Elizabethton Electric System Study Update
by MTAS, August 2004
Introduction
This is an update of an MTAS study conducted July of 2002. The update was requested
by EES Board member Gary Nave. The two consultants assigned to the update were Bill Young,
Utility Consultant and Pat Hardy, Municipal Management Consultant.
The following methodologies were employed in order to conduct this update:
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Interviews were conducted with two Board members, including the Chairman.
Interviews were conducted with the EES General Manager.
Pertinent documents such as the proposed Personnel Policy Manual were
reviewed.
Financial documents were reviewed, including the last few years budgets, audits,
financial statements, etc.
A meeting was held with Financial Consultant Karen McMurray.
General Discussion of This Update
Below we have provided a list of the original recommendations and a status discussion of
each. In general the reader will find that most recommendations have not been achieved. There
are a number which are Ain progress@ and which we understand may be implemented in the near
future, but as of our examination they have not been accomplished.
There may be a number of reasons for this, but while reviewing our original
recommendations it became apparent that each was important and that our original goal of
making recommendations to Atake the system to the next level@ is still a valid goal.
We believe that it is the responsibility of the EES General Manager to facilitate
implementation of the recommendations in this report. It is also the responsibility of the Board to
push for this facilitation. The Board of Directors are those who, through their status as
representatives of the public, Aown@ the Elizabethton Electric System. Their wishes in terms of
the implementation of recommendations in this report should be considered of utmost
importance, and we believe from discussions with the General Manager that EES staff
understand and support this view.
We also believe the EES may have developed an Aunbalanced@ Board-Staff/Employee
relationship. In this case the balance may be tilted toward the staff/employee side. Many of the
important tools by which the Board governs the system are not fully and adequately in place, and
into this void staff and employees make decisions. By doing so they in effect Aoperate@ the
system from both an administrative and policy-making perspective. This can happen for a
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number of reasons, and it really does not matter why. But it is a situation which must be
corrected.
Some of the policy-making (Board) tools which are not fully developed are:
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The budget process.
Personnel Policies and Procedures (which includes components of the union
contract).
Financial reporting.
A set of goals and objectives.
An Administrative Manual.
Until these mechanisms are firmly in place the Board-Staff relationship will remain
unbalanced.
Update of Recommendations
This report will proceed by listing each of the original recommendations and providing a
status condition for each. Following this a list of additional recommendations and discussions is
presented.
1.
Recommendation: the Board, in concert with key management, should establish a
clear set of long-range goals and objectives for the EES.
Status: Not complete.
Discussion: Without these goals it is nearly impossible to attain a desired future because
we don=t know where we are going.
2.
Recommendation: The Board and key staff should hold an annual Aretreat@ (one
day, day-and-a-half, etc) in order to develop long-range goals, discuss progress
made toward achievement of those goals, address important issues facing the
system, develop new initiatives, etc.
Status: Not complete.
Discussion: This goal should be accomplished in concert with goal #1 above and should
serve as the vehicle for development of long-range goals. But the second, and equally
important part of this goal is the opportunity for the Board to interact with key staff in an
informal atmosphere.
While undertaking these studies we have observed an Aus/them@ feeling between the
Board and staff. No doubt this sort of divide will always be present, due largely to
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differences between the policy-making and administrative components of governing.
However, we observed a divide which is greater than necessary and one which prevents
moving forward in any significant way. One of the best ways to overcome these divisions
is to work together on the development of common goals, including the identification of a
desired future and the means to get there.
3.
Recommendation: A new budget format should be developed which provides a
greater level of line-item detail or at a minimum a specific explanation of what is
included in each.
Status: Not complete.
Discussion: Because the budget represents policies (services and service levels) in the
form of numbers, it is essential that it be in a format which facilitates the translation of
Board policies into numbers. It should later be presented to the Board at each regular
meeting so they can track progress on each budgeted item. We have not seen this format
and thus we do not believe that the current budget adequately serves as a tool to achieve
Board policies.
Management has indicated that the new IFMS (Integrated Financial Management System)
software will allow more flexibility in financial reporting and should be in place in early
F/Y 2005. Although EES must adhere to the TVA system of accounting the presentation
and terminology is not understand by laymen. Although it would take extra effort now,
we believe a more Auser friendly@ analysis of the monthly statements could be done.
Within the line items such things as payroll, materials, etc. could be further detailed.
We also believe that such a format can be developed irrespective of the new software.
The budget translates services and service levels into numbers. As such it is the most
important policy document passed each year by the Board. It is the responsibility of the
General Manager to prepare a draft budget, present it to the Board in a workable format,
make changes requested by the Board, facilitate passage of the document, and finally to
implement the budget in good faith.
4.
Recommendation: A new monthly financial reporting format should be utilized
which clearly details each department=s revenues and expenditures.
Status: Not complete.
Discussion: Again, management has said that the new IFMS software will help remedy
this problem. This will be excellent if accomplished because the completion of this
recommendation is of the utmost importance. It is a key to the effective implementation
of Board policies and the effective management of those policies.
