Investment Recovery

1. Investment Recovery Capturing an Asset’s Final Contribution

2. Topics Investment Recovery Defined Program structure Skills Best Practices Surplus Identification Asset Valuations Disposition Options Risks Benefits

3. Investment recovery defined • Investment Recovery - A program to identify, reuse, sell or otherwise dispose of surplus assets generated by a company as it pursues its primary business. • Investment Recovery Association – A not for profit organization dedicated to the education and professional development of the surplus asset manager. • Investment Recovery Certification - Certified Manager of Investment Recovery (CMIR) requires a combination of education, years of industry experience and passing a rigorous exam validating their knowledge. • Subject Matter Experts (Able to identify the value in assets understand what information is required to market asset in the secondary market.)

4. Program Structure Centralized or decentralized Responsibilities Appraisals Closures Demolition Sales Transfers Waste stream management Charter Machinery & equipment Vehicles - how big Office furniture MRO

5. Employee Skill set Knowledge of policies & procedures - company/department/accounting Professional certifications - CMIR, ASA, etc. Ability to work with a diverse set of people Negotiations Project management Environmental risks and compliance Contract development Specific training for commodities Hazardous materials Master service agreements Repeat commodities

6. Best Practices • Strong, visible top management support • Reporting of metrics and successes • Active management of surplus assets • Supplier integration and support • Refurbishment • Scrap • Repeat commodities • Pre-procurement surplus check • Hierarchical disposition options • Effective incentives • Early involvement in asset management planning • Effective use of Intranet and Internet • Programs for surplus prevention • Professional networking by IR staff

7. Surplus Identification Manufacturer, model, S/N Description - including type & weight Capacity Motor data (HP, frame, encl., volt, phase, rpm) Valve data (e.g. size, pressure rating, material) Design specifications - drawings Proprietary/non-proprietary Is it specialized, one of a kind (in-house design) List of standard & special auxiliary equipment or accessories Any spare parts Templates - manufacturer’s specifications

8. Valuation Concepts Residual Value - has value in at least one channel Fair Market Value - willing buyer & willing seller Continued use - including installation, supported by earnings Installed - including installation, not supported by earnings Removed - no installation - only what can be removed, cost of removal considered Liquidation Value - no willing seller(closed/curtailed) In place - failed facility sold intact Orderly - specific date, reasonable time frame Forced - properly advertised, as of specific date Salvage Value - whole property or component, retired Scrap Value - material content

9. Disposition Options Most advantageous to least advantageous dispositioning alternatives: • Reuse (internal redeployment) • Recondition • Return to vendor • Resell • Reclaim • Recycle • Remove (pay to dispose)

10. Valuation Process Define the “problem at hand” - why is appraisal needed and how will it be used Define the value definition(s) - continued use or for removal Identify the property - specifications, condition, installation method Data collection - market data & RCN Valuation analysis - cost approach or sales comparison approach Value conclusion - specific date

11. market comparison approach Relies on data from actual sales Comparable sales are adjusted to match the subject SubjectComp AComp B Comp C Age 10 7 4 10 Cond. Fair Good Excel. Poor Units 1,000 750 600 500 Sale ??? $10,000 $12,000 $7,000 Age - 10%/yr. -30% -60% -0% Cond. - 5%/grade -5% -15% +5% Units +25%+40%+50% Adjustments -10% -35% +55% $10,000 $12,000 $7,000 x 0.90 x 0.65 x 1.55 FMV $ 9,000 $ 7,800 $10,850

12. cost Approach Based on the replacement cost new of the subject machine (say $27,000 in this example). The new price is “depreciated” to account for wear & tear, improvements in design or changes in regulations. In this example new models are 10% more efficient due to control improvements and the unit does not require any permitting to operate. RCN $27,500 Physical depreciation (50%) -13,750 RCN less physical depreciation $13,750 Functional depreciation (10%) - 1,375 RCN less physical & functional $12,375 Economic depreciation (0%) FMV $12,375

13. Risk Assessment Does the asset(s) contain hazardous or regulated material (asbestos, PCB’s, lead paint, etc.) What safety issues does removal present (overhead obstructions, confined entry, chemical spills, etc.) Are there proprietary restrictions For complete facilities Conduct a phase 1 site assessment on existing conditions. Look for things like stained concrete, unlabeled barrels and containers, bare spots where vegetation won’t grow, hazardous materials, etc. If possible, find out the history of the site. What was produced 50 years ago and what was the process? What did they do with the waste back then? Don’t forget to investigate the potential for unmapped underground utilities, tanks or pipelines.

14. What is the benefit TO the company? From CAPS benchmarking study (all industries): Average weighted cost per IR Professional - $102,148 Average benefit per IR professional - $6,563,023 Average total benefit for IR program - $11,233,922 Average benefit to cost ratio – 27:1

15. Questions or Comments Investment Recovery Association 638 West 39th Street Kansas City, MO 64111 P: (816) 561-5323 E-Mail: admin@invrecovery.org Web site: www.invrecovery.org Ron Brooks, CMIRF Xcel Energy Phone: (303) 571-2788 E-Mail: ronald.d.brooks@xcelenergy.com