20091214UWI to Staff 85-87, 89, etc.pdf

McDevitt & Miller LLP
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420 W. Bannock Streeie \ \ PM 3: 0 \
P.O. Box 2564.tØaIJ
Boise, Idaho 83702\0.' ò,HO PU¡?L;,,\~:(\r'¡). .f'I.. .. ~.,,~~, ':",-, t. i ..'1, ~'~ \.': t"
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December 11, 2009
[phone]
[phone] (Fax)
Via Hand Delivery
Jean Jewel, Secreta
Idaho Public Utities Cotnssion
472 W. Washigton St.
Boise, Idaho 83720
Re: Case No. UW-W-09-01
General Rate Case Filng
Dear Ms. Jewell:
Lawyers
Chas. F. McDevitt
Dean J. (Joe) Miler
Enclosed for fig, please fid thee (3) copies of United Water Idaho's Sixth Response to
Cotnssion Staffs Four Production Request Nos. 85, 86, 87, 89, 91, 94, 95, 107, 108,109, 110,
and 111.
Kidly retu a fie staped copy to me.
DJM/hh
End
Ver Truy Your,~ttL
Dean J. Mier
ORIGINAL
Dean J. Miler (lSB No. 1968)
McDEVITT & MILLER LLP
420 West Banock Street
P.O. Box 2564-83701
Boise, Idaho 83702
Tel: [phone]
Fax: [phone]
joeiEmcdevitt-miler.com
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1\l~~ \JEt \ \
Attorneys for United Water Idaho Inc.
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION OF )
UNITED WATER IDAHO INC., FOR )
AUTHORITY TO INCREASE ITS RATES AND ~
CHARGES FOR WATER SERVICE IN THE )
STATE OF IDAHO )
)
CASE NO. UWI-W-09-01
UNITED WATER IDAHO INC'S
SIXTH RESPONSE TO
COMMSSION STAFF'S FOURTH
PRODUCTION REQUEST
United Water Idaho Inc, ('United Water") by and though its undersigned attorneys,
hereby submits its Sixth Response to the Commission Staffs Four Production Request Nos.
85,86,87,89,91,94,95, 107, 108, 109, 110, and 11 1.
DATED ths Lday of December, 2009.
UNITED WATER IDAHO INC.
BY-WUJI-=~J.Miller
McDevitt & Miller LLP
420 West Banock
Boise, Idaho 83702
P: 208.343.7500
F: 208.336.6912
Attorney for United Water
UNITED WATER IDAHO INC'S SIXTH RESPONSE TO COMMISSION STAFF'S FOURTH
PRODUCTION REQUEST- 1
CERTIFICATE OF SERVICE
I hereby certify that on the 1 \ ~day of December, 2009, I caused to be sered, via the
methodes) indicated below, tre and correct copies of the foregoing document, upon:
Jean Jewell, Secretar
Idaho Public Utilties Commission
472 West Washington Street
P.O. Box 83720
Boise, ID 83720-0074
j j ewell(fuc. state. id. us
Hand Delivered
U.S. Mail
Fax
Fed. Express
Email
Brad M. Purdy
Attorney at Law
2019 N. 17th Street
Boise, ID,83702
bmpurdmhotmail.com
,.
Hand Delivered
U.S. Mail
Fax
Fed. Express
Email
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UNITED WATER IDAHO INC'S SIXTH RESPONSE TO COMMISSION STAFF'S FOURTH
PRODUCTION REQUEST- 2
UNITED WATER IDAHO INC.
CASE UWI-W-09-01
FOURTH PRODUCTION REQUEST OF THE COMMISSION STAFF
Preparer/Sponsoring Witness: Kevin Doherty
REQUEST NO. 85:
Please provide an organization char showing Suez at the top and all subsidiares and affliates.
Please provide a char and identify the percentage ownership of each separately for 2007, 2008
and 2009 to date. Please include within your response the company Home Service which sends
United Water mailings regarding customer premise water and wastewater lines.
RESPONSE NO. 85:
Please refer to the attached organization char. All subsidiares are 100% owned by the parent
company. Please note that Home Service does not appear on the organization char because it is
not an affliate or subsidiar of the Company. United Water has an affnity marketing agreement
in place with Home Service.
UliitetlWàterworks
.(DRJ/è ...
Bethel Inc.
(PA)
Connecticut Inc.
(CT)
Idaho Inc.
(ID)
United Water Idaho Inc.
Suez Environneinent
Suez Environnement
North America Inc.
r United Water Inc,1
Legend
Fôreigiì
Holding
lJnitèdWater.
ServicesLLC.i.ilJnitedWater ..........
Resources Inc. . ...../ .. .
United Water
Owego-Nichols(NY)
United Water
South County
Sewer Inc. (NY)
Westchester Ine.
(NY)
Contract sellides.H'
..... ....()ther.b~~1n~ig~~~';~~!X
United Water
Mid-Atlantic
. .(NJ)
UNITED WATER IDAHO INC.
CASE UWI-W-09-01
FOURTH PRODUCTION REQUEST OF TH COMMISSION STAFF
PreparrlSponsoring Witness: Kevin Doherty
REQUEST NO. 86:
Please provide a detailed nartive description of all companies and business unts identified in
the previous char(s). Include with your response the mission/purose of each company and
business unit.
RESPONSE NO. 86:
The purose or mission of each companylbusiness unt is to provide quality water and or
wastewater service to customers or clients.
UNTED WATER IDAHO INC.
CASE UWI-W-09-01
FOURTH PRODUCTION REQUEST OF THE COMMISSION STAFF
Preparr/Sponsoring Witness: Kevi Doherty
REQUEST NO. 87:
Please provide a detailed description of any changes planed or contemplated to the
organizational strctue shown in the most recent organzation char provided. Please include
with your response the reason for the change, for example, if the reason is to obtan greater
effciency please identify how the change will accomplish that and in what specific ara.
RESPONSE NO. 87:
There are no changes planed to the organzational strctue shown in the organizationa char
provided in response to Request 85.
UNITED WATER IDAHO INC.
CASE UWI-W-09-01
FOURTH PRODUCTION REQUEST OF THE COMMISSION STAFF
Preparer/Sponsoring Witness: Kevin Doherty
REQUEST NO. 89:
Please provide income statements and balance sheets for each affliate for the year ending
December 31, 2008, or the equivalent extracts for each affliate from the general ledger system.
RESPONSE NO. 89:
Please refer to the attched income statements and balance sheets for the affliate companies with
which United Water Idaho had financial transactions during 2007,2008 and 2009 as indicated in
the response to Request No. 88.
"'
UNTED WATER IDAHO INC.
CASE UWI-W-09-01
FOURTH PRODUCTION REQUEST OF THE COMMISSION STAFF
PreparerlSponsoring Witness: Kevin Doherty
REQUEST NO. 91:
Please provide a separate schedule for each affiliate showing the tota number of customers,
employees and revenues for 2007, 2008 and 2009 to date.
RESPONSE NO. 91:
Please refer to the attched schedule. The requested revenue data is shown on the income
statements attched to Request 89.
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UNITED WATER IDAHO INC.
CASE UWI-W-09-01
FOURTH PRODUCTION REQUEST OF THE COMMISSION STAFF
Preparer/Sponsoring Witness: Kevin Dohert
REQUEST NO. 94:
Please provide a copy of all contracts, leases, or other arangements between UWI and any
affliate in operation durng 2007, 2008 and 2009 to date.
RESPONSE NO. 94:
Attched are the Agreement between Boise Water Corporation (renamed United Water Idao in
1995) and General Waterworks Management and Service Company, together with the
Assumption Agreement under which United Water Management and Services, Inc., assumed all
the rights and responsibilities of General Waterworks Management and Service Company
pursuat to the merger of General Waterworks and United in 1994. Also attched is the Sector
Agreement between United Water Idaho and United Water Arkansas. During 2007 and par of
2008, servces were provided by United Water Operations Idaho to the city of Eagle and the
Grouse Point system, but those transactions were terminated in 2008 when those entities took
over their own operations.
Response No 94 Attachment M&S
Page 1 of 12
ASSIGNMENT AND ASSUMPTION AGREEMENT
THIS AGREEMENT is made and entered into as of January 1, 1995
between General Waterworks Management & Service Company, a
Pennsylvania corporation ("GWM&S") and UW Management & Services
Company, a New Jersey corporation ("UW&S").
WITNESSETH
GWM&S hereby assigns to UW&S all of its rights, title,
interest and obligations in and to the Contract attached hereto as
Exhibit A, which GWM&S has entered into, and which is currently in
effect, with each of the utility companies listed on Exhibit .B, .
attached hereto. UWM&S hereby agrees to be bound by all terms and r
provisions of the Contract and assumes all the obligations of GWM&Sunder the Contract.
GWM&S and UW&S agree to do such further acts and to execute
and deliver any further agreements, instruments or documents as may
be necessary or appropriate to carry out the puroses of this
Agreement.
'.,
IN WITNESS WHEREOF, the parties have caused this Agreement to
be executed as of the date first above written.
ATTEST:
GENERA WATERWORKS MAAGEMENT
& SERVICE COMPAN~~~--Allan D. shâki~Secretary
ATTEST:UW MAAGEMEN & SERVICES COMPAN~f)~Allan D. ShaTI~Secretary
By:
Name:Title:Date:
l~.l¡Ø!Vice-President
January 1, 1995
WPSl \Legal \uw\Agreemen.A&A
Response No 94 Attchment .M&S
Page 2 of12 . ,
EXHIBIT A
AGREEMENT
BEH/EEN
GENERAL WATERWORKS MANAGEMENT AND SERVICE COMPANY
AND
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Response No 94 Attachment M&S
Page 3 of 12AGRE.EMENT
Agreement dated 'óetween GENERAL WATERWORKS
MANAGEMENT AND SERVICE COMPANY, a Pennsylvania corporation
(hereinafter called the Service Company), and
(hereinafter called Utility Company).
The bacKground of this agreement is that:
1. Both Service Company and Utility Company are affiliated
with General Waterworks Corporation, a Delaware corporation
(hereinafter called General).
2. Service Company maintains an organization whose'
off ice r san d e mp loy e e s are fa mil i a r wit hall fa c e t s 0 f the w ate r
~ til i t Y bus i n e s sin c 1 u din 9 the de vel 0 p men t, bus i n e s san d pro pert y 0 f. Uti 1 i t Y Co mp any and are e x per i en c e din the e f fie i en t man a 9 em en t ,
financing, accounting and operation of water works properties and the
extension and improvement thereof. Such officers and employees are
qua 1 i fie d t 0 be 0 f aid and ass i s tan c e t 0 Uti 1 i t y Co mp any t h r 0 ugh the
services to be performed under this agre~ment. '
3. Utility Company can economically s.ecure valuable
administrative and operating services of superior quality by
contrBcting to secure the same from Service Company.
" -)~
4 . S e r vic e Co mp any has en t ere d 0 r pro po s est 0 en t e r i n to'
agreements similar to this agreement with other affiliated utility
companies (hereinafter referred to collectively as Utility Companies).
5. :The services to be rendered under this agreement are to
be rendered at their cost to Service Company, as hereinafter provided., '
NOW, THER£~ORE, in consideration 07 tne premises and the
mutual agreements herein contained, the parties hereto agree asfoJlows:
ARTICLE I
l:
Service Company shall make its qualified employees available
to become officers of Utility Company. and such employees may'be
elected by Utility Company to such positions as president. vice
president; secretary, treasurer and contr~ller.
Service Company thall furnish;to Utility Company, ind
Util.ity Compan,)' shall utilize. all the'fpllowing services upon the
terms and conditions hereinafter set Torvh; provided, however, that
.Service Company or util ity Company. by' ,mutual consent, may engage a
non _ õ f f i 1 i ate d c 0 mp any 0 r per son top r 0 v ide sue h s e r vic e son itsbehalf:,.
