raftelis report on siemen's contract
TRANSCRIPT
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1031 S. Caldwell Street
Suite 100
Charlotte, NC 28203
Phone 704 . 373 . 1199
Fax 704 . 373 . 1113
www.raftelis.com
February 27, 2015
Ms. Kishia Powell
Director, Department of Public Works
City of Jackson
200 South President Street
Jackson, MS 39201
Re: Phase 1 Final Report – Draft Final
Dear Ms. Powell:
The Raftelis Financial Consultants, Inc. (RFC) Project Team (RFC, Intel Business Solutions, and SOL
Engineering Services, LLC; and together, the Project Team) has completed our initial engagement for the
City of Jackson (City). The initial engagement evolved to include the following tasks.
• Task 1 – Strategic Financial Planning
• Task 2 – Revenue Sufficiency Analysis
• Task 3 – Billing System Data Review
• Task 4 – Siemens Contract Review
• Task 5 – Infrastructure Master Plan Development
•
Task 6 – Additional Efforts
We have accomplished the objectives outlined in our scope of work and have assisted on a number of
additional issues that have arisen during our engagement. The attached report, which consists of an
Executive Summary and four technical memoranda, summarizes our work and findings for the various
tasks.
We have appreciated the opportunity to work with you and your staff. As noted in the report, there are
a number of tasks that still need to be undertaken, and we hope to have an opportunity to continue to
work for the City and with you and your staff. Should you have any questions regarding the report,
please contact me at (704) 936-4433.
Sincerely,
Peiffer A. Brandt
Chief Operating Officer
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EXECUTIVE SUMMARY
The City of Jackson (City) engaged a project team led by Raftelis Financial Consultants, Inc. (RFC) and
including Intel Business Solutions (IBS) and SOL Engineering (together, the RFC Project Team) to provide
assistance with various financial and management issues which the City currently faces. There were six
tasks included in the engagement. As the project progressed, the scope within certain tasks evolved
from what was originally contemplated. For example, the two tasks related to the Siemens contract
were combined into a single task. There was also an Additional Task, which included three subtasks
associated with issues that arose during the engagement, and was incorporated accordingly. A
summary of each task is provided below.
TASK 1 –STRATEGIC FINANCIAL PLANNING
The Project Team participated in two strategy sessions with City of Jackson leadership. Based on these
sessions, we identified 37 tasks the City needs to undertake to enhance the financial and management
sustainability of its Department of Public Works (DPW). A few of these tasks were included in the initialscope of work. We prioritized all the tasks, categorizing them as requiring attention 1) within six
months; 2) in six months to a year; or 3) in a year plus. Of the 37 issues identified, 21 were categorized
as needing attention within six months. We prepared a brief technical memorandum (Technical
Memorandum 1 or TM1) summarizing our findings, which is part of this report. In addition, an Excel file
with the matrix of prioritized tasks has been provided to DPW. We anticipate this matrix being an
evergreen document of the City’s, with it being updated as new issues for DPW arise.
TASK 2 – REVENUE SUFFICIENCY ANALYSIS
The Project Team developed a financial plan for the water and sewer system. Even though the City wasable to provide most of the data needed, there were certain data that could not be provided so the
Project Team developed assumptions as necessary. The financial plan indicates that with the current
rates the City will just achieve necessary coverage in FY 2015 based on the assumptions made by the
Project Team. In future years, the City’s revenues will not be sufficient to meet the necessary debt
service coverage. The chart on the following page shows the revenue sufficiency challenge faced by the
water and sewer system.
The Project Team provided an overview of the financial planning model via a webinar for City staff. The
financial planning model, which is a deliverable of the task, can be used to evaluate different capital
plans, rate structures, levels of operating expenses, etc. Technical Memorandum 2, which is part of this
report, summarizes the financial results and the associated assumptions.
There is significant uncertainly regarding the level of metered consumption and magnitude of capital
and operating costs going forward for the water and sewer system. The City needs to refine the
assumptions used in the financial planning model as better information becomes available. Given the
size of the revenue shortfall in the out years, the City will need to restructure and may need to raise its
water and sewer rates, so the City should begin focusing on rate planning and structuring.
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Exhibit 1: Expenses versus Current Revenues
TASK 3 – BILLING SYSTEM DATA REVIEW
The Project Team completed an initial billing system data review. This effort commenced in late
October with data acquisition and was carried out through a series of independent large-scale billing
data reviews, interviews with Information Services and Customer Service staff, and on-site account-level
data forensics. We first compiled historical data on consumption, billings, collections, and
customers/accounts to reconcile the billing database logs with those numbers being reported to and
used by the City. Then we turned our attention to the active metering, billing, and collections data
stored in the legacy billing database.
The Project Team identified one major systemic issue, the misapplication of the minimum sewer charge,
and several inconsistencies between billing policy and data within the billing system. These included a
variety of accounts registering consumption but not being billed, exempted accounts, and vacant
accounts registering consumption. In an effort to review the advance metering infrastructure (AMI)
meter installation results, the Project Team also identified new AMI meters that were stuck at or near
zero, or were reading above a reasonable threshold. There were also large and frequent adjustments to
accounts, as well as accounts with very old accounts receivable that raised potential concerns. For each
of the ten categories of perceived inconsistencies or potential concerns, the Project Team developed a
sample of accounts for detailed review within the database’s production environment.
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Project Team members participated in three on-site sessions to conduct detailed account-level review
and to gain a more complete understanding of existing processes. In addition to verification of potential
policy misapplication, the Project Team found many data quality concerns to be related to non-standard
practices and procedures around account adjustments, estimated reads, account exemptions, and
enforcement standards.
Overall, the goal of this task was to identify the current revenue problems based on the symptoms
found through the data analysis and detailed on-site analysis. Based on our efforts to date, we have
grouped the issues identified within three classifications:
1. Unbilled Revenues – many accounts continue to receive services and are not timely or
routinely billed, primarily due to untimely meter shut-offs and significant water theft issue.
2. Ghost Revenues – many accounts fail threshold exception edits primarily due to meter reading
errors resulting in large and frequent adjustments.
3. Uncollected Revenues – many accounts are delinquent and have significant accounts
receivable balances. However, the city does not have an active/proactive collections process.
Going forward, the City will need assistance in remedying the problems identified. The Project Team
recommends implementing a series of improved standard operating procedures and oversight
procedures for common business practices such as calculating and applying adjustments, logging and
verifying work orders, and collections best practices. Additionally, the Project Team recommends that
the conversion to the new CC&B billing system include measures to verify that potential process-driven
failures identified within the existing system are not propagated into the new system. Testing for
conversion has begun and processes for flagging or remedying these exceptions should be included in
this exercise.
TASK 4 –SIEMENS CONTRACT REVIEW
The Project Team completed an in depth review of the City’s contract with Siemens and prepared a
technical memorandum (TM4) that summarizes the key terms of the contract and provides details
regarding the “guaranteed savings” that Siemens maintains will be realized by the City as a result of
work that Siemens performed under the contract. As pointed out in TM4, the majority of savings are
stipulated, which means they are assumed to occur. Since these savings are assumed to occur, the
contract does not identify a protocol for testing to determine if the savings are realized. The table and
chart below show the level of stipulated savings in Annual Period 2. There is a unique amount of
Guaranteed Savings for each annual period. We chose to show Annual Period 2 because it represents
the first year of full savings. As can be seen, the stipulated savings are 65% of the total savings. The
technical memorandum also touches on the actions that must be taken by the City in order to maximize
the benefits offered by the Siemens contract.
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Exhibit 2: Savings from Annual Period 2
Once Siemens completes the projects it is performing under the contract, the City will have a state of
the art water metering system and a new customer service/billing system (Oracle CC&B) with additional
capabilities. These two systems are the key drivers of the increased revenue and savings that Siemens
has promised to the City. However, as discussed in TM4, the City must first ensure that the meters and
billing system are properly installed and configured. Second, the City must also implement changes in
its metering and billing processes.
To ensure the City gets the greatest value from the contract, the City needs to enhance its oversight of
the Siemens contract. In addition, the City should quantify any unexpected costs or lost revenue
associated with the Siemens’ team performance under the contract.
