Colorado Springs Utilities: CEO Message to the Community

Transcription

1 Colorado Springs Utilities: CEO Message to the Community Because we are Community Owned The proposed 2013 budget focuses on three priorities: o Being an economic engine for the region, o Providing value to our community, and o Innovatively working smarter Executive Summary Our not-for-profit utility s $1.059 billion budget is $52 million less than the 2012 budget. The decreased budget still allows us to provide safe, reliable, competitively-priced utility services. Through responsible planning, lean operations and a balanced capital investment strategy, we continue to do all we can to reduce or keep costs flat. Some key highlights of value provided to the community are: Partnering with the municipal government to efficiently and cost effectively water parks while a permanent long-term solution is developed. Providing payments of over $31 million to the municipal government s general fund. Funding nearly $13 million in improvements to repair post-fire flood damage, protect utility infrastructure from flood events, and manage the flow of stormwater downstream by partnering with the municipal government until the regional, long-term solution is implemented to control floods. Keeping a flat regular labor budget through strategic vacancy reductions, working smarter, outsourcing and using innovative automation. Keeping the typical residential customers four-service utility bills about the same as Funding key projects like the Southern Delivery System to ensure the economic viability of our community for decades to come. The result? Customers are safeguarded from significant changes to their bill even with all of the investments required to build the Southern Delivery System, further improve air quality, repair damage from the Waldo Canyon Fire and provide excellent customer service. CEO Message to the Community Page 1 of 14 Colorado Springs Utilities

2 In 2012, the Waldo Canyon Fire tested our community s mettle. Our employees were among the first who answered the call for help. Colorado Springs Utilities crews were on the front lines from the first day, building and defending the fire line to protect Cedar Heights. Our wildland fire crews worked alongside firefighters throughout the effort. Behind the scenes, we worked continuously to keep our community safe by deenergizing services when needed and responding to customer concerns. Right after the event, our crews exceeded our most optimistic expectations by quickly restoring service to impacted neighborhoods. Furthermore, we made sure fire victims were not burdened by water bills and established a burned area restoration program. The Waldo Canyon Fire magnified the very best of Colorado Springs Utilities as employees from across the organization stepped up to assist our customers. I am not surprised by our employees commitment to customers. Serving the community has been at the core of Colorado Springs Utilities mission from the beginning. Nearly a century ago, Colorado Springs residents voted to create a fourservice public utility. Our forefathers recognized the critical importance of community ownership and local control. In short, Colorado Springs Utilities was created by this community in order to serve this community. We will continue to benefit the people of Colorado Springs by having a community-driven mission; by being an economic engine for the Pikes Peak region; and by innovatively working smarter. Next year, we will continue to invest in our community s water delivery system, including the Southern Delivery System, which remains on schedule and millions of dollars under budget. We will also assist in implementing a regional stormwater solution and leverage technologies to meet increased system demands and stricter regulatory rules. Perhaps of greatest importance, we will undertake a series of community conversations on a number of issues that could redefine how Utilities operates. Under the leadership of our community-elected board, a review will be conducted on when to retire the Drake Power Plant; governance authority over Utilities; and whether to change ownership and control of Utilities. These decisions will have long-term implications for how the utility operates, the kind of service customers receive and the rates they will pay in future. Yet, because we are community owned, these decisions will be made by our citizens and we wouldn t have it any other way. Jerry Forte, Chief Executive Officer CEO Message to the Community Page 2 of 14 Colorado Springs Utilities