))
Response No 94 Attachment M&S
Page 4 of12
)
A. ADMINISTRATIVE: Service Company shall make qualified
employees avai.'able to perform or assist ..in the perfOi"mance of Utility
'Company's corporate administration. In o~~er tQ render such se~vice
and to promote the efficient and economic operation of Utility
Company, those employees shall keep themselves informed on al T a~~~cts
of Utility Company's operations and shall regularly visit Utili~y
Company's facilities. Such administrative personnel shall make
recommendations for operating expenditures and for additions ta ~~d
improvements of property, plant andequi,pment. Such administrative
personnel shall also assist Utility Company in the conduct of
proceedings before, and in its compl iance with the rulings of~
r e 9 u 1 at 0 ry bod i e s h a v i n 9 j uri s d i c t ion 0 v e r its 0 per a t ion s .
B. ENGINEERING: Service Company shall advise and p_ovide
engineering services to assist Utility Company in planning, operating,
maintenance and construction functions.
lt shall assist Utility Company in its operations by
conducting distribution system surveys and hydraulic analysesp
reviewing procedures for water qual ity control, and preparing or
reviewing maps, charts, operating statistics. reports and other
pertinent data.
Its hal 1 ass i stU til i t Y Co mp any i nth e pro per m a i n ten a n c e
and protection of its properties by periodic inspection of its
structures. tanks, reservolrs. wells and electrical and mechanical
equ i pment.
)
Such engineering services shall also include the .conduct of
fjeld investigations as necessary to obtain engineering information
and, when required, the preparation of studies, reports, designs and
d raw i n 9 s, cos t . est i mat e s, s pee i fie a t.i 0 n s, and con t r act s for the
construction of additions to or improvements of Utility Company's
sources of supply, treatment plant, pumping stations, distribution
.system, and such other facilities as Utility Company may requ~st.
~
~ C. CUSTOMER AUO PUBLIC RELATIONS: Service Company shall
recommend procedures to promote satisfactory customer and public
relations. It shall furnish informational material, including copy,
layouts. and scripts. It shall assist in the preparation of news and
customer information releases, and in arrangements for publicinspections, displays and other related services.
D. EMPLOYEE RELATIONS: Service Company shall ass~st
Utility Campany in the procurement of Qualified personnel, in the
establishment of appropriate rates of pay, and in negotiations with
bargaining units representig Utility Company's employees. It shall
recommend programs for supervision of training and educational
ass t s ta nee, and s hal 1 a d vis e on fed era 1 and s t ate r e 9 u 1 at ion saffecting personneL. ' ':
It shal i recommend and administer group insurance and
pen s ion p 1 an s ; 0 r the ben e fit 0 f Uti 1 i t yeo mp any. i t s hall a 1 so
assist in the establishment of accident prevention and other programs
j 2.
.,.' J
*.. ..
Response No 94 Attachment M&S
Page 5 of12
)
r e 1 at i n 9 toe mp loy e e he a i t han d we 1 far e .
Eo ACCOUinii:G: Service, Compa'n,y. shall keep the general
boo k s 0 f a c c 0 un t 0 f Uti 1 i t yeo mp any, inc 1 u din g r e cor d s sup P 1 em en tal
thereto. It shall prepare monthly financ\al statements and analysesof accounts of Utility Company. It shall prepare reports on the costs
inc u r red for pro per t y add; t ion san d i mp r a v e men tan d wi 1 i est a b 1 ish
continuing property records as requested.'
S e r vic e Co mp any s hal 1 pre par e 0 r ass i s tin the pre par at; 0 n
of federal, state and local tax returns for and to the ~xtent required
by Ut i 1 i ty Company.
Service Company shall ~eep abteast.of and adviseUt1lity
Company concerning appropriate accounting theories and principles for
Utility Companies and changes therein; it shall advise and assist in
the establishment and maintenance of modern record keeping techniques;
.and it shall review accounting procedures, methods and forms and
evaluate.systems of internal control for receipt and disbursements of
funds, materials and supplies, and other assets.
It shall conduct periodic audits of accounts, records and
procedures Df Util ity Company and submit reports thereon.
F. .CORPORATE S~CRETARIAL: Service Company shall maintain
documents of ,Utility Company such.as minute books, charters, by-laws,contracts, deeds, and other corporate re.cords ,. and shall admini ster an
orderly program of records retention. It shall maintain, or arrange.
for the maintenance of, records of stockholders of Utility Company.
prepare or arrange for the preparation of stock certificates, perform
duties relating to the transfers of stock and perform other corporate
secretarial furictioni as required i~cluding preparation of notices of
stockholder and director meetings and keeping the minutes thereof.
Service Company shall review. and may. assist in the
preparation of, documents required by Utility Company such as deeds,
eapements, ~ontracts, charters, franchises, trust indentures, andregulatory reports.
G. TREASURY: Service Company will coordinate financial
arrangements with the financial community to arrange and provide for
furnishing of Utility Company's entire capital needs from other than
internally generated sources.
Service Company shall assist Utility company in cash
man age men t, colle c t ion pol i c i e s i and de vel 0 pm en t Q f temp 0 r a r y
investment programs.i
H. PURCHASING: Service C9fupany shall endeavor to arrange
for the purchase of equipment. materialsf and supplies in volume on a
basis advant,ageous to the Utility Comp'any.
: I).
I. INSURANC~: Service Company shall review the insurance
coverage of Utilíty Company, recommend the types and limits of
3.
. ,1
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)
Response No 94 Attachment M&S
Page 6 of 12
j n sur an c e ad e qua t e for its pro t e c t ion and ass i s tin the p 1 ace me n t 0 f
such insurañce. It shall supervise inv.estigation procedures and
review claims and proposals for settieme~t at request of Utility
Company.
J. DATA PROCESSING: Service Company shall make available
to Utility Company electronic data processing services, including
s y s t em a n a 1 y sis and pro 9 r a mm i n g, m a i n t a ; n i n g 9 e n era 1 a c c 0 u n tin 9
records,. financial analysis and studies, area consumption patterns,
engineering analysis and studie~: and such other functions that may be
requested by Ut i l"i ty Company.
K. RATES: Service Company will advise and assist in the
preparation of rate schedules for Utility Company's service; will
prepare, or assist in preparing, the material and exhibits r~quired
for Utility Company's rate cases and render advice with r~spect to the
procedure therein and will, at the request of Utility Company, arrange
for the employment of such witnesses as may be required.
L. GENERAL: Service Company shall keep abreast of
economic, regulatory, governmental and operational developments and
conditions that may affect Utility Company thereof to the extent that
they may be. important to Uti1ity Company.
ARTICLE II
Comp a nyService
Art i c 1 e
In consideration for the services to be rendered by Service
as hereinabove provided, Utility Company agrees to p.y to
Company the cost thereof determined as provided in this
I I a n.d i n Art i c 1 e I I I .
The extent of service renåered by Service Company personne1
:.or Utilty Company or in common with other Utility Companies shall be
based on actual ,time spent by such personnel as reflected in their
daily time ~heets or other mutually acceptable means of determination.
All costs of Service Company incurred in connection with
services rendered by Service Company which can be identified and
r~lated exclusively to Utility Company, shall be charged directly to
Utility Company.
All costs incurred in rendering services to Utility. Company
in common with similar services to other Utility Companies which
cannot ~e identified and related exclusively to services rendered to a
particular Utility Company, shall be allocated among all Utility
Co mp ani e s S 0 s e r v ed, 0 r, i ~ the cas e 0 i cos t sin cur red wit h res p e c t t 0
!services rendered to a particular group. of Ut11ity Companies, among
Ithe members of such groupJ in t~e marine~ hereinafter set forth:,
1. Administrative, Purchasing, Insurance and General
¡Services:, 33-~/3: thereof in proportion to the number of employ~es,133-1/3% thereof in proportion to the number of customers served, both
) )4 .
Response No 94 Attachment M&S
Page 7 of 12
..
ü
) a s 0 f the end 0 f the pre ce din 9 cal end a rye a r, a nd 3 3 - 1/3 % the reo fin
proportion to operation and maintenance. expenses (excluding charges
under this agreement, regulatory expenses and provisions for
depreciation and taxes) for the preceding calendar year.
2. Engineering Services: 40% in proportion to the sum of
utility plant in service and construction work in progress accounts
less the reserve for depreciation at the end of the,preceding calendar
year, 40% thereof in proportion to the volume of w~ter delivered
during the preceding calendar year, and 20S thereof in proport)on to
the total of fuel and power and chemical costs during the preceding
calendar year. If any company or component of a company served ;s
engaged in both water and sewer service, the volume of water delivered
. by such company or component thereof engaged in both services shall be
do u b 1 e d fo r the pur p o~ e S 0 f t his par a 9 rap h .
3. Customer Billing and Communications Service: In
proportion to the number of customers at the close of the precedingcalendar year.
4. Employee Relations Services: In proportion to the
number of employees at the:close of the preceding calendar year.
5. Accounting and Data Processing Services: Fifty percent
ther~of in proportion to the number of transactions protessed duri.ng
the preceding calendar year, and fifty percent thereof in proportion
t~ capitalization of Utility Company at the end of the preceding year.
6. Treasury Service: Costs will be allocated on the basis
of the proportion of the Utility Company's tota! capitalization to the
consolidated capitalization of General at the end of the preceding
yea r.
ARTICLE I II
In determinig the cost to be assessed by Service Company for
the rendering of services to Utility Companies as herein provided.
there shall 'be added to the salaries of all officers and employees for
who s e s e r vic esc h a r 9 e s are t 0 b e 'm a de. ape r c e n tag e s u f f i c i e n t t 0
cover the- general overhead of Service Company properly allocable
thereto. Such percentage shall be calculåted on the basis of budgeted
costs and adjusted bills wirl be renderep at the end of each year to
reflect actual costs. No general overhea~ of Service Company shall be
added to costs incurred for services or n~n-affiliated consultants,employed by Service Company. .
)!
5.
Response No 94 Attachment M&S
Page 8 of12
".
The term "general overhead" shall include (a) salaries of
secretaries and clerical personnel. (b) salaries of file clerks,
messengers, telephone operator, mail c~erks and other employees in the
general category of office services. (c) pension and insurances
premiums paid for the benefit of Service Company employees, (d)
salaries paid during vacation holidays, sickness and other.
authorized .
absences, (e) office rent, utilities, depreciation, general office.
sup p 1 i e s , and 0 the r s i mil are x pen s e s, ( f) 1 e 9 a 1, a u d i tin g and 0 the r
fees for services rendered to Service Company, and (9) taxes.
ARTICLE iv.
. i 1
As soon as practicable after the last day of each month,
Service Company shall render a bill to Utility Company for all amounts
due from Util ity Company for services and expenses for such month,
computed pursuant to Articles II and III. Such bills shall b~ ins u f f i c i en t de t ail to show s epa rat e) y the c h a r 9 e for e a c h c 1 ass 0 fservice rendered. All amounts so billed shOal) be paid by \ltility
Company within a reasonable time after receipt of the bill therefor.
It is understood by U~ility Company that Service
Company has
entered or may enter into similar aoreements with other Utility
Companies that are affiliated with General to which" similar services
are to be furni shed. Servi ce Company wi 11 not enter into a~reements
'to perform simi lar services for other companies on terms more
favorable than th~se provided herein.
..;-
Service Company agrees to ~eep its books and recordsavailable at all ~imes for inspection by representatives. of lIt.ility
Company or by reçulatory bodies having jurisdiction over Utility
Camp a ny. _
Service Company shall at any time, upon request of Utility
Com ¡: any, fur n ish any and ali i n for mat i on r e qui red by Uti 1 i t Y Company
with respect to the services rendered by Se~vice Com~any hereunder,
the cost thereof, and the allocation of such cost among Utility
Companies.