TASK 5 – INFRASTRUCTURE MASTER PLAN DEVELOPMENT
The primary objective under this task was the development of the year 1 capital improvement plan (CIP)
for projects that may be funded using receipts from the Infrastructure Tax. The CIP must be approved
by the Commission before any of the funds from the Infrastructure Tax are utilized on projects. The
Project Team reviewed existing master plans for each of the utilities/assets (water, sewer, drainage,
streets, and bridges). Unfortunately, the City does not have recent CIPs for each utility/asset group. The
Project Team worked with City staff to prepare a draft CIP and revise the draft after comments provided
by City staff. Originally, the City was going to take the lead on this analysis, but due to limited staff
resources and time constraints, the Project Team led the effort to prepare the CIP that was presented to
the Commission in January.
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Another component of the task was to understand the policies and procedures associated with the
revenue from the Infrastructure Tax. The Project Team met with the City’s Finance Department staff
and discussed the Infrastructure Tax. As part of this discussion, we contacted the State to gain a better
understanding of the components of the Infrastructure Tax.
TASK 6 – ADDITIONAL EFFORTS
Following the initiation of the project, the City requested the Project Team to undertake three additional
tasks.
• Moody’s Rating Evaluation Support – Moody’s, who has rated the City’s debt in the past,
requested an opportunity to update its ratings on the outstanding debt. As the process
unfolded, the City asked the Project Team to help as possible because the City does not
currently have a Financial Advisor. This assistance involved compiling and reviewing data
requested by Moody’s, participating in internal calls and calls with Moody’s to discuss the
situation in Jackson and the data provided, and reviewing the ratings report and helping to crafta press release.
• Capital Funding Options Analysis – The City has significant capital needs. In order to maximize
the capital projects undertaken, the City needs to understand various capital funding options.
The Project Team provided a comprehensive overview of potential options available along with
some commentary as to the relevance to the City.
• Green Infrastructure Challenge Assistance – The Infrastructure Tax is going to provide revenue
for needed drainage projects. The City is interested in a mixture of green and gray solutions to
overcome drainage challenges. In an effort to leverage resources and better understand the
potential capability of green infrastructure applications to solve drainage issues, the City would
like to undertake a Green Infrastructure Challenge. This task involved attending meetings
related to the Challenge and producing materials, such as flyers, to publicize the Challenge.
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Technical Memorandum #1
Strategic Planning Issues
The Strategic Planning task was the initial task of the Project Team’s engagement to provide financial
and management consulting to the City of Jackson (City). As part of this task, members of the Project
Team participated in multiple strategy meetings and discussions with key City staff, which aresummarized in this technical memorandum. During the initial meetings, the City staff and Project Team
members brainstormed about the various challenges facing the City. Primarily, the Project Team
listened as City staff enumerated various issues. The results of these brainstorming sessions were
captured and the Project Team aggregated issues as appropriate. Ultimately, we identified 37 issues.
These issues were categorized into the following five groups.
1. Financial Management
2. Human Resources
3. Infrastructure Investment/CIP
4. Regulatory/Compliance5. Service
After categorizing the issues, the Service category had the most issues (14), followed closely by Financial
Management (13).
The next step was to prioritize the issues. In particular, issues were grouped as needing focus 1) within
the next six months, 2) in six to twelve months, or 3) outside of a year. The initial prioritization was
based on the potential impact of the issue. There were 21 issues that were prioritized in the “within the
next six months” grouping. Some issues received multiple prioritizations. The reason for multiple
prioritizations for certain issues was the RFC Project Team believed the City needs to take some steps
associated with the issue immediately and some steps at a later date. A good example are two of the
Service issues related to Communications. Public outreach, for example, needs to occur to some extent
in the near term and the City should develop a long-term approach to public outreach regarding Public
Works issues. As the City’s situation evolves, it is likely that the prioritization may need to be modified.
The Project Team also identified additional information that should be included in the matrix over time.
The City should determine the fiscal impact of addressing the issue, both the direct cost of addressing it
and the potential impact from it being addressed. For example, the fiscal impact of providing refunds to
customers outside of the City includes the cost of calculating and dispensing the refunds and the total
amount of the refunds. The City should also identify the person on City staff that is responsible for
overseeing the issue (“City Staff Lead”). Being the lead for the issue does not mean that person has todo all the work resolving the issue, but that the person provides the oversight for the resolution of the
issue and has authority consistent with the responsibility. Thirdly, the City should identify the key
stakeholders for each issue.
The matrix is an Excel file that was originally developed in November and has been updated from time
to time. The worksheets from the current matrix are attached to this technical memorandum. The
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Project Team recommends that the Excel file remain a living document for the Public Works
Department. Undoubtedly, additional issues will arise and should be added to the matrix.
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Category Sub-Category Issue Description
0 - 6
months
6 -12
months
> 12
months Fiscal Impact Status
Key Stakeholders
Involved
Assgned Cty
S taf f l ead N ot es
Regulatory/
Compliance Compliance
Address storm water permit
requirements X
Cost of effort (staff and possibly
consultant time) and potentially
higher expenses DPW staff, MDEQ
Next permit renewal is in 2017. Addressing
this might hinge on determining in-house
resource that will coordinate. In addition,
this can be addressed by Program
Managers funded through the
Infrastructure Master Plan.
Regulatory/
Compliance Compliance
Address consent decree
requirements X
Cost of effort (staff and consultant
time) and potentially higher capital
costs
DPW staff, MDEQ,
Program Manager
Addressing this might hinge on determining
in-house resource that will coordinate. In
addition, this can be addressed by Program
Managers funded through the
Infrastructure Master Plan.
Financial
Management
Contract
Management
Need to ensure contract compliance
and vendor invoice accuracy and
appropriateness X X X
Cost of effort (staff and consultant
time), but potentially offset by
reduced contracting costs
Identify universe of contracts that shouldbe assessed. Need to set a limit as to how
large a contract needs to be to focus on it.
All large contracts (such as Siemens, United
Water etc.) should be addressed short
term. Other major contracts can be
addressed mid to long term.
Financial
Management
Financial
Operations
Infrastructure Sales Tax Analysis -
policy, accounting and administration
is weak or lacking X Ongoing
RFC team and DPW
staff
Included in current scope of work with RFC
team - see executed scope for details of
what will be addressed
Financial
Management
Financial
Operations
Billing Issues - need to determine
cause of significant under collection
relative to estimates X
Cost of effort (staff and consultant
time), but potentially offset by
higher revenues Ongoing
RFC team and DPW
staff
Included in current scope of work with RFC
team - see executed scope for details of
what will be addressed
Financial
Management
Financial
Operations
Need to identify alternative revenue
sources to ensure no obvious
revenue gaps and to optimize
revenue collections X X
Cost of effort (staff and consultant
time), but potentially offset by
higher revenues
Partially
ongoing
RFC team and DPW
staff
The optimization of revenue collections is
part of the objective of the data review that
is ongoing. Identifying and evaluating
alternative revenue sources should be a
focus later once things settle down a bit.
Financial
Management
Financial
Operations
Ensure compliance with bond
requirements, specifically revenue
sufficiency X Ongoing
RFC team and DPW
staff
Included in current scope of work with RFC
team - see executed scope for details of
what will be addressed
Financial
Management
Financial
Operations
Refunds to customers outside
Jackson X
Cost of effort (staff and consultant
time) and cost of refunds; amount
of refunds to be determined Amendment 2
City needs to determine refunds to those
customers charged at a higher rate than
allowed by MS PSC; also need to determine
process for "paying" refunds.
Financial
Management
Financial
Operations
Significant Water losses - approx.
40% X X
Cost of effort (staff and consultant
time) and cost of implementing
measures to reduce water loss;
may result in lower operating
expenses in the future
Consider conducting a water loss audit to
verify and measure magnitude of water loss
in the short-term. The audit provides the
benchmark and then allows the City to
determine progress towards improvement.
Activities that will result in reductions of
water loss typically hinge on
billing/metering (passive losses), upgrades
to linear assets or response time to water
main breaks. These strategies are typically
implemented in long term window.