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Without an effective financial reporting system the Board cannot track the system=s
finances, including the financial implication of Board policies.
In order for each of the department heads to effectively manage their finances they too
must have timely and accurate financial data. They don=t, and therefore they cannot be
expected to manage their share of the system=s resources. In short, this recommendation
must be achieved in order to move the EES toward becoming an organization which is
Amanaged@ rather than one which is simply Aadministered@.
5.
Recommendation: The City Manager, EES Manager and key finance and IT
personnel should meet in order to develop all alternatives and recommendations for
a joint billing program.
Status: Not complete.
Discussion: We are told that informal meetings have been held wherein a joint billing
operation has been discussed. However, our recommendation specifically addresses the
need to examine alternatives through a proactive approach. This has not been done. We
considered this important because many policy-makers have, over a period of years, asked
for an exploration of the possibilities for joint billing. Taking a proactive approach to
developing alternatives and really looking for ways to make this work would signal a
needed responsiveness to Board inquiries.
We also recommended that other joint-operations initiatives be examined from time to
time. These include GIS and CAD systems for example. An effort in this regard has not
been undertaken.
6.
Recommendation: An AAdministrative Policy Manual@ should be developed which
details all policies regarding services, charges, etc.
Status: Not complete (draft only).
Discussion: We have reviewed the draft EES Administrative Policy Manual. It is an
excellent manual and contains most of what should be in a manual of this type (note:
there are two sections in the Manual and they are not in a common format - in fact one
section appears to be a copy of a copy - this layout should be improved in the interest of
professionalism). However, the Manual has not been finalized and adopted by the Board.
Note: On page 2 of the Manual the ARewire Trip Charge@ is shown to be A$10". On page
4 the ARewire (Reconnect and Disconnect)@ charge is shown to be A$25 (one charge for
both trips)@. Is this correct?
7.
Recommendation: A comprehensive set of Personnel Policies and Procedures or
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Employee Handbook should be developed and distributed to all employees.
Status: Not complete (draft only).
Discussion: We have reviewed the draft Personnel Policy Manual. It is a fairly
comprehensive manual and seems to include most important information needed by
employees (and each employee should receive a copy of the manual). However, the
manual is in great need of editing. There are a number of instances where information is
either incomplete or in the wrong place, and even instances where information is
incorrect (for example, the APolitical Activity@ section - HR 26 - does not reflect current
state law). In addition, there are a number of other policies which are not included in the
document (e.g. internet use policies, cell phone policies, etc.). We have reviewed the
manual in great detail and would be happy to sit down and discuss improvements.
The manual should be formally adopted by the EES Board. Prior to this each member of
the Board should closely review the manual to be absolutely sure that its contents reflect
the personnel policies which the Board would like to grant to employees.
8.
Recommendation: The Board should formally evaluate the Manager=s performance
on a yearly basis.
Status: In process.
9.
Recommendation: Employee evaluations which accurately reflect an employee=s
performance should be completed each year.
Status: Complete.
Discussion: We understand that this has been completed. However, we would like to note
that the evaluation instrument as contained in the Personnel Policy Manual is unclear in
terms of its rating scale.
In addition it has been mentioned that the effectiveness of employee evaluations has been
Alost@ due to the cost of living raises required by the union contract. Although this may
somewhat be true it reflects a lack of understanding of the importance of evaluations for
reasons other than those related to pay. Some of these benefits include improvements in
supervisor/employee communications, tracking progress toward achievement of
organizational or personal goals, identifying training or employee development needs, etc.
10.
Recommendation: A study should be undertaken every 5 years which estimates the
long-term cost of providing health insurance until age 65 and which identifies
current funding levels which may need to be applied today in order to meet these
expenses.
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Status: Not complete.
Discussion: We understand that the auditor will help with this recommendation. In
addition, we previously suggested that the full cost of providing unlimited sick leave,
with cash-out provisions, also be analyzed on a routine basis so that the true cost of this
benefit can be carried in the accounting system (and so that the real cost of this benefit
can be understood and tracked by the Board). This has not been completed.
11.
Recommendation: A set of recommendations and alternatives for controlling
overtime costs should be developed by staff and presented to the Board for
consideration.
Status: Not Complete.
In discussions with the General Manager we were told that difficult weather situations in
2003 continued to place an overtime burden on the system. However, it should be noted
that none of our recommendations were dependent on weather. Each is a management
strategy or policy designed to curb a serious expense-related problem ($185,558 in 2003 note: there were 3 employees who received about $20,000 each in overtime payments
during this period).
The status of each recommendation is as follows:
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Elimination of overtime payments for employees who are exempt from the
overtime requirements of the Fair Labor Standards Act (the law which regulates
minimum overtime requirements).
Status: Not complete.
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Controls placed on how overtime is authorized and who is used for overtime
work.
Status: Not complete.
Discussion: Supervisors are now required to authorize overtime. However, this
has not been adequate in terms of reducing unnecessary overtime. Additional
authorizations and controls are needed.
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A reassessment of services which will be provided after regular working hours
and a re-examination of what constitutes an Aemergency@.
Status: Not complete.
