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Ensuring Defensible, Efficient, Customer-Centered Capital and Operations Programs

The Challenge

Operations and capital programs in 2020 were flowing along and gaining momentum to meet critical schedules and asset management goals, achieve operational metrics, and match cash flow projections.

The COVID-19 pandemic has required many local governments and utility organizations to change course and shift focus from business as usual to avoiding staff cuts, keeping core functions running, and preserving as much of their capital programs as possible.

The Solution

In this time, local governments must make capital and operations programs more defensible, efficient, and centered on quantifiable benefits to ratepayers and/or taxpayers. The best way to do this is by defining capital and operations priorities and improving delivery efficiency. This means outreach to stakeholders to better define priorities, as well as internal changes to improve processes, and clearly defining quantifiable ratepayer and constituent benefits. Process changes can include new performance metrics and targets, adjustments to project scopes and schedules, new tools, and new ways of doing business.

Raftelis has developed an approach that supports utilities in this challenge. This roadmap addresses clients’ needs in the four steps below.

Utilities In Action Through Each of the Four Steps

Step 1: Understand the organization’s priorities and codify the capital planning framework
The first step in our roadmap is to ask and answer key questions about:

  • Current projects and operations executions and
  • Possible procedure and process improvements

In addition, we work with our clients to ensure that the organization has examined its priorities and that the capital program clearly reflects the priorities of the organization, its customers, and stakeholders. From an understanding of the current state of capital program execution and organization priorities, we help to lay out a defensible program priority, as was done for Renewable Resources (ReWa) in Greenville, SC.

ReWa, the wholesale wastewater treatment entity for Greenville County and surrounding areas, hired Raftelis to help develop a revised prioritization system for their nearly $1 billion Capital Improvement Program (CIP). The objective was to make the process more representative and defensible, so that it accurately balanced competing stakeholder priorities.

Raftelis worked collaboratively with a ReWa project team that included representatives from Engineering, Operations, Finance, Customer Service and Public Relations, Information Technology, Human Resources, and executive management. In so doing, the framework developed took into account feedback and priorities from across the organization. Raftelis’ framework and tool were fortified and informed by a review of the capital prioritization process and development of a proposed process, identification of prioritization criteria that reflected ReWa’s organizational goals, and creation of an Excel® tool designed to perform prioritization calculations and facilitate the process.

It was important for ReWa to consider its specific operating environment and what drivers were most important for the wide range of stakeholders ReWa serves. Out of all the criteria discussed, ReWa selected 7 criteria that most closely apply. These 7 criteria were weighted and ranked. Raftelis incorporated them in the prioritization tool to fairly and equally evaluate the merits of all capital projects against one another. Once all available projects are scored, the tool sorts projects from highest overall score to lowest overall score.

The result of the project was a Capital Improvement Program that is more representative of the true needs of customers and the organization; one that balances priorities from all stakeholder groups.

Another example comes from The Woodlands Township (Woodlands), a “Special Purpose District” outside Houston, Texas. When considering the benefits and costs of incorporating as a municipality, they turned to Raftelis for assistance, which included identifying priorities and a framework for capital planning.

The inquiry required the project team to understand past government relationships and service provision, the scope of service demands required to develop and maintain the proposed municipality, as well as development of many and various operational and financial scenarios to support community action.

Throughout the engagement, the consulting team met extensively with Woodlands finance and administrative personnel to analyze historical financial trends and incorporate known factors into operating and capital expense projections. Capital asset maintenance and continuing development comprised a fundamental responsibility for the community. The team worked with engineers and architects to assess the current conditions of community assets as well as proposed maintenance and replacement assumptions.

The effort posed hard questions and developed real answers through detailed analysis and creation of operating and financial scenarios for the Board. The information provided met the needs of a variety of stakeholders to support decision making, from the Board of Directors to professional staff that would provide necessary services, to the community that would be required to approve and support the changes.

Step 2: Refine the capital planning process
In this step, waste or inefficiencies in existing processes are identified, as are cases where processes are not meeting evolving needs. Examples might include delays in procurement, a lack of cash flow tracking for projects on a monthly basis, etc. Staff are interviewed, projects are reviewed, and current processes are documented. The result is a strategic capital planning process that more efficiently delivers more meaningful results.

One example of an improved capital planning process comes from a major municipality in Pennsylvania that was under serious fiscal stress from prior capital asset investment program decisions and an unsustainable debt load. The court placed the municipality in receivership and made them subject to Commonwealth recovery support.

Raftelis was engaged to conduct an independent review and provide recommendations to ensure the municipality was financially able to meet service levels and get above water financially.

After stakeholder interviews and careful analysis, Raftelis delivered a sustainable, dynamic, multi-year Capital Improvement Plan that included a sustainable CIP development process. This enabled the municipality’s existing internal resources to continue management decision support in future CIP development.

In the long-term, team’s efforts supported the reimagining of the municipality’s service approach and results, allowing the municipality to avoid bankruptcy, and the continued provision of vital municipal services.

Step 3: Ask the hard question, “can we do more with less?
In this step, our team works with clients to identify opportunities to reduce their operations budget. Major operations expenditures will be discussed and reviewed with staff to understand details, evaluate confidence in budgets, ensure risks are identified, and determination of whether or not expenditures will achieve the required outcomes.

A recent example comes from Hamilton County, Ohio – a Raftelis client since 2011 – where Raftelis staff have served as part of a finance, regulatory risk, engineering, technical and third-party review team of consultants on capital and operations reviews and evaluations.

On an annual basis we review regulatory obligations and asset management needs; working to determine the necessary capital and operating budgets for the wastewater utility. With a focus on efficiencies and how to do more with less, our team has documented savings of approximately $780 million in operating and capital budget expenses. The impact of those savings to the wastewater utility ratepayers was an avoidance of 25.5% rate increases due to operating expense avoidance and 17.6% rate increases due to capital expense avoidance.

Step 4: Document the program and communicate
Finally, changes to the program and processes must be implemented. Improvements must be implemented in a logical, stepwise, rapid manner. To that end, Raftelis develops a clear implementation plan, accompanied by a strategy to communicate effectively within the organization, to elected officials, and to outside stakeholders is developed and implemented to meet priorities and goals.

Rather than writing a report with recommendations and leaving it to clients to find time to implement, Raftelis provides the necessary staff and skillsets to help them quickly and efficiently implement the recommendations.

A good example of pushing the ball over the goal line comes from our work with Northern Kentucky Sanitation District No. 1 (SD1). Raftelis staff, formerly with SD1, developed multiple operations and capital delivery improvement programs to be implemented by in-house staff, which greatly increased efficiency and lowered costs. These improvements moved SD1 from primarily a reactive organization struggling to meet cash flow targets each year to a proactive organization that increased capital delivery from $20M per year to $150M per year. Accomplishments included:

  • Led 4.5 full-time equivalent staff to deliver between $100M to $150M of capital projects annually through highly efficient processes and procedures, staff training, and strategic and cost-effective use of consultant support
  • Lowered cost of CCTV inspection by 25%
  • Automation saved $725,000 in the first year by reducing the number of pipes needing cleaning while simultaneously reducing dry weather SSOs by 24%

To learn more, view our insight on capital planning and delivery during the pandemic.