Draft Final TM1-A1
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Category Sub-Category Issue Description
0 - 6
months
6 -12
months
> 12
months Fiscal Impact Status
Key Stakeholders
Involved
Assgned Cty
S taf f l ead N ot es
Financial
Management
Financial
Operations
Grants/City Contributions/Indirect
Cost Allocations - Need to
understand all non arms length
transactions with the city and other
city agencies to ensure no
revenue/expense gaps X
The current flow of money between the
City, DPW and the water/sewer enterprise
funds needs to be identified; an
appropriate process needs to be developed
and documented.
Financial
Management
Financial
Operati ons Opt imize debt s tructure X
Cost of effort (staff and consultant
time), but potentially offset by
reduced debt service
FA, City staff, RFC
team
Evaluate current debt service structure and
discuss challenges/opportunities for future
debt structuring
Financial
Management
Operating
Efficiency
Need better handle on payroll costs -
OT and benefits; headcount; pay
rates, etc. X
Cost of effort (staff and consultant
time), but potentially offset by
reduced operating expenses
Since labor costs are the biggest
component of operating expenses, DPW
needs to get a better handle on its payroll
costs.
Financial
Management Policies
Review current accounting practice
that comingles operating and capital
costs. Implement change where
appropriate that ensures separation
of capital and operating costs. X
Cost of effort (staff and consultant
time)
The City needs to establish guidelines for
capital versus operating costs
Financial
Management Policies
Inadequate financial and budget
policies - Need to document/update
where appropriate X
The City needs to identify and document
key financial policies to guide future
budgeting and ratemaking.
Human Resources Morale
Identify and implement efforts to
enhance employee morale X X X
Cost of effort (staff time and
materials) DPW Staff
Happy workers are more productive so
DPW needs to focus on employee morale
Human Resources
Operating
Efficiency
Assess organizational structure to
ensure optimized organizational
outcomes X X
Cost of effort (staff and possibly
consultant time), but potentially
lower expenses
Need to address key position vacancies
within the dept. There is a short-term need
to fill some key vacancies, but a broader
reorganization should be undertaken once
things have settled a bit.
Human Resources
Recruitment and
Retention
Need to be able to recruit and retain
high-quality staff X
Cost of effort (staff time and
materials) DPW Staff
DPW should have a recruiting plan. Once
good employees are found, it is much less
expensive to keep them than to find new
ones, so retention efforts are critical.
Human Resources Staffing
Need to identify the level of staffing
necessary to meet the required
service levels and to define the
qualifications for this staff X DPW Staff
With out adequate staffing levels and
capable employees filling those roles, the
City will not be able to maintain
improvements.
Human Resources Training
Need to develop a comprehensive
training program for DPW staff X
Cost of effort (staff time and
materials), but hopefully lower
operating expenses with a more
efficient workforce DPW Staff
In order to have and retain high quality
staff, DPW will need to identify and offer
training opportunities
Infrastructure
Investment/CIP
Operating
Efficiency
Need to ensure technology is
optimally leveraged X
Cost of effort (staff and possibly
consultant time), but potentially
lower expenses
It may be possible for technological
enhancements to ultimately reduce
operating costs. Potential upgrades should
be identified and evaluated in the mid to
long term.
Draft Final TM1-A2
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Category Sub-Category Issue Description
0 - 6
months
6 -12
months
> 12
months Fiscal Impact Status
Key Stakeholders
Involved
Assgned Cty
S taf f l ead N ot es
Infrastructure
Investment/CIP Capital Program
Need to finalize Infrastructure Master
Plan, including: Service areas; Needs
and Costs; time frame (phase one is
only 1st year plan ; prioritization
(critical, availability of funding;
mayors demo projects etc.) X Ongoing
RFC team and DPW
staff
Included in current scope of work with RFC
team - see executed scope for details of
what will be addressed. This task is
essential for overall financial picture and
need to be primary priority. Phase 1 will
address immediate needs, including
creating funding for PMs.
Infrastructure
Investment/CIP Capital Program
Need to finalize Infrastructure Master
Plan, including: Service areas; Needs
and Costs; time frame ( 2 - 5 year
plan in phase two); prioritization
(critical, availability of funding;
mayors demo projects etc.) X
Cost of effort (staff and consultant
time); CIP funding approaches will
determine ultimate cost Amendment 2
Would be addressed by Program Managers,
once brought on board. Key component of
the year 1 Infrastructure Master Plan is
getting a PM on board.
Service Communication
Public Outreach - need to develop
program to effectively communicate
rates and impacts X X X
Cost of effort (staff and consultant
time); level of cost is a function of
level of outreach
Challenge is this needs to happen ASAP, but
it is not included in the RFC team scope.
The long range financial plan needs to be
developed before fully implementing as we
need to know what to communicate.
However, in the short term, some general
good practice communication tasks could
be undertaken to start to build goodwill
with customers and stakeholders.
Service Communication
Multiple stakeholders appear to want
to wrestle control from DPW - need
to identify, understand and respond
timely and effectively to various
Stakeholder Interests X X X
Cost of effort (staff and consultant
time); level of cost is a function of
level of stakeholder interaction
Goal should be to identify who the
stakeholders are and a plan for engaging
each one. It may make sense to engage
them together or we may want to engage
some separately. In the short term, we
need to identify the stakeholders and their
issues. Mid term and long term activities
can then be developed to address them, if
they are not already on this list.
Service
Contract
Management
Need to assess and ensure contract
performance X X X
Cost of effort (staff and consultant
time), but potentially offset by
reduced operating expenses
Identify universe of contracts that should
be assessed. Need to set a limit as to how
large a contract needs to be to focus on it.
All large contracts (such as Siemens, United
Water etc.) should be addressed short
term. Other major contracts can be
addressed mid to long term.
Service
Contract
Operations
Siemens - WW facilities; contracted
operations - ensure oversight X
Cost of effort (staff and consultant
time), but potentially offset by
reduced operati ng expenses Ongoi ng
RFC team and DPW
staff
Included in current scope of work with RFC
team - see executed scope for details of
what will be addressed
Service
Contract
Operations
United Water contract (contracted
WWT operator) - ensure oversight X
Cost of effort (staff and consultant
time), but potentially offset by
reduced operating expenses
Initial thinking was the City needs to best
manage contract until it ends in about a
year, at which time the City would put
contract out to bid. However, it appears
that new and pressing issues related to
contract may require more immediate
action.
Draft Final TM1-A3
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Category Sub-Category Issue Description
0 - 6
months
6 -12
months
> 12
months Fiscal Impact Status
Key Stakeholders
Involved
Assgned Cty
S taf f l ead N ot es
Service
Contract
Operations
Siemens - Operating plan post
Siemens X Ongoing
RFC team and DPW
staff
Included in current scope of work with RFC
team - see executed scope for details of
what will be addressed
Service
Operating
Efficiency
Need to ensure cost of Production is
in line with industry- treatment,
collection, distribution (chemicals,
electricity, people) X
Cost of effort (staff and consultant
time), but potentially offset by
reduced operating expenses
Chemicals and electricity are typically the
largest costs behind labor, so these costs
need to be evaluated. One option is to
benchmark production costs with those of
peer utilities.
Service Policies
Ensure key operating policies and
procedures are in place X
Cost of effort (staff and consultant
time), but potentially offset by
reduced operating expenses
DPW should develop operating policies to
help minimize operating expenses.
Service Service Levels Define appropriate level of service X
Cost of effort (staff and possiblyconsultant time) and potentially
higher expenses to meet
appropriate service levels
DPW Staff and City
Council
DPW should move towards budgetingbased on level of service. In order to do
this, it is necessary to establish the level of
service the community desires.
Service
Wholesale
Agreements
Issues with agreement - West Rankin
Utility Authority (WRUA); need to
address United Water audit issue X
Cost of discussions (staff and
consultant time) and potentially
refunds and less future revenue Ongoing
RFC Team, DPW
Staff, and WRUA
Review audit performed by WRUA and
determine what needs to be done to
address the issues and the potential impact
on the City
Financial
Management
Wholesale
Agreements
Potential issue with rates currently
assessed to utilities outside city limit X
Cost of discussions (staff and
possibly consultant time) and
potentially less revenue
DPW staff and
Wholesale
Customers
There appear to be a number of issues
between the City and its wholesale
customers. The first issue that should be
evaluated is the rate issue.
