Best Practices Sub-committee

RETAC Update March 4, 2009

Susan Arigoni, Xcel Energy, Inc.Alan Shaw, Norfolk Southern RRKent Smith, Arch CoalDavid Rohal, RailAmericaHenry Rupert, CSX Transportation

Best Practices Sub-committee Members

Best Practices Sub-committee Goal

The goal of the Best Practices Sub-committee is to identify best practices in the energy supply chain that promote the efficient and reliable delivery of energy resources.

Best Practice: An activity, process or investment that results in improved reliability, lower operating expense, increased productivity or lower risk for the supply chain.

The current condition of the supply chain is sub-optimal because a common understanding of business practices between participants is not shared, and the benefits across the supply chain are not recognized.

Best Practices Sub-committee

Best Practices Sub-committee Process

Develop common understandingScope of the supply chainTerms

Defined current perspective of producers, railroads and receivers and identified best practices for each supply chain participant

Developed a model that portrays best practices and sub-optimal practices of the supply chain

Developed broad categories that apply to all participantsIdentified strengths, weaknesses, opportunities and threats

Energy Supply Chain Model

ProducerRailroadReceiver

Balanced purchasingAdequate stockpilesUnload upon arrivalDiversified supplyEmploy strong traffic teamPreventative maintenanceCommunication-lead timefor coal sourcing shifts

Supply/demand balanceSufficient resourcesGood execution (crews)Ratable shipmentsMaximize slotsEfficient scheduled network

Balance production and salesLoading on arrival 24/7Computerized batch weighAdequate stockpiles at mine

Coal not availableSpikes in demandShifting coal sourcesForced outagesLimited unloading schedulesUnloading equipment breakdowns

Scheduling conflictsSource change/lane shiftLane congestionMechanical breakdownsCurfewsInterchange coordination

Production problemsStaging limitationsCoal quality deviationsCoal availability

Increase

Decrease

Rel

iabi

lity

Best Practices

Problems

Physical InfrastructureCommunications & Tactical ExecutionOperating PracticesCommercial Practices

Efficient and reliable delivery of energy resources can be promoted by focusing on best practices in the following areas:

Developed Broad Categories That Apply to All Participants

Physical Infrastructure Best PracticesSupply Chain Participant Physical Infrastructure Best PracticesReceiver Adequate space for stockpileReceiver Unload upon arrivalRailroad Supply/demand balanceRailroad Maxamize slotsProduceer Computerized batch weighProduceer Loading on arrival 24/7

Produceer Adequate pile or uncovered coal at mine

Physical Infrastructure SWOT

Uncertainty of the sourcing regions in the futureFunding for reliable energy supply chain infrastructure Technology advancement for CCS

Ext

erna

l

Opportunities: Threats:Long term plans for generation/sourcing Regulatory constraintsDefine reserve capacity requirements Uncertainty in the future demand for coalMechanism to ensure capacity investments

Topography limitationsCoal reserve degradation

Helpful Harmful

Inte

rnal

Strengths: Weaknesses:Shared focus on reliability Older inefficient operationsSourcing flexibility afforded by rail network Fixed Assets limit ability to quickly respondUS coal reserves

Communication & Tactical ExecutionBest Practices

Supply Chain Participant

Communication & Tactical Execution Best Practices

ReceiverCommunicate lead time on incidents restricting delivery

Railroad Supply/demand balanceRailroad Maxamize slots

Railroad Efficient ratable networkProducer Balance production and sales

Communication & Tactical ExecutionSWOT

Exte

rnal

Regulatory constraints

Opportunities: Threats:RETAC structure, processes & output Attracting qualified peopleTrade associations with common goals Ineffective communication with government entitiesLong term plans for generation/sourcing

Untrained personnelStrong industry trade groups Ineffective internal communications

Helpful Harmful

Inte

rnal

Strengths: Weaknesses:Railroad Web Based Communication Platform Reluctance to share operational problemsResources dedicated to efficient supply chain executionInappropriate reaction to operational informationBusiness relationships

Operating Practices Best PracticesParticipant Operating Practices Best Practices

Receiver Adequate stockpile targetsReceiver Unload upon arrivalReceiver Diversified supplyReceiver Employ strong traffic team

ReceiverPreventive maintenance on coal handling equipment

Railroad Maximixe slotsRailroad Efficient ratable networkProduceer Loading on arrival 24/7Produceer Adequate pile or uncovered coal at mine

Operating Practices SWOTHelpful Harmful

Weak coordination within the supply chainLack of understanding of counterparty impact

More restrictive environmental permitting requirements

Inte

rnal

Strengths: Weaknesses:Focus on Safety Rigid labor rulesTechnical competence Internally focused

Lack of universal scheduled maintenance

Ext

erna

Opportunities: Threats:Improve operations planning & forecasting Declining labor forceImprove consistency in loading Equipment availabilityEquipment standardazation Economic cycles

Commercial Practices Best Practices

Supply Chain Participant Commercial Practices Best PracticesReceiver Balanced purchasingReceiver Adequate stockpile targetsReceiver Diversified supply

ReceiverCommunicate lead time on incidents restricting delivery

Railroad Supply/demand balanceProducer Balance production and sales

Commercial Practices SWOT

Inte

rnal

Opportunities: Threats:More transparent information Commodity Price Volatility

Rigid contract termsOver the Counter Trades (linkage to physical)Increasing need for source flexibility

Helpful HarmfulStrengths: Weaknesses:

Long Standing Relationships Orders don't match supply chain capabilityDemand/Sourcing Consistency Not having sufficient buffer for supply volatilityWell developed supply chain infrastructure

Best Practices Alignment MatrixR

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Rai

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Best PracticeOperating Practices

Physical Infrastructure

Communication & Tactical Execution

Commercial Practices

Adequate receiver stockpile targetsReceiver unloads upon arrival

Diversified supply sources

Receiver employs strong traffic teamPreventive maintenance on coal handling equipmentAdequate space for stockpileReceiver communicates lead time on incidents restricting deliveryBalanced purchasing month-to-monthRailroad maximixes slotsEfficient ratable railroad network

Capacity supply/demand balanceMines load on arrival 24/7Adequate pile or uncovered coal at mineMine computerized batch weighCoal marketing balances production and sales

Consensus on best practices will be a challenge

Costs – benefits unaligned• sub-optimization of the supply chain can occur when

individual parties attempt to optimize their own cost/risk structure without regard for the impact on the overall supply chain

Communications best practices could be easiest to implementSub-committee input on promoting best practices

Best Practices Sub-committee

Next Steps and Challenges