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5.3 ERMUSR 2-11-2020UTILITIES COMMISSION MEETING TO: FROM: ERMU Commission Troy Adams, P.E. General Manager MEETING DATE: AGENDA ITEM NUMBER: February 11, 2020 5.3 SUBJECT: Strategic Plan and 2019 Annual Business Plan Results ACTION REQUESTED: Discussion on effectiveness of the Strategic Plan and the Annual Business Plan as organizational health assessment and planning tools; discussion on ongoing improvement and progress toward organizational mission and goals. BACKGROUND: In August 2017, the commission adopted a comprehensive manual of governance policies based on the Carver Model of governance. Included in those governance policies is Governance Policy G.2c Agenda Planning. This policy notes that in the first quarter and Management will review E Business Plan for the preceding fiscal year This annual review was confirmed and scheduled 20 Governance Agenda, which is included in the monthly commission meeting materials, and which is available to the public. DISCUSSION: The Strategic Plan consists of Governance Policies G.1c-g. These policies are summarized on the attached mission, vision, fundamentals, values, and planning themes handout. Additionally, the Strategic Plan includes a dashboard of initiatives, a management tool used to track project preparation for consideration in the budget, oversee the status of currently implemented projects, track future priorities currently on hold, and to track overall productivity and organizational resources. The Annual Business Plan consists of the budget and the schedule of rates. The purpose for the Strategic Plan is to establish the long-term direction and goals for an organization and develop the plan to get there. A good strategic planning process incorporates assessing risks and developing contingency plans based on risk mitigation in the journey toward the long-term direction and goals. The purpose of the Annual Business Plan is that of a tool. It is a tool used to measure organizational performance and provide usable information to take corrective actions to move the organization toward the long-term direction and goals established by the strategic plan. The Strategic Plan is a long-term forward-looking tool. The Annual Business Plan contains the budget and the schedule of rates. The budget is a financial tool used to forecast and quantify expected business performance. This financial tool ______________________________________________________________________________ Page 1 of 9 84 contains both knownor fixed components as well as variable or unknown components. To measure performance, ERMU uses a monthly financial report. This report is a tool used to gauge performance, collect data needed to make corrective actions as needed to move the organization toward the short term goals established by the budget and Annual Business Plan, but also to move the organization toward the long term goals and direction established by the Strategic Plan. Monthly reports provide information for what has already happened. Their value comes from the interpretation of the data applied toward achieving the annual short-term goals and the farther out long-term goals and vision. The Annual Business Plan is a short-term forward-looking tool dependent upon backwards looking data analysis. Review of the Strategic Plan All policies, decisions, initiatives, and tasks by ERMU on behalf of our consumer owners should be in direct line to the ERMU Mission. All planning is conducted through a process which categorizes initiatives under commission adopted planning themes aligned with our mission, vision, fundamentals, and values. This framework clearly defines how ERMU is expected to operate. This process is intentionally transparent to our consumer owners. The following include highlights, challenges, and results from the 2019 initiatives as well as forward-looking initiatives and goals: Theme 1: Communication Improve the effectiveness of our communications inside the organization, with our customers, and with the community. Bill Presentation Staff worked with National Information Solutions Cooperative (NISC), our accounting/billing software provider, to modify the back end calculation of our bill layout to separate ERMU and city services for better clarity on the responsible party. The second phase is to now work with NISC to streamline the layout and appearance with a new design that will improve readability of that information in an effort to improve understanding. Phase 2 is a 2020 initiative already underway. Builder/Developer Outreach Staff completed seven standardized packets of information to assist residential and commercial customers, builders, and developers in applying for electric and water services. These information packets are helpful to new or existing customers requesting services because they have step-by-step instructions and contact information for electric and water staff members. The information included in each packet varies depending on the project, but in general they include applications, contracts, and fee schedules. The checklists also include the contact information for each citys building departments that ERMU operates in. Disaster Recovery Plan Staff established a 2019 initiative to develop a utility specific Disaster Recovery (DR) plan that would complement the existing