This aljree:nent shall be in full force .and effect as of the
date first ioentioned above, subject to any nec"?ssary approvill of
governmental regulatory agencils having jurisdiction i~ the premises,
and shall continue in full force and idfect until terminated by either
of the parties hereto gi1ing :he otfieG party hereto ninety days'
nótic~ in wri:ing; ?rovide~, how~ver, ihat t~is a9ree~ent shallt~rmina:e as of th~ d.H~ 'J~.ili::y Coii,any or C;e:-vicp. r.ompany ceAses :0
~e ~n affilt~:e J~ ~~n!r!l.
i;
" .
..'. ." ~ ... .
Response No 94 Attachment M&S
Page 9 of 12
IU .WITNESS WHEREOf. SERVICE COMPANY and UTILITY COMPANY have
caused these presents to be signed in their respective corporate names. by the i r res pee t i ve Pre sid e n t s 0 r Vic e P r e.~ ~ den t s. and i mp res sed wit h
their respective corporate seals attested by their respective
Secretaries or Assistant Secretaries. all as of the day and year first
above written.
ATTEST:
GENERAL WATERWORKS MANAGEMENT
AND SERVICE COMPANY
By
ATTEST:
By
1,.J
,.
I
:
,"
-j )7 .
Response No 94 Attchment M&S
Page 10 of 12
EXHIBIT A
ADDENDUM
AGREEMENT
BETWEEN
GENERA WATERWORKS MAAGEMENT AND SERVICE COMPAN
AND
Legal \WPSi \ UW\Contract. Frm
.'
Response No 94 Attachment M&S
Page 11 of 12
ADDENDUM, da ted i to Agreement dated
between GENERA WATERWORKS MAAGEMENT AND
SERVICE COMPAN and
ARTICLE II, Paragraph 5, is changed to read as follows:
Accounting and Data Processing Services: In proportion
to the capitalization of Utility Company at the end of thepreceding year.
ATTEST:GENERA WATERWORKS MAAGEMENT
AND SERVICE COMPAN
By:
ATTEST:(Utility Company)
By:
~esal \WP51 \ UW\Contract. F~
Response No 94 Attchment M&S
Page 12 of 12
EXHIBIT B,
Bethel Township Water Company pennsylvania
Boise Water Corporation Idaho
Capital City Water Company Missouri
General Waterworks CQrporation ofPine Bluff i Arkansas Inc. Arkansas
General Waterworks of Connecticut, Inc. Connecticut
General Waterworks of Pennsylvania i Inc. Pennsyl vania
Hoosier Water Company, Inc: Indiana
Jacksonville Suburban Utilities Corporation Florida
Lambertville Water Company New Jersey
Lincoln Water Corporation Illinois
The New Rochelle Water Company New York
Nichols Water. Company New York
Owego Water Works New York
Rio Rancho Utilities Corporation New Mexico
South Gate Water & Sewer Co., Inc. Florida
Toms River Water Company New Jersey
Virginia Suburban Water Company Virginia
Wakefield Water Company Rhode Island
West Lafayette Water Company i Inc. Indiana
Wilmington Suburban Water Company Delaware
.~ . ."
SECTOR AGREEMENT
BETWEN
UNTED WATER IDAHO INC.
AND
UNTED WATER ARSAS INC.
Request No. 94 Attchment ID-AR
Page 1 of5
'.Request No. 94 Attachment ID-AR
Page 2 of5
SECTOR AGREEMET
This Agreement, dated At /I t.~ "r oÏ(), 1997, between UNTED WATER
IDAHO INC. (hereinafer "UW Idaho"), an Idaho corporation, with offces at 8248 West
Victory Road, Boise, Idaho 83707, and UNTED WATER ARSAS INC.
(hereinafter "Utilty Company"), an Arkansas corporation, with offices at 1100 StateStret, Pine Bluff, Arkansas 71611. -
The background of this Agreement is that:
1. Both UW Idaho and Utility Company are subsidiares of United Waterworks
Inc. (hereinafter "UW"), a Delaware corporation, with offces at 200 Old Hook Road,
Hargton Park, New Jersey 07640.
2. UW was recently reorganzed based on a geogrphical sector concept in
which the larger utiities, such as UW Idaho, provide certain operational and management
support for smaler utilties within the sector, such as Utility Company, on an as needed
basis. UW Idaho maintais an organzation whose officers and employees are famiar
with all facets of the water utilty business. Such offcers and employees are qualifed to
render the services to be performed under tls Agreement.
3. Utility Company can economicay obtain valuable maagement and operating
services of superior qualty by contractig to secure the same frm UW Idaho.
4. UW Idaho has entered, or proposes to enter, into agreements simiar to ths
Agreement with other affiated utity companes (hereinafter refered to collectively as
"Utility Companes").
5. The services to be rendered under this Agreement ar to be rendered at their
cost to Utilty Company, as hereinafter provided.
6. Both UW Idaho and Utilty Company have Service Agreements with United
Water Maagement and Servces Inc., wluch are on fie with the appropriate regulatory
agencies, and which provide for a broader scope of service functio.ns. Services rendered
pursuant to this Agrment wil not be duplicative of those rendered pursuant to tleService Agreements. .
. Request No. 94 Attachment ID-AR
Page 3 of5
NOW, THREFORE, in consideration of the prenuses and the mutual agreements,
herein contaied, the paries hereto agre as follows:
ARTICLE i.
UW Idaho shal make qualfied employees avaiable to fuish to Utilty
Company, and Utilty Company shal utize, as n~ded, general management and
operations services upon the terms and conditioDs hereinafter set forth: In order to render
such service and to promote the effcient and economic operation of Utiity Company,
UW Idaho's employees shall keep themselves informed on al aspects of UtitY
Company's operations and shal regularly visit Utility Company's facilties. Such
personnel may make recommendations for operatig expenditues and additions to and
improvements of propert, plant and equipment. UW Idaho or Utity Company, by
mutua consent, may engage a non-affiliated company or person to provide such services
on its behalf.
ARTICLII
In consideration for the services to be rendered by UW Idaho as hereinabove
provided, Utity Company agrees to pay to UW Idaho the cost thereof, determed as
provided in this Arcle II and in Arcle II.
The extent of service rendered by UW Idaho personnel for Utity Company shall
be based on actual time spent by such peronnel, as reflected in their daily time sheets or
other mutually acceptable means of determation, and shal be charged diectly to the
Utility Company.
Request No. 94 Attchment ID-AR
Page 4 of5
In determing the cost to be assessed by UW Idaho for the rendering of services
to Utility Company as herein provided, there shall be added to the salares of al officers
and employees for whose service charges are to be made, a percentage sufcient to
cover the general overhead of UW Idaho properly alocable thereto. Such percentage
shall be calculated on the basis of budgeted costs and wil be adjusted periodically to
reflect actual costs. No genera overhead of UW Idaho shal be added to costs incured
for services of non-affiliated consultants employed by UW Idaho.
The term "general overhead" shal include (a) pension and insurance premiums
paid for the benefit of UW Idaho employees, (b) salares paid during vacation, holidays,
sickness and other authorzed absences, and (c) payroll-related taxes.
ARTICLBIII
As soon as practicable afer the last day -~f eåèh month, UW Idaho shall render a
bil to Utiity Company for all amounts due from Utity Company for services and
expenses for such month, computed pursuant to Arcle n. Such bils shall be iI
suffcient detail to show separtely the chage for each class of service rendered. Al
amounts so biled shall be paid by Utity Company with a reasonable tie afer receipt
of the bil therefor.
It is understood by Utity Company that UW Idaho has entered, or may enter, into
simiar agreements with other Utilty Companes that ar affiiated with UW to which
simiar services are to be fUfshed. UW Idaho wil not enter into agreements to perform
simiar services for other companes on terms more favorable than those provided herein.
UW Idaho agrees to keep its books and records available for inspection by
representatives of Utity Company and by regulatory bodies having jursdiction over
Utilty Company with respect to inormation pertaining to services rendered hereunder,
UW Idaho shall at any time, upon request of Utilty Company, furish any and all
information required by Utilty Company with repect to the services rendered by UW
Idaho hereunder and the cost thereof.
This Agrement shal be in ful force and effect as of the date fist mentioned
above, subject to any necessar approval of governmental regulatory agencies having
jursdiction in the premises, and shal continue in full force and effect until terminated by
either of the paries hereto giving the other par hereto niety days' notice in writig;
provided, however, that this Agreement shal termiate as of the date Utilty Company or
Idaho ceases to be an afilate ofUW.
Request No. 94 Attachment ID-AR
Page 5 of5
IN WISS WHREOF. UW IDAHO and UTILITY COMPANY have caused
these presents to be signed in their respective corporate names by their respective
Presidents or Vice Presidents. and attested by their respective Secretares or Assistant
Secretaries, all as of the day and year first above written.
UND WATER IDAHO INC.
ATTST:
~~Alan D. Shakey
Secreta
BY¿)~~'~
William C. Linam, President
ATTEST:
UNTE WATER ARKSAS INC.
~~Ala~ D. Shake~
Secretar
UNITED WATER IDAHO INC.
CASE UWI-W-09-01
FOURTH PRODUCTION REQUEST OF THE COMMISSION STAFF
Preparer/Sponsorig Witness: Kevin Doherty
REQUEST NO. 95:
Please provide the details of all affliate receivables and payables for 2007, 2008 and 2009 to
date. Please include within your response the dollar amounts, explanations of how
receivable/payable was generated and calculation of the receivable/payable amount. If ths
inormation has already been provided, please provide a complete reference.
RESPONSE NO. 95:
Please refer to the Excel files provided in response to Request No. 88.
UNITED WATER IDAHO INC.
CASE UWI-W-09-01
FOURTH PRODUCTION REQUEST OF THE COMMISSION STAFF
Preparer/Sponsonng Witness: Kevin Doherty
REQUEST NO. 107:
Please identify whether there have been any changes to the Management and Services (M&S)
agreement on file with the Idaho Public Utilties Commission since the last general rate case
(2006). If the agreement is no longer in effect, please so state and include within your response
any agreements/arangements either in lieu of or in addition to the M&S agreement.
RESPONSE NO. 107:
There have been no changes in the M&S Agreements on fie with the IPUC since the last rate
case. The Agreements are stil in effect.
UNITED WATER IDAHO INC.
CASE UWI-W-09-01
FOURTH PRODUCTION REQUEST OF THE COMMISSION STAFF
PreparerlSponsoring Witness: Kevin Dohert
REQUEST NO. 108:
Please provide a detailed description of any and all activities between any company and/or
business unt identified in the organzation char(s) and United Water Idaho that are not
identified specifically and explicitly withi the M&S agreement on fie with the Idaho Public
Utilties Commission.
RESPONSE NO. 108:
The activities performed for UWI by UWM&S are generally described in the M&S Agreement
provided in the response to Request No. 94, and there are no other services provided.
UNTED WATER IDAHO INC.
CASE UWI-W-09-01
FOURTH PRODUCTION REQUEST OF THE COMMISSION STAFF
PreparerlSponsoring Witness: Kevin Doherty
REQUEST NO. 109:
Please provide a copy (or access to the presentations in Boise) of all presentations made
describing the relationship, activities, benefits and detrments of the M&S Company and any
other company to the United Water subsidiares durng 2007, 2008 and 2009 to date. Please
include within your response any M&S Value Added Assessments.
RESPONSE NO. 109:
The relationship, activities, benefits and detrents of the M&S Company have been the subject
of internal and external discussions, but such discussions have not been reduced to wrting. The
activities and services are described in detal in the attched March 2007 United Water M&S
Value Added Assessment Catalog. There have been some minor changes such as personnel
since the Assessment Catalog was prepared, and it has not been updated for these, but the
descriptions of the activities and services are stil accurate. Attached hereto is the presentation
made to the IPUC auditors durng the 2006 rate case audit in Harngton Park, NJ. Ths
presentation was also used in the 2007 Management Audit ofUWNJ, which among other studies,
is attched to the response to Request No. 110.