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Consider sending one person, rather than an automatic two, on certain non lifethreatening calls.
Status: Not complete.
Discussion: Only one person is sent during daylight hours.
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An examination of overtime policies/benefits. For example, overtime is paid for
all hours worked in excess of 40 in a week. But if a vacation day, sick leave day or
a holiday is taken during the week these hours are counted toward the 40-hour
threshold (this provision is in the union contract but is not required by the Fair
Labor Standards Act.). Thus overtime is being paid for hours which are not
worked in excess of 40.
Status: Not complete.
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This effort should also include an examination of policies such as the minimum 2hour callout policy (it may be that a 1-hour callout is adequate) or the policy of
paying both standby and callout pay at the same time.
Status: Not complete.
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Alternative work-hours policies should be considered. For example, if an
employee has worked 40 hours before the workweek is finished they can be sent
home, thus avoiding working longer than 40 hours during the week. Or, if an
employee is called-out and the minimum 2 call-out hours are reported, they can be
required to leave two hours early the next day, thus avoiding overtime.
Status: Not complete.
12.
Recommendation: Key staff should receive monthly statements clearly showing
overtime use by their employees (such statements should show how much overtime
was used, who has taken overtime, when it was taken, and why it was used).
Status: Not complete.
Discussion: This recommendation is at the heart of the concept of providing managers
with the information they need in order to adequately manage - to be responsible for the
decisions they make.
Key staff should also include written explanations to the Manager as to the reason for the
overtime and discuss any future remedies (if one is possible). It might be helpful to
provide this information on a spreadsheet that covers the fiscal year rather than just
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including one month at a time, as it would give a much clearer reference point to previous
months.
13.
Recommendation: The Elizabethton Electric System should work toward funding a
level of reserves equal to 10% of revenues (approximately $3,500,000).
Status: Unknown.
Discussion: According to the TVA Annual Report the Net Cash and Temporary
Investments was $3,060,342 at June 30, 2003, an increase of $1,040,329 from F/Y 2002
($2,020,013). At first glance it appears that the EES is moving toward the target goal of
10% of revenues. However, it should be noted that these are not necessarily unrestricted
funds (a true Afund balance@). The system must work to identify unrestricted and
unbudgeted funds so that the Board and management can understand the actual fund
balance held by the system.
Such a fund balance should be clearly identified if a new budget format is utilized (as
previously recommended and as discussed below). This unrestricted balance will reflect
the difference between revenues plus the previous balance and all fiscal year
expenditures.
14.
Recommendation: Provide the Board with a more concise analysis of the cash flow
of the utility.
Status: Not Complete.
Discussion: Management indicates that the new IFMS software, with installation
scheduled for early F/Y 2005, will provide for a more diverse reporting system which will
allow EES to produce reports scaled to their needs, including a more concise cash flow
analysis.
Currently, EES is compiling an Analysis of Funds which highlights the monthly cash
activity by General Fund, Investments, and Sinking Fund. It also includes a graph
illustrating fund analysis. EES has made a positive step in providing better cash analysis
to the Board, but this effort must be continued and improved.
15.
Provide the Board and staff with a breakdown of payroll by each segment or
department of the electric operation.
Status: Partially Complete.
Discussion: EES provided us a copy of two overtime reports which we assume are being
provided to the Board. One lists pay and hours by department, the other lists overtime by
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individual. This is the type of payroll-related information which is needed. But it is not
complete. The Board should see this information on a monthly basis with a AYear to
date@ column added so that payroll costs through the year can be tracked.
16.
Here is a summary update of the financial statistics presented in the original report:
EES Statistical Comparison
F/Y 2002
F/Y 2003
% change
Total Revenues
Purchased Power
O & M Expense
Net Income
$34,471,559
$26,036,461
$ 6,769,396
$ 1,457,654
$35,593,327
$27,092,252
$ 7,096,933
$ 1,182,218
3%
4%
5%
(19%)
KWH Sold
KWH Purchased
526,329,589
551,784,018
539,499,705
569,626,371
2%
3%
Total Customers
3,704
3,727
1%
Discussion: The EES net income is down by approximately 19% over the past year. This
occurrence is not a reason for extraordinary concern, but if the trend continues it must be
addressed. This is primarily due to a 4% increase in the cost of purchased power coupled
with a 5% increase in operations and maintenance expenses. Together these have
outpaced the 3% revenue increase.
Other Recommendations:
1.
Because many of the recommendations in this report deal with financial matters the EES
staff and Board may want to take a look at the structure of its finance division. One
suggestion may be to divide finance into two distinct divisions, one responsible for
accounting and the other responsible for the budget, financial reporting, and managementrelated-activities such as interactions with the Board. Top professionals, be they internal
or external candidates, should be recruited and hired into these positions.
2.
The EES should put into place the capacity to receive on-line bill payments. They should
also begin to accept credit cards for payment of bills.
3.
The analysis and recommendations presented by Karen McMurray (Blackburn, Childress
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and Stegall) should be implemented as soon as possible. The implementation of these
should be tied to recommendation #2 above.
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