Board Update. Performance Management Activities

Transcription

1 Board Update Performance Management Activities May 2007

2 Purpose of Today s Meeting Update Board Members Share Scope, Plans & Results» Benchmarking & Performance Improvement» Compliance Activities 1

3 Chugach Must Ready Itself Now for the Future Drivers of Change» New Generation Options» Expiration of Wholesale Contracts» Rising Fuel Costs» Debt Management» Aging Workforce Proactive Response Are We Organized Properly to Support The Right People in the Right Jobs Doing Efficient and Effective Work With the Tools to do their Jobs Better? 2

4 Benchmarking & Performance Improvement 3

5 Scope of Benchmarking Administration & Business Services Consumer Accounts Distribution Transmission Fuel Generation Purchased Power based on 2005 operating expenses, excluding Depreciation 4

6 Benchmarking Plan * Information Technology Q1-Human Resources / Safety Q1-Design Engineering Q2-Distribution Operations Q3-Trans. & Dist. Substations Q3-Generation Q3-Customer Service Human Resources / Safety Design Engineering Generation Transmission Line O&M Distribution Maintenance Customer Service Purchasing Q3-Information Technology Purchasing Information Technology Accounting & Finance Accounting & Finance Fleet Security Facilities *Progress Reports will be presented for the Board in June and December Fleet Security Facilities Safety Safety Environmental Svcs. Environmental Svcs. 5

7 Sample Summary Results (2005 Data) Reliability Expense Control Chugach Benchmark Chugach Benchmark Customer Outage Hours per Year Planned Transmission Equipment Outage/Circuit End Unplanned Transmission Equipment Outage/Circuit End Generation Unit Availability 90.6% 92.6% IT System Uptime 99.9% 99.5% Customer Service Chugach Benchmark Residential Customer Satisfaction 89% 83% Minutes to Respond & Restore Power New Service Installation (Days) Distribution Variable Adder $20.62 $17.61 Processing Cost / Payment $1.02 $0.41 Bad Debt Write Off 0.16% 0.38% Generation Total Operating Cost, $/MWH, Gas & Steam Transmission Total Operating Cost, $/MWH Return on Overnight Funds Underground Construction Cost/Mile % of Meters on AMR Capital Investment $6.4 $8.1 $2.12 $2.58 Chugach 4.22% $15,767 94% Benchmark 3.59% $9,919 2% % of Calls Answered in 30 Seconds or Less Days to Close a Completed Capital Project 83% 77% Safety Chugach Benchmark Lost Time Incident Rate

8 Distribution Adder Variable Distribution Adder $25.00 $17.61 $20.62 $20.00 $6.66 $15.00 $5.20 General & Administrative Costs $/MWh $10.00 $3.41 $4.30 Customer Service Costs Distribution O&M $5.00 $9.00 $9.66 $- CFC Key Ratio Chugach

9 Sample Action Plans Opportunity Goal Action Steps 1. Reduce Distribution Adder O&M costs, while maintaining high levels of service to customers 2. Reduce Underground Construction Costs 3. Hold payment processing costs steady 4. Reduce time to close capital projects 5. Reduce Lost Time Injury Incident Rate» Achieve Distribution Adder comparable to benchmarking average» Maintain less than 2.5 hours of customer outage per year» Establish cost baseline and improvement targets» Increase automatic bank withdrawals from 7% to 10% of all customer payments and deemphasize acceptance of credit cards» Close capital projects within 90 days of project completion» Achieve Lost Time Incident rate of 3.25 Benchmark processes to improve efficiency of:» Loop wagon operations» Contract underground locating Evaluate Mobile GIS Technology» Benchmark to identify cost drivers» Improve efficiency of design & construction processes» Evaluate in-house vs. contractor construction» Promote automatic bank withdrawals» Improve and automate Work Order close out processes» Conduct additional benchmarking» Expand Safety Advisory Group» Conduct employee Safety survey» Develop and implement injury prevention action plans 8

10 Scope of Performance Improvement Benchmarking Reliability Expense Control Customer Service Capital Investment Safety Performance Performance Improvement Structure How we should be organized for the future People Job Descriptions Responsibilities Qualifications Competencies Process Work Flow Metrics Automation 9

