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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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