United WaterM&S
Value Added Assessment Catalog
March 2007
o 0 .~ United Water.. .s""e.z.
UWM&S Catalog
Mission Statement 2
Departmental Roles and Responsibilities
Corp. Accounting, Consolidations & Financial Rep. 3
Regulated Segment Finance and Accounting 5
Contract Services Segment Finance and Accounting 6M&S Corporate Payroll 7
Financial Planning & Management Reporting 8Treasury 9Accounts Payable 10Taxes 11Supply Chain Management 13Legal 14Business Information Offce 15Information Technology 16Technical Services 17Human Resources 19Business Development 20
Corporate Communications, Community Relations and Proposal Development 21External Affairs 23Suez Environment North America 24Administrative I General 25Internal Audit 26Customer Care 27Policy and Procedures 28Regulatory Business 29
M&S Allocation Methodology 30
1
UWM&S Catalog
Mission Statement
United Water Management and Services is a
client driven provider of quality, cost effective
professional services to all internal and external
stakeholders of United Water. We will meet our
customer's needs by leveraging our expertise,
employing best practices and delivering value
added services.
2
UWM&S Catalog
CORP. ACCOUNTING, CONSOLIDATIONS & FINANCIAL REp.
Department's role and responsibilty
The Corporate Accounting, Consolidations and Finacial Reporting deparent performs,
manages and directs the closing and consolidation processes for the Company and prepares all
external financial reporting, including monthy, quaerly, semianual and anual reporting
packages to Suez Environment. In addition, ths deparent oversees the day-to-day accountig for
the parent companes and specialized areas of accounting, including pensions and the completion
of numerous sureys required by law. The deparent also manages the day-to-day accountig for
United Water Management and Services (UWM&S) company, maintains the UWM&S billng
system and allocation factors, processes numerous allocations and supports the segments,
reguatory business and other finace deparents.
Client Services
The following is a sample of the reports/services our deparent provides:
~ Coordinate company-wide monthly closing process and perform monthy company
financial consolidations
~ Prepare and/or coordinate with segments all extern consolidated financial statements
(primarly quaerly and anua reports to stockholder and bondholders for seven (7) legal
entities) in accordance with US GAA
~ Coordinate external audits
~ Prepare all Suez Environment external reporting requirements (i.e. SAFIRE reportng) in
accordance with International Financial Reporting Stadards (IFRS) and semianua and
anual Franin (i.e. US GAAP) reporting, coordinating with the consolidations team in
Pars
~ Perform day-to-day accounting fuctions for parent companies, including United Water
Inc. and United Water Resources Inc.
~ Perform pension accounting (under both US GAA stadards and IPRS) and other
centrized accounting processes, including completion of sureys required by law
~ Provide guidance, support and analyses to segments, business development and other
finance deparents
~ Perform day-to-day accounting fuctions for UWM&S
~ Review, correct and process monthly time charges though UWM&S billng process to
generate and post M&S fees by company
~ Maintan UWM&S billng system and allocation factors
~ Process numerous cost allocations from UWM&S to all United Water entities, including
information technology, medical, customer service and insurance premiums and
deductibles, etc
~ Provide guidance, support and analyses to segments, regulatory business and other finance
deparents
~ In conjunction with the ta dept, manage the tax accounting entres and supporting work
papers
3
UWM&S Catalog
Staff
Edward Imparto
Donna Cole
Michael O'Connor
Claudia Mirabal
David Altaura
Sara Cuccurlo
Suzanah Cline
Derr Ford
Allen Gellbert
George Graham
4
UWM&S Catalog
REGULATED SEGMENT FINANCE AND ACCOUNTING
Department's role and responsibilty
We provide a multiplicity of services for a diverse customer base, each with their own unque
requirements. Our customer needs encompass accounting, systems and procedural and policy
issues - in addition to internal and external reporting requirements.
Client Services
~ We are active parers in a varety of services, a few of which are listed below:
~ Present accurate, timely and reliable information
~ Establish cost-effective methods and procedures
~ Provide technical advice
~ Provide controls to safeguad company assets
~ Prepare reports for regulatory commissions/agencies
~ Prepare individual and consolidated financial statements
~ Develop accounting guidelines and procedures tht are Sarbanes Oxley and COD IS
compliant
~ Develop, prepare and review plan data for the regulated segment for the curent year as
well as the MTP process
~ Our services incorporate both internal and external reporting requirements. It is importt
to remember tht many of our services are demanded or required by law or regulation.
Here is a select sampling of a few individual reports that we provide or assist in preparng:
~ Federal income ta retus
~ State income ta retu
~ Consolidated audited financial statements (regulated operations)
~ Rate case financials
~ State commssion anual reports
~ Book and ta depreciation schedules
~ Corporate debt schedules
Staff
5
John O'Brien
Wil Becker
Michael Blake
Donad Creighton
Khaja Khteeb
JaemiLee
Katehre Ar
Antha Rajagopalan
MonicaRys
Sandra Feng
Marla Kolkorst-Grah
Debra Visconti
UWM&S Catalog
CONTRACT SERVICES SEGMENT FINANCE AND ACCOUNTING
Department's role and responsibilty
The Contrct Services Segment Finance and Accounting deparent performs, manages and
directs the financial statement closing, budgeting and varance analysis processes for all projects
and business unts with the Segment. The deparent also prepares all monthly, quaerly,
semianua and anual financial reporting to corporate headquaers, financial institutions and
clients, as required. The deparent also prepares audited financial statements for United Water
Services ("UWS") LLC and manages the external audit process to support the audited fiancial
statements. The deparent is responsible for invoicing clients timely and managing the collection
process as well as providing support for all business development activities withn the segment.
Client Services
~ Coordinate segment-wide monthly financial statement closing process
~ Prepare and/or coordinate all anual budgets for the segment as well as multiple revisions
to the segment budget.
~ Prepare and/or coordinate with project managers all monthy financial statement varance
reporting
~ Prepare external financial statements for UWS LLC and UWS Inc. (primarly quaerly and
anua reports to financial institutions in accordance with US GAAP
~ Coordinate external audit for UWS LLC and subsidiares
~ Prepare all invoices for clients on a monthy basis and assist Project Managers in collection
efforts of delinquent invoice payments
~ Develop and/or review pricing models for Business Development activities
~ Prepare external financials reports to clients as required by contrcts
~ Perform day-to-day accounting fuctions for all Segment business unts
~ Provide guidance, support and analyses to segment project managers, corporate
deparents and business development activities
~ Review procedures and trsactions in order to ensure CODIS compliance
~ Entr of requisitions and time sheets at large projects
Staff
David Buchanan
Kerr Tracy
Vincent Harngton
Jennfer Fletcher
Mare Quigley
Michele Pi carell Nash
Donna Emberson
Vicki Griffth
Ryan Greenwood
6
UWM&S Catalog
M&S CORPORATE PAYROLL
Department's role and responsibilty
United Water's Payroll Deparent provides cost effective payroll services to all UW subsidiares
by ensurng the accurate and timely processing of employee paychecks includig Salares &
Wages and employee reimbursements. In addition, manages compliance and ta reporting
associated with the payroll process.
Client Services
~ Provide Customer Servce for employee inquires and assistace regarding Payroll and
Time Entr related issues
~ Manages the Payroll and the Time Entr Systems for system processing, maitenance,
setups, interfaces and evaluation of all corporate-wide taable and non-taable frge
benefits
~ Develop and implement periodic system and fuctional reviews as well as control and
fuctional deparent procedures
~ Oversee the coordination of the data flow tht exists between the curent Payroll and
Financial systems as well as the reconcilation of data between these systems
~ Serve as the liaison with our Outsourced Payroll Provider relating to all payroll matters
~ Coordinate with HR and Finance all Expatrate fuctions
~ Function as liaison among other deparents and vendors providing information and
assistace. Examples include credit unon, cours, bans, third pary admnistrtors, etc.
~ Control accurate witholdings and payments of cour ordered liens
~ Prepare payroll ban deposits and coordinates fuding with the Treasur Deparent
~ Coordinate with ADP multi-state and federal tax reporting, system revisions and ta
changes needed to comply with legislative requirements and company policies
~ Review, analyze and assist Finance with reconciliation of genera ledger accounts for
correct debit and credit activities and ban reconciliation
~ Verify and reconcile taxable wages, deferred compensation and ta reports for accuracy in
the preparation of the issuace of anua W-2 forms
~ Develop and distrbute numerous stadard and ad hoc reports to internal and external
customers. Examples include corporate reporting, sureys, census data, labor statistics,
employment verifications, productivity reports, social reporting, etc.
~ Paricipate on special mangement projects including the CODIS initiative, futue
acquisitions, implementations, system upgrades, internal and external audits and reguatory
requirements
Staff
KatWeen Cevoli
Kelly LoRusso
Joane Flyn
Susan D'Alessandro
7
UWM&S Catalog
FINANCIAL PLANING & MAAGEMENT REpORTING
Department's role and responsibilty
The Financial Planng & Management Reporting deparent acts as "Finacial Advisor" to all
UWR subsidiares. Our primar responsibilty is providing financial and analytical expertise to
assist management in makng decisions tht meet corporate financial objectives.
Client Services
Client services include but are not limited to:
); Manage the Budget Process across the organzation
); Establish financial tagets consistent with UW's corporate objectives
); Develop corporate budget assumptions
); Establish budget policies and procedures
); Review operating budgets with local management
); Consolidate all operating plan
); Present budgets to executive staff and CEO
); Present budgets to Board of Directors
); Prepare two operating forecasts anually in addition to the initial budget
); Review monthly results with segments and BU
); Analyze, quantify and report monthly results and varances to management and Suez
Environment
); Provide financial and analytical services
); Assist in the rate makng process
Staff
Xavier Castro
Tracy Moore
Michael Vaupotic
Marin Morales
Joan Patzer
8
UWM&S Catalog
TREASURY
Department's role and responsibilty
Assurng adequate low cost capita is available to meet our corporate financial responsibilties,
commitments and corporate growth goals, and maintaning corporate financial health.
Client Services
~ Assurng adequate capita is available to meet corporate growt, as well as daily needs
~ Assurng financial debts and obligations are paid on time and in conformance with legal
obligations
~ Reviewing our corporate portfolio asset allocation and balance sheet management
~ Guide the investments of corporate trst monies for pension and health care
~ Ensure that working capita tagets are monitored
~ Provide for multiple solutions tht ensure timely receipt of customer payments
Staff
Michael Algranati
Nancy Galgher ~~
9
UWM&S Catalog
ACCOUNTS PAYABLE
Department's role and responsibilty
The Accounts Payable deparent is responsible for processing properly approved and coded
invoices and recurg trsactions for payment on a timely basis and executing monthly accounts
payable closing processes. In addition, the deparent supports varous audits and special
management projects.
Client Services
The following is a sample of the reports/services our deparent provides:
~ Ensure efficient and timely disbursement of fuds utilizing vendor discounts when possible
~ Monitor payment procedures to maximize the Company's cash flow
~ Control the disbursement fuction, including audit trail documented by purchase order,
invoices, etc.
~ Maintan i 099 vendor files and year-end reports to the IRS and vendors
~ Interact with ban to ensure the completeness of any computer uploads
~ Execute all monthly and year-end reports and general ledger interfaces
~ File reports and supporting documentation for all disbursements
~ Paricipate on special management projects, including financial system upgrades and the
CODIS initiative
Staff
Karen Norton Susan DeLeonardo
Harhul Desai
Barbara Reily
Sharon Tamen
Gloria Ventuella
10
UWM&S Catalog
TAXS
Department's role and responsibilty
We provide a variety of services for a diverse customer base, each. with their own unque
requirements. Our customer needs encompass governenta compliance, planng to create value,
audit substatiation and procedural and policy issues - in addition to internal and external reporting
requiements.
