LOUISVILLE UTILITY AND PUBLIC WORKS ADVISORY GROUP UTILITY OPERATIONS REVIEW

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Irene Felicia Page
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1 14 Marrch 2012 LOUISVILLE UTILITY AND PUBLIC WORKS ADVISORY GROUP UTILITY OPERATIONS REVIEW

2 OVERVIEW Introduction Industry Overview Management Best Practices Benchmarking Other Utility Governance Models Potential Business Model Alternatives 2

3 INDUSTRY OVERVIEW 3

4 30 May 2012 Declining Customer Base??? System Integration Regulatory Requirements Smart Grid Regionalization Project Financing? Reliability?? Cyber Security Aging Infrastructure Declining Water Usage?? Succession Planning Metering Affordability? It is a challenging gtime to be leading a utility: Increased operating costs Significant regulatory challenges Resistance to revenue adjustments 4

5 WHAT IS THE BUSINESS ENVIRONMENT? Cost CONSTANT of Service Rate CHANGE Study 5

6 REGULATORY Wastewater and Stormwater Combined Sewer Overflows (CSOs) Sanitary Sewer Overflows (SSOs) Flooding/TMDL Nutrients Water Enhanced Surface Water Treatment Disinfection Byproducts Emerging Contaminants 6

7 ECONOMIC Change in Customer Base Residential vs. Commercial and Industrial Water Usage and Wastewater Volumes Rate Pressures Bonds General Obligation Revenue 7

8 INFRASTRUCTURE Replacement/Regulatory/Upgrades Buried Infrastructure Treatment Plants Pumps Technology Efficient Use 8

9 EFFECTIVE UTILITY MANAGEMENT 9

10 UTILITY ATTRIBUTES Provide Reference Points Focused On Operations Infrastructure Customer Satisfaction Community Welfare Natural Resource Stewardship Financial Performance Opportunities to be Prioritized Attribute Rating vs. Importance Ranking 10

11 UTILITY IMPROVEMENT Leadership Planning/Assessment Measurement Continuous Improvement Plan Do Check Act 11

12 BEST PRACTICES BENCHMARKING 12

13 BEST MANAGEMENT PRACTICES 13

14 BENCHMARKING Performance Measurement Comparison to Industry Provides Indication to Management Not a Final Determination Combine with Other Information and Assessment Individual Metrics Industry Performance Indicators 14

15 SOURCES Annual Reports Budgets Regulatory Reports O&M Reports Asset Data Customer Data Interviews 15

16 WHAT ARE WE LOOKING FOR? Operational Efficiency Financial i Performance Infrastructure Integrity Customer Rate Impact 16

17 OPERATIONAL EFFICIENCY O&M per Account O&M per Water Produced/WW Treated Accounts per Employee Water Delivered/WW Treated per Employee Treatment Cost per Water Delivered/WW Treated 17

18 INFRASTRUCTURE INTEGRITY WW Overflows vs. Miles of Pipe Water Loss Leakage and Breaks Planned vs. Reactive Maintenance 18

19 FINANCIAL STRENGTH Debt Ratio Revenue to Expenditure Ratio Rate Assessment Typical Bill Affordability 19

20 OTHER UTILITY MODELS 20

21 CITIZENS ENERGYGROUPGROUP INDIANAPOLIS Five Member Board of Trustees Seven Member Board of Directors Primary Services Gas Thermal Water Sewer Regulated by Indiana Utility Regulatory Commission Rates and Rules 21

22 CITIZENS ENERGYGROUPGROUP INDIANAPOLIS Acquired Water and Sewer Utilities From City of Indianapolis Approved by IURC Retirement of City s Water and Sewer Debt Drivers Cost Savings to Water and Sewer Customers Enhanced Customer Service Savings Back Office; Capital Improvements Challenges Consent Order 22

23 CINCINNATI WATER GREATER CINCINNATI MSD Cincinnati Water City Owned, Managed, and Operated City Sets Rates Cincinnati MSD County Owned City Operated via Contract With County County Approves Rates Governance Cincinnati Water City Council Cincinnati MSD Hamilton County Commissioners 23