3 Being an Economic Engine for the Region Because we are Community Owned Colorado Springs Utilities serves as an economic engine for the entire region. Providing reliable service at a competitive price with the convenience of four services forms the foundation to spur economic development as we retain, grow and attract businesses, employers and residential customers in Colorado Springs. Accessible and responsive local control and leadership allows us to work with the community to achieve economic development goals. Retaining, growing and recruiting businesses Dependable water resources and a diversified energy supply are essential and a prerequisite for economic prosperity to allow businesses to flourish, creating and sustaining jobs. With the Southern Delivery System construction well underway, our current and future water supply provides a competitive advantage for our community. And, our energy portfolio that includes coal, natural gas, hydro and renewables meets the diverse requirements of our customers. As we look to the future, we are committed to keeping and growing the businesses we have and recruiting new companies that want to be part of our community through competitive rates; offering business solutions; directly supporting the Colorado Springs economy by employing a local workforce, purchasing locally available supplies and services; and employing contractors through outsourcing and on large capital projects. Competitive rates We offer electric rates that result in typical bills that are approximately 20 percent lower than other large utilities in Colorado because: We are a not-for-profit organization. Rates are set only high enough to cover the cost to provide service. Municipally-owned utilities can borrow money at a lower cost (tax-free for investors). We provide four services in one efficient organization. Consolidated functions, such as billing and information technology help keep costs down. We generate most of our own electricity at our local plants, avoiding having to buy power from for-profit utilities. We offer highly attractive rate options for large companies who have steady loads. Our water service provides cost advantages as well: o Attractive rate options for efficient users. o High water quality helps keep customers operating costs low. CEO Message to the Community Page 3 of 14 Colorado Springs Utilities

4 Business solutions Reduced development charges: To encourage new business and employment, City Council this year approved our proposed significant reductions in development charges, or tap fees, for large commercial construction, making it more affordable for businesses to grow in Colorado Springs. Abandoned meter policy: Changes were made to encourage infill in more developed business corridors. Rapid Response Team: Speed to market is critical for many expanding or new companies. The team streamlines the development process to create jobs more quickly. Operational support for efficient and reliable operations: We provide power quality enhancements, demand response programs, efficiency rebates and rate options. Development standards review: Colorado Springs Utilities works to streamline and improve the process, and we are assisted by external stakeholders. Directly supporting the Colorado Springs economy Employment on large capital projects: Construction of the Southern Delivery System (SDS) provides much-needed jobs and business opportunities for Southern Colorado companies. Summit Economics conducted an independent economic impact study on the SDS project and estimated that construction of the project will support up to 780 jobs annually in the region. Project construction is estimated to add approximately $179 million in local wages through Our efforts to involve local contractors are producing positive results. To date, more than $350 million has been committed in contracts for SDS the majority to Colorado businesses and more than 140 companies with operations in southern Colorado have worked on SDS. The Drake Power Plant emission control project through local contractor NSG will employ approximately 50 people. During the design and engineering phase, an estimated additional 30 local jobs were created and at the peak of the construction an additional 80 local jobs will be created. The Neustream technology represents the possibility of a global game changer, with the potential for many additional jobs in Colorado Springs. Funding local economic development organizations The 2013 budget proposes: o Colorado Springs Regional Business Alliance - $260,000 o Downtown Partnership - $22,500 o Colorado Procurement and Technical Assistance Center - $5,000 o Southern Colorado Business Partnership - $1,000 Jobs summit A community effort to retain, restore and create employment o Leverage utility projects, assets and infrastructure o Partner with key community groups like the Colorado Springs Regional Business Alliance, educational facilities and government entities o Seek federal funding and support opportunities through the Colorado Springs lobbying coalition CEO Message to the Community Page 4 of 14 Colorado Springs Utilities