Service
Wholesale
Agreements
Issues with agreement - City of
Ridgeland X
Cost of discussions (staff and
possibly consultant time) and
potentially less revenue or higher
expenses
DPW staff and City
of Ridgeland
Identifying the issues may be short to mid
term, but typical strategies to address
would probably be long term
Service
Wholesale
Agreements
Issues with agreement - Madison
County X
Cost of discussions (staff and
possibly consultant time) and
potentially less revenue or higher
expenses
DPW staff and
Madison County
Identifying the issues may be short to mid
term, but typical strategies to address
would probably be long term
Service
Wholesale
Agreements Issues with agreement - Hinds County X
Cost of discussions (staff and
possibly consultant time) and
potentially less revenue or higher
expenses
DPW staff and
Hinds County
Identifying the issues may be short to mid
term, but typical strategies to address
would probably be long term
Service
Wholesale
Agreements Issues with agreement - City of Byram X
Cost of discussions (staff and
possibly consultant time) and
potentially less revenue or higher
expenses
DPW staff and City
of Byram
Identifying the issues may be short to mid
term, but typical strategies to address
would probably be long term
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Technical Memorandum #2
Revenue Sufficiency Analysis
The purpose of the Revenue Sufficiency Analysis was for the Project Team to develop a financial
planning model for the City of Jackson’s (City) water and sewer system (System) which could be used 1)
to evaluate the System’s ability to meet debt service coverage under current assumptions and 2) to
address the System’s potential inability to meet debt service coverage in the future. The analysis was
required because the City did not meet its fiscal year (FY) 2013 rate covenant obligations associated with
the issuance of revenue bonds. The revenue sufficiency analysis also addressed the deficiencies noted
by Moody’s in their recent (November 2014) downgrade of the City’s bond rating, which were as
follows:
• Inability to meet debt service coverage requirements in FY 2013;
• Undeveloped financial plan;
• Declining unrestricted cash;
• Limited rate raising history; and
• Sizable consent decree which requires additional debt leveraging.
BACKGROUND
In 2013, the City issued revenue bonds (FY 2013 Bonds) for approximately $91 million to cover projects
to be performed by Siemens Industry under a performance contract, specifically for the implementation
of advanced meter infrastructure (AMI), improvements to the O.B. Curtis and J.H. Fewell water
treatment plants, and replacement of several major sewer collection lines. At the time the FY 2013
bonds were issued, it was projected that the City would be able to meet the obligations of the FY 2013
revenues bonds through operational savings and revenue enhancements stipulated by the performance
contract (totaling approximately $7.8 million per year once all the projects were finished and
operational) combined with moderate water and sewer rate increases. However, due to various
circumstances, as explained later in this memorandum, the City was unable to meet the obligations of
the FY 2013 bonds.
STUDY APPROACH
In order to provide a current financial picture of the Water and Sewer System, the City engaged the
Project Team in the fall of 2014 to develop a comprehensive revenue sufficiency study. To begin the
study, the Project Team requested and the City provided the following information:
• FY 2015 detailed operating budgets for both the water and sewer utilities;
• Historic data on operating expenses and revenues;
• Detailed amortization schedules for all outstanding debt including, revenue bonds, general
obligation bonds (GO), state revolving fund (SRF) loans, Mississippi Development Authority
(MDA) loans, and capital leases;
• Comprehensive annual financial reports;
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• Official statements regarding bond issues;
• Historic customer information including number of customers by location and billable water and
sewer flow;
• Historic data on adjustments to billable water to determine collection rates;
• Overall consent decree project costs;
• Capital improvement plan for FY 2015; and• Infrastructure sales tax revenue available to be applied towards the System’s anticipated capital
improvement plan.
The Project Team reviewed this data in detail and developed a financial planning model using the
information obtained above. The Project Team has solicited additional information and clarification of
information from City staff several times throughout the development of the financial planning model.
RFC also made several assumptions, as explained later in this memorandum that impact the Revenue
Sufficiency Analysis.
Study Assumptions and Results
The Project Team projected the annual cash needs (revenue requirements) of the system for FY 2015
through FY 2020 and compared these costs to the projected revenues under existing rates. RFC also
calculated the debt service coverage ratios in each year to determine if the existing rates are sufficient
to meet the debt service coverage requirements. The assumptions used in projecting the annual
revenue requirements, revenues, and debt service coverage are explained below.
Revenue Requirements Assumptions
The Project Team identified the System’s annual cash needs, or revenue requirements, which include
operations and maintenance (O&M) expenses, existing and proposed debt service, and cash-fundedcapital projects, which are explained below:
• The detailed FY 2015 O&M budget was used to project future O&M expenses as follows:
Most line items were escalated by 3% based on input from City staff regarding
anticipated future costs.
The Department of Public Works is conducting a salary study to determine the impact of
minimum wage rates. Because this study was not finalized as of the date of this
memorandum, the Project Team has assumed personnel costs will increase by 10% in FY
2016.
In order for the City to provide the desired level of water and sewer service to its
customers, the City will incur additional O&M costs to eliminate water loss, address
reliability issues, and reduce the volume of leaks and breaks. Therefore, the Project
Team assumed O&M costs would increase by $250,000 in FY 2016 for water and for
sewer and then an additional $250,000 in FY 2017 and beyond (totaling $500,000 each
for water and sewer by FY 2017) which represent increased operating and maintenance
costs.
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It should be noted that RFC has not assumed any operational savings from the Siemens
performance contract in its forecast. (See explanation provided later in this
memorandum).
• Debt service schedules were used to identify the total annual debt service to be paid in FY 2015
– FY 2020.
• Because the Public Works Department is currently developing a five-year capital program, theProject Team had to estimate the capital improvement plan (CIP) and the funding sources as
follows:
The Project Team used the overall consent decree ($400 million over 17 years) to
estimate a level of sewer projects ($23.5 million per year).
The Project Team used the recently developed CIP for FY 2015 in which it identified
approximately $8 million in water projects. This amount was assumed to continue into
the future but will more than likely increase as the City addresses water loss issues,
reliability issues, and leaks and breaks.
RFC determined funding sources, which are estimates until the City engages a Financial
Advisor. The funding sources include a portion of the Infrastructure Sales Tax, GOBonds, Mississippi Development Loans (MDA), and State Revolving Fund Loans (SRF). It
should be noted the City does not believe that SRF Funds will be available until future
years (FY 2019 – 2020).
The City currently does not have an internal target regarding the level of the CIP that
should be cash funded versus debt funded. Cash funding a portion of the CIP allows for
stronger debt service coverage. RFC is recommending an internal target of cash
financing 15% of the CIP by FY 2020, which is incorporated into the study results.
Revenue Assumptions
The Project Team estimated annual revenues including revenues from retail customers, wholesale
customers, and miscellaneous services, as follows:
• To estimate revenues from retail customers, RFC obtained detailed customer billing
information for the past two years on each customer. However, due to the large discrepancy
between the City’s billable data and the amount of money that is actually received, RFC had to
use data on actual revenues to back into billable flow estimates. The City also provided RFC
with information on the total dollar amount of adjustments given in each year. RFC used this
information to estimate the City’s amount of billable flow and then the percent of uncollected
revenues (approximately 12%). RFC has assumed that the amount of uncollected revenues will
improve over the next few years as adjustments resulting from the meter change-out and
other reasons decrease, as the City begins to enforce cutting-off customers for non-payment,
etc. It is assumed that the City will achieve an uncollectable rate of 5% by FY 2020. (The
industry average is 1%). For now, RFC has assumed that there will not be an increase in billable
flow resulting from the Siemens performance contract (improved meter accuracy), nor has RFC
assumed any increase in the number of water/sewer customers or growth in water/sewer
flow. The industry trend is declining per capita consumption, which has been assumed to
offset any increase from enhanced meter accuracy. Even though we believe this is a
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conservative assumption, given the financial situation of the System, RFC believes it is prudent
to make conservative assumptions at this time.
• RFC estimated revenues from sewer wholesale customers by using the existing methodology of
each customer paying a portion of O&M, debt service, and capital costs based on their
proportion of sewer flow.
• RFC incorporated miscellaneous revenues from such items as cut-off fees, returned check fees,service connections, interest earnings, etc. and is assuming these revenues will remain
constant into the future.