24 CINCINNATI WATER GREATER CINCINNATI MSD Recent Initiatives Back Office Consolidation Expanding Fixed Cost Services Billing to Other Communities Streamlining Management Challenges Consent Order 24

25 TULSA METROPOLITAN UTILITY AUTHORITY Public Trust Created by City Charter Governed by Seven Member Board Recent Initiatives Consolidation of Back Office Functions With City Call Center Consolidation With City

26 PHILADELPHIA WATER DEPARTMENT Governance City Department City Council Management Innovative Proactive Challenges Consent Order Od and Agreement 26

27 WHAT TYPICALLY WORKS? Common Mission, Vision, Values Strong, Independent Board Leadership Innovative and Professional Staff 27

28 WHAT TYPICALLY DOESN T WORK? Excessive Political Influence Unfocused Governance Unfocused Management Utility Fiefdoms 28

29 POTENTIAL BUSINESS ALTERNATIVES 29

30 POTENTIAL BUSINESS MODELS Merger/Acquisition Managed Services Inter Local Agreements Status Quo Others 30

31 BROAD RANGE OF RESTRUCTURING OPTIONS ILAs/Cooperation Managed Services Merger Emergency Support Operational Coordination Limited Contracts Support Fuctions Maximum Scope ILAs Managed Services Holding Company LWC/MSD Merger LWC/MSD/ DPW Merger ifferentiatin ng Dimensions s D Low Incremental Savings HIgh Agency Asset Ownership Public Corporation Minimal Union Issues Substantial Fixed Term Duration Permanent None Risk to LWC/MSD Charter Moderate/High None Legislation Need Definite None Regulator Role Potentially Significant Universal Current Acceptance Limited/Unknown Minor Cultural Impact Significant Many permutations possible Pick representative structures and screen qualitatively

32 LWC/MSD/DPW BUSINESS SCOPE OVERLAP Major Business Process LWC MSD DPW Comments Operational Processes Water Sourcing Water Treatment Wastewater Treatment Distribution/Collection Water/WW Pumping Transmission Road Maintenance Solid Waste Collection Solid Waste Recycling/Reduction Street Sweeping Other? Support Processes Fleet Materials/Warehousing Procurement Engineering Construction Training Metering Billing Customer Service GIS (LOJIC) Other? DPW Provided by Metro; DPW Procures Vehicles LWC performs for MSD LWC performs for MSD DPW Metro 311; MSD Provides DPW Coverage After Hours MSD Serves as Host Agency Back Office Operations Human Resources DPW Provided by Metro Finance/Accounting DPW Provided by Metro Risk Management DPW Provided by Metro Information Technology DPW Provided by Metro More consistent overlap in support and back office processes 32

33 TYPICAL SOURCES OF SAVINGS IN UTILITY CONSOLIDATION Synergy Analysis Looks Across Enterprises Illustrative; for vertically integrated utilities. Mix will differ for Water/Sewer/Public Works consolidation Corporate Positions Support Positions Corporate Programs Purchasing Economies Capital Deferral Financing Energy Supply Wholesale Margin Costs to Achieve Premerger Initiatives Best Practices/ Process Redesign Potentia al Savings Operations Positions Gross Merger Savings Net Merger Savings Total Potential Savings Core Savings Stretch Opportunities Set core and stretch targets by process/function

34 SCREENING OF OPTIONS Opportunities for Improved Service Financial Savings Sustainable Model for All Three Entities Risks to Charter Legislation Others? What are the Priorities? 34

35 NEXT STEPS Continue Assessment and Evaluation Determine Potential Cost Savings Develop Financial Analysis Begin Focusing on Alternatives Benefits Risks What are the Priorities? 35

BALTIMORE UTILITY ASSET MANAGEMENT DIVISION

BALTIMORE UTILITY ASSET MANAGEMENT DIVISION Baltimore City s Asset Management Program Sustainable Best Management Practices in Transportation Workshop July 16, 2013 Rudy S. Chow, P.E. Bureau Head Alfred