Capital Costing Using the PM, CS, IM and BI Modules

1. Capital Costing Using the PM, CS,IM and BI Modules Ron Wagner Jared Martin

2. Agenda • Introductions • Corporate and Project Background • Business Process Overview • Solution Overview • Key Lessons Learned

3. Consumers Energy and Michigan • Serving Michigan families and businesses since 1886 • We provide electric and natural gas service to 6.5 million people • 8,000 employees • Serving all 68 Lower Peninsula counties • Company motto: “Count on Us” Electric Gas Combination Storage field Dams Generation Pumped storage Mio Alcona Cooke Loud Foote Hodenpyl 5 Channels Tippy LudingtonPumpedStorage Rogers J C Weadock Hardy D E Karn Croton B C Cobb Webber J H Campbell Zeeland Allegan J R Whiting

4. CEA Project at a Glance • Comprehensive legacy platform replacement project (over 112 legacy systems retired) • Included SAP IS-U (CCS, CS, FERC), FI, CO, MM, SD, HR, PM, IM and PS • All modules all business units “big-bang” deployment approach • Included “downgrade” of latest SAP functionality – compatible unit design estimating for mass plant and mobile device integration • Live with ECC 6.0 on July 1, 2008

5. Fleet Fuel Management System File Index Routing and Management (FIRM) FRS GEM/CAP Lan File Manager MISSDIG Neptune PCCMS – Detail/Pac PCCMS – ICAD PCCMS – CAD PowerPlant SIMS Data Extract for OMAR SIMS WEB Systems Interfaced

6. Capital Business Process Scope • Scope of implementation included all aspects of capital costing and management • Annual budgeting, program planning and actual cost tracking • Work order setup, charging and settlement • Asset unitization • Strategic Enterprise Management (SEM) and other advanced functionality not in scope for initial rollout • Limited use of Investment Management (IM), no appropriation requests – maintained legacy functionality for this area

7. Design Requirements and Challenges Varied Requirements with Conflicting Goals • Work order setup and charging process must be tailored to the way work is performed and managed in the field, not to satisfy accountants’ needs to split CAP, COR and O&M • Need to satisfy internal “program” management buckets and FERC accounting rules at same time • Need monthly forecasting at a detailed cost element level – IM has forecasting capability but at a higher level • For the scope of the project, monthly cash flows were not available

8. Design Overview Investment Management (IM) Module Project Systems (PS) Module Controlling (CO) Module for Internal Orders Plant Maintenance (PM) Module for EAM Work Orders

9. Detailed Design Flow Diagram:Focus on Order Creation and Management

10. Order types segregated by major work type and business unit, e.g. Electric, Gas, Generation, Fleet, and Facilities Order types further broken down into Capital and O&M Example: ECNC – Electric capital construction CORR – Generation corrective maintenance Use of maintenance activity types and priority codes to drive assignment to proper program budgets MAT example: NLU – New Lines Underground Priority example: Residential Line Two major processing types – one process for orders with design documents (CUs for mass property) and another process for non-CU orders for location specific plant Order Creation and Management

11. Order Creation and Management: Compatible Units Orders

12. Order Creation and Management: Non Compatible Units Orders

13. Order Creation and Management • Orders determine Cap/COR/O&M splits • Program structures in IM and PS are used to manage capital “functional” budgets • Assignment of orders to proper program WBS for actual to budget comparison, is automatic and driven by order type, MAT, priority code and plant • At order creation, the job estimates determine the split between capital, removal and expense

14. Order Creation and Management: Work Order Life Cycle • After creation, orders are worked and completed in the field (many are updated via mobile device) • For CU orders, as-built documents are created when there are changes between estimated and installed assets • Similar as-built process for non-CU orders, but data is maintained directly on PM order instead of CU as-built document • Costs are charged only to the PM/CS order and settled to asset G/L accounts or cost centers • Process is flexible enough to allow for changes to expenditure type distribution changes and asset information changes • Allows for total transfer of actuals from one order to another if corrections are required. This has the result of changing the entire costing distribution among Capital, COR and O&M

15. Detailed Design Flow Diagram:Focus on Projects and Programs

16. Projects and Programs:Rollup of Capital and O&M Costs • PS Project blanket structures are setup according to a hierarchy driven by the business needs, rather than accounting or FERC requirements • Geography, Org Structure and work activity • Bottom Level: Work activity (e.g. UG New Business Con) • Next Level: Geography (e.g. West Region) • Next Level: Field Manager • Non-blanket (specific) project structures are setup according to individual project management needs, usually project phases • Orders are always assigned to lowest level in PS structure

17. Projects and Programs: Budgeting • All projects, whether blanket or specific, are attached by the highest level WBS element to a lowest level IM program position • IM structure is driven by overall program budgets, and contain buckets of dollars for activities across the corporation • IM is primarily a rollup structure, as budget life-cycle features such as appropriation requests have not been implemented as of yet • Limited use of budget distribution functionality • Budget entered at highest level WBS element of projects • Encountered challenges using IM for forecasting, due to CMS detail requirements • Monthly cash flows, cost elements/accounts, etc.

18. Detailed Design Flow Diagram:Focus on Program Shadow Projects `

19. Shadow Project Approach PSPSP’s • Solution to meet detailed forecasting requirements – use of a “shadow project” in PS • Shadows used to simulate programs for monthly forecasting and reporting • Shadow projects also allowed CMS to capture all actuals on a single order, but split them into component parts required for management reporting – Capital, Cost of Removal, O&M

20. Detailed Design Flow Diagram:Focus on Rollups for Plan and Actual `

21. Versions and Relationships • Used three plan versions for tracking planned/budgeted costs – one each for Capital, Cost of Removal, and Expense • Used three plan versions to compare to the plan – in which “actual” costs were populated • Available for Program Shadow Projects and functional projects

22. Detailed Design Flow Diagram:Recap

23. Reporting: Bringing it all Together in BI • BI queries were necessary to bring together actuals on orders and PS investment measures, with plans and actuals on shadow projects • Standard PS reporting is used by supervisors and project managers for actual cost tracking and project management • Budget analysts use IM and BI reports for overall program picture and forecasting reports

24. Reporting: BI Query Selection Screen

25. Reporting: BI Query Sample Output

26. Lessons Learned • You CAN satisfy the needs of all: • Field workers able to manage entire job on a single order • Budget analysts can use a single report to analyze all costs at a detail/monthly level • Management can control and manage costs at a program or specific project level • Some minor enhancements are necessary but NO custom code (SAP modifications) was used anywhere • Include all of the stakeholders in the design process up front, and then heavily involve them in the testing phase • Future goals are to expand use of IM functionality and take advantage of more standard SAP overhead costing

27. Ron Wagner rowagner@deloitte.com Jared Martin jjmartin@cmsenergy.com