City of Elk River Emergency Operations Plan. While the existing city plan is focused more on emergency restoration efforts following a disaster, the utilities DR plan will be comprehensive, identifying all-hazards facing the utilities, utilizing best practices found within the ______________________________________________________________________________ Page 2 of 9 85 National Incident Management System (NIMS),and following Incident Command System (ICS) structures. Included as part of this plan will be a component addressing Business Continuity throughout the recovery effort. This work is being coordinated with the Fire ERMU DR plan development continues into 2020 and will be a continuously evolving document as it is tested during annual exercises and real incidents. Website A request for proposal was developed and a vendor selection process was completed in 2019. The website update initiative was budgeted as a 2020 project. Staff has been working with our vendor on the early stages of the site layout and navigation design. The project is expected to be complete by end of 3Q2020. Theme 2: Personnel and Governance Develop our most valuable and vulnerable assets, our commissioners, employees, leaders, and future leaders. Governance Manual and Annual Training There was significant progress completed during 2019 in the continuation of this multiyear initiative. Nearly all of the old policies were addressed with the exception of three: A.1 Service Policies, E.1 Electric Department Rules, and W.1 Water Department Rules. These three remaining policies will undergo similar analysis to determine which parts should remain under direct commission authority and which should be under indirect commission control, being delegated to management to oversee. These three polices are scheduled to be presented to the commission in late 1Q or early 2Q. Manager Pay Group Benchmarking The commission directed staff and the Wage & Benefits Committee (W&BC) to implement an initiative to benchmark the manager pay group with the assistance of a third-party. This process was completed and resulted in market adjustments and the implementation of organizational structure changes creating director level leadership positions. Succession Planning Procedure The initiative to develop a succession planning and staff addition procedure for use by the Wage & Benefits Committee (W&BC) was not started in 2019 and had been tabled for 2020 due to leadership bandwidth. Safety Training Workgroup, Safety Manual and Training As a result of the organizational effectiveness survey that was conducted in 2019, one of the initiatives to come out of that survey was to evaluate the current safety training program and establish safety training expectations. A Safety Training Workgroup was created to provide perspective from all departments for the purpose of improving our safety training program. The workgroup is comprised of an employee from each department: office, water, electric, and tech services. The workgroup also includes an operations manager and an administrations manager. The workgroup successfully established program goals, priorities, and identified opportunities for improvement. And with the changeover of our Minnesota Municipal Utilities Association (MMUA) Regional Safety Coordinator, the training expectations were communicated early on. In addition to ______________________________________________________________________________ Page 3 of 9 86 mandated trainings,the 2020 safety training scheduleincludessome newsafety trainings thatwere a direct result of thesafety committee membersidentifying the needs of their departments and the trainings that would benefit them. Review of the safety manual is on hold until later in 2020. Employee Recognition Workgroup Another action item to come out of the organizational effectiveness survey was to implement an effective cross-organizational recognition program. An employee workgroup was created to develop ideas and work through the budgeting and approval processes required to implement solutions. Similarly, the workgroup was comprised of an employee from all departments: office, water, electric, and tech services. The workgroup also included an operations manager and an administrations manager.This group developed and then went through the process to receive commission approval for a new employee milestone recognition program. Theme 3: Strategic Thinking Create a culture of strategic thinking and ensure line of sight from mission to vision. Conservation Improvement Program (CIP) Redevelopment In 2019, staff has been working with Minnesota Municipal Utilities Association (MMUA) and the Minnesota Rural Electric Association (MREA) in a joint effort to modernize CIP. The proposed improvements to CIP would allow for local flexibility to achieve savings goals while providing statutory approval to incorporate beneficial and efficient electrification into the program. These efforts stalled due to misalignment of goals between the Senates position and the House and the Administrations position. For 2020, the focus has shifted to the Governors Clean Energy First plan effectively putting CIP modernization on hold. It is likely that CIP modernization will be a part of any energy policy moving forward this session, but CIP will not be the driver in what gets done. Load Management