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4.1 ERMUSR 08-08-2017 Elk River .M Municipal Utilities UTILITIES COMMISSION MEETING TO: FROM: ERMU Commission Troy Adams, P.E. - General Manager MEETING DATE: AGENDA ITEM NUMBER: July 11, 2017 4.1 SUBJECT: Delegation to Management Policies ACTION REQUESTED: Adopt the proposed Delegation to Management Policies. BACKGROUND: In 2016 the Commission approved contracting with Collaboration Unlimited to update and develop core governance policy. The decision to implement and the schedule for completion were largely based on two factors. First, the existing policy book and by-laws had not been reviewed or updated on a routine basis. Second, with the March 2017 expansion for the ERMU Commission from three to five members it was determined to be beneficial to develop and update core governance policy to serve as a guide for the expanded Commission. The work was divided into two phases,the first being the core governance policies and the second addressing the development of delegation to management policies. DISCUSSION: Presented for consideration are the next five delegation to management policies that our consultant John Miner has developed. Staff worked with ERMU's legal counsel to review the proposed delegation to management policies. The results of that review are reflected in the following proposed policies: • G.4f Employee Interests • G.4g Organization,anization Staffing, and Compensation p • G.4h Financial Planning and Budgeting • G.4i Financial Condition and Transactions • G.4j Cost Allocation and Recovery With only the first eleven policies of Phase 2 developed, there are gaps and overlap in policy. These gaps and overlaps are intended to be resolved as the Commission reviews and considers policy updates and revisions throughout this project. It is the intention to bring policy back for consideration at every Commission meeting. The remaining policies to be developed in the delegation to management are reflected in the tentative table of contents which is attached for reference. FINANCIAL IMPACT: None Page 1 of 2 30 ATTACHMENTS: • Proposed ERMU Policy—G.4f—Employee Interests • Proposed ERMU Policy—G.4g—Organization, Staffing, and Compensation • Proposed ERMU Policy—G.4h—Financial Planning and Budgeting • Proposed ERMU Policy—G.4i—Financial Condition and Transactions • Proposed ERMU Policy—G.4j —Cost Allocation and Recovery • ERMU Governance Policy Manual Table of Contents—For Reference Only Page 2 of 2 31 Elk River . Municipal Utilities COMMISSION POLICY Section: Category: Governance Delegation to Management Policies Policy Reference: Policy Title: G.4f Employee Interests PURPOSE: With this policy,the Commission sets forth its expectations for the General Manager concerning the employment,termination of employment, management,compensation and treatment of employees. POLICY: In all ERMU interactions with and among the employees of ERMU, the General Manager shall not intentionally allow situations,processes, actions, behaviors or attitudes that are unsafe, illegal, undignified,inattentive or unresponsive to employee needs or requests, or otherwise in conflict with the organizational values advocated by the Commission. (See Organizational Values Policy). Consistent with this general statement: 1. The General Manager shall not allow ERMU management or the Commission to be inadequately informed about,or fail to exercise reasonable judgment and discretion regarding appropriate and timely action on,any issue of material significance concerning employee safety and health,performance, satisfaction and morale,or employment policies and processes. 2. The General Manager shall not operate without an Employee Safety Manual. 3. The General Manager shall not operate without proactive management support for a safety culture that includes expected compliance with the Safety Manual,participation in ongoing safety training, consistent use of safe work practices and personal protective equipment, reporting of unsafe conditions and safety incidents/near misses, and accountabilities for safety at the organizational,work group, and individual level. Page 1 of 2 32 ERMU Commission Policy—G.4f Employee Interests 4. The General Manager shall not operate without documented employment policies, processes, and practices that have been adopted by the Commission and communicated to employees in the form of an ERMU Employee Handbook. 5. The General Manager shall exercise reasonable judgment and discretion to avoid operating ERMU in material contravention of the Commission-approved employment policies, processes, and practices or any applicable employment law or regulation. 6. The General Manager shall adopt a reasonable process for notifying employees of material changes to the ERMU Employee Handbook and other applicable employee policies. 7. The General Manager shall adopt a reasonable process for conducting and documenting annual employee performance planning and evaluation in a manner consistent with the nature of each employee's duties. 8. Within the financial limitations of the budget approved by the Commission,the General Manager shall provide employees with safe working conditions, adequate facilities and equipment, and other support needed to enable high levels of employee performance,job satisfaction, and career development. 