11 Timeline Q1 07 Q2 07 Q3 07 Q4 07 Finance Re-Org Process Improvement Work Order Processing Process Improvement Design Engineering Benchmark Process Improvement Operations Identify Opps Benchmark Process Improvement (con t in 08) Safety Benchmark Process Improvement Generation Identify Opps Benchmark Human Resources Benchmark Process Improvement (if needed) Information Technology Benchmark Transmission Substations Customer Service System Enhancements Identify Opps Portal, Inventory, Purchasing, Contracts, AP Benchmark Identify Opps Benchmark (con t in 08) FA/WO/ Costing (cont in 08) 10

12 Project Descriptions» Finance Re-Organization Identify the role of the Finance and Accounting function, evaluate hand-offs with other departments and recommend improvements to organizational structure and cross functional process flows. Clearly define roles and responsibilities within Finance and Accounting and interfacing departments.» Work Order Processing Re-design the work order process and clearly define roles and responsibilities to improve the efficiency and timeliness of capital project design, construction and capitalization.» Design Engineering and Construction Benchmark performance and improve the design and construction functions for Transmission and Distribution. Clearly define roles and responsibilities within the department and between departments.» Operations Benchmark performance and improve the job and service order processes. Clearly define roles and responsibilities within the department and between departments.» Safety Benchmark performance and improve the effectiveness of Safety programs (as measured by Lost Time Incident Rate.)» Generation Benchmark performance improve any processes that lag benchmark.» Human Resources Benchmark performance and improve any processes that lag benchmark performance.» Information Technology Benchmark performance and update current Action Plans.» Transmission Substations Benchmark performance and improve any processes that lag benchmark performance.» Customer Service Benchmark performance and improve any processes that lag benchmark performance.» System Enhancements Implement PeopleSoft Supply Chain; Evaluate Fixed Asset and Work Order requirements; purchase software and implement.» Strategic Professional Services Alliances identify and quantify potential benefits of developing strategic alliances with professional service vendors. 11

13 Status Project Status Next Steps On Schedule? Finance Re- Organization» Submitted structuring recommendations» CEO and CFO reviewing» Review and Finalize Job Descriptions and Classifications» Complete Work Order Close Out Project» Define roles, responsibilities and staffing levels for Plant Accounting function» Develop Migration Strategy Staff Evaluations / Training Plans Union Negotiations Staffing Plans» Consolidate Planning functions Fill leadership position Determine Planning requirements, deliverables, and staff roles Work Order Close Out» Defined project goals» Mapped AS IS close out processes» Summarized issues Design Engineering and Construction» Finalized benchmark survey questions» Sent survey to 17 utilities; received 9 responses» Mapped AS IS Distribution Design /Construction /Close Out processes» Summarized issues» Re-confirm project goals with Steering Team» Agree on priorities of issues» Develop TO BE solutions, roles and implementation plans» Follow up with remaining 8 utilities» Obtain Chugach answers to survey questions» Compile benchmarking results» Develop TO BE solutions and action plans Bench mark survey is one month behind; Process improvement two months ahead Operations» Finalized benchmark survey» Identify comparable utilities to survey Human Resources» Sent survey to 28 utilities» Received 10 responses; 2 declined to participate Safety» Included Safety questions in HR Survey» Completed Internal Survey 200 responses» Follow up with remaining 16 participants» Obtain Chugach answers to survey questions» Compile benchmarking results» Define improvement goals» Compile Internal Survey results Transmission Substations» Mapped AS IS Design /Construction /Close Out processes» Summarized issues» Develop TO BE solutions and action plans» Develop benchmark survey questions Ahead System Enhancements» Completed all User configuration sessions» Completed building the development environment» Complete document that identifies all the potential customizations. Executive approval needed for any over 40 hours» Complete Item conversion so final configuration can be done and verified by Users. Professional Services Strategic Alliances*» Interview buyers and vendors of professional services» Develop business case for potential strategic alliances 12

14 Sample Improvements Underway Distribution» Improving Estimation of Betterments» Planning System Improvements Concurrent with Applicant Construction» Shortening Time to Close Work Orders» Requiring Vendors to Return Unused Materials at Job Completion» Phasing Out Outdated Engineering Software Generation» Compressing Overhaul Schedule ( Unit 6 saved $1.4 million annually)» Extending Overhaul Intervals Transmission» Implementing Maintenance Management Workstation» Implementing Predictive Maintenance program Finance & Accounting» Adding General Ledger Accountant Information Technology and Purchasing» Implementing PeopleSoft Supply Chain 13