Programs Staff had been working with the Minnesota Municipal Power Agency (MMPA) on a load management (LM) program that could replace the legacy LM program ERMU had built based on the Great River Energy (GRE) LM program and communication/control system. For two reasons, MMPA has backed away from adding any LM programs similar to the GRE legacy programs. First, those types of LM programs are not financially viable in the current Mid-continent Independent System Operator (MISO) energy, demand, and transmission markets. That means under current and foreseeable market conditions, there is not a financial incentive for the investment; this potentially could change due to changes in regulations, grid congestion, or capacity prices. Second, there was not uniform interest from all the MMPA member cities. The MMPA then voted to not continue to explore LM. Both considerations are also relevant for ERMU at the distribution system and retail rates level, meaning ERMU would not achieve ROI with a legacy style LM program. This initiative has been tabled for future consideration after Advanced Metering Infrastructure (AMI) has been explored. ______________________________________________________________________________ Page 4 of 9 87 MMPA Hometown Solar Grant Staff worked with the City, Energy City Commission, and MMPA to install a 5 kW solar photovoltaic array at City Hall. The purpose of the Hometown Solar Grant installation is to provide our community with an educational asset to teach people how sunlight is converted into electricity and the unique generation characteristics of solar power. This was a great addition to the community and another demonstration site for Minnesotas designated Energy City. Theme 4: Technology Implement the prudent use of technology to improve efficiency and increase customer choice, communication, and value. ESRI GIS Mapping Over the past few years ERMU has made significant progress in transitioning from AutoCAD (CAD) maps to an ESRI ArcGIS (GIS)geospatial database. Most of this progress can be directly attributed to the 2016 decision to hire a full-time GIS/Mapping Technician. While the water model was initially constructed in 2015 by an outside vendor who collected GPS data for hydrants and valves, the electric model was built inhouse with minimal outside help and has proven to be a substantially more time- consuming project to update. To assist in this process, locators collect, record, and GPS electrical equipment data utilizing iPads with ESRIs Collector app and a Trimble R1 GPS receiver. We have been able to maintain the highest accuracy of data. This data collection equipment has also been utilized by the lineworkers and the water department to further enhance the accuracy of the data within the electric and water models. With the recent purchase of ESRI Enterprise Agreement, the goal to transition field staff entirely to GIS can now be accomplished through Portal for ArcGIS on a web- based application in 2020. The next phase of the project will integrate the GIS models with NISC software databases to provide additional map functionality and efficiencies as well as make GIS data available to all ERMU employees. The future roadmap will include transitioning from a geometric network to ArcGIS Utility Network which is the next evolution of GIS. Cyber & Physical Security and IT/OT Support The background: Staff has worked with the city and a third-party consultant to evaluate cyber and physical security for ERMU and the city. A joint committee was created. A small work group with the third-party consultant developed the framework for a comprehensive cyber, physical, and information security policy. Progress stopped when the refinement of those policies exceeded staff resources. The initiative was tabled until the budgeted ERMU Operational Technology Supervisor was hired. ERMU was unable to fill the position and so the position was reworked and posted, but again ERMU was unsuccessful in filling the position. The W&BC reviewed the position and the core needs. Numerous other initiatives have this initiative as a prerequisite. Filling this position and reactivating the cyber and physical security initiative is a high priority for 2020. NISC Module Integration There are many modules in NISC that staff is exploring including: Meter Data Management System (MDMS) which is required to implement Advanced Metering Infrastructure (AMI), Outage Management Systems (OMS), Mobile ______________________________________________________________________________ Page 5 of 9 88 Workforce and AppSuite, etc.Analysis for these modules for potentialfuture implementationis based on need, returnoninvestment, and other delivered value. NISC conducted a technology roadmap analysis for ERMU in 2018. The result of that analysis showed that Mobile Workforce and AppSuite was the foundation and needed to be first. The initiative to implement Mobile Workforce and AppSuite was a 2019 budgeted initiative which went live February 3, 2020. Staff and NISC have been working on improving the process and other items relating to the implementation. The module at full implementation allows for employees to work paperlessly and share and access data from the field improving workflow and efficiency. Advanced Metering Infrastructure (AMI) and Smart Grid Analysis Staff continues to move forward