9. The General Manager shall not use methods of collecting, reviewing,transmitting, or storing employee information that fail to protect the information against improper access and use, damage or loss, or unauthorized destruction. POLICY HISTORY: Adopted Month, Day, Year Page 2 of 2 33 Elk River Municipal Utilities COMMISSION POLICY Section: Category: Governance Delegation to Management Policies Policy Reference: Policy Title: Organization, Staffin and G.4g Compensation PURPOSE: With this policy,the Commission sets forth the responsibilities of the General Manager with respect to the ERMU organization structure, staffing levels and position-based compensation practice. POLICY: The Commission expects the General Manager to continuously evaluate the human resource needs of ERMU and to advise the Commission regarding the organization structure, staffing levels,position-based compensation practice, and use of contracted services that will best achieve the organizational results set forth in the Goals and Results Policy,the Strategic Plan,and the Annual Business PlanBudget.As set forth in the approved Policy establishing the Commission's Wage&Benefits Committee,the General Manager will keep the Committee fully informed and the Committee will periodically advise the Commission about the organization's human resource needs. The General Manager's responsibilities shall include: 1. Presenting to the Wage&Benefits Committee, at least annually and in conjunction with the Commission's review and approval of the Annual Business Plan/Budget, an Organization and Staffing Plan detailing overall staffing levels and organizational structure. 2. Presenting to the Wage &Benefits Committee, at least annually and in conjunction with the Commission's review and approval of the Annual Business Plan/Budget, an Employee Compensation and Benefits Plan. The Employee Compensation and Benefits Plan shall set forth market-competitive compensation ranges and benefits for each authorized permanent position in the ERMU organization. Included in the Employee Compensation and Benefits Plan which is presented for Commission approval shall be the Wage & Benefits Committee's recommendation of Cost Of Living Adjustment(COLA). Page 1 of 2 34 ERMU Commission Policy—G.4g Organization, Staffing, and Compensation 3. Presenting for Commission approval, as part of the Annual Business Plan, a Budget that will support the staffing and contracted services levels described in items 2 and 3 above. 4. Upon approval by the Commission of the Annual Business Plan, Budget, Organizational Chart and Employee Compensation and Benefits Plan, managing ERMU and its staffing and contracted services at the budgeted levels,with appropriate allowance for changes in workload requirements and the limitations of the market for qualified employees and contracted services. The General Manager shall assign specific responsibilities to the positions approved, shall designate the employees that fill specific positions and their compensation, and shall engage contracted services as provided in approved ERMU Policies. 5. If the Commission fails to timely approve the Annual Business Plan, Budget or Employee Compensation and Benefits Plan, managing ERMU and its workforce as necessary to serve ERMU's customers within projected revenues. 6. Considering the evolving utility industry,the changing expectations of ERMU's customers and stakeholders, advances in technology, relevant employment/service markets and other factors that impact ERMU's workforce requirements and its ability to meet those requirements. 7. Maintaining current and accurate organization charts that identify all authorized management and staff positions and their reporting relationships as well as the status of those positions (occupied or vacant). 8. Maintaining current and accurate position descriptions or equivalent documentation of the qualifications, accountabilities, and working conditions for each authorized permanent or temporary position in the ERMU organization. POLICY HISTORY: Adopted Month,Day, Year Page 2 of 2 35 Elk River Municipal Utilities COMMISSION POLICY Section: Category: Governance Delegation to Management Policies Policy Reference: Policy Title: G.4h Financial Planning and Budgeting PURPOSE: With this policy,the Commission affirms the importance of financial planning and budgeting and sets forth its expectations for the General Manager in terms of the effective development, implementation, monitoring, and updating of the Commission's approved Financial Plan and Business Plan/Budget. (See Strategic and Business Planning Policy) POLICY: The General Manager will propose for Commission approval a Financial Plan that supports the Strategic Plan and provides credible projections of expenses and revenues (in major categories), reserve fund balances, and key financial ratios for not less than five (5) future fiscal years. The General Manager will propose for Commission approval a Business Plan/Budget for each fiscal year that is reasonably consistent with the projections contained in the Commission's approved Financial Plan. Within the financial limits established by the Commission through its approved Financial Plan and Business Plan/Budget, the General Manager shall provide adequate resources for the effective execution of the Strategic Plan and for the accomplishment of the specific operating and financial results contained in the Business Plan/Budget. Consistent with this general statement,the General Manager shall implement financial planning and budgeting that: 1. Is based on credible assumptions about variables that are likely to affect ERMU's future financial performance. 2. Includes credible projections of revenues, expenses, cash flow, mandatory and discretionary reserve funds, fund balances, and key financial ratios for a period of at least five (5)future fiscal years. Page 1 of 2 36 ERMU Commission Policy—G.4h Financial Planning and Budgeting 3. Includes credible projections of capital expenditures and borrowing needs. 