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HomeMy WebLinkAbout2000-06-26 City Council (17)City of Palo Alto City Manager’s Report TO:HONORABLE CITY COUNCIL 1 FROM:CITY MANAGER DEPARTMENT: UTILITIES DATE:JUNE 26, 2000 CMR:297:00 SUBJECT:UTILITIES STRATEGIC PLANNING PROCESS REPORT Events are converging to cause major changes in the utility market place. These include changes in the Western Area Power Agency (Western) contract, market price volatility, the advent of customer choice, the availability of cost-effective, customer based generation, supply and customer reliability concerns and the activity of competitors in the marketplace. In order to compete successfully in the face of these challenges and to continue to maintain a stable or increasing transfer to the General Fund, Staff has begun to reexamine the strategic direction of the City of Palo Alto Utilities (CPAU). The Director of Utilities began the strategic planning process last summer. The initial phase consisted of introducing Utilities staff, City support staff, and the UAC to a customer-focused business planning process. In October, a strategic planning team was formed to complete the situational analysis and to develop background information for the strategic planning effort. The team interviewed all the CPAU managers, key departmental managers and knowledgeable outsiders to. gather their views on the current and future condition of CPAU in the competitive environment. From this and other information, this team developed future scenarios, and proposed three strategic business models. These materials were discussed by all CPAU managers at a strategic planning meeting on February 3rd. At that meeting, many strategic and tactical ideas were proposed. Since then, the strategic implementation team has examined those ideas, developed new ideas, and integrated them into this draft Strategic Plan. CMR:297:00 The discussion and recommendations coming from tonight’s review of the draft will be used by staff to prepare a final Strategic Plan. This will be brought to the UAC at a June or July meeting for final review and approval. The final Strategic Plan will then be forwarded to Council in late July or August. A draft of this new. Strategic Plan is presented at this workshop to achieve the following goals: 1.Inform Council about the background, purpose, and implications of the pr6posed Strategic Plan. 2.Provide an opportunity for the UAC to convey to Council its thoughts about the progress and direction of the Utilities Strategic Plan. 3.Provide Council with an opportunity to comment on the plan. Staff will then integrate this input into the final plan. CMR:297:00 ATTACHMENTS: Summary of Comments from t~he UAC May 31 st Workshop Draft Utilities Strategic Plan PREPARED BY:Bemard Erlich Senior Market Analyst DEPARTMENT HEAD APPROVAL: CITY MANAGER APPROVAL: Director EMILY HARRISON Assistant City Manager CMR:297:00 May 31 st Comments From the UAC on the Utilities Draft Strategic Plan Overview: The following comments were made by commissioners at the UAC workshop on the strategic plan on May 31st. The SPT has met and discussed the workshop and has agreed upon the disposition of each comment. These are explained below. 1. Comments on the Mission Statement: a) b) UAC comment: Include words indicating that financial benefit for the city is a major element of the mission. Staff response: Staff believes that the third supporting objective clearly states the importance of bringing financial benefitsto the City, and prefers that the mission statement remain short and crisp. UAC comment: Include maintaining the unique advantages of municipal ownership as an objective. Staff response: "Maintain the unique advantages of municipal ownership" has been added as a fourth objective. 2. Comments on the Strategies: Strategy 1 :Enhance distribution reliability at competitive costs UAC comment: Fund distribution improvements with funds generated by our current commodity advantage. Staff response: Staff will include this as a tactic to achieve Strategy 1, A. Strategy 2: Preserve a supply cost advantage compared to the market price a)UAC comment: Flesh out the details needed to maintain cost and price advantages of the Western agreement.. Staff response: For several years staff has been engaged in this activity, however we believe that the details of this effort should not be set out in the strategic plan. June 22, 2000 Strategy 3: Streamline and manage business processes to allow CPAU to work efficiently and cost-effectively a)UAC comment: Combine with other municipals to achieve economies of scale in purchasing and other areas. Staff response." Currently this type of process is being considered by NCPA. Staff will include it as a tactic supporting Strategy 3. b)UAC comment: Investigate the possibility of spinning off the Utilities as a separate "utility district". Propose a City Charter change that would make the strategic plan fully implementable. Staff response: In order to accomplish some of the strategic goals it may be necessary to change the governance structure of the Utilities, however this is an’ investigation which must be done under the jurisdiction of City Council. UAC comment: Review and, where possible, improve the processes of the UAC, Council, and other regulatory agents. Staff response: This is an action area which staff can investigate and bring to Council. a)UAC comment: Institute a rigorous benchmarking program. Staff response: This will be addressed in the implementation plan. However, currently Rates, Operations and Engineering are using industry accepted metrics to measure costs, safety, reliability and other important aspects of the business. Competitive Assessment has an on-going program to measure customer satisfaction at points of contact between the customers and Utilities. When these efforts are combined, it forms a fairly comprehensive benchmarking program. However, Competitive Assessment will work with a consultant to see how this program could be made more comprehensive. Strategy 4: Deliver products and services for competitive markets a) UAC comment: Establishing a brand presence is an important strategy. Staff response: Staff agrees and it is currently stated in Strategy 4 b)UAC comment: Is it legal to pursue sales outside of the City? Staff response: Our understanding is