The Tax Deparent has the responsibilty of ensung that United Water is in compliance with al
the Fedem st and loc ta laws. Some of its other maor rensbilties inlud the following:
~ Preparation and review of all income ta retu fiings
~ Ensure Timely Payments of Taxes
~ Tax Accounting and Footnote Disclosures in compliance with F AS i 09/ FIN48
~ Monitor Changes in Tax Laws, Regulations, IRS Positions
~ Formulate Tax Strategies, Implement Tax Procedures
~ Keep Management Advised of Tax Implications
~ Control All Tax Audits. We are the people the IRS and State Auditors tu to when they
perform their audits
~ Prepare Position Papers in Support of Tax Positions
~ Provide techncal support for Propert, Sales & Use, Payroll and Excise Tax compliance
and audit assistace
Client Services
~ We are active parers in a variety of services, a few of which are listed below:
~ Estimating, preparng, substatiating, and filing ta retus
~ Present accurate, timely and reliable information
~ Establish cost-effective methods and procedures
~ Implement new technologies
~ Provide techncal advice
~ Prepar tax information included in reports for regulatory commissions/agencies
~ Prepare footnote and sumar schedules for individual and consolidated financial
statements
~ Develop policies and procedures for ta compliance
~ Our services incorporate both internal and externl reporting requirements. It is importt
to remember that many of our services are required by law and/or reguation
~ Here is a select sampling of a few individual reports that we provide or assist in preparing:
~ United Water Audited Financial Statements (U.S. GAAP & lAS)
~ Consolidated Federal Income Tax Retus (I)
~ Stand-alone Federal Income Tax Retus (Over 70 and growing)
~ State Income Tax Retus (Over 100 and growing)
~ Consolidated Financial Statements (Tax information)
~ Rate Case Financials (Tax information)
~ State Commission Anua Reports (Tax information)
~ Tax Depreciation Schedules
11
UWM&S Catalog
~ Quaified Plan Retu, VEBA Retus, Excise Tax Retus
~ Excise Tax Retus (4)
~ Controllng Audit Document Requests
Staff
Jim Lin
Chrstopher Kowalyk
Gar Anoli
David Durante
Judy Farell
Denise Seitter
12
UWM&S Catalog
SUPPLY CHAN MAAGEMENT
Department's role and responsibilty
The Supply Chain Management & Procurement (SCM&P) deparent seeks to procure goods and
servces at the best value for internal clients in a maner that achieves the greatest possible
business effciencies and maintans the highest stadards of ethcs and professionalism.
The SCM&P deparent is responsible for the procurement of UW operating needs, capita
projects and ASAs (Additional Service Agreements); inventory management; supply chai system
& process adinistration
The SCM&P deparent serves all Business Units and operations of the business segments as well
as the other corporate deparents ofUWM&S.
Client services
~ Procurement ofUW operating needs, capital projects and ASA
· Mange major spend categories using a mix of global, national & local contrcts
Areas of activity include
· Energy, chemicals, sludge/residua disposal, network materials & contract services,
engineerig services, fleet, IT, telecom, travel, unform, offce equipment, etc
~ Manage competitive procurement (RP) processes
· Major categories typically bid anually using RFP process
· Capital Projects
· ASA, i.e. projects delivered by UW and reimbursed by UW's clients
~ Inventory management: Support operations while minimizing inventory discrepancies
& inventory levels
~ Supply Chain system & process administration
· Admnistrtion of PeopleSoft procurement & inventory modules
· Vendor management
· Administration of Procurement cards (P-Card) & corporate credit cards.
· Establish and adhere to Procurement policies & procedures
· Compliance with CODIS - Sarbanes Oxley
Staff
Joel Tache
Samuel Ruf
Christopher Lee
Marguerite Moore
Diana McCullough
Shuriek Robinon
Michael DiVincenzo
Herb Imbomoni
Ilene Lusch
Concetta Cardone
Dion Meredith
13
UWM&S Catalog
LEGAL
Department's role and responsibilty
The Legal Deparent is responsible for managing the legal afairs of United Water. Our role is to
assure that our clients receive quaity legal services at a reasonable cost. We provide legal advice
and legal servces to all business unts within United Water. We are also responsible for choosing
outside counsel to assist our clients on matters that require special expertise that our deparent is
not staed to provide. In those instances, we closely manage outside counsel to assure that they
provide high quaity legal service in a cost effective maner. Our deparment is also responsible
for managing United Water's insurance program.
Client Services
The Legal Deparent provides a wide ary of legal services including:
~ Contract preparation, negotiation and review
~ Prepartion and review of regulatory petitions
~ Water supply permit applications
~ Management of all litigation and claims fied against United Water
~ Preparation of all leases, easements or licenses associated with United Water's real estate
holdings; Review of all documents associated with treasur related financings
f¡ ~ Management of the United Water's insurce program
~ Corporate secretaal services
~ Support on all acquisition or divestitue activities
~ Provide legal advice to all internal clients on a daily basis covering all aspects of the
company's business
~ Supervise the handling of all legal matters, which are assigned to outside counel, and
review, edit and approve bils submitted by outside counsel
Staff
Susan Coughl
Robert Gerber
Elaine O'Brien
Paul Sokol
Adela Wekselblatt
Mar Campbell
Jasmie De Simone
John Dilon
Janet Kig
Deborah Roberts
James Terranova
Colette Borell
Carla Hjelm
Lora Manon
14
UWM&S Catalog
BUSINESS INFORMATION OFFICE
Department's role and responsibilty
The BIO was created in Q2-2005 to ensure the "fit" of the financial systems on permanent basis
and the relationship with the UW finance user communty and service providers (IT and others as
the case may be).
Client services:
~ To evaluate and prioritize enhancement/change requests, including report, and manages
communcation and training of the Finance organzation
~ To manage Finance CapEx initiatives i.e. New Reporting Tool, major process
enhancements to PeopleS oft, and possibly the budget solution and Al document imaging
system
~ To manage the communcation to the UW user communty
~ To manage translation of business needs into spec for IT and manage the IT relationship
~ To test and approved any programng changes before transfer into production
~ To establish, document and maintain system changes (new programs, master files update)
~ To develop, document and maintain all system reports
~ To administrate system modules, master files and critical processes (closing processes)
~ To establish securty profiles with IT and User community
~ To develop and validate training programs for key areas of needs.
~ To organize training session (live or online-use of web meeting platform of Suez) on an as
needed basis to the UW user community
~ To leverage Quench to build-up a share knowledge platform company wide (initiate in
2007)
~ To achieve its objectives, it will rely on external expertise when needed, as well as a
groomed network of Power Users within the Finance organzation
Staff
Guy Mouner
Wayne Appel
Timothy Green
15
UWM&S Catalog
INFORMATION TECHNOLOGY
Department's role and responsibilty
United Water's Information Technology Deparment is a service provider of critical enabling
techncal and business solutions and services in the following areas:
~ Technical Computer Infrastrctue
~ Computer Securty and Systems Compliance
~ Application Support
~ Application and Systems Development
Client Services
~ The Information Technology Deparent provides the following services to United Water:
~ Help Desk & Desk-side Support
~ Data Center Operations
~ Desktop & Server Engineering
~ Data Network & Email Management
~ Telecommuncations
~ Securty & Stadards
~ IS Vendor Management
~ Application Support
~ Application Development
~ Business Solution Design
~ Application Project Management
Staff
David Hoy Santiago Cabezas
Anna Trujilo Promit Chakrabarti
Alfonso DeAngelo Terry MacLeay
Stephen Mahan Brian Brockway
Edwdard Hackney Julien Bellorgey
Christophe Herold Rodolfo Ciprian
Margaret Brandes Preethi Nair
Jeannine Condurso Brij Reddy
Natarajan Subramanian Mark Rhinehardt
Geoffey LichtenheIm Tajesh Shah
Nancy Richman Brian KwonJin Wu Carlos Diaz
Gary Clark Sidhartha Das
Javier Carbonell Shana McFadden
Steve Friedman
16
UWM&S Catalog
TECHNICAL SERVICES
Department's role and responsibilty
Cost effective servce provider in the following areas:
~ Engieering (capital plang, capita expenditue monitorig and control, project design
review, preparation of techncal studies & reports, rate case support)
~ Environmenta Compliance (regulation/permt review & compliance, safety review &
compliance)
~ Health & Safety/Security (review, oversight and compliance assurance, treatment
optimization to corporate standard)
Client Services
Engineering:
~ Strategic capita plang
~ Capita expenditue monitoring/control
~ Development of capital related policies & procedures
~ Management of project costing initiative
~ Engineering master planng
~ Cost/enefit evaluations
~ Major project design and development
~ Provision of expert testimony in rate fiings
Environmental Compliance:
~ Review and optimization of treatment processes
~ Safe Drinkng Water Act compliance activities
~ Consumer Confdence Reports
~ Regulatory updates
~ Involvement in research and development activities
~ Regulatory Updates
~ Review and optimization of Plant environmenta permits
~ Clean Water compliance activities
Health & Safety:
~ OSHA compliance activities
~ Environmental and Safety auditing/reporting
~ Assistace in safety documentation/trning
~ Corporate oversight of security standards and operational activities
17
UWM&S Catalog
Staff
John Ekm Michel Trousseau
CareyGaw
Andrew Lewandowski
Donad Distate
Alan WeIad
Colleen Russo
Gar Albertson
John O'Mara
Pasquale Radice
Oleh Dzydzora
18
Barbara Paxon
Rosemae Cravens
Adam Yaden
Judy Bird
Davide Roncar
Michael Luker
Michael Lin
Gunther Lange
Bri Grah
James Columbo
Adrienne Fancher
Anthony Mack
UWM&S Catalog
HUMAN RESOURCES
Department's role and responsibilty
To assure the continuous availabilty of tred and motivated sta, capable at achievig United
Water's business goals and objectives. Ensure tht all matters of the Company, involving people,
are effective, timely, cost effcient and compliant with local state or federal reguations.
Client Services
Though a combination of shared services, centers of excellence, and delegated local resources,
Human Resources provides the following to all business units and projects:
~ Health & welfare
~ Performance management
~ Retirement plans
~ Leadership effectiveness
~ Benchmarking
~ Organtional change management
~ Executive benefits
~ Strategic human resource leadership
~ Absence management
~ Performance management
~ Compliance audits
~ Payroll services
~ Comprehensive benefit statements
~ Organzation development
~ FMLA
~ Compensation administration
~ COBRA
~ Expatrate remuneration
Staff
~ ERISA
~ Salar strctue & base pay delivery
~ HIPAA
~ Incentive compensation
~ ADA
~ Internal employee communcations
~ Suez Stock Purchase Plans
~ Web, intranet
~ Talent selection, assessment &
recruitment
~ Human Resource policies & handbook
~ Training and development
~ Workers Compensation
~ Labor Contrct Negotiations
~ Labor Relations Trainig
~ Labor Relations Administrtion
~ Employee Relations
19
Charles Wall
Bergis Mamudi
Kathleen McGoldrick
Claie St. Louis
Mar Bautz
Lois Stap
Dolores Gennari
Mar DeLuise
Julia Shamis
Deborah Centore
Jennfer Sislin
reva Spencer Dupree
John Polk
Carol Ike
Jacqueline Malaret
Karn Stapleton
Douglas Beesley
Laureen Lach
Virginia Suever
Amber Stephenson
UWM&S Catalog
BUSINESS DEVELOPMENT
Department's role and responsibilty
Our role is to identify, develop and lead United Water's business and sales development initiatives
by leveraging the water utilty operations and creating new opportities for profitable growt.