with analysis on this multi-year initiative. The actual metering equipment upgrade will not occur until after the construction of the new field services building. The plan that staff developed includes; a list of three potential equipment vendors, identified the need for an outside consultant to develop the request for proposal for the project, estimated a project budget of $2 to $3 million, and developed an implementation timeframe of late 2022 to early 2023. Theme 5: Growth Assess the growth curve to make decisions regarding organizational change. Electric Service Territory Expansion Plan Staff successfully developed and implemented a plan to safely transfer 82 customers in Areas 7&8 per the 2015 Connexus electric service territory transfer agreement. The processes for these transfers have become highly refined and efficient. The coordination and communication with Connexus made these transfers safer, quicker, and more cost-effective. Staff also successfully filed with the Minnesota Public Utilities Commission (MPUC) a request to change the electric service territory boundaries to reflect the 2018 transfer of Areas 5&6 and the 2019 transfer of Areas 7&8. This initiative is complete. Field Services Facility Expansion Plan & Site Preparation Staff continued to plan for the future field services expansion. The building construction is forecasted for 2023. A sub- initiative to this project was the construction of a tempered storage building located on ERMU land adjacent tubstation and the City Public Works Facility. This was budgeted for construction in 2019 and was completed in January 2020. The next phase is site preparation work including the relocation of the power plant substation, electrical feeders, and other underground facilities. And, the rental properties will need to be removed. Staff is working with the architectural firm on updating the drawings for the site work as well as bid documents for the building itself. Management will look to reactivate the Field Service Facility Expansion Committee early in 2020. There should be one to two commissioners appointed to this committee; appointments should occur during the March commission meeting when the commission appoints representation for the other ERMU committees. Road Projects Staff has been involved in the planning stages for multiple upcoming road projects including the MnDOT Highway 169 Redefine project, MnDot Highway 10 ______________________________________________________________________________ Page 6 of 9 89 project, Sherburne CountyCountyRoad12 project, and Wright CountyCountyRoad 39 project. Electric Construction Projects In addition to the aforementioned service territory transfer and the Main Street decorative streetlighting project, there were many electric construction projects completed during the year. Some of the more notable and/or larger projects were: 143 new electric services installed, four months of tree trimming th completed, Monroe Estates project, Hill Side 11 project, Cooper electric switchgear testing, Jarvis Street rebuild, Pascal and Troy Street rebuild, Nantucket project in Otsego, the Citys multipurpose building construction, and Lions park construction. Well #8 control building project Construction of the building is complete, we started running the well again in November 2019. Auburn Street Water Tower Rehabilitation This project was started in 2019, but the contractor failed to meet contractual obligations for completion. The project was then shut down for the winter and painting will resume in spring of 2020. The contractor is liable for liquidated damages. Otsego and Elk River Decorative Street Lighting Staff successfully completed the Elk River downtown decorative streetlight initiative in 2019. The sister initiative to take over the ownership, maintenance, and operation of the 108 streetlights and begin to replace them with decorative streetlights, which match the Elk River downtown lights, is well underway. The Otsego decorative streetlighting project will continue in spring of 2020. Theme 6: Process, Measurement, and Financial Health Improve processes and measurement to better determine and report efficiency and effectiveness of organization and to ensure financial and organizational health. Reliable Public Power Provider (RP3) Application The designation for this national best practices benchmarking must be renewed every three years. The RP3 panel looks at best practices in reliability, safety, system improvement, and workforce development. The best practice standards evolve every time to reflect current industry best practices. The submittal process involves pulling data and policy from all areas of the organization. The collection and submission of information required in the application for this designation was completed and submitted on time. The designations will be announced during the American Public Power Lineworker Rodeo and Engineering & Operations Conference in April. Smart Energy Provider Designation This is the first year that APPA offered the designation which will last through 2022. The designation recognizes public power utilities for demonstrating a commitment to and proficiency in energy efficiency and environmental initiatives that focus on affordable, quality, safe, and reliable electric service. ERMU joins more that 60 other utilities nationwide in