Debt Service Coverage Calculation Assumptions
The Project Team calculated the debt service coverage for each year in the forecast. The debt service
coverage calculation is a two-pronged test which is as follows:
The greater of:
1) 120% (1.20) of annual debt service on Revenue Bonds +/- rate stabilization, OR
2) 100% (1.00) of sum of:a) Annual debt service on Revenue bonds and subordinate debt (GO, SRF, MDA,
capital leases)
b) amounts to paid during year for Debt Service Reserve System and the
Contingent System
c) any other charges or liens payable out of Revenues during the fiscal year not
otherwise provided in this subsection
Because of the two-pronged test, “the greater of” results in the debt service coverage requirement
being 100% of total debt (more than just revenue bonds) plus amounts required to adequately fund the
Debt Service Reserve System and the Contingent System. The City currently does not have an internal
target for its debt service coverage ratio. RFC is recommending an internal target of debt service
coverage of 1.10 of total debt (revenue bonds, GO bonds, SRF loans, MDA loans, and capital leases),
which is incorporated into the financial planning model.
Financial Plan Results
The City will continue to be in a detrimental financial position if current water and sewer rates remain
unchanged. As shown in Exhibit 1, the current revenues are barely able to meet the revenue and debt
service coverage requirements of the System in FY 2015 and debt service coverage is compromised in
future years.
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Exhibit 1: Expenses versus Current Revenues
In order to meet the revenue requirements of the water and sewer utility, the City will need to
implement rate adjustments. However, the level of the rate adjustments will be impacted by the
following:
• Level of operational savings identified in the Siemens performance contract that is actually
achieved.
• Ability of the City to achieve the revenue enhancements identified in the Siemens performance
contract resulting from increased meter accuracy.
• Ability of the City to increase its collection efforts by addressing the number of adjustments
given to customers, enforcing the cut-off policy, etc.
• Modifications to the rate structure based on cost of service principles to enhance equity and
address affordability concerns.
While the level of rate adjustments will vary based on the factors listed above, the Project Team
recommends that the City set rates such that the City can achieve sufficient debt service coverage.
Exhibit 2 shows an example of proposed debt service coverage targets in each fiscal year that would
allow the City to meet the cash needs of the utility, which include O&M costs, capital costs, and debtservice targets.
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Exhibit 2: Debt Service Coverage under Existing Rates and Proposed Target
COMPARISON OF STUDY RESULTS TO ENGINEER’S PROJECTIONS
As mentioned previously, at the time the FY 2013 bonds were issued, it was projected that the City
would be able to meet the obligations of the FY 2013 revenues bonds through operational savings and
revenue enhancements stipulated by the performance contract and moderate rate increases. AppendixJ of the City’s official statement (OS) for the FY 2013 Bonds included a report titled Independent
Consulting Engineer’s Report (Engineer’s Report) which summarized the assumptions of the operational
savings and revenue enhancements, and provided a projection of cash flow for FY 2013 through FY
2017. The following table is a replication of the table provided in the Engineer’s Report. It should be
noted these represent 87% of the savings/enhancements to allow for unforeseen events (or 13%
variability), as explained in the Engineer’s Report. As shown in Exhibit 3, once the projects were fully
completed and operational, it was estimated that the City would achieve operational savings and
revenue enhancements of approximately $7.8 million per year.
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Exhibit 3: Replication from Engineer’s Report
Timing Event Impact
End of FY 2013 Most large meters installed (all meters
to be installed by the end of December
2013)
Large meter and deferred
maintenance savings of $1.5 million
by the end of FY 2013
End of FY 2014 All small meters installed (1/2 yearsreduction in deferred maintenance
expense assumed)
Large/small meter and deferredmaintenance savings of $3.4 million
in FY 2014
End of FY 2015 All meters installed (full year of
deferred maintenance expenses
assumed)
Large/small meter and deferred
maintenance savings of $5.6 million
in FY 2015
End of FY 2016 System upgrades complete (full year of
deferred maintenance and operations
expense assumed)
Large/small meter and deferred
maintenance and operational savings
of $7.7 million in FY 2016
End of FY 2017 Fully operational system Large/small meter and deferred
maintenance and operational savings
of $7.8 million in FY 2017
Exhibit 3 shows the anticipated timing and the magnitude of the operational savings and revenue
enhancements. In addition to these assumptions, the cash flow analysis in the Engineer’s Report also
assumed the following:
• Debt service coverage of 1.20 in each fiscal year, where debt service coverage is defined as 1.20
of annual revenue bond debt
• Increases in volumetric water rates of approximately 4% in FY 2015, 4.6% in FY 2016, 9.3% in FY
2017
• Increases in volumetric sewer rates of approximately 2.8% in FY 2015, 6.3% in FY 2016, 2.1% in
FY 2017
While the Engineer’s Report demonstrated the City’s ability to meet the obligations of the FY 2013
bonds, in actuality the City failed to meet its debt service coverage in FY 2013. Recognizing its inability
to meet coverage, the City implemented a rate increase (that went into effect on November 8, 2013) of
29% for the volumetric component of the water rate structure and a rate increase of 108% for both the
fixed and volumetric components of the sewer rate structure so that the City could meet its debt service
obligations in FY 2014. As of the date of this technical memorandum, the audit had not been completed
to determine if these rate increases were sufficient for the City to meet coverage for FY 2014. However,
based on RFC’s preliminary analysis, it appears the City may meet its coverage requirement for FY 2014
and FY 2015 but not in future years. Nonetheless, Moody’s downgraded the City’s bond rating from A1to A2 in November 2014 after reviewing the City’s financial information.
The disparity in the cash flow analysis in the Engineer’s Report versus the updated projections
developed by RFC is explained below and is also shown in the chart that follows the explanation.
• The timing of the project has varied significantly from the project schedule. For example, as of
October 2014, only 30% of the meters had been replaced which is in contrast to the initial
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schedule of having all meters replaced by the end of FY 2014. As a result, this has limited the
City’s ability to realize operational savings and revenue enhancements in FY 2013, FY 2014, and
will continue into the future until the project is completed.
• The debt coverage calculation in the original projections exactly met the debt coverage
requirement of 1.20 (of the annual debt service on revenue bonds only). This means that there
was no room for any variation in any of the assumptions (excluding the 13% allowed variabilityin the revenue enhancements or operating savings that was already incorporated in the
calculation). As explained previously in this technical memorandum, the debt service calculation
is a two-pronged test. RFC’s interpretation of the rate covenant is a more stringent test than
1.20 on senior debt service.
• The original projection escalated operating costs for water at 1% and 3% for sewer. In actuality,
the operating costs have and will likely continue to increase at much higher levels due to:
Higher chemical costs for water resulting from the well system shutdown and reliance
on the surface water treatment plant which requires more chemicals than the well
system.
Higher chemical costs for sewer due to having maximized current treatment of plantdischarge waters. In addition, the Siemens’ contract will repair Centrifuge #1 which
will put the discharge plant at full capacity once again. This increase in dried sludge
output will cause an increase in the amount of chemicals being used.
Higher electricity costs due to the surface water plant having to pump water further
since the well system is shut down.
Higher cost of operation at the new Presidential Hills facility.
Additional staff needed to provide necessary level of water and sewer service.
• The original projections did not incorporate any additional debt resulting from the City’s consent
decree or capital improvement projects related to water system replacement projects.
• The rate increases that were implemented (even at the much higher levels than under the
original projections) have not resulted in revenues increasing in proportion to the rate increases
due to a high level of adjustments to water use (some of which is attributed to the meters being
changed out and not registering correctly) and uncollectible accounts.