5 Providing Value to our Community Because we are Community Owned We're proud to have served our community for nearly a century. For us, providing reliable utility service day and night is extra rewarding because we are solely focused on meeting the needs our friends, neighbors and families, while helping create economic opportunities that contribute to the quality of life we all enjoy here. As a locally-owned utility, we understand the needs and values of our community. We know how vital utility service is for area residents and businesses and we continue to find innovative ways to deliver our services safely, efficiently and with attention to the environment. Community ownership means making direct investments in our community, whether it be helping improve local parks or providing recreational access to reservoirs. It means employees volunteering their personal time for local causes. It means hometown service. Most of all, it means giving our citizen-owners a voice in decisions and control of one of the best utilities in the nation. Community benefit Watering city parks: Since 2010, Colorado Springs Utilities has partnered with the municipal government to implement the Large Irrigators Water Conservation Rate Pilot Program. This program saved the municipal government over $2 million in water irrigation costs over the study period. Another Parks Efficiency Program funded the design and rehabilitation of park irrigation systems. This program for the irrigation systems will save the municipal government about 48 million gallons every year $358,000 at current rates. The Parks Efficiency Program will continue with $325,000 budgeted for 2013 resulting in additional future irrigation savings. We ve also been asked about current restrictive bond covenant language limiting flexibility in setting rates for parks irrigation water. In 2011, Colorado Springs Utilities proactively changed bond covenant language to allow more flexibility in setting this type of water rate in all future bond offerings. But, it may take years for these "restrictive" bonds to mature or be redeemed. At that time more options will become available to partner for green parks. Further help to the municipal government in 2013 to water parks includes: Parks Efficiency Program: $325,000 (labor and non-labor) Regional Water Contract Premium* (City's portion) $500,000 est. (planned for municipal government reserve account) Regional Water Contract Premium* (Utilities' portion) $500,000 est. Savings from Parks Efficiency Program: $75,000 Total Commitment: $1,400,000 *Regional contract premiums are based on the Cherokee and Donala outside water contracts, subject to actual sales. Premium may be affected if mandatory drought restrictions are implemented. CEO Message to the Community Page 5 of 14 Colorado Springs Utilities

6 $ Millions Mission Payment in Lieu of Taxes (PILT): For decades, Colorado Springs Utilities has paid the municipal government a PILT. This payment represents the taxes and fees an enterprise would pay to the municipal government s general fund if it were privately owned. Typically, public power utilities make larger financial payments to local governments than private, investor-owned utilities. The level of financial contribution and how the dividend is returned to the community is a local decision and another advantage of local control. The current annual payment to the municipal government is approximately $31 million. PILT payments to the municipal government over the last 10 years total more than $265 million. Colorado Springs Utilities' Direct Financial Payment to the Municipal Government $ $30.00 $28.00 $26.00 $24.00 $22.00 $ PILT ($ millions) $22.2 $23.1 $25.1 $25.1 $25.7 $25.7 $24.5 $31.1 $31.5 $31.5 Regional stormwater solution: A regional approach to stormwater management is the most efficient and cost effective way to protect citizens, property and infrastructure in El Paso County and the watershed, while ensuring that all who contribute to stormwater runoff are part of funding the solution. Stormwater flow affects Colorado Springs Utilities infrastructure located in and along stream channels and also affects wastewater treatment plant discharge permits. Southern Delivery System permits address stormwater flows once the project is operational in We actively support the newly formed Pikes Peak Regional Stormwater Task Force, in collaboration with representatives from the municipal government, El Paso County and other regional entities. As the task force works to identify a sustainable solution to address critical flood control and drainage projects in El Paso County communities, Colorado Springs Utilities plans to invest approximately $12.8 million in stormwater flow-related improvements as part of our proposed 2013 budget. CEO Message to the Community Page 6 of 14 Colorado Springs Utilities

7 Employee volunteerism: In 2011, over 1,200 employees, their families and friends volunteered 10,044 hours on 172 community projects. Employees volunteered another 13,226 hours to community organizations as troop leaders, coaches, committee members or as nonprofit board members. The total value of this donated labor to our community was more than $500,000. We are on track to again achieve over 20,000 hours of volunteer service this year. Community support: We invest in our community to provide customer assistance through Project COPE; support economic development and city designated special events; and to create a sustainable nonprofit sector that serves the needs of our citizens. While the total investment represents less than one tenth of one percent of our budgeted annual operating revenue, we continue to focus our nonprofit support on the most pressing needs of the community during this difficult economy. Recreation: For more than two years, we have engaged the community and stakeholders regarding potential recreational uses of Colorado Springs Utilities land, with an emphasis on the Pikes Peak South Slope areas. The efforts of everyone involved culminated in the creation of a final Plan for Recreational Uses on Municipal Watershed Lands. Since the plan was finalized, Colorado Spring Utilities employee volunteers have joined local nonprofit volunteers to establish a trail system. Similarly, we are collaborating with other local entities to legalize hiking on the popular Manitou Incline while protecting critical water infrastructure we operate at the site. We are also participating and supporting the Incline restoration plan, with a goal of opening the Incline within the next year. The community controls its energy future. Studies: Because we are a citizen-owned utility, our community is able to have a conversation on all aspects of Colorado Springs Utilities. Based on the Utilities Board direction, three studies are currently in the planning and implementation phase for delivery in Ownership of the electric system: considering options that include selling the generation assets and the entire electric service including generation, transmission and distribution. Potential impacts on electric rates and tariffs; the remaining utilities services; PILT payments to the municipal government; and bond ratings will also be included. Retirement analysis on Drake Power Plant: will determine from a technical, economic and brownfield redevelopment point of view the best date to decommission the facility. Governance of utilities: who should have the authority to direct utility operations. CEO Message to the Community Page 7 of 14 Colorado Springs Utilities

