negative impact on operations • Experience at other utilities indicates successful projects require alignment between site engineering, project engineering, & site project management • Projects organization has opportunity to be more supportive of site operations organization in recovery effort

18. Conclusions from Benchmarking: • INPO recognizes “Strength” in Capital Projects is linked to organizational alignment • Smaller nuclear fleets depend heavily on contract personnel • Some sites are using a dedicated engineering design vendor on-site with specific successes • Greatest opportunity for economic gains appears to be with Major Capital projects • Smaller scale projects can be done more effectively by site engineering personnel • Anecdotal evidence is mixed on dedicated vendor model

19. Conclusions from Benchmarking (cont’d) • Successful projects organizations have strong operational and procedural focus which follows the station standards • The same rigor applied to operational processes must be applied to projects processes, especially economic controls with station-based governance being driver

20. Challenges Seen at Xcel Energy (to 2010) • Technical Issues with Vendor supplied modifications • Misalignment of site engineering organization, capital projects organization, and multiple engineering vendors • Lack of ownership by vendors in project performance issues • Casual evaluations not being performed by vendors to identify appropriate actions to take to prevent reoccurrence

21. Xcel Projects Organization (to 2010) • Management of Projects • Performed by Xcel Project Managers (permanent and staff augmentation) at site level • Engineering Support for Projects • Project Engineering group at each plant site • Technical lead for projects provided by Xcel Project Engineering Organization • Permanent and staff aug Project Engineers represent Xcel interest and provide technical oversight and QA interface of vendor design work • Multiple external design organizations (vendors) utilized to perform design work for projects • Interface with site engineering is through Project Engineering

22. Xcel Projects Organization (to 2010)

23. Implementation of Nuclear Services Contract • Nuclear Service Contract (NSC) with single vendor • Contract finalized in early 2011 • Single source for engineering products and staff augmentation • Design/Build capability for projects provided: • Defined engineering staff (onsite and off) • Construction Management and resources • Planning and Project Controls staff

24. Implementation of Nuclear Services Contract • Contract Controls: • Commissioned effort scorecard based on quality and schedule performance • Quality and performance oversight by Xcel Engineering and Project Management • Quarterly management review of NSC performance • Causal analyses and corrective actions reviewed • Contract management by dedicated Supply Chain resources at both sites

25. Xcel Projects Organization (Current) • Management of Projects • Performed by Xcel Project Managers (permanent and staff augmentation) at site level • Project Controls provided by NSC Vendor • Engineering Support for Projects • NSC Vendor Onsite Engineering organization oversees Vendor offsite design • NSC Vendor Offsite performs detailed design work • Implementation Support • NSC Vendor supplies planners • NSC Vendor manages construction

26. Xcel Onsite Vendor Design • Multi-discipline engineering department under a single NSC Vendor (non-Xcel) supervisor • Onsite Vendor Engineering Supervisor has Xcel supervisor training qualifications • Onsite lead identified for each project • Performs Xcel Responsible Engineer function • Part of site ESP training population • Qualified under NSPM (Xcel) 10CFR 50 Appendix B Quality Assurance Program • Acts as QA design interface with offsite NSC Vendor organization

27. Xcel Offsite Vendor Design • Multi-discipline engineering department • Responsible Engineer assigned as lead for each project • Specialized engineering support when needed • Working under NSC Vendor QA Program • Qualified to project specific vendor processes • Xcel processes are defined in contract and invoked by vendor processes • NSC Vendor provides additional services • Field Engineering • Work order planning • Engineering Change Closeout • Construction services

28. Vendor Design Oversight • Stakeholder involvement through Design Review Meetings • Owner’s Acceptance through Design Review Board • Site Performed risk assessments result in additional reviews • Challenge boards • Third party reviews • Plant operations review committee for Safety Related and Augmented Quality modifications

29. Vendor Design Oversight • Engineering Oversight Function performed by Fleet Design Engineering: • Monitor, gauge, and report on site stakeholder involvement • Mentor onsite vendor engineering staff • Monitor adherence to Xcel engineering process • Monitor onsite and offsite NSC Vendor engineering performance for identification and resolution of technical issues • Provide feedback to management on contractor performance

30. Current Challenges at Xcel Energy • Understanding of roles and responsibilities • Misalignment on expectations for product quality • Vendor internal struggles between onsite and offsite vendor resources • Measuring stakeholder engagement • Identification of legacy issues during design

31. Current Challenges (cont’d) • Communication issues between vendor and stakeholders • Vendor understanding of site specific design basis • Lack of vendor perspective on past station issues • Unclear definition of vendor work scope by site

32. Questions? If you have any questions on the materials that have been presented, feel free to contact the presenter: Adam C. Annis Xcel Energy | Responsible By Nature Engineer - FT Nuclear Engineering Support 414 Nicollett Mall, MP-4, Minneapolis, MN 55401 P: 612-330-5542    F: 612.330.7797 E:Adam.Annis@xenuclear.com