Client services
~ Manage a business development program directed at potential sources of new business
~ Identify valid opportties for new business in support of Company growt objectives and
screen out those with little economic potential or strategic value for the company
~ Provide the leadership to motivate dedication, teamwork, and superior performance
thoughout the United Water organzation in pursuit of tageted growth intiatives
~ Provide timely feedback on the development and timing of new opportunities to ensure
adequate support is available to properly pursue the new business and to minimize
disruption to on-going operations
Staff
Eric Gernath
Thomas Tavano
Chrstopher Riat
Ed Deveaux
Danel Sugaran
Robyn Ashman
20
UWM&S Catalog
CORPORATE COMMUNICATIONS, COMMUNITY RELATIONS AND
PROPOSAL DEVELOPMENT
Department's role and responsibilty
The Communications,. Community Relations and Proposal Development deparent develops and
implements strategic, centralized communications and communty relations programs to support
corporate objectives, goals and initiatives and to educate United Water's internal and external
clients. The deparent is also responsible for developing proposals and presentations in support
of the company's managed growt plans.
The core mission of the deparent is to research, develop and implement all formal internal and
external communcations of United Water. Ths includes the oversight and management of, the
corporate identity program, the national marketing communcations program, communcations for
the Corporate Customer Care initiative, employee communcations and the corporate web site.
In addition, the deparent supports the day-to-day customer communications needs of operating
subsidiares, including management and implementation of communty outreach and education
programs (plant tour programs, watershed recreation program, conservation gardens, communty
events, etc.) The deparent also develops generic communcations progras for use by United
Water subsidiares. As needed, the deparent provides communications counseling and
emergency communcations support to United Water subsidiares and afliates and is the liaison
with Suez and Suez Environment on all communication initiatives.
Client Services
~ Development/execution of strategic communications plans
)i Writing and editing, speeches, presentations, publications, utility customer
communcations, letter, press releases, etc)
)i Media Relations (serve as company spokespersons, arange management interviews,
develop story ideas for publication, wrte by-lined aricles, set up editorial board meetings,
pro-active outreach and education about company programs and activities)
~ Customer outreach and education programs (brochures, bil inserts, plant tour progr,
speakers' bureau, conversation gardens, watershed recreation, tradeshows, special events,
etc.)
~ Rate case communcations plan and implementation, including interaction with state
reguatory agencies on communications issues
~ Employee communcations (corporate newsletter, electronic communcations, special
anouncements and publications, etc)
)i Customer research program management (quantitative and qualitative)
~ Computer graphics
)i Corporate and subsidiar web site development and management;
~ Emergency/crisis communications
~ Corporate identity development/support
~ Employee programs
21
UWM&S Catalog
Staff
Rich Henng
Deborah Rii
Madelie Power
Kaa Kennedy
22
UWM&S Catalog
EXTERNAL AFFAIRS
Department's role and responsibilty
External afais role is to be a conduit for the company to governent offcials, cusomers,
communty groups and relevant professional organizations and other appropriate entities in order
to effectively promote and protect the company's interests in public policy matters. Our
responsibilty is to enhance and promote United Water's interests and image in public areas that
benefit our corporate goals and objectives.
Client Services
); Monitor public policy proposals and initiatives that afect the company
); Assess and provide information on governent actions for their implications for United
VVater's interests
); Present information to governent officials on public policy proposals that impact United
Water and the water industr
); Parcipate in events and organzations that promote a positive image and greater
understading among all external groups of United Water's interests
); Active paricipation in community organizations as a visible sign of United Water's
corprate commitment to constituent communties and customers
); Coordinate a communty liaison program that utilizes United VVater employee's
involvement in their communties to promote greater understading, though improved
communcations, of public and corporate issues
Staff
Ulises Diaz
Cheryl Rybacki
23
UWM&S Catalog
SUEZ ENVIRONMENT NORTH AMERICA
Departent's role and responsibilty
Our role is to assess client needs and market forces and implement actions to strengten our
business in Nort America.
Client services
~ Represent Suez Environment and United Water at varous industr associations and forus
~ Develop and implement a plan to continue to protect and enhance the corporate position of
Suez Environment and United Water
~ Work with key clients and customer groups to insure their service expectations are being
met
Staff
Patrick Cairo
Lisa Carlio-Boyd
24
UWM&S Catalog
ADMINISTRATIVE I GENERA
Department's role and responsibilty
Provide executive management servces to all subsidiares of United Water. Develop and
implement a strategy that creates value for all of our staeholders.
Client Services
~ Provide executive oversight of all United Water subsidiares
Staff
Anthony Harding
Donn Koeniges
Xavier Boulat
Chrstine Mednick
Robert Iacullo
Sherr Corvo
J.C. Goldm
Toni Bond
Rosemaie Cravens
25
UWM&S Catalog
INTERNAL AUDIT
Department's role and responsibilty
An independent control entity, which reviews and evaluates the adequacy and effectiveness of
operational and financial controls and processes thoughout the Company.
Client Servces
~ Independent appraisals of control systems, policies and procedures
~ Review of operational effciencies and information technology
~ Techncal assistance
~ Assurance services
~ Due dilgence support
~ Special Reviews and Investigations
Staff
An Koesterer
Paul Cassetti
Michael Onojeta
26
UWM&S Catalog
CUSTOMER CAR
Department's role and responsibilty
We are responsible for the development and implementation of "best practices" across United
Water Customer Service fuction. Ths includes oversight and management of all customer
service related taks and communcations.
Client Services
We will provide our clients with prompt, responsive, professional services
Services include:
~ Development and implementation of customer care strategies and programs
~ Implementation of best practices across all business unts
Staff
L:Lyne Allaker
Ilinca Ford
Mara Tajal
27
UWM&S Catalog
POLICY AN PROCEDURES
Department's role and responsibilties
The Policy and Procedures deparent is primarly responsible for the design, implementation, and
enforcement of stadard accounting policies and procedures under the direction of the Corporate
Controller, in order to ensure that controls are in place and accounting records are prepared in a
consistent maner. In addition, this deparent supports special management projects and
initiatives.
In addition, the Manager - Policies and Procedures acts as the Internal Control Coordinator for the
company's Control and Disclosure (CODIS) initiative i.e., the design and implementation of a
system of internal controls, to ensure the company's shareholders' compliance with the Sarbanes
Oxley Act.
Client Services
The following is a sample of the reports/services our deparent provides:
~ Develop, communcate and enforce written policies, lJrocedures and fiancial controls for
all accounting processes to haronize, strengthen and support the finance and accounting
fuctions thoughout the organzation
~ Oversee the implementation of new accounting stadards and pronouncements on a
corporate wide basis
~ Review (on an ongoing basis) deparmental processes; streamline or implement process
improvements
~ Provide training to both corporate/region finance and accounting personnel, as well as non-
financial managers
~ As Internal Control Coordinator for the company's CODIS intiative, responsible for:
· Maintaining the process documentation in the Suez reporting tool (COVAL)
· Communcating the key control activities identified to Business Process Owners
(BPOs) and ensurg that they in place and operating effectively; working with BPOs
to remediate any deficiencies found
· Communcating with executive management (including the Audit Commttee of the
Board of Directors), external auditors and Suez on the status of the CODIS initiative on
a reguar basis
Staff
Mark McKoy
28
UWM&S Catalog
REGULATORY BUSINESS
Department's role and responsibilty
In cooperation with all other M&S deparents and local utility management, the Deparent
secures timely and adequate rate relief, and the successful outcome of other regulatory matters, to
ensure the finacial health of the reguated subsidiares, which in tu contrbutes to the financial
success to UWR and supports continuing safe and adequate service to customers. In fufillng ths
responsibilty, the Deparent:
Attacts and retai a sta of regulatory specialists, and maitans a knowledge base of regulatory
principles, technques and innovations,
Establishes productive relationships with the industr, regulators, consultats and attorneys,
Takes primar responsibilty for the project management and outcome of all rate and reguatory
filings, including any judicial review,
Support the Company's growt initiatives through analysis of potential regulated acquisitions,
and taes primar responsibility for regulatory approval of acquisitions, changes in control, and
other tractions requiring reguatory approval,
Takes priar responsibilty for the project management of periodic comprehensive audits
conducted by regulators and their consultats,
Paricipates in operating Company business reviews, and provides input into the operating, capita
and strtegic plans for the regulated segment.
Client Services
~ Provide services and expertse related to all regulatory matters to all regulated water and
wastewater companes
~ Provide tarff maintenance review of proposed regulatory changes and development in
discussions and proceedings with the reguators to protect the interest of United Water
~ Provide advice to the utilty companes on compliance with state commission regulations
~ Serves the needs of the Capita Planng Deparent with rate case procedures that can
afect the timing of capital projects
~ Provides regulatory analysis and advice, from a regulatory perspective, to the Business
Development Deparent in its pursuit of potential acquisitions
~ Assist the Strategic Planng Deparment with input to the strategic plans, and finacial
forecast
~ Selects and controls outside consultats and counsel in regulatory matters
Staff
29
Mark Gennari
Kevi Doherty
Carl Jersey
Thoma Lippai
Peilg Lin
Gregory Roupp
Carole Mazola
Mar Fusco
Walton Hi
UWM&S Catalog
M&S Allocation Methodolo!!
All costs incured by the Management & Services Company are biled based on the time
allocations of the employees of the Service Company. The list below provides explantions of
how each fuction will be biled to the business units.
1. Administrative, Purchasing, Insurance and General Services: 33.33% thereof in
proportion to the number of employees, 33.33% thereof in proportion to the number of
customers served, both as of the end of the preceding calendar year, and 33.33% thereof in
proportion to operation and maintenance expenses (excluding charges under ths agreément,
regulatory expenses and provisions for depreciation and taes) for the preceding calendar
year.
2. Engineering Services: 40% in proportion to the sum of utilty plant in service and
constrction work in progress accounts less the reserve for depreciation at the end of the
preceding calendar year, 40% thereof in proportion to the volume of water delivered durng
the preceding calendar year, and 20% thereof in proportion to the total of fuel and power and
chemical costs during the preceding calendar year. If any company or component of a
company served is engaged in both water and sewer service, the volume of water delivered by
such company of component thereof engaged in both services shall be doubled for the
puroses of this paragraph.
3. Customer Biling and Communications Service: In proportion to the number of customers
at the close of the preceding calendar year.
4. Employee Relations Services: In proportion to the number of employees at the close of the
preceding calendar year
5. Accounting and Data Processing Services: In proportion to the capitalization of the
company at the end of the preceding year.
6. Treasury Service: Costs will be allocated on the basis of the proportion of the company's
total capitaization to the consolidated capitalization of General at the end of the preceding
year.
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UNITED WATER IDAHO INC.
CASE UWI-W-09-01
FOURTH PRODUCTION REQUEST OF THE COMMISSION STAFF
Preparer/Sponsonng Witness: Kevin Doherty
REQUEST NO. 110:
Pleae provide a copy (or access to the reports in Boise) of any studies performed (internally or
externally) that demonsate the benefit of the M&S Company to the United Water subsidiares.
If none have been performed since 1997, please so state in your response and provide access to
the following reports - A Comprehensive Management Audit of United Water New Jersey dated
Januar 3, 1997, A Stratified Management and Operations Audit of United Water Pennsylvania
dated March 20, 1996, and Final Report of the Genera Waterworks Corporation (pennsylvana
Operations) Comprehensive Management and Operations Study, dated June 1988.
RESPONSE NO. 110:
There are no such studies other than those attached: the Table of Contents and the pertinent
sections of the Reports for
. 2007 UWNJ Management Audit
. 1997 UWNJ Management Audit
. 1996 UWP A Management Audit
. 1988 General Waterworks Management Audit
. 2004 UWP A Management Audit
. Barenbruch Report, 2004 UWP A Management Audit follow up.
Request No. 110 Attachment 1 NJMA 2007
Page 1 of7
Report on
An Audit of UWJ & UWR
RFP 06-X-37900
STATE OF NEW JERSEY
Board of Public Utilties
DMSION OF AUDITS
Newark, New Jersey 07102
Submission Date
10/28/2007
PMC Management Consultants, Inc.
