INVESTMENT RECOVERY Capturing an Assets Final Contribution TOPICS

INVESTMENT RECOVERY Capturing an Asset’s Final Contribution

TOPICS • • • Investment Recovery Defined Program structure Skills Best Practices Surplus Identification Asset Valuations Disposition Options Risks Benefits 12/5/2020 2

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. )

PROGRAM STRUCTURE • Centralized or decentralized • Responsibilities • Appraisals • Closures • Demolition • Sales • Transfers • Waste stream management • Charter • Machinery & equipment • Vehicles - how big • Office furniture • MRO 12/5/2020 4

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 12/5/2020 5

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 12/5/2020 6

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 • • • 12/5/2020 7

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 12/5/2020 8

DISPOSITION OPTIONS Most advantageous to least advantageous dispositioning alternatives: • Reuse (internal redeployment) • Recondition • Return to vendor • Resell • Reclaim • Recycle • Remove (pay to dispose)

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 12/5/2020 10

MARKET COMPARISON APPROACH • Relies on data from actual sales • Comparable sales are adjusted to match the subject Age Cond. Units Sale Subject 10 Fair 1, 000 ? ? ? Age - 10%/yr. Cond. - 5%/grade Units Adjustments FMV Comp A 7 Good 750 $10, 000 Comp B 4 Excel. 600 $12, 000 Comp C 10 Poor 500 $7, 000 -30% -5% +25% -10% $10, 000 x 0. 90 $ 9, 000 -60% -15% +40% -35% $12, 000 x 0. 65 $ 7, 800 -0% +50% +55% $7, 000 x 1. 55 $10, 850 12/5/2020 11

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 Physical depreciation (50%) $27, 500 -13, 750 RCN less physical depreciation Functional depreciation (10%) $13, 750 - 1, 375 RCN less physical & functional Economic depreciation (0%) $12, 375 FMV $12, 375 12/5/2020 12

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. 12/5/2020 13

WHAT IS THE BENEFIT TO THE COMPANY? From CAPS benchmarking study (all industries): • • Average weighted cost per IR Professional - $102, 148 benefit per IR professional - $6, 563, 023 total benefit for IR program - $11, 233, 922 benefit to cost ratio – 27: 1

QUESTIONS OR COMMENTS Investment Recovery Association 638 West 39 th 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 12/5/2020 15