8 These studies will include Utilities Board involvement, oversight and direction; will be conducted independent of utility staff; will utilize an external expert to assist the Utilities Board through a comprehensive and transparent process; and will engage customers and the community for input. Approximately $1.1 million is included in the 2013 budget for these studies. Energy Vision: Colorado Springs Utilities developed a vision to increase renewable energy sources and reduce customer consumption, all while keeping electric rates lower than neighboring utilities. The Energy Vision 2020 s goal is to provide 20 percent of total electric energy through renewable sources, provide opportunities to achieve efficiencies with the goal of reducing average electric use by 10 percent by 2020, and maintain a 20 percent regional cost advantage. Community solar gardens: For those who are unable to use rooftop solar panels, City Council approved an innovative program to give customers the opportunity to invest in a community solar garden. Participants get a credit on their electric bill for their share of the energy produced in the garden. This arrangement between a municipal utility and the private sector is one of the first of its kind in the nation. In the near future, Colorado Springs Utilities will have added 2 MW of community solar gardens. Solar rebates: In response to customer request, the Renewable Energy Rebate Program encourages the installation of rooftop solar photovoltaic generating systems at customer homes and businesses. Approximately $1.4M in solar rebates is proposed in CEO Message to the Community Page 8 of 14 Colorado Springs Utilities

9 Demand Side Management and Renewable Energy Rebates: Colorado Springs Utilities has 30 demand side management and renewable energy programs in its 2013 budget of $5.48M available for residential and business customers. In 2012, the total gas and electric DSM budget was $5.76M with $4.5M focused on electric energy and capacity reduction. These programs are expected to reduce megawatts of electric peak demand and reduce natural gas consumption by 153,033 million cubic feet, helping customers reduce utility costs while supporting the achievement of the Energy Vision. Wind power: During the recently completed Electric Integrated Resource Plan, customers supported adding wind power options to the electric supply mix. This year, Colorado Springs Utilities executed a two-year contract for 12 megawatts of wind energy, giving our residential and business customers the option to help bring renewable energy to our community. Delivery of the wind energy is slated to begin Jan. 1, CEO Message to the Community Page 9 of 14 Colorado Springs Utilities

10 Innovatively Working Smarter Because we are Community Owned Colorado Springs Utilities 2013 budget reflects an aggressive pursuit of cost management and productivity gains. Organization-wide, we're working smarter and using automation and outsourcing for a leaner operation. For example, we've outsourced our customer bill printing, automated meter reading, and some information technology functions, resulting in a reduction of more than 100 positions. We have has also reduced vehicles and equipment, and we are leading a collaborative effort with the municipal government to pursue cost savings in the delivery of fleet maintenance services. A thorough, systematic approach prioritizes critical projects needed to maintain reliable service or meet regulations. Simply put, we are focusing on only essential work and many planned capital improvements for 2013 have been deferred to future years. Labor Since 2005, Colorado Springs Utilities reduced its workforce by 200 or 12 percent, while the total number of customers increased 13 percent. Yet, as shown by our 2012 J.D. Power scores, our customer satisfaction has not diminished. The reason: smart staffing and efficient operations. Our 2013 budget builds on this foundation of continuous improvement as we deliver maximum customer value. Number of CSU Customers vs. Employees Since 2005 Customers 200,000 Employees 2, , , , ,000 Customers 175,000 Employee Count 170, Customers 179, , , , , , , ,602 Employee Count 2,056 2,005 1,994 1,965 1,856 1,856 1,856 1,858 2,050 2,000 1,950 1,900 1,850 1,800 1,750 CEO Message to the Community Page 10 of 14 Colorado Springs Utilities

