Mayor Fischer Advisory Group Briefing May 15 Final

7/31/2019 Mayor Fischer Advisory Group Briefing May 15 Final

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Louisville

Utilities and Public Works

Advisory Group

May 15, 2012


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Agenda

I. Background

II. Guiding Principles

III. Key Constituents

IV. FindingsA. Black and Veatch

B. Advisory Group

V. Advisory Group Recommendations

VI. Implementation

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Background Kentucky State Audit of MSD was made public on December 16, 2011

Mayor Greg Fischer appointed Greg Heitzman, President/CEO LouisvilleWater Company to also serve as Interim Executive Director of MSD onDecember 16, 2011

Mayor Greg Fischer formed a Task Force, known as the Louisville Utilitiesand Public Works Advisory Group on January 12, 2012. The Advisory Groupis comprised of the following members: John Huber, Chair

Scott Brinkman

Al Cornish Diane Cornwell

Pete Mahurin

Joe Wise

Wendell Wright

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Background

Mayors Directive: Examine the operations of Louisville Water Company(LWC), Metropolitan Sewer District (MSD) and Louisville Metro Departmentof Public Works (DPW). Review should include an evaluation of synergies,partnerships, shared resources, reduced costs and possibly merger

LWC retained Black and Veatch consulting firm to assist with theoperational review of LWC, MSD and DPW

Black and Veatch researched and benchmarked data, interviewed staff ofLWC, MSD and DPW and made a series of observations and presentations

to the Advisory Group

The Advisory Group held 10 public meetings from January 25 to May 15,2012, including an evening meeting to solicit public input on April 25

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Guiding Principles

Opportunities for new relationships and structures between LWC, MSD andDPW were considered. These are guiding principles used to analyze and formrecommendations.

Enhanced Governance and Process

Significant, Realistic Savings for LWC, MSD and DPW

Local Ownership (municipal control) is in the best interest of thecommunity

Minimal Risk to LWC Charter and Business Model

No Adverse Impact to MSD Federal Consent Decree

Mitigate Future Rate Increases

Sustainable Business Model

Manageable Employee Issues (transition and change)

Minimal Legislative and Regulatory Risk

Improvement of Service and Reliability to Customers/Citizens 5


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Key Constituents Customers, Citizens and Employees

Louisville Metropolitan Sewer District Board

Louisville Water Company Board of Water Works

Louisville Metro Council

Jefferson County Legislative Delegation

Federal, State and Local Governments

Utility Regulators (EPA and KY Division of Water)

Regional Wholesale Customers

Community Stakeholders (Area Community Ministries, GLI, UrbanLeague)

Environmental Constituencies

Homebuilders Association 6


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Black and Veatch Findings Governance Options:

Limited Interlocal Agreements (ILA) Requires approval from KY Attorney General

Expanded Interlocal Agreements - Requires approval from KY Attorney General

Consolidation Requires approval from KY General Assembly

A phased approach moving from limited ILAs, to expanded ILAs, with

ultimate consideration of moving to consolidation was evaluated Phased approach has least impact on operations, is flexible, and has greatest

long-term savings

Opportunities for Synergies/Cost Savings Include: Shared or Consolidated Purchasing

Shared or Consolidated Fleet Maintenance Shared or Consolidated Energy Management

Shared or Consolidated Billing/Customer Service

Shared or Consolidated Back Office Functions

Shared or Consolidated Operations

Annual Cost Savings Range from $14-$24 Million after full implementation(estimated to be in 2022) 7


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Potential Savings for Each Strategic

Option (2013-2022) Because of Costs to Achieve, savings are not realized until 2014

2013 start up costs are estimated at $900,000

Phase II and III will also require significant start up, due diligence and

evaluation costs

Limited Interlocal Agreements

Annual savings for all three entities (MSD, LWC and DPW) after 10 years are

estimated to be $9.3 million

Expanded Interlocal Agreements

Annual savings for all three entities (MSD, LWC and DPW) after 10-years are

estimated to be $13.2 million

Phased Consolidation of LWC and MSD

Annual savings for all three entities (MSD, LWC and DPW) are estimated to be$25.5 million 8


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Annual Net Savings By Strategic Option

(2013-2022)

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Phased Consolidation Concept2013 2017

Current StatePHASE 1Limited

ILAs

PHASE 2

Expanded

ILAs

PHASE 3

Consolidation

DPW

MSD

DPW

LWC

MSD

DPW

LWC

MSD

LWC

DPW

UTILITYHOLDING CO.