Exhibit 4: Comparison of Engineer’s Projections to RFC’s Projections
RFC's Revenue Sufficiency Analysis Engineer's Report - Projected Cash Flow
CAFR (1) Unaudited (2) Budget (3) Budget (3) Budget (3) Projected
FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017
Total Revenues 44,186,000$ 68,431,191$ 68,431,191$ 68,431,191$ 68,431,191$ (1) 51,492,722$ 53,008,927$ 55,735,686$ 57,969,391$ 60,664,138$
Le ss: Total O&M Ex pense s ( 33, 187, 000)$ (39,203,069)$ (45,229,699)$ (47,582,084)$ (49,788,878)$ (2) (37,827,477)$ (38,200,280)$ (38,067,595)$ (36,823,253)$ (37,593,403)$
Revenues Available for Debt Service 10,999,000$ 29,228,122$ 23,201,492$ 20,849,107$ 18,642,313$ 13,665,245$ 14,808,647$ 17,668,091$ 21,146,138$ 23,070,735$
Revenue Bond Debt Service 12,641,000$ 12,641,000$ 14,986,710$ 17,925,216$ 19,479,741$ 11,424,804$ 11,738,238$ 14,667,492$ 17,605,999$ 19,160,524$
Debt Service Coverage on Rev. Bonds 0.87 2.31 1.55 1.16 0.96 1.20 1.26 1.20 1.20 1.20
Must be 1.20
Total Debt Service 18,382,313$ 23,467,072$ 22,778,731$ 26,222,279$ 28,789,563$
Debt Service Coverage on Total Debt 0.60 1.25 1.02 0.80 0.65
Must be 1.00 0.60 1.25 1.02 0.80 0.65
(1) From the FY 2013 Comprehensive Financia l Annual Report (page 131), with the (1) Includes enhanced revenues from performance contract and rate increases o
exception of the revenue bond f igure which is net of capital ized interest. I t should be 4%, 4.6%, and 9.3% for water and rate increases of 2.8%, 6.3%, and 2.1 % for
noted that FY 2012 revenues were $48.2 million. sewer in FY 2015, FY 2016, and FY 2017, respectively.
( 2) B ased on unaudi ted i nf ormati on provi de d by Ci ty staf f and i ncl udes rate ( 2) I ncl ude s operati onal savi ngs f rom the perf ormance contract.
increases implemented in November 2013 of 29% for water and 108% for sewe r.
(3) Based on FY 2015 budget provided by City staff but assumes no rate adjustments.
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NEXT STEPS
• The Project Team recommends that City staff continue to use the revenue sufficiency model
developed by RFC as a financial planning tool and incorporate updated information into the
model as it becomes available so that debt coverage ratios can be monitored and met in future
years, and so that rate adjustments can be identified over a long-term planning period to avoid
rate shock. The financial planning model should be updated annually to reflect any operational
savings and revenue enhancements from the Siemens performance contract, other factors that
affect operational expenses such as the City’s ability to reduce water loss, etc., demand
projections that are impacted by weather, collection efforts that are impacted by adjustments
and cut-off policies, etc.
• The Project Team also recommends that the City perform a comprehensive cost of service
analysis to determine the optimal rate structure that will allow the City to balance rate
adjustments with affordability and equity concerns. For example, the City could have a different
rate for each customer class (residential, commercial, etc.), or tiers for residential customers
that could include a lifeline rate for those customers with low water use. The cost of serviceanalysis could also determine the level of costs to be recovered from the fixed component of
the rate structure versus the volumetric component that varies by water/sewer flow.
Depending on the results of the cost of service analysis, the rate adjustments would impact
customers differently. A comprehensive cost of service analysis would allow the City to balance
rate adjustments with its rate structure pricing objectives including, but not limited to,
affordability and equity.
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Technical Memorandum #3
Billing System Data Review
OBJECTIVE
In recent months, the City of Jackson (City) has recognized a lower than expected level of water andsewer revenue in light of the recent rate increases. The collection rate fell significantly between 2012
and 2014, and current revenues are materially below expected totals. The Project Team was contracted
to perform a variety of financial support roles, one of which was to identify patterns in billing and
collections that may explain low revenue figures using active and historical billing system data. As
defined in the project scope regarding potential billing data inaccuracies, the Project Team sought to
determine:
• Who is affected?
• How it is occurring?
• Why it is occurring?
• How much revenue is potentially at stake?
The approach to this was to examine the billing data from meter readings to incoming payments to
identify any process disconnects, data quality concerns, incorrect application of rates or billing policy,
fraudulent activity, or other drivers behind the reduction in revenue. Armed with that data, the Project
Team sought to find eligible revenue sources wherever possible by identifying accounts not being billed
when they should be or not being charged the correct amount.
The Project Team had the additional objectives of supporting financial planning with live billing data and
determining the extent (if at all) of incorrect billing to a group of customers outside the City.
As the City goes through conversion to automated metering infrastructure (AMI) and a new billing
system, identification of any issues is critical to limit their perpetuation into the new environment and to
resolve any outstanding revenue sources before those data are potentially lost in the transition. This
transition process has been temporarily suspended, but is expected to continue. Even with an extended
delay, improvements to data quality and data management processes can increase billing and
collections in the current environment as well.
PROCESS
Data AcquisitionThis effort commenced in late October with data acquisition and interviews with Information Services,
utility management, and Customer Service staff. The Project Team obtained an extract copy, dated
October 17, 2014, of the legacy billing system to be restored in our Oracle environment. We also
obtained daily history files generated on a nightly basis as a record of all changes to the billing data from
1999 through November 7, 2014. To support review of these data, the Project Team received
documentation including lookup codes for billing system data, entity relationship diagrams, and SQL
scripts used by staff to perform regular and ad hoc queries against the database.
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During this initial visit, the Project Team held discussions with Information Systems and Customer
Service staff on relevant billing policy information and data structure, and learned of some known
problems with data and processes as well as some problems already being addressed. These included:
1. Hung accounts due to outstanding work orders;
2. New AMI meters that are stuck;
3. New AMI meters causing dramatic billing increases;
4. Accounts registering consumption with no present occupants; and
5. G/E code accounts that are exempt from enforcement actions.
Data Structure
The legacy billing system includes a number of tables, but only about 10 that are used to manage day-to-
day customer, consumption, and billing data. Of these, the majority of available billing information is
stored in the Meter Detail table, with 1,027,980 records representing the last 12 reads and bills for every
meter. In our extract, this table included read and bill information from October 2012 to October 2014
for most customers. The Accounts and Meters tables each have 85,665 records. Meters are related with
accounts and customers through a series of cross-reference tables.
The daily history files contain a wealth of information including logs of every bill generated, every
adjustment made, every payment made, and most user edits. For reference, the following table shows
the number of records in each of the following categories, representing transactions from 1999 through
November 7, 2014.
Table 1. Amount of data contained in daily history files
TABLE NUMBER OF RECORDSADJUSTMENTS 138,554
CHECK PAYMENTS 3,184,815
BANK DRAFT PAYMENTS 301,415
CASHIERING PAYMENTS 1,572,836
USER EDITS 3,487,316
BILLS 5,546,163
High Level Review
To gain a high-level understanding of utility finances, the Project Team used daily history file data
including every bill generated and adjustment recorded. These data were used to drive the review as it
extended back to 1999 and gives a rich history, whereas only two years are typically available in the live
billing system data due to constraints on the system. With the daily histories of bills generated and
adjustment activities, the Project Team pieced together long-term trends on consumption, billings,
collections, customers/accounts. From this perspective, the Project Team was able to visualize the
reduced revenue, seeking an obvious driver for the problem.
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These data showed that the number of accounts has been decreasing slightly over time, though
consumption is holding nearly steady. Billings, before any adjustments are applied to accounts, have
been rising steadily over time and have steep increases aligned with the timing of rate increases. At the
same time, adjustments have followed a similar trend, increasing drastically even normalized for rates.
These adjustments are mostly related to water charges rather than sewer, sanitary, or meter charges.
As a result, adjusted billings have not increased as much as expected (see Figure 1).
Figure 1. Total Unadjusted Charges, Adjustments, and Adjusted Charges by Year
Payments, though increasing, have not been tracking with expectations for the past few years. This is
especially evident with cashier payments. While it is understandable that the proportion of cashier
payments may decrease over time as more customers use alternate payment options, the revenue from
these other options, mailed checks and bank drafts, has not made up the difference. As a result,
outstanding balances are on the rise and the collection rate is decreasing. Generally, increased
adjustment activity and decreased collections are the major drivers for the reduced revenue stream.
These figures are summarized in the table below.