receiving this designation. ______________________________________________________________________________ Page 7 of 9 90 City of Elk River Local Option Sales Tax (LOST) The successful referendum to create a LOST has an operational and financial impact on ERMU because of our billing system. The LOST will apply to some, but not all sales through ERMU. To implement this, ERMU worked with NISC to create custom software updates that were successfully implemented October 1, 2019. Annual Business Plan and Budget Presentation Improvements Per the direction of the commission during the Strategic Plan and 2018 Annual Business Plan Results review in February 2019, staff had developed and implement a 20-year capital improvement plan to be incorporated with the budgeting process. Additionally, staff implemented formatting and presentation improvements so that the different sections of the budget were presented in a similar format for improved readability and so that the annual budget formatting was more similar to the formatting of the monthly reports. Review of the 2019 Annual Business Plan The purpose of reviewing the 2019 Annual Business Plan is to evaluate the budget as a tool in addition to performance. By evaluating the usefulness of the tool, staff will be better able to provide monthly information and reports to help the commission evaluate the organization health and direction. Understanding and exploring the areas of risk and sensitivity factors improved the governing set policy redirecting an organization toward the short term and long-term goals. The Annual Business Plan review should help the commission identify areas of higher risk, evaluate options to mitigate risk, establish their comfort level with risk, and help the commission clearly communicate expectation in handling the risk. Overall Electric Utility performance for 2019 was positive on a year where sales were down because of weather and the 5% rate decrease. Unaudited financials indicate that electric margins significantly outperformed budget ($1,593,658 budget, $2,870,619 actual). While revenue performance was 1% lower than budgeted due to weather and the 5% rate reduction, the annual expenses were 5% lower than budget. And net to reserve was higher than budgeted ($503,296 budget, $2,970,629 actual). This was our first full year purchasing power from Minnesota Municipal Power Association (MMPA). Overall Water Utility performance for 2019 was positive even when considering weather. Unaudited financials indicate that water margins outperformed budget (-$144,494 budget, $340,866 actual). Revenue was up 9% ($2,768,491 budget, $3,019,809 actual) while annual water expenses were down by 8% ($2,912,985 budget, $2,678,943 actual). And net to reserves was higher than budgeted ($522,399 budget, $1,157,062 actual). An overview of 2019 budget verses actual (unaudited) for both electric and water is provided in the attached summary. ______________________________________________________________________________ Page 8 of 9 91 Summary The Strategic Plan and the Annual Business Plan are long-term and short-term tools for the commission to use in governing the organization, establishing policy to clearly communicate goals, and helping the commission lead ERMU toward the organizational vision. These tools should evolve with the o effectively evaluate and govern. It is important to annually discuss these tools for their function; separate from the review of the data they contain. 2019 initiatives were positive, and it is good to recognize our successes. An important component to organizational health is communication. Communication is critical in all areas of an organization, both external an internal. This includes communication between the commission and management, communication between management and staff, and communication between departments. Specific to communication between the commission and management, does the commission have what they need to govern ERMU to sustainable success? Are these tools providing the information the commission needs to effectively evaluate the organization? Are these tools clearly identifying the areas of highest risk, enabling the commission to effectively monitor, evaluate, and take corrective action when needed? Are these tools providing the information needed for the commission to effectively lead the organization toward our mission and vision? Staff looks for commission discussion regarding the 2019 results and for discussion regarding the effectiveness of the tools used to provide the commission with meaningful and timely information. ATTACHMENTS: ERMU Mission/Vision/Fundamentals/Values/Themes ERMU Summary Comparison 2019 Budget vs Actual (Unaudited) ______________________________________________________________________________ Page 9 of 9 92 OUROUR MISSIONVALUES To provide our customers with safe, reliable, INTEGRITY QUALITY OUR COMMUNICATION VISION SAFETY OUR A culture that protects our FUNDAMENTALS COMPETITIVE Provide the best value for the ERMUMN.COM | 763.441.2020 | 13069 ORONO PARKWAY | PO BOX 430 | ELK RIVER, MN 55330-0430 93 OUR PLANNING THEMES 1 | COMMUNICATION 2 | PERSONNEL AND GOVERNANCE 3 | STRATEGIC THINKING 4 | TECHNOLOGY 5 | GROWTH 6 | PROCESS, MEASUREMENT AND FINANCIAL HEALTH ERMUMN.COM | 763.441.2020 | 13069 ORONO PARKWAY | PO BOX 430 | ELK RIVER, MN 55330-0430 94 95