P.o. Box 332
Thre Bridges, NJ 08887-0332
908-788-1014 voice
e-mail: pmc(ipmc-management.com
Request No. 110 Attachment 1 NJMA 2007
Page 2 of7
TABLE OF CONTENTS
I. EXECUTIVE MAAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 1
I.A. BOAR OF DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 1
I.A 1 Findings and Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 1
I.A.2 Recommendations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . 3
I.B EXEUTIVE COMPENSATION ........................................ 3
I.B.l Findigs an Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
I.B.2 Recommenations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
I.C CORPORATE GOVERNANCE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . 4
I.C.i Findigs and Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
I.C.2 Recommendations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
I.D .AFILIATE RELATIONS ..............................................9
I.D.I Findigs and Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
I.D.2 Recommendations.............................................. 9
I.E COMPLIANCE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
I.E.1 Findings and Conclusions . . . . . . . . . . . . . . . . . . . . .. . . . . .. . . . . . . .. .. .. 10
I.E.2 Recmmendations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 10
'D. HUM RESOURCES ..................................................... Ii
ll.A COMPENSATION AN BENEFITS .................................... 11
D.A.I Findings and Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 11
ll.A.2 Recommendations ............................................. 16
II.B EMLOYEE DEVEWPMEN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 18
II.B.l Findi and Conclusions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . .. 18
II.B.2 Recommendations ............................................. 21
D.C LABOR RELATIONS ..... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
ß.C.I Findings and Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
D.C.2 Recommendations ............................................. 23
D.D WORK FORCE PRODUCTIV ...................................... 23
ll.D.I Findigs and Conclusions . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
ll.D.2 Recommendations ............................................. 24
D.E PERSONNL INORMATION SYSTEM ................................ 25
D.E.I Findigs and Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
ll.E.2 Recommendations ............................................. 25
II.F .AFIRMATIVE ACTION ......... . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . 26
D.F.l Findings and Conclusions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
D.F.2 Recoimendations ............................................. 29
m. SYSTEM OPERATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
il.A SYSTEM DESIGN .................................................. 30
il.A 1 Findings and Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
ID.A.2 Recommendations ............................................. 32
PMC
Request No. 110 Attachment 1 NJMA 2007
Page 3 017
TABLE OF CONTENTS
m.B EFFICIECY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
m.B.! Findigs and Conclusions . . . . . . . . . . . . . . 0 . . . . . . . . . . . . . . . . . . . . . . . . . 33
ßI.B.2 Recommendations ............................................. 34
II.C CONSTRUCTION PROJECTS ..... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
moC.l Findigs and Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
m.C.2 Recommendations ............................................. 44
m.D OPERTIONS AN MATENANCE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4S
il.D.l Findigs and Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 . . . . . . . 4S
m.D.2 Recommendations ............................................. 47
II.E SYSTEM RELIAILIT. . . . . . . . . . . . . 0 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
m.E.1 Findigs and Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 . . . . . . . . . 48
m.E.2 Recommendations ............................................. 50
ID.F ENGINERG ECONOMICS . . . . . . . . . . . . . . . . . 0 . . . . . . . . . . . . . . . . . 0 . . . . . Sl
m.F.1 Findigs and Conclusions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 . . . . . . . . . . 51
m.F.2 Recmmendations ...................................... 0 . . . . . . 54
ID.G CONSERVATION................................................... 55
il.GJ Findigs and Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
m.G.2 Recommendations ........................0....0............... 59
IV. CUSTOMER SERVICE..................................................... 63
IV.A METER READlNG . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 . . 63
IV.A.1 Findings and Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 63
IV.A.2 Recommendations ............................................. 66
IV.B CUSTOMER SERVICE EFFECTIVESS ............................... 67
IV.B. i Findigs and Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 67
IV.B.2 Recommendations ...................................... 0 . . . . . . 76
V. EXTERAL RELATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 . . . . . 0 . . . 78
V.A OWNRSHIP. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
V.A.1 Findigs and Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 . . . . 79
V.A.2 Recoinendations ...... 0 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 . . . . . . 79
V.B REGULATORY RELATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . .. . . 0 80
V.B.I Findigs and Conclusions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 80
V.B.2 Recmmendations ............................................. 82
V.C LEGISLATIVE AFFAIS ....................................0........ 83
V.C. i Findings and Conclusions 0 . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 . . . . . . . . . . . 83
V.C.2 Recommendations ..........................0.................. 84
V.D FINANCIA COMMUNITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
V.E PlJLIC RELATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 84
V.E.1 Findigs and Conclusions. . . . . . . . . . . . . . . . . . . . . . . . . 0 . . . . . . . . . . . . . . 85
V.E.2 Recommendations ............................................. 87
ii PMC
Request No. 110 Attachment 1 NJMA 2007
Page 4 of7
TABLE OF CONTENTS
V.I StJPORT SERVICES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 89
VI.A RISK MAAGEMT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 89
VI.A 1 Findigs and Conclusions . . . . . . . . . . . . . . . . . . . . . . .. . .. .. . . . . .. .. ... 89
VI.A.2 Recommndations ............................................. 91
VI.B LEGAL.., . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii . . . 91
VI.B.l Findis and Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
VI.B.2 Recommendations ............................................. 93
VI.C FACILITIES MANAGEMENT .............. . . .. . . . . . . . . . . . . . . . . . . . . . . . 93
VI.C.l Findigs and Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
VI.C.2 Recommendations ............................................. 95VI.D MATERIS MAAGEMENT ........................................ 95
VI.D.l Findigs and Conclusions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 95
VI.D.2 Recommendations ............................................. 97
VI.E TRANSPORTATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
VI.E.l Findigs and Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
VI.E.2 Recommendations ............................................. 98
VI.F RECORDS MAAGEMEN .......................................... 98
VI.F.l Findigs and Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
VI.F.2 Recmmendations ............................................. 99
VI.G INORMTION TECHNOLOGY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 100
VI.G.l Findigs and Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 100
VI.G.2 Recmmendations ............................................ 102
VI.H SECURITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 102
VI.H.1 Findigs and Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 102
VI.H.2 Recmmendations ............................................ 104
V.II FINANCE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 105
Vl.A FINANCIA RISK ................................................. 105
VIlA 1 Findings and Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 105
VII.A.2 Recmmendations ............................................ 110
Vl.B GAA COMPLIACE .............................................. 110
VII.B.l Findings and Conclusions . . . . . . . . . . . . . . . . . . .. . . . .. . . . . . . .. . . . . .. 110
VI.B.2 Recmmendations ............................................ 115
VL.C RATESmUCTUE................................................ 115
Vl.C.l Findigs and Conclusions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 115
VI.C.2 Recommendations ............................................ 117
Vl.D INERNAL AUDIT .................................................117
VI.D.l Findigs and Conclusions. . . . . . . . . . . . . . . . ... . . . . . . . . . . . . . . . . .. .. 118
VI.D.2 Recmmendations ............................................ 121
VIlE COST ALLOCATIONS.............................................. 121
Vll.E.l Findings and Conclusions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 121
Vl.E.2 Recommendations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 123
ii PMC
Request No. 110 Attachment 1 NJMA 2007
Page 50f7
VII. FINANCE
VII.D.2 Recommendations
· There are no recommendations.
VII.E COST ALLOCATIONS
The RFP requires the consultant to "Determine IfUWJ And UWTR
Are Maximizing Their Cost Allocation Effciencies."
VII.E.1 Findings and Conclusions
. Cost allocation methodologies reflect appropriate
mechanisms.
The United Water Controller oversees and updates all cost allocation
factors.
United Water Management and Services (M&S) is a non-profit shared
services entity, which provides professional services to its wholly own
subsidiaries. The services delivered range from finance, legal,
procurement, treasury, taxes and human resources to technical services,
information technology, communications, rates, and customer service.
The M&S inter-company agreements date back to 1974 and have been
approved by eight state regulatory agencies.
The process that employees use to bil subsidianes for their services is as
follows:
. M&S employees bil for services rendered to a paricular
business unit (called a direct charge) and/or a group of business
units (called an indirect charge or allocation level) on their
respective timesheets.
. Timesheets are processed through the ADP Payroll system and
the paid payroll distribution is posted to the PeopleSoft Financial
system.
o Direct charges are posted directly to the M&S fee
account of the business unit biled for services rendered.
121 PMC
Request No. 110 Attachment 1 NJMA 2007
Page 6 of7
VII. FINANCE
o Indirect charges are posted to the M&S Company, to be
subsequently allocated by allocation level via the M&S
allocation process described below.
. Additional cost components, such as the Accrued Payroll, Fringe
Benefits, and Other M&S A&G (rent, utilties, etc.) are allocated
based on Paid Payroll to account for the overhead on top of pay.
. Finally, the M&S allocation process allocates the indirect
charges by allocation leveL.
o An allocation level represents a group of business units
biled for services rendered.
o The Allocation factors have been agreed upon in the
M&S Inter-Unit Agreement. They are based upon the
employee functional responsibilty.
Functional Area Allocation Method
Administrative and General Employees - 33 1/3%
Customers - 33 1/3%
O&M Expenses - 33 1/3%
Operations Net Utilty Plant - 40%
Volume of Water Delivered - 40%
Fuel, Power & Chemical Costs - 20%
Eni!ineerinl!Constrction Capital Projects - 100%
Customer Service and Communications # of Customers
HR and Pavroll # ofEmplovees
Accounting, IT, Planning, and Treasury Total Capitalization
.The Purchasing function is effcient.
The Supply Chain Management Deparment seeks to procure goods and
services at the best value for internal clients. The Department is
responsible for the procurement of UW operating needs, capital projects,
additional service agreements, inventory management, supply chain
system and process administration.
Procurement ofUW operating needs and capital projects include the
management of major spending categories using an aray of global,
national and local contracts. Major areas include energy, chemicals,
122 PMC
Request No. 110 Attachment 1 NJMA 2007
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VII. FINANCE
sludge/residual disposal, network materials, contract services,
engineering services, fleet, information technology, telecom, travel,
uniform, office equipment and other items.
The Director of Supply Chain Management has employed cost-saving
techniques through negotiation, process improvements and inventory
replacement tactics that reflect effcient modem day technologies.
According to the UW Procurement Policy and Procedures, there are
management requirements in the areas of competitive procurement rules,
new suppliers, requisition approvals, purchasing cards, contracts and
contract processes, supplier agreements, corporate credit cards, travel
procedures, employee expenses, leased vehicles and change orders. Items
over $ i 0,000 require competitive procurement. Two quotes are the
minimum, but UW prefers three bids or more.
Approval of the addition of new suppliers to the PeopleSoft system is the
responsibilty of certain designated procurement personneL. Procurement
is charged with reducing the number of suppliers that UW conducts
business with in order to leverage expenditures and thereby reduce the
prices paid for materials and services. This policy in no way intends to
limit competition, only to focus the spending of funds upon the intention
of reducing prices. The Director of Supply Chain Management stressed
that his departent significantly tracks inventory levels to reduce
inventory charges. He has required vendors to have good protocols for
seasonal needs. Inventory is matched with seasonal requirements.
VII.E.2 Recommendations
· There are no recommendations.
123 PMC
Request No. 110 Attachment 2 NJMA 1997
Page 1 of 96
A Comprehensive Management Audit of
United Water New Jersey
Final Report
Prepared For:
State of New Jersey
Board of Public Utilities
Division of Audits
Bureau of Managment Audits
Two Gateway Center
Newark, New Jersey 07102
.Prepared By:
! 0;
Vista Consulting Group
8200 Greensboro Drive
Suite 1400
McLean, Virginia 22102
January 3, 1997
Control No. .~ '\
(\",' ") '. I '" .. I . . J
Request No. 110 Attachment 2 NJMA 1997
Page 2 of 96 .