$-
$20.00
$40.00
$60.00
$80.00
$100.00
$120.00
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Billings Adjustments Adjusted Bills
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Table 2. Summary of High Level Data
YEAR BILLINGS ADJUSTMENTS
%
ADJ
ADJUSTED
BILLS CHECKS DRAFTS CASH RECEIPTS
%
COLL
#
BILLED
ACCTS
1999 23,029,867.37 (2,326,493.71) 10% 20,703,373.66 14,383,678.49 $836,959.71 4,226,444.30 19,447,082.50 94% 65,69
2000 48,247,048.87 (5,445,588.17) 11% 42,801,460.70 29,805,917.52 $1,867,040.39 8,915,791.76 40,588,749.67 95% 67,60
2001 38,402,584.45 (4,497,069.42) 12% 33,905,515.03 23,591,948.94 $1,401,105.28 7,797,002.50 32,790,056.72 97% 66,95
2002 56,753,862.31 (5,600,952.03) 10% 51,152,910.28 36,934,634.94 $1,999,840.60 12,339,446.37 51,273,921.91 100% 67,10
2003 56,587,856.06 (8,499,363.39) 15% 48,088,492.67 33,166,028.51 $1,812,692.99 11,540,326.87 46,519,048.37 97% 66,56
2004 56,581,223.32 (7,087,090.84) 13% 49,494,132.48 32,506,980.96 $1,954,803.87 13,201,977.92 47,663,762.75 96% 66,30
2005 63,710,498.81 (9,073,461.72) 14% 54,637,037.09 35,234,866.46 $2,115,425.67 12,876,349.74 50,226,641.87 92% 66,04
2006 61,422,308.90 (8,797,588.37) 14% 52,624,720.53 33,866,342.29 $2,071,952.58 16,087,833.33 52,026,128.20 99% 65,70
2007 60,481,050.54 (8,259,673.39) 14% 52,221,377.15 31,964,535.59 $2,041,538.74 17,530,588.90 51,536,663.23 99% 64,71
2008 67,916,162.21 (11,497,746.82) 17% 56,418,415.39 32,768,787.23 $2,111,619.58 16,956,346.66 51,836,753.47 92% 64,23
2009 66,261,029.90 (13,871,447.53) 21% 52,389,582.37 29,398,409.67 $1,836,450.16 17,854,046.15 49,088,905.98 94% 64,38
2010 65,101,024.67 (11,088,840.49) 17% 54,012,184.18 32,016,889.07 $1,985,247.46 17,551,258.58 51,553,395.11 95% 64,02
2011 71,323,964.23 (14,109,562.55) 20% 57,214,401.68 36,677,896.50 $2,146,939.19 16,623,617.54 55,448,453.23 97% 63,54
2012 73,038,101.34 (16,566,067.84) 23% 56,472,033.50 36,003,024.74 $2,026,614.66 15,291,882.30 53,321,521.70 94% 62,59
2013 74,560,102.15 (14,932,747.34) 20% 59,627,354.81 39,001,206.03 $2,192,379.71 13,045,818.91 54,239,404.65 91% 61,90
THRU NOV
7, 2014 95,777,131.41 (26,773,241.38) 28% 69,003,890.03 45,061,498.44 $2,676,389.43 12,903,999.69 60,641,887.56 88% 62,81
2014 PROJ. 110,143,701.12 (30,789,227.59) 28% 79,354,473.53 51,820,723.21 3,077,847.84 14,839,599.64 69,738,170.69 88% 62,81
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Bulk Billing Data Review
A bulk analysis of billing data in the live billing system was performed to supplement this finding with
specific data quality concerns that could be leading to unbilled accounts or accounts requiring
adjustments. Based on known rates, billing policies, and data structure, the Project Team used customer
and consumption data in the billing system as of October 2014 to replicate account water and sewer
charges before and after the November 2013 rate change. This exercise resulted in the identification of categories of accounts where the customer charges were not as expected, where bills seemed to be
going out or not going out unexpectedly, and where poorly maintained customer information could
result in unenforceable circumstances. These circumstances could be symptoms of a systematic
misapplication of billing policy or simply of poor data quality and limited quality control measures. The
results of this analysis are described further below.
Field Audit
Based on the bulk billing data review, RFC developed sample data for further investigation by project
partners, IBS. This investigation took place on site over three separate visits, during which IBS staff has
worked with City Information Systems and Customer Service staff to research individual accounts anddetermine whether the exceptions noted during bulk review were justified, or whether other similarities
exist between accounts exhibiting the same unexpected circumstances.
Field visits were conducted on December 9th and December 18th and 19th, 2014, and the week of January
5th, 2015. The findings from these visits are summarized below and a detailed report is included as
Appendix A.
FINDINGS
Billing Data Accuracies
The Project Team could replicate the vast majority (approximately 97%) of water charges to accounts
within the City. Many of those that were not replicable were not receiving bills, which is addressed
below. This is not to say that payments are made to all correctly charged accounts, but that the Project
Team found the billing system data related to water charges to be mostly accurate.
Billing Data Inaccuracies
Data Validity
While reviewing the data in bulk, the Project Team found many instances of invalid entries throughout
most tables and fields. For example, there are accounts within the City with both inside- and outside-city
flags in different fields. Rates are determined based on a meter’s location (inside vs. >1 mile outside the
city) and having conflicting information on the same account could confuse the calculation process,especially as it is converted to the new billing system.
Similarly, there are entries that make the billing policy difficult to accurately implement. Residential
properties with multiple units are supposed to be billed per unit. In the legacy system, there are two
fields that denote this set-up. First, the Apartment Code should be “0” for single family properties (one
unit) or “A” for multiple units. A subsequent field is supposed to contain the number of units where the
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Apartment Code is “A.” The Project Team found 38 other unique values other than other than “0” or “A”
included in the Apartment Code field of 173 accounts. The Project Team also found 13 instances where
more than one unit was noted with a “0” single family residential property, and 386 instances where “A”
multi-unit properties were listed with 0 or 1 as the number of units. All of these are invalid combinations
that could result in the miscalculation of per unit water and sewer charges.
Across the board, there were invalid data that hindered bill replication by the Project Team, but more
importantly caused concern about data maintenance and data quality as it relates to correct bill
calculation at the City.
Adjustments
Given that adjustments appeared to play a large role in the reduction of revenue in 2014, two groups of
accounts were identified to examine recent adjustments. All large adjustments, defined as a single credit
or debit of more than $400, and all frequent adjustments, defined as four or more adjustment instances,
over the past two years were pulled out and sampled for further review. As of November 2014, there
were 3,391 large adjustments totaling $(41,204,999) and 141 accounts with many adjustments, totaling$(2,562,740). The project team found no systematic evidence of accounts being adjusted by values
greater than the account balance, except in cases where payments had already been made.
From the field audit, the root cause(s) of the adjustments issue appears to be mostly human errors from
meter readers. The readings are fixed through a re-compute system process, but before this occurs they
are already registered in the system incorrectly, causing an adjustment to appear on the record. Another
root cause is meter leaks, which are addressed by a manual calculation to determine a corrected bill
based on past consumption. In this case, only a monetary adjustment is made, and no consumption
adjustment is done in the system.
The City does have a leak adjustment policy and a standard process for meter error adjustments. All the
adjustments sampled were processed in accordance with policy as described and were properly
authorized. It appears that adjustments of any level are signed off by supervisors before being
committed to the system.
The Project Team noticed that in many cases, several adjustments were made to an account at a single
time, seemingly as a series of attempts to get the calculation to end up at a desired result. That, paired
with reported supervisory authorization for each adjustment, suggests that more stringent supervisory
review and more carefully calculated adjustments should reduce this value. The billing system does not
have any validation rules or checks on an adjustment before it is committed. Going forward, these are
highly recommended. The City needs to instate a process or improve existing processes to address datainaccuracies before they go into the billing system.
ManyAdjustments
For the field audit, the team identified a sample of 159 accounts with more than four adjustments over
the most recent two year time period for further analysis. Of those, the team received additional work
order information for 52 (33%), representing adjustments of $1,011,722. 44 (85%), which were
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associated with work orders to address meter reading errors, and 8 (15%), which were associated with
work orders for meter leaks.
