Re-engineering public utilities
Managers of government-owned utilities often face the impossible task of meeting public needs while remaining competitive with private operators. Recently, their jobs have become more challenging because of government deregulation and increased competition from the private sector in several industries, including water and wastewater treatment and distribution services.
Although public utilities face demands that private sector businesses do not, they can integrate some best practices from the private sector into their operations, such as offering incentives for superior performance and documenting employee accountability. King County, Wash., and Cincinnati are two communities that have adapted private sector business practices to their utility operations to improve functions such as capital improvement plan delivery and fleet management.
Managing capital projects
Struggling to meet its capital project needs in light of declining revenues and failing infrastructure, the King County, Wash., Wastewater Treatment Division (WTD), began a capital improvement program (CIP) that is expected to cost approximately $1.8 billion over the next 25 years. The program includes major improvements to the division’s wastewater collection and conveyance system, construction of a new wastewater treatment plant, reduction of inflow and infiltration, and continuing renewal and replacements of various other parts.
Managers within the WTD decided to adopt best practices from the private sector for the CIP to minimize rate increases necessary to cover project costs. Rather than adopt private sector protocols directly, the division’s staff members assessed the utility and adapted practices to address specific conditions at the facility. They also reviewed data about best practices compiled by a consultant, including ways of streamlining the overall CIP and meeting routine maintenance objectives.
“We felt it was important to take the benchmarks and best practices from the business world and then adapt them to meet our own needs,” says Don Theiler, King County’s WTD director.
The division assembled a Capital Programs Business Planning Team to analyze current practices, identify areas for improvement and develop strategies to deal with each area. The review took several months and included:
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Interviewing 42 WTD and King County staff members, including internal WTD staff from Senior Management, Facilities Planning, Construction Management, and Operations and Maintenance, as well as representatives from Procurement, Environmental Planning, Community Relations, Water and Land Resources and Finance;
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Mailing detailed electronic surveys to all 800 WTD employees. The survey focused on ways to improve the capital project delivery system;
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Reviewing eight completed projects — four large and four small. Large projects consisted of recently constructed sewers and pump stations, and small projects included equipment replacement and construction of small pump stations. The team identified elements of the projects that affected either the cost or schedule at the concept development, design and construction phases. For each project, interviews were held with the project managers, as well as staff from Facilities Planning (not applicable to the small projects), Construction Management and Operations.
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Once the self-assessment process concluded, the team had generated a lot of ideas about how the current system could be improved. “With a system our size, we had to break the program up into parts and then look at different aspects in order to make headway,” Theiler adds.
After identifying the issues, the consultant presented potential strategies to both the Capital Projects Steering Committee and the Capital Business Planning Team. Both groups’ ideas were incorporated into the strategies.
Mark Isaacson, the WTD utility manager who oversaw the project, says getting input from all of the stakeholders was key. “The employees’ opinions of what should be done helped steer the program’s objectives,” he says. “After all, they know the goals best.”
From a thorough, system-wide prioritization of projects to life-cycle costs and budget accountability, the problems in each critical area of the CIP were identified, solutions were outlined and then three to four “action” tactics were identified. For example, the WTD found its project priority ranking system ineffective, including an inability to identify projects that could be modified or completely eliminated. As a result, the WTD developed three ways to correct the problems: a more rigorous project review/screening criteria process, including needs assessment; a periodic prioritization review of all projects; and the packaging of strategic projects into single work items.
Objective, business-like practices — such as budget control, scheduling and accomplishment rates — also were balanced with more subjective, intangible utility practices specific to King County. “I think it would be impossible for a county or city to mold its programs into business standards without taking into account the special needs they have already. You need to combine both to make it work,” Isaacson says.
For example, certain aspects of WTD’s culture ran counter to efforts to improve productivity. Historic priorities within the agency (i.e., safety, quality and environmental mitigation) made it difficult to implement some private sector-style business practices. To improve the situation, the WTD developed three strategies for improving productivity: obtaining a better understanding of the financial implications of priorities; enhancing staff understanding of constraints imposed by the public; and developing consistent approaches to weighing priorities and cost/performance.
The assessment and objectives outlined were only the first step for King County’s WTD. The utility is implementing the CIP, which could unfold over months for some objectives and years for others.
Controlling fleet expenses
Over the last two decades, private business models have become successful tools to help manage other utility responsibilities, such as fleet maintenance. If left unchecked, fleet maintenance costs can escalate and consume a large part of a utility’s budget.
That was the case for the Cincinnati Solid Waste Department in 2001. “The cost of maintaining our solid waste management fleet was annually increasing, and, in 2001, we had reached a level of over $2.5 million,” says Karl Graham, solid waste manager for Cincinnati’s Office of Environmental Management.
The department had become buried in reports about fleet performance and operations, but it had failed to use any of the data to improve processes because of the glut of information from the Fleet Services Department. Almost all of the information was ignored or not understood, which led to frustration in the Solid Waste Department.
The solution was for the fleet services manager and the sanitation fleet manager to agree on the amount of data that is necessary to manage the fleet and how often they need to receive it. The answer to those questions became the basis for future decisions from prioritizing equipment maintenance tasks to sizing the fleet, and, because of a clearer understanding of the information needed, tensions eased.
By assessing fleet routes and size, department managers were able to look at the big picture. “We were able to identify areas to reduce costs and develop support initiatives,” Graham says. He estimates that maintenance and repair on vehicles has been reduced significantly by methodically scheduling routine maintenance, for example, much like businesses conduct routine audits.
“In the first six months of fiscal year 2002,” Graham adds, “we achieved savings of more than $400,000, representing a reduction from the prior year’s expenditures by a rate of approximately 30 percent.”
Adapting best practices
Running a public agency “more like a business” is usually based on a desire to improve service. Whether the city or county utility department provides solid waste collection or water/wastewater treatment, it can incorporate private sector practices into its operations.
Because private entities are profit-driven, some best practices do not apply to public utilities. Therefore, the public sector must adapt private sector business approaches to fit its requirements. However, utility managers should consider that:
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The underlying mission of the public organization may constrain some improvement initiatives;
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The organizational structure of the utility may place serious obstacles to some types of changes; and
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Employees are some of the best sources of ideas on how to improve the organization.
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Customers and constituents expect public utilities to operate more like well-run, private sector businesses, and shrinking budgets and threatened revenue streams demand that utilities operate as efficiently as possible. By taking the first steps to examine their operations, public utilities can set a course for improved performance.
Bob Bingham is a senior consultant in the Infrastructure Services Group for Seattle-based R. W. Beck.