Case File No.: WA9S080388
TABLE OF CONTENTS
INTRODUCTION AND EXECUTIVE SUMMRY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. j
CHAPTER I -- EXECUTIVE MANAGEMENT AND LONG-RANGE PLANNING
A. EVALUATIVE CRITERIA ......................................... ~ .. 1-1
Board of Directors and Offcers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 1- i
Organizational Strcture ................................................ 1-2
Corporate Planning .................................................... 1-3
Corporate Communications. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 1-3
Administration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 1-4
Ethical Conduct .............................. . . . . . . . . . . . . . . . . . . . . . . . .. 1-4
Regulatory Compliance ................................................. i-S
Compensation and Benefits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . , .. 1-5
External Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 1-6
B. BACKGROUN. . . . . ... " " " " " . . . " . . . . . . . . " . . " . " " " . . . . . . . " " . " " " " . " . . "" 1-8
Board of Directors and Offcers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 1-8
Organizational Structue ....................... ~ . . . . . . . . . . . . . . . . . . . . . .. I-II
Corporate Planning ................................................... 1-19
Corporate Communications. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 1-24
Corporate Ethcs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ;. 1-25
. Administration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ... 1-26
Regulatory Compliance. . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 1-26
Compensation and Benefits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..' . .. 1-27
External Relations .................................................... 1-30
C. FINDINGS AND CONCLUSIONS ..................................... 1-33
D. RECOMMENDATIONS. " . . . . . " . . " . . . " " " " " . " . . . . . . . " .. " . . . . " " . " ... . .. 1-47
CHAPTER II -- RELATIONSHI WITH AFFILIATED COMPANIES
A. EVALUATIVE CRITERIA....... ....... .. .. . . ..... . ...... . ...... .. .. 11-1
B. BACKGROUND" " " . ... " "" .. . . ". . . . . ". . . .. . .. . .. " .. . . . . . . . .'. . .. . " . , " .. n-2
Overview of Affliated Relationships ............ '. . . . . . . . . . . . . . . . . . . . . . . . . . II-2
Relationship With UWM&S ............................................. II-3
Relationship With UWNY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . : . . . . ii-is
Relationship With United Water Mid-Atlantic .............................. II-I9
Relationship With United Water Jersey City. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-22
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Page 3 of 96
Case File No.: WA95080388
C.FINDINGS AND CONCLUSIONS " " .. " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " .. "11-24 "'
D. RECOMMNDATIONS" " " " " " " " " " " " .. " " " II " " " " " " " " ,. .. " " . " " " . " " " " " .. " " ".. II-3D
CHAPTER III -- SYSTEM OPERA nONS
A. EVALUATIV CRITERIA"""""""""""""..""",,.,,"""""""""",,..,,"""" ".""""" III-l
System Production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111-1
System Operation & Maitenance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-2
System Reliabilty & Planing .......................................... II - 3
System Constrction & Bidding Practices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-6
Workforce Management ............................................... III-8
B. BACKGROUN" " " " " " " " " " " " " " " " " " " " " " " " " " . " " " " " " " " " . " " " It " " " " "" .. " " " " III-9
System Production. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111-9
System Operation & Maintenance . . . . . . . . . . . . . ". . . . . . . . . . . . . . . . . . . . . . . . . . II -11
System Reliabilty & Planing ......................................... II-26
System Construction & Bidding Practices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ~i-35
Workforce Management .............................................. III-40
C. FINDINGS AND CONCLUSIONS .................................... III-52
D. RECOMMENDATIONS" " " " " " " " " " " " " " " " " " " " " " " " " " " " " " . " " " " ".. . " " " " " " " 111-63
CHAPTER IV -- FINANCES
A. EV AIUATIVE CRITERIA """""""""""""""""""""""""""""""""""""""""" ..IV..1
B. BACKGROUN" " " " " " " " " " . " " " " " " " " . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . " . IV-3
Cash Management .................................................... iV-S
Accounting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IV-7
Taxes .............................................................. IV-8
Plang and Budgeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iv -10
Internal Auditing .................................................... iv -1 S
Corporate Financing . . . . . . . .' . .". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iv -17
Rates and Revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IV-23
C. FINDINGS AND CONCLUSIONS .................................... IV-24
D. RËCOMMENDATIONS ... .... .. ...... .. .... ... . ..... . . ... . ... .. . ........ ........ . .IV-30
Request No. 110 Attachment 2 NJMA 1997
Page 4 of 96
Case File No.: WA95080388
CHAPTER V -- HUMAN RESOURCES
A. EVALUATIVE CRTERI ................................................................................ V-I
Overview .......................................................... . V-I
Wage and Salar Practices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. V-i
Compensation and Benefits Levels. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. V-2
Development and Training ............................................. V-2
Productivity and Utilzation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . '. . . . . . . . . . . . .. V-2
Labor Relations ...................................................... V-2
Safety. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .'. V-I7
B. BACKGROUND.. .. .. .. . . . . .. .. .. .. .. .. .. .. .. . .. .. . .. .. . . .. .. .. .. .. .. .. .. .. " .. .. .. .. .. .. .. .. .. .. .. .. .. .. .... V-3
Overview ........................................................... V.3
Wage and Salar Practices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. V-5
Compensation and Benefits Levels ........................................ V-8
Development and Traing ............................................ V-i 0
Productivity and Utilzation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. V-12
Labor Relations ..................................................... V-i 5
Safety.............. .. ............. ....... .. . ........... .. .. ....... V-17
C. FINDINGS AN CONCLUSIONS .................................... V-20
D. RECOMMENDATIONS.. .\.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ".' .. .. .. .. .. .. .. .... V -34
CHAPTER VI -- CUSTOMER SERVICES
A.EVALUATIVE CRITERIA ...................................................................................... VI-I
! t
Meter Management .................................................... VI- i
Biling, Credit and Col1ention .."......................................... VI - i
Complaints and Inquiries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .". . . . . . . . . . . . . . . . . VI- i
Conservation ........................................................ VI-2
Marketing.. . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . '. .. . . . . . . . . . . . . .. VI-2
Service Theft .. '. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . VI-2
B.BACKGROUND ...................................................................................................... VI-3
Meter Deparent ..................................................... Vl-5
Customer Services. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . VI-8
Homer Prograi ..................................................... VI-14
C. FINDINGS AND CONCLUSIONS .................................... VI-19
D. RECOMMENDATIONS.. .. .... .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. . . . . . . . to . . . . . .. . . . . . . . . . VI-28
Request No. 110 Attachment 2 NJMA 1997
Page 5 0196
Case File No.: W A95080388
CHAPTER VII .- SUPPORT SERVICES
A. EVALUATIVE CRITERIA. ..""".,.,.,..,.,..,.,.,.,.,.,.,.,.,...,,,.,.,,,.,.,"".,.,,,.,.,,,.,.,,,., ~ VII-l
Insurance and Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. VII- i
Legal ............................................................. vii-2
Purchasing and Materials Management. . . . . . . .. . . . . . . . .". . . . . . . . . . .. . . . . .. VII-2
Facilties Mangement. . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. VII-4
Transporation Management ........................................... VII-4
Real Estate and Land Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . '. VII-4
Computer Systems and Services -. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. VII-5
Records Management. . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ., VII-5
B. BACKGROUND. ., ., ., " ., ., ., ., ., ., ., . . . ., ., . ., ., . ., " ., ., ., ., ., " ., ., " ., ., ., ., ., ., ., ., ., ., ., " ., ., ., " ., ., .. VII-6
Insurance and Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. VII-6
Legal ............................................................. VII-?
Facilties Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. VII-I 0
Purchasing and Materials Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. VII -13
Trasporttion Management .......................................... VII-15
Real Estate and Land Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. VII-I?
Computer Systems and Services. . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. VII-IS
Records Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. VII-28
C. FININGS AND CONCLUSIONS................................... VII-32
D. RECOMMENDATIONS., " ., ., ., ., ., ., ., 4 .,., " " . ., ., ., " ., ., ., " ., ., ., ., ., " .. ., . " " " " ., " ., " . " "" VII-48
SPECIAL OBJECTIVE -- ASSESSMENT OF UWJ'S EFFORTS TO
MINIMIZE LARGE-SCALE DISRUPTIONS OF SERVICE
A. INTRODUCTION ".,,,.,,,,,.,,.,"".,"".,.,,""""""".,"",,.,,"".,""".,..,,..,,".,,,..,,.,., i. 80-1
B. FINDINGS AND CONCLUSIONS .................................... SO-2
C. RECOMMENDATIONS., ".,,,.,"" "" """ ...." ., " .,." , ., .. "., ., .,.. " ., " " " " "., " " ., "".. "" SO:'11
Request No. 110 Attachment 2 NJMA 1997
Page 6 of 96
l
~~l~rlrll~~I~;~lt'III~~~~~ìt!i;,~~d!
RELATIONSHIP WITH AFFILIATED COMPANIES
, I
,¡
Request N,R"_! 1 O..actment2 NJMA 1997
Page 7 of~e File No. WA95080388
i'. ,
¡
CHAR ß - RELATIONSHI WITH AFILIATED COMPAN
A. EVALUATIV CRIRI
Tlis chapter presents the results of the investigation of the nature and extent of the
relationship and tranactions between UWJ and its affliated companies. Our investigation in
large par sought to determe whether the interests of UWNJ's ratepayers are compromised
by any of the affliated relationships.
The most importnt of these relationships is tht with United Water Management &
Services, Inc. (U&S), which provides a number of centralized services on behalf of
UWNJ, such as rate case preparation, finncial management, treasury fuctions, corporate
communications, adminstrative support, data processing, etc. Prior to the merger with
General Waterworks, these services were performed in-house by UWJ (the fonner
i Hackensack Water Company). UW&S is currently biling UWNJ $400,000 to $500,000 per
, I month for services .rendered by UW&S employees, and a little over $900,000 per month if
allocated corporate fixed costs, such as inurance and pension costs, are included, which
represents more than 10 percnt of the Utilty's total expenses. The nature, efficacy, cost~
effectiveness, and fairess of cost allocations and direct bilings with respect to UW&S
centralized services were analyzed. Also examd was the nature and extent of employee
tranfers from UWNJ to UW&S, of which there were many. The potential impact on
UWNls operations of converting many of UWJ's top executives to UW&S was an
importnt concern of ths audit.
The chapter also investigates UWNJ's other affliated relationships. UWNJ provides a
considerable array of services to its subsidiary company, United Water New York (UWNY).
UWNJ also provides service to Mid-Atlantic Utilities. Ths includes direct services, such as
analytical testing service though its Hawort laboratory, as well as services to other affliated
companes of Mid-Atlantic. An example of the latter is Hoboken Water Services Company,
for which UWNJ provides operations and maintenance services, as par of the O&M contract
between Mid-Atlantic and the City of Hoboken. Also investigated were the possible impacts
of affliations with other UW entities, including: United Water Services Jersey City (a new
O&M contract getting started); unegulated companies operated by UW, such as United
Properties Group, United Metering, and Laboratory Resources; and UW's other regUlated
utilties including the former General Waterworks companies tiini!ed W&i:erworks). In some
cases, it became clear that the impact of these affi1iations on UWJ's operations is minal
and in-depth investigation was unwarranted.
II-I
Request N9. 110 AUacJment 2 NJMA 1997
Page 8 of é6e File No. W A95080388
B. BACKGROUN
OVERVIW OF AFILIATED RELATIONSHIS
The following discussion provides an overview of all of UWJ's affliated
. relationships. Exhbit n-i provides a simplified organitlòllál chårr'èlepicting UWNJ's
affliated relationships. In the exhbit, those relationships which have either already have a
material impact on UWNJ's operations, or may have a material impact in the future areshaded. '
The left side of the exhbit shows UWR's regulated companies, of which UWNJ is one.
Of the regulated utilties, only United Water New York (UNY) and United Water Mid-
Atlantic (Mid-Atlantic) have material affliations with UWNJ. UWNY is a subsidiary of
UWNJ. Not only does UWNJ routinely bil UWY two to thee millon dollars per year for
centralizd support services such as accountig and data processing, but UWNyìs and
UWNJ's operational data are consolidated for the purposes of financial reporting. In addition