Limited Cooperation

Emergency Support

Form IntegrationCommittees

Cost/Savings AllocationModel

Draft ILAs

Board Approval

AG Approval

Implement & Sustain

Identify BackOffice/Support Areas

Business Plan andStaffing Plan

Draft or Revise ILAs Align Non-ILA Functions

Board Approval

AG Approval

Implement and Sustain

Strategic Plan &Objectives

Procure Legal, Financial,Engineering

Customer/StakeholderInformation

Draft ConsolidationAgreement

Align OperationalFunctions

Achieve LegislativeApproval

Legal/GovernanceCreation

Financial Transaction

Integration


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Existing DPW, MSD and LWC Partnerships/Shared

Resources

Following are DPW, MSD and LWC partnerships and instances of shared

resources

Billing/Collections/Customer

Service

LOJIC/GIS Mapping

Ditch and drainage work by Metro

for MSD

Road paving

Shared Water and Sewer Services

Flood protection

Drainage service

Louisville Loop and Wharfmaintenance

Hansen system MSD call

center/Metro 311

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Potential Cost Sharing and Allocation Model

Interlocal agreement will require that cost sharing and cost allocationmodels be developed. There are three fundamental methods:

Work performed by single agency (or contractor) and a cost sharing andreimbursement model is developed

1. Metro Paving Contract used by MSD, LWC

2. Joint Fuel Purchase.

A portion of the work is transferred from one agency to another and areimbursement cost model is developed.

1. Metro 311 Calls transferred to MSD after hours2. Snow removal assistance by MSD

Work processes are consolidated into a common business model and acost sharing and reimbursement model is developed

1. LOJIC GIS

2. Combined Call Centers


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Advisory Group Findings

1. Potential for significant operational efficiencies and savings for the three

operations could be achieved using a phased approach

2. Legislative changes would be necessary for combining LWC and MSD

3. Coordinated debt planning is necessary to protect bond ratings, affordable

rates and bond covenants that facilitate these recommendations

4. There is a significant need to define and fund the long-term infrastructureneeds for all three organizations

5. Louisville Metro, DPW and MSD/LWC Board and Senior Management

Support for these recommendations as a strategic goal is critical

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Advisory Group Findings cont.

6. Each organization must have strong executive leadership in place

dedicated to moving through the recommended phased process

7. Appropriate management structure is needed to lead the change at MSD

and concurrently implement the Advisory Group Recommendations

8. MSD Leadership (Board and Senior Management) is currently under

transition

9. MSD resources are presently dedicated to Action Plans for the State

Audit and EPA Consent Decree and these must remain top priorities

10. MSD Re-engineering of Systems and Processes is necessary for long-term

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RecommendationsThese recommendations emanate from the work of Black and Veatch and otherinformation gathered by the Advisory Group

1. Synergies and Improvements should be accomplished within a five yearphased approach

Phase I Interlocal Agreements (2013-2014)

Phase II Expanded Interlocal Agreements (2013-2016)

Phase III Combine LWC and MSD (2013-2017) Due Diligence and Risk Assessment

Review Legislative changes

2. Phase I & II - Pursue Partnerships between LWC, MSD and DPW.

High Priority areas include: Purchasing

Safety

Energy Cost

Paving Restoration

Fleet Operations

Customer Education and Communications

Centralized Plan Review and Inspection15


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Recommendations cont.

3. Phase III - Develop plan to combine MSD and LWC within five years

Conduct comprehensive risk assessment and due diligence assessment

Develop business plans and management models of a combined OneWater utility

Pursue Enabling Legislation

4. Continue to Benchmark and Integrate Industry Best Practices

5. Adopt common Quality Management Systems for both LWC and MSD

6. Adopt common Management Control Systems for both LWC and MSD

7. Adopt common Leadership Development for both LWC and MSD

8. Develop cost sharing, allocation and reimbursement model for interlocalagreements to assure mission and utility cost of service principles aremaintained

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Recommendations cont.

8. Adopt effective change management process to assure success andminimize risk to stakeholders

9. Incorporate recommendations into LWC, MSD and Metro StrategicBusiness Plans and establish executive and senior management

accountability

10. Develop an Implementation Plan, including resources necessary forsuccess

11. Identify and develop the leadership structure for the ImplementationPlan

12. Establish quarterly reporting for benchmarks and key milestones tomeasure progress and success of recommendations

13. Communicate Plan and seek approval of LWC and MSD Boards

14. Develop Communications Plan for Key Stakeholders

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Next Steps Feedback from the Mayor May 2012

Metro Council Presentation May/June 2012

Black and Veatch Finalize the Report June 2012

Board Presentations June 2012

Stakeholder Communications June/July 2012

Develop Transition and Implementation Plan July to Dec 2012

Launch Transition and Implementation Plan January 2013

Quarterly Progress Reports to Mayor and LWC and MSD Boards

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Mayor Fischer Advisory Group Briefing May 15 Final

Documents

Transcript of Mayor Fischer Advisory Group Briefing May 15 Final