yes, however this is a legally complex endeavor and therefore legal authorities would be heavily involved in the effort. c)UAC comment: eBusiness efforts should be relevant to the Utilities business. Staff response: It is intended that all eBusiness activity engaged in by Utilities would be a relevant extension of the current Utilities business. June 22,2000 a) e) UAC comment: Establish an ombudsman of residential Customers. Staff response: Current point of contact surveying indicates high residential satisfaction in their interactions with Utilities. Also the residential class is more heavily surveyed now than in the past, therefore we believe an ombudsman is an unnecessary additional cost. We will reconsider the idea if residential customer satisfaction begins to slip. UAC comment: Continue to monitor competitor offering, even in test markets. Staff response: Competitive Assessment has a program of continuous monitoring of competitor activity. Strategy 6: Maximize the owner’s value and maintain financial strength UAC .comment: Staff should explain to Council how much capital is at risk. Staff response: When staff goes to the Council for individual program approvals, then Council is informed regarding the risk associated with these programs. It is difficult.at this time to determine all the initiatives ~vhich could arise out of this plan. Strategy 7: Implement programs that improve the quality of the environment. a)UAC comment: Quantify DSM activities. Staff response: All programs are required to have measurements of success defined at the start of the programs. June 22, 2000 6/19/2000 Page 1 of 7 DRAFT PALO ALTO UTILITIES DEPARTMENT STRATEGIC PLAN MISSION STATEMENT "To provide maximum benefit to the customers of City of Palo Alto Utilities and to be the preferred bundled utility services provider." SUPPORTING OBJECTIVES 1.Enhance customer satisfaction by delivering valued products and services 2. Invest in utility infrastructure to deliver reliable service 3. Provide superior financial, performance to the City and competitive rates to customers 4. To identify and maintain the unique advantages of municipal ownership 6/19/2000 Page 2 of 7 KEY STRATEGIES. FOR THE NEXT 5 YEARS STRATEGY 1.." Enhance distribution reliability at competitive costs STRATEGY 2." Preserve a supply cost advantage compared to the market price STRATEGY 3: Streamline and manage business processes to allow CPA U to work efficiently and cost-effectively STRATEGY4: Deliver products and services for competitive markets STRATEGY 5: Attract and retain employees with critical skills and knowledge STRATEGY 6: Maximize the owners’ value and maintain financial strength STRATEGY 7: lmplement programs that improve the.quality of the environment 6/19/2000 Page 3 of 7 Strategy 1: Enhance distribution reliability at competitive costs A.Accelerate the capital improvement program to reduce maintenance costs in later years when competition will become more intense B.Offer distributed generation products where they meet customer and system needs in an economically justifiable fashion C. Develop multi-year service contracts with local contractors for. outsourcing the installation of all n~w water, gas, and sewer services D. Provide customized reliability solutions to meet customer needs. Strategy 2: Preserve a supply cost advantage compared to the market price " A.Procure low cost electric, gas, and water supply commodities to meet existing and future customer needs B.Secure low cost and reliable transmission and transportation for commodity supplies C.Manage exposure to energy commodity price risk D.Enhance wholesale revenues through optimization of contractual rights for transmission and generation 6/19/2000 Page 4 of 7 Strategy 3: Streamline and manage business processes to allow CPAU to work efficiently and cost-effectively A.Develop, execute, and monitor service level agreements with other City Departments B.Outsource certain support functions C.Review the City Charter for changes which could improve Utilities success under deregulatiofi D. Eliminate or streamline low value work E. Support City effort to streamline budget, administrative, and regulatory processes F. Investigate a regulatory process where confidentiality is possible G. Track and evaluate other departments’ charges to Utilities accounts 6/19/2000 Page 5 of 7 Strategy 4: Deliver products and services for competitive markets Establish a brand presence while providing customer valued products in the following areas: A. Reliability services B. Convenient customer bill payment options C~ Power quality services D. Energy and water efficiency services E. Financial assistance F. Installation and maintenance services G. Commodity products H. Telecom products I. Energy and water information and control services J. Special Facilities and metering options K. Special customer contracts L. Distributed generation devices M. Pursue profitable retail sales outside the City N. Develop a competitive e-commerce position .Strategy 5: Attract and retain employees with critical skills and knowledge A.Offer compensation and benefit packages that are competitive with ’ private industry and consistent with the local markets. B.Evaluate.hiring practices to allow the Utility to respond to a competitive environment C. Promote a safe and drug free work place D. Evaluate establishing apprenticeship and recruiting programs 6/19/2000 Page 6 of 7 Strategy 6: Maximize the owners’ value and maintain financial strength A.Monitor transfer methodology performance B.Monitor reserve policy performance C.Evaluate transfers between enterprise funds D.Evaluate bond financing of major projects E.Assess the value of individual business units F.Evaluate economics of buying rather than leasing property G.Complete the work order cost system H.Design standby and/or exit charges to recover fixed or stranded costs I.Create performance measures and establish budgetary and cost monitoring tools Strategy 7: Implement programs that improve the quality of the environment A.Support implementation of the environmental components of the City’s Comprehensive Plan B.Offer a green pricing program C.Support implementation of the City’s Sustainability Program D.Support investment in future green resource projects E.Implement Public Benefits and demand side management programs 6/19/2000 Page 7 of 7