Investment Recovery Eric Vincent Sr. Supply Business Analyst

Transcription

1 Investment Recovery Eric Vincent Sr. Supply Business Analyst

2 Outline Exelon s Nuclear Decommissioning Challenges Inventory Reserve Salvage Rate Assumption Decommissioning Models Decommissioning Strategy & Marketing Plan Decommissioning Considerations Oyster Creek Inventory Management Recommendations 1

3 Nuclear Decommissioning Challenges Since 2013, five nuclear stations have ceased power production in the U.S. and begun decommissioning, with another ten plants already announced that they plan to close by Oyster Creek Generating Station Forked River, NJ 625Mw single-reactor Retiring October 2018 Three Mile Island Middletown, PA 837Mw single-reactor Retiring September

4 Inventory Reserve - Background Materials and supplies (M&S) inventory is recorded at the lower of cost or net realizable value and provisions are recorded for excess inventory. In accordance with applicable accounting rules, inventory that is excess and will not be used should be reduced to net realizable value which is generally represented by its estimated salvage value. Conceptually, at the end of plant life all inventory should either be: Completely used in operations (i.e., no longer in inventory), or Any remaining items should have been reserved down to estimated salvage value. Inventory Reserve Analysis as of Q1 2018: Inventory Reserve Analysis Oyster Creek Value TMI Value Inventory Value $41M $47M Inventory Reserve Value $33M $36M Net Inventory Value $8M $11M Reserve as a % of Inventory 80% 77% Salvage Rate Assumption 15% $4.9M $5.4M 3 Inventory Reserve based assessment of probability of over remaining plant life of items comprising top 80% of inventory value

5 Salvage Rate Assumption In 2004 as a result of continued growth in inventory value, Generation began incorporating an excess inventory reserve with an assumed 15% salvage rate. In 2010 as a result of the growth in excess inventory reserve not being proportional with the growth in inventory value, a new calculation was developed. Additionally, new salvage rates were used 40% for items with less than 5 years of purchase history and 15% for inventory items with more than 5 years history. From 2013 to 2016, several components of the excess inventory reserve calculation were revisited including salvage rates. A new framework was developed for assessing salvage rates and a single salvage rate of 26% was assumed for all excess inventory items. Supply advocated for a higher salvage rate as they believed that 26% was the low end of what they would expect to realize. Salvage Rate Calculation % of Materials Sold Assumed Price as % of AUP Weighted Salvage Rate Sales at full value 6% 100% 6% Sales at 45% of value 32% 45% 14% Scrap (Industry Average ROI) 63% 10% 6% 100% 26% In 2017, Supply refreshed the assumption on how much of the inventory being reserved for could be sold at 100% & 45% of value. The analysis indicated there is no longer demand in the industry for many of the larger dollar value items in the reserve population. Additionally the 10% scrap rate did not take into consideration those assets with ZERO resale or scrap value. For every % the salvage rate assumption decreases it is a $1.4M hit to O&M ($15.4M). 4

6 Decommissioning Models Three Investment Recovery Decommissioning Models were reviewed with industry peers in response to the announced shutdowns to assess opportunities to maximize recoveries. Auction: Very successful from a volume standpoint. Very low return rates and high costs. Contractor performing limited IR activities: Focused on other supply functions, Investment Recovery will never be there main focus. Boots on the Ground: Dedicated solely to Investment Recovery of site assets. Having a dedicated resource on site within one year of decommissioning and up to five years post shutdown would give us the best opportunity to maximize our rate of return and achieve a 15% rate of return. IR Decommissioning Model Estimated Rate of Return (Best Estimate Combined Sites) Net Return (Best Estimate Combined Sites) Auction 2.5% $1.7M Contractor performing limited IR activities 7% $4.8M Boots on the Ground 15% $10.3M 5

7 Investment Recovery Decommissioning Marketing Strategy Identify: There are two main methods in which items are identified for asset recovery The site identifies assets available for Investment Recovery based on factors Storage availability Resources System analysis The Investment Recovery team has identified an asset through inventory review, devalued stock analysis, or demand history evaluation Approval: All asset review opportunities must be approved by designated personnel at the site working directly with maintenance and engineering Evaluate & Strategize: Marketing of surplus is dependent solely on the time constraints the site needs for the assets to be removed Value Concept Reproduction cost, replacement cost, current market value, conditioned use, and scrap value Value Approach Cost approach vs. Sales comparison approach (is there a market for the asset or will the cost of marketing outweigh the sale potential) Strategize The marketing of the asset is dependent solely on the time constraints of the sites needs for the assets to be removed (Marketing Plan) 6

8 Investment Recovery Decommissioning Marketing Plan 4 P s of Marketing: Product Accurate descriptions of the items including complete specifications, maintenance history, photos, warranties, etc. is critical Place Understanding where your buyers reside and operate in relation to the location of what you re selling is a key feature to obtaining maximum return Price The ability to properly assess the value of the assets you have for disposal is essential. With a good handle on a fair market value, you ll be in a much better position to negotiate fair offers and educate the asset owners on the best situation for disposition Promotion Value of the item for sale and how much time you have to sell it will impact your decision. Trade shows, ad inserts, direct mailing, catalogs, online listings, , and direct calls are all options available Investment Recovery works directly with the site to assign the appropriate Asset Recoverability Priority based on the time constraints of the asset needing to be removed from its current location. Priority 3 Asset No time constraints, assets(s) required to be removed from the current location within 6 months or an alternate storage location is available Priority 2 Asset Limited time constraints, assets(s) required to be removed from the current location within 3 months, no alternate storage location available Priority 1 Asset Immediate time constraints, asset(s) need to be removed from current location within 30 days or less 7

9 Investment Recovery Decommissioning Considerations Not all Decommissioning s are created equal Oyster Creek and TMI have significant devalued inventory (items recorded in inventory at $1.00 or less). Sales of these items have minimal write-off value and maximum return Considerations for Warehousing surplus assets Storage requirements to maintain best value of surplus assets Do the surplus assets need any form of maintenance? Staff requirements/manpower Record keeping of assets (Doc. Packages) Transportation requirements for movement (forklift, crane, rigging, etc.) Limit handling of surplus assets Handling surplus adds cost and risk Keep in place if cost of movement or risk of movement is high Only move when necessary to where necessary Consolidate like items when possible Can sell in lots Easier to manage, market, and ship 8

10 Oyster Creek Inventory Management Recommendations Reduce all stocking levels to zero for catids with no usage in last 12 months 23K Catids, $16.6M Min Value reduced 1488 Catids, $780K Min Value unchanged Reduce Max to Min for remaining catids Turn off autobuy (315 catids) Review 685 shared catids ($758K) for potential transfer to other sites Enable auto-transfer functionality Send list of all safety related catids to Pooled Inventory Management for consideration of a new equipment committee with industry Identify material recently purchased and received for 2018 outage Provide list to CPG/Site procurement teams to pursue return to vendor Evaluate catids with common part numbers with other sites for potential additional transfer opportunities Release catids with no usage > 5 years or non-stocked for Investment Recovery 27K catids, $29.5M 9