15 Compliance Activities 14

16 Sarbanes-Oxley Overview Legislative goal: To protect investors from financial statement manipulation that might result in a misleading impression of a company s financial condition and future prospects. In Chugach s case it is to protect the bond holders. The Sarbanes-Oxley Act legislates that companies must have internal controls in place over financial reporting, including IT controls. Good internal controls are no longer just a best practice- An effecitve control structure is the law under the Sarbanes-Oxley Act. SEC s primary goals» improve financial statement reliability» protect investors Chugach Sarbanes-Oxley (SOX) compliance deadline 12/31/

17 Corporate Governance Integrity and Ethical Values - Management conveys in word and deed the message that integrity and ethical values cannot be compromised, and employees receive and understand that message. Commitment to Competence - Management identifies and specifies the level of competence needed for particular jobs, and translate the desired levels of competence into requisite knowledge and skills. Board of Directors - An active and effective board provides an important oversight function and plays an important role in ensuring effective internal control. Management Philosophy and Operating Style Management sets and models an effective tone that supports the long-term health of the company by balancing achievable goals with prudent controls and compliance with laws and regulations. Corporate Strategy and Organizational Structure - The organizational structure is sufficiently flexible to support adequate monitoring and to allow for the necessary flow of information. Executives fully understand their control responsibilities and posses the requisite experience and knowledge. Assignment of Authority and Responsibility - The assignment of responsibility, delegation of authority and establishment of related policies provide a basis for accountability and control, and set forth individuals respective roles. Human Resources Policies and Practices - Human Resource policies are central to recruiting and retaining competent people to enable the Association s plans to be carried and its goals achieved. 16

18 Scope of Sarbanes-Oxley Compliance Review Corporate Governance Integrity and Ethical Values Commitment to Competence Board of Directors: Activity Level and Effectiveness Managements Philosophy and Operating Style Corporate Strategy and Organization Structure Assignment of Authority and Responsibility Human Resources Policies and Practices Productive Assets Capital Expenditures / CIP Fixed Asset Recordkeeping Disposals / Impairment Review Depreciation Close / Financial Management and Reporting Cash Management Accounting for Investment in Associated Companies Accounting for Deferred Charges and Credits Interest Rate Swap Management Issuance of Member Interests Distribution of Patronage Capital Income Tax Exempt Status Compliance Debt Borrowings Debt Payments Debt Covenant Compliance HR / Payroll / Time Expense Time Reporting (Payroll Processing) Payroll Administration (Payroll Processing) Plan Contribution (Payroll Processing) Payroll Processing Financial Reporting Accounting Estimates General Ledger Closing Financial Statement Consolidation Other Assets / Liabilities Account Reconciliations Disclosure of Contingencies Disclosure of Debt Maturities / Fair Value Disclosure of Capital Credits Retirement Reporting and Disclosure Expenditures Vendor Management Order Placement (Purchasing) Receipt of Goods / Services (Purchasing) Accounts Payable Processing Property (Gross Receipts) Tax Processing / Prepaids Cash Disbursements Revenue / Receivables Wholesale and Wheeling Revenue and Contract Administration New Customer Establishment and Existing Customer Support Energy Service Measurement (Meter Reading) Rate Making Billing Cash Receipts and Application Accounts Receivable Management Estimating Revenue (Retail) SCADA Fuel Procurement Contract Administration Cost Recovery 17

19 Scope of Sarbanes-Oxley Compliance Review (con t) Logical, Application, & Physical Security (limited) Policies and Procedures Physical security Network security Operating system security Application security Security administration and review Backup, Recovery, & Operations (limited) Policies and Procedures Backup and Restoration Batch Processing All Cycles Restricted Access Segregation of Duties Journal Entry Preparation and Review Standing Data Maintenance Adjustments and Ledger Maintenance Policies and Procedures Change Control / Program Dev Process Policies and Procedures Change request process Documented Requirements Unit, system, and user testing Migration to production Maintenance Receipt of Materials and Supplies Materials and Supply Management Materials and Supply Costing Maintenance Agreement Administration Relief of Materials and Supplies Entity Level Controls Legal and Regulatory Strategic Planning Financial Management and Corporate Budgeting Human Resources Employment, Compensation and Performance Practices 18