4. Includes credible revenue requirements and general retail rate adjustment needs. 5. Recognizes the need for appropriate adjustments or contingencies that may arise during implementation as a result of changed conditions and unexpected events. 6. Clearly communicates the connection between planned expenditures of resources and the expected business results as identified in the Strategic Plan and the Business Plan/Budget. 7. Does not violate the Commission's policy on Financial Condition and Transactions. 8. Provides financial support for the Commission's activities in the amount that is needed for the Commission to fulfill its statutory duties and to govern with excellence. POLICY HISTORY: Adopted Month, Day, Year Page2of2 37 Elk River Municipal Utilities COMMISSION POLICY Section: Category: Governance Delegation to Management Policies Policy Reference: Policy Title: G.4i Financial Condition and Transactions PURPOSE: With this policy, the Commission sets forth its expectations for the General Manager concerning ERMU's financial condition and transactions. POLICY: The General Manager shall not intentionally cause or allow ERMU's financial condition to become precarious or to materially deviate from the Financial Plan or Business Plan/Budget. The General Manager shall not allow financial transactions to occur outside of the boundaries established by other applicable provisions of the Commission's governance policies. The General Manager shall not allow financial reporting that fails to comply with applicable standards for governmental accounting. Consistent with this general statement, the General Manager shall: 1. Provide monthly financial reports to the Commission which accurately and adequately describe ERMU's financial condition. 2. Provide quarterly financial report presentations which discuss any material changes (1% or greater of annual revenues or expenditures for each utility enterprise) to the projections for the balance of the fiscal year including any appropriate remedial actions. 3. Not allow the cumulative expenditure of funds during a fiscal year to exceed by more than $1 million the amounts that have been allocated through the approved capital and operating budgets without prior approval by the Commission in the form of a budget amendment. 4. Advise the Commission of any individual project expenditure in excess of 10%above the approved budgeted amount. Page 1 of 2 38 ERMU Commission Policy—G.4i Financial Condition and Transactions 5. Not reallocate an amount greater than $500,000 among line items in the approved capital and operating budgets without prior approval by the Commission in the form of a budget amendment. 6. Advise the Commission of any financial transaction or event deemed by the General Manager to have a substantial impact on ERMU's financial condition. 7. Not take any financial action that violates bond covenants or otherwise jeopardizes ERMU's ability to obtain favorable bond ratings. 8. Not allow working capital and other designated reserves to fall below the levels established in the Financial Plan. 9. Make payroll and pay other financial obligations in a timely way. 10. Collect or otherwise resolve receivables. 11. Implement internal policies and procedures that comply and ensure timely accounting and reporting of financial condition and transactions in accordance with legal or regulatory requirements, and generally accepted industry practices. 12.Not acquire, encumber, or dispose of real property without approval of the Commission. POLICY HISTORY: Adopted Month, Day, Year Page 2 of 2 39 Elk River Municipal Utilities COMMISSION POLICY Section: Category: Governance Delegation to Management Policies Policy Reference: Policy Title: G.4j Cost Allocation and Recovery PURPOSE: With this policy,the Commission sets forth its expectations for the General Manager concerning cost allocation and recovery of costs for ERMU's core customer services (See Core Customer Services Policy). POLICY: The General Manager shall operate ERMU in accordance with the Financial Plan(See Financial Planning and Budgeting Policy). Consistent with this general statement,the General Manager shall: 1. Annually report to the Commission on the performance and adequacy of ERMU's rates, fees, and charges for utility services with respect to revenue requirements,provide an updated projection of revenue and revenue requirements in the Financial Plan(See Financial Planning and Budgeting Policy), and recommend an appropriate plan for rate adjustments as needed. 2. Provide, at least once every ten(10) years or sooner at Management or Commission discretion, and in conjunction with development of the Financial Plan, a full cost-of-service rate study for each of ERMU's core customer services which fairly allocates costs among customer classes,provides for sufficient revenues, demonstrates that recommended rates are just and reasonable, and provides for competitive positioning with nearby service providers. 3. Recommend any new or adjusted rates, fees, or charges to the Commission for consideration and approval. 4. Implement any Commission-approved rates, fees, charges(or changes to same),provide adequate advance public notice and information to affected customers. Page 1 of 2 40 ERMU Commission Policy—G.4j Cost Allocation and Recovery 5. Apprise the Commission of and recommend any changes to existing cost-of-service allocation methods or practices concerning rates, fees, or charges that are inconsistent with good and accepted utility practice. POLICY HISTORY: Adopted Month, Day, Year Page 2 of 2 41