LargeAdjustments
For the field audit, the team identified a sample of 61 accounts with more than four adjustments over
the most recent two-year time period for further analysis. Of those, the team received additional workorder information for 30 (49%), representing adjustments of $1,367,876. 16 (60%), which were
associated with work orders to address meter reading errors, and 2 (7%), which were associated with
work orders for meter leaks.
AMI Meters
City staff mentioned that the installation of new AMI meters had been causing a number of billing issues
to be reported by customers. Primarily, the new meters either were causing no consumption to be
billed, or dramatic increases to be caused in bills. These two issues were examined in the billing data and
subsets of accounts were identified for detailed examination, as explained below.
StuckAMImeters
The issue of stuck AMI meters has been addressed in part by the meter installer through improved
quality control measures. However, more instances than were acknowledged by the installer were
found in the billing data. The Project Team identified a set of 283 AMI meters linked to active accounts
with a history of steady consumption that drops drastically (to or near 0) after the meter is replaced.
During the field audit, the Project Team found that the standard for stuck meter resolution is 8 weeks,
though no policy or service level agreement was provided. Our review revealed that about 90% meet
this standard based on service order notes in the sample group. As of the date of the audit, only 2
accounts (10%) on the sample list were still unresolved. While this process seems to be improving, the
service order process within the legacy system is open-ended and there are many opportunities for
service orders to fall through the cracks. The service order entry and follow-up process is described
more fully below.
ReadingaboveThreshold
Another claim regarding the new AMI meters is that some appear to be miscalibrated or reading in the
wrong unit (gallons instead of cubic feet). Theorizing that these problems could be teased from the data,
the Project Team developed a list of 3,371 new meters whose readings after being replaced with AMI
meters were two standard deviations above mean consumption prior to the replacement.
During the January 2015 field audit, the Project Team discovered that DPW was experiencing a high ratethreshold exceptions, averaging approximately 53% of all billed accounts needing review. The field
auditors sampled 30 accounts. Twenty-one (70%) of the exceptions appear to be triggered by incorrect
meter reads due to meter reading errors and not leaks. This large exceptions rate appears to have a
direct correlation with the high levels of adjustments discussed in the previous section.
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Meter reading error rates appear to be consistent with both standard and AMI meters, thereby
eliminating AMI as a primary driver for the high exception rates overall. There are currently no quality
assurance standards deployed during the meter reading process (although the current handheld system
has some built in functionality that, if used, could help). As a result, bad meter reading data is uploaded
into the billing system and putting tremendous pressure on staff to catch large variances prior to bill
mail out. There is an existing manual process by which daily threshold exception logs are reviewed by 3or 4 edit clerks. Once identified, the high bills are pulled prior to mail out and reviewed. The bill is then
adjusted and estimated bills are sent out. Because of the manual process and the high volume of
exceptions, it is unlikely that most of the exceptions are addressed prior to mail out. A large percentage
of customer bills are rendered incorrectly and require adjustment.
Concurrent with the Project Team Review, the City also obtained separate information from the AMI
meter installation contractor suggesting that a number of meters were using gallon units. The majority
of these identified meters were installed after the time of the Project Team data extract. Those that
were installed prior to the extract had not registered unusually high consumption.
Misapplication of Billing Policy
MinimumSewerCharge
The most critical finding by the Project Team is the incorrect calculation of the minimum sewer charge.
The City’s Code of Ordinances, Division 2, Sec. 122-235 regarding minimum monthly sewer charges
states:
(a) The schedule of minimum sewer service charges is as follows:
(1) Each customer with a five-eighths-inch meter whose water consumption is 300 cubic feet or less
shall be assessed a minimum monthly charge of $13.41.
(2) Each customer with a one-inch meter whose water consumption is 670 cubic feet or less shall be
assessed a minimum monthly charge of $29.95.(3) Each customer with a one and one-half or two-inch meter whose water consumption is 1,510
cubic feet or less shall be assessed a minimum monthly charge of $67.50.
(4) Each customer with a three-inch or larger meter whose water consumption is 2,710 cubic feet
or less shall be assessed a minimum monthly charge of $121.14.
Customers are billed bimonthly, and the monthly minimum sewer rate as described in the ordinance is
in fact charged only bimonthly, meaning that all users below the minimum threshold are charged only
half the expected amount. This lost revenue equates to at least the following levels of lost revenue
between Nov 8, 2013 and Oct 17, 2014.
Table 3: Lost Revenue from Billing Misapplication
METER SIZE LOST REVENUE
5/8” $ 630,394
1” $ 100,546
1 1/2” AND 2” $ 150,052
>2” $ 35,615
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TOTAL $ 916,607
In Figure 2, below, the number of 5/8” meters charged $13.41 and the number of times each account
received this charge between Nov 8, 2013 and Oct 15, 2014 (nearly a full year after the rate increase) is
plotted. This amount should never be billed, but it happens thousands of times. Rather, twice the
monthly charge, or $26.82 for 5/8” meters, should be minimum charge found on a bill.
Figure 2. Instances of Half Minimum Sewer Charge for 5/8" Meter
HungAccounts
City staff also mentioned that the billing system was set up in such a way that accounts could be set to
non-bill status even though water service may still be available. Hung accounts are those that that are
listed as active but have multiple instances of consumption greater than zero, and no charge for water
and sewer. The Project Team identified 73 accounts in the legacy billing system where this happened
continuously between January 2013 and October 2014. These accounts represented 1,374,318 cubic
feet of unbilled consumption over this period, which based on current rates would be about $45,000.
Upon further review during the field audit, the consultant team found most hung accounts to be
resolved. As of the date of the audit, only 20% of accounts on the sample list were still unresolved.
According to Information Systems staff, intensified efforts have been recently placed on resolving hung
accounts as part of the data cleanup for conversion.
VacantPropertieswithRegisteredConsumption
The Project Team noticed when reviewing the billing data in bulk that there are many instances of
incomplete or inaccurate customer information, which could lead to unenforceable collections
circumstances. Specifically, there are accounts where the customer is “No Present Occupant,” not
receiving a bill, but with consumption registering regularly. The Project Team generated a list of 1,304
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1,000
2,000
3,000
4,000
5,000
6,000
7,000
1 2 3 4 5 6
N u m b e r o f M e t e r s
Number of $13.41 sewer charges over 6 billing cycles of 2014
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“No Present Occupant” accounts representing 2,850,201 cubic feet of unbilled consumption during the
last two-month period of the legacy billing system. The time constraint on this is meant to avoid any
issues related to a change in customer status over time, since the customer information is just a
snapshot as of the time the Project Team obtained a copy of the billing system.
The team identified a sample of 40 accounts and received additional information on 38 of the 40requested samples, of which only 23 (58%) were still in NPO status at the time of the field audit.
Seventeen (74%) had been closed out as part of the standard NPO process, while 6 (26%) hadn’t been
closed out. Twenty-one (91%) of the 23 accounts had outstanding balances, which means the vacating
customer didn’t settle their final bill.
Non-BilledAccounts
There are several types of non-bill status in which an account can fall. They are:
• Off- Customer Request
• Customer moving (off)
• Off- Delinquent Bill
• Off- Bad Check
• Off- Seasonal
• Returned mail
• Special Payment Plan
These categories relate to circumstances in which a bill should not be generated because no
consumption is allowed. However, the Project Team found 410 instances of non-bill accounts with
consumption activity between September 1, 2014 and October 15, 2014. This activity totaled 769,734
cubic feet of consumption or $53,417.
The field audit included a sample of 43 accounts, from which the consultant team identified a lack of
follow-up on the cause of non-bill status to be the main driver. After an account has been classified as
non-bill status, it appears that accounts go unread for upwards of a year after last billed date. It also
appears that field actions to pull meter or tie-in also take a considerably long time. So, if an account is
shifted to “Off- Bad Check,” for example, it could be a long time before a field technician actually shuts
off the meter (if ever). Secondarily, the process for moving accounts to non-bill status is being exploited
by customers. Customers that are delinquent on their payment get switched to a non-bill status and so
stop getting billed. Since field work orders to shut off account are not closely monitored to confirm that
actual shut off happened, customers continue to get free service for extended periods of time.
Although, meter reads continue to confirm usage on these accounts subsequently, actions to bill orterminate service physically, still doesn’t happen for extended periods of time. Even when physi