20 Compliance Review Process Control can be A manual process (generally supported by a report) A system automated control 19

21 Purpose and Intent of SOX 302 & 404 Inherent Risk The potential that the organization will fail to meet its financial and operational goals and objectives. Control Risk - The potential that systems and processes will fail to detect and correct a significant control failure. Internal Controls Gives management and the Board the ability to detect and correct significant risks that are within managements sphere of influence. Testing Designed to identify where controls are not operating effectively. KEY POINT All organizational changes / studies / conversions / remediation efforts must result in effective internal controls, thus meeting SOX compliance requirements. 20

22 Sarbanes Oxley Compliance Review Timeline Jan Feb Mar Apr May Jun Jul Aug Sep Oct Identify Scope & Resources Identify and Remediate gaps Write Policies, Identify Key Applications, Spreadsheets, and Third Party Providers Finish by September 30 th. Operate in Q4 with all controls in place, documented and tested. Develop System Flowcharts, Test Programs, Perform Testing, Develop Doc. as Necessary to Fill Gaps Perform Tests, Identify Additional Issues and Gaps. Remediate Address Third Party Service Providers, Review SAS 70 s Develop Ongoing Monitoring Process (Through Dec) 21

23 Sarbanes-Oxley Status Project Status Next Steps On Schedule? Corporate Governance» Risks identified» Submitted draft findings and recommendations» Executive team reviewing» Review and Finalize Corporate Governance documentation» Work with management on next steps and remediation» Management to remediate finding Expenditures» Interviews complete» Risks identified» Developing process documentation» Documenting findings Financial Accounting» Interviews complete» Risks identified» Developing process documentation» Documenting findings Financial Management» Interviews complete» Risks identified» Developing process documentation» Documenting findings Fuel» Interviews complete» Risks identified» Developing process documentation» Documenting findings Revenue» Interviews complete» Risks identified» Developing process documentation» Documenting findings Maintenance» Interviews complete» Risks identified» Developing process documentation» Documenting findings Payroll» Interviews complete» Risks identified» Developing process documentation» Documenting findings Productive Assets» Interviews complete» Risks identified» Developing process documentation» Documenting findings Information Services» Interviews complete» Risks identified» Developing process documentation» Documenting findings» Finalize process documentation» Finalize control matrix» Gap remediation» Conduct testing» Finalize process documentation» Finalize control matrix» Gap remediation» Conduct testing» Finalize process documentation» Finalize control matrix» Gap remediation» Conduct testing» Finalize process documentation» Finalize control matrix» Gap remediation» Conduct testing» Finalize process documentation» Finalize control matrix» Gap remediation» Conduct testing» Finalize process documentation» Finalize control matrix» Gap remediation» Conduct testing» Finalize process documentation» Finalize control matrix» Gap remediation» Conduct testing» Finalize process documentation» Finalize control matrix» Gap remediation» Conduct testing» Complete Control Design Walkthroughs» Finalize control matrix» Gap remediation» Conduct testing Ahead 22

24 Improvements Underway Information Services» Improving Security Reviews and Audits» Expanding Change Controls to Key Applications» Upgrading to Server 2003 Payroll» Identifying Automated Application Controls» Improving Segregation of Duties» Maximize Use of PeopleSoft Supply Chain» Identifying Automated Application Controls Finance & Accounting» Improving Segregation of Duties» Improving Documentation of Control Activities Company-wide Excel Spreadsheets» Implementing Change Control, Security and Review 23

25 Controlling & Accounting for Cash Example Segregate cash receipts from cash disbursements Segregate cash handling from reconciling all cash activity Segregate custody of cash from accounting & reporting cash and affected accounts Frequently reconcile & monitor cash activity to manage cash and increase interest income on short-term cash balances Review & monitor changes to member information that results in refunds, credits & release of capital credits Utilize automated systems to control & report 24

26 Performance Management Benefits Leads to better performance and lower costs Demonstrates a commitment to excellence Ensures all employees are performing at required levels Clearly defines roles and responsibilities Evaluates current Job Descriptions Develop employee training requirements Establishes foundation for succession plans Strengthens communication among groups 25

27 Q & A 26