11 Smarter staffing in a competitive market: Utilities have unique staffing needs compared to other industries and municipal governments. Colorado Springs Utilities employees are responsible for delivering safe, reliable utility services 24/7 to our customers. This includes everything from managing an expansive electric grid to customer billing. Colorado Springs Utilities aggressively manages labor costs. The 2013 total labor and benefit package recommendation is a 1.5 percent increase from the 2012 approved budget. The base pay regular labor budget remains flat with no increase. An independent compensation study will be delivered in Upon completion of the study, if additional funds are needed to address base pay compensation adjustments, those funds will come through full time employee (FTE) reductions or equivalent savings. The 2013 budget does not include a base pay labor increase or a labor contingency line item. Any line item adjustment needed as a result of the compensation study will not affect the overall approved budget. Example: Information Technology Labor Colorado Springs Utilities Information Technology Services supports more than 450 complex applications such as: Lab software to ensure safe water and wastewater Systems to monitor and control electric, gas, water and wastewater plants, collection, storage and distribution systems Sophisticated energy trading systems used daily in energy transactions Wireless meter reading system with approximately 600,000 customer meters Cyber security systems to protect against millions of attempts to break into our computer system each month. Our total information technology costs are $38 per customer meter compared to an industry average of $72 per meter. Source: 2012 Large Public Power Council Study Achieving efficiencies through outsourcing: We constantly review outsourcing as we work to reexamine business processes. The goal is to reduce costs, increase productivity and use resources wisely. Our outsourcing manual guides consistent evaluation of opportunities. CEO Message to the Community Page 11 of 14 Colorado Springs Utilities

12 Fleet improvements Colorado Springs Utilities leads a collaborative effort with the municipal government to pursue cost savings in the delivery of fleet maintenance services for utility vehicles and equipment. Consultant recommendations indicate opportunities for cost savings through both outsourcing and insourcing of fleet maintenance services. The final range of services to be either insourced to Colorado Springs Utilities or outsourced to the private sector in cooperation with the municipal government are still being determined, but the 2013 budget for fleet maintenance is reduced by $2.5 million for anticipated savings, including any FTE that could be added for insourcing. Automated meter reading Colorado Springs Utilities outsources automated meter reading network management and meter read collection. An in-depth analysis completed in 2011 to evaluate bringing these functions in-house showed that Colorado Springs Utilities saves approximately $715,000 per year by outsourcing. The majority of annual savings derives from the avoided labor cost of staffing a 24 x 7 network operations center. The vendor performs well and delivers 99.9 percent of meter reads used for customer billing, as well as 99.5 percent of all daily meter reads. Bill printing When bill printing and envelope stuffing equipment needed replacing, Colorado Springs Utilities outsourced the function, reduced two FTEs and eliminated need for in-house printing equipment. The result was an immediate annual cost savings of well over $500,000 per year without any reduction in bill print quality. Capital Capital budget management Capital improvements are 30 percent of the budget, representing a key area to manage costs. Projects are prioritized based on their impact to system reliability and the safety of our customers and employees. We only do work that is absolutely necessary. Foregoing certain projects increases risks associated with reliability, equipment, IT and aging infrastructure. Colorado Springs Utilities works to manage these risks responsibly and make the best possible decisions regarding capital investments. Project prioritization We have undertaken significant capital planning efforts to effectively manage capital costs and risks while meeting our mission in 2013 and beyond. For Colorado Springs Utilities, capital projects typically add infrastructure to increase our capacity to serve; replace end-of-life infrastructure; add system reliability; or meet regulatory requirements. Our service line business planning process, initiated in 2010, includes a comprehensive financial enterprise review of every capital project to ensure that each project is essential to mission delivery. Projects are justified through business cases that determine necessity and value to customers, then those projects are scored on multiple criteria, such as obligation to serve, regulatory requirement, and customer impact. Projects are then prioritized within a service, and service line needs are prioritized across the enterprise to meet funding targets that are within budget goals. CEO Message to the Community Page 12 of 14 Colorado Springs Utilities

13 Each program or project that is considered essential for 2013 was reviewed for opportunities to meet essential infrastructure needs at a reduced scope or spending level. In some cases, this may be accepting an increased risk of infrastructure failure and related higher cost repairs. We also engage in many value engineering efforts to find opportunities to lower the cost of a capital project while still accomplishing its objective. Examples of value engineering opportunities may be found in more efficient project implementation plans, in lower cost designs, materials, equipment, or in accepting reduced operational convenience. Capital budget management is especially challenging during years of significant system expansion or new regulatory requirements, as we are experiencing with the Southern Delivery System and new emissions controls at our coal generating plants. Risks from removing items from the budget A number of significant deferrals or reductions are in the 2013 program of work to responsibly manage our capital program. Examples of project deferrals include: Energy: The majority of cuts were to preventative maintenance at the power generating plants. This could increase purchase power costs due to decreased generation plant reliability and increased failure rates and down times. Instead of inspecting and repairing equipment prior to failure, more of our equipment will run to failure causing a partial or complete shutdown being required to make the repair. Most times this necessitates us purchasing additional higher priced power from the market until other Colorado Springs Utilities units can be ramped up to replace the failed capacity. During high use periods in mid-winter and summer, we may have insufficient remaining generation capacity to replace the failed unit and will have to purchase replacement power until the unit can be repaired and returned to full service. Water: Because of its age, much of our water system s infrastructure and the constrained rehabilitation investment in recent years, the risk of system failure and disruption is already high. We will again reduce the water main replacement and the fire flow main improvements in This will increase the risk of emergency water main breaks and leaks which cause property damage, traffic delays and could impact the ability of the Colorado Springs Fire Department to properly fight fires in areas where improvements are needed. Once funding for SDS is completed in 2016, additional funds will be dedicated to this program, although it will be difficult to increase funding to the needed average replacement levels. Information technology: Our technology equipment and maintenance budgets are very limited. We are not replacing equipment that is far outside its useful life as much as twice as old as the stated useful life in many cases. This situation makes it more likely each year that we will have a significant outage. CEO Message to the Community Page 13 of 14 Colorado Springs Utilities

14 Conclusion In conclusion, the organization remains focused on the priorities of: being an economic engine for the region, providing value to our community, and innovatively working smarter Through our local not-for-profit ownership, competitive utility rates, business solutions and direct impact to the local economy, we provide a unique competitive advantage for our community. Moving forward and working with key community partners, we will find additional ways to leverage utility projects, assets and infrastructure to retain, restore and create jobs. Major investments in Southern Delivery System construction are budgeted as well as projects to meet regulatory requirements and essential infrastructure needs. As a community-owned utility, we appreciate the value of being able to help improve local parks, and to work as a team with other government entities to implement a permanent regional solution for stormwater. Additional value to customers is found in recreational access to Colorado Springs Utilities managed land and investments in our community through employee volunteerism and support of customer assistance programs and local nonprofit groups. A critical issue for the entire community is the outcome of the three studies directed by the Utilities Board. Community conversations will take place on ownership of the electric utility; the future role of the Drake Power Plant in the generation mix; and who should have the authority to direct utility operations. We encourage all stakeholders to take advantage of having a voice in local decision making. Throughout 2013 we will do our part by delivering safe and reliable utility services, responsibly managing costs and keeping customer satisfaction high. We're working smarter and only doing projects that are absolutely necessary. It is an honor to continue our legacy of service on behalf of the citizen owners and customers in Colorado Springs. CEO Message to the Community Page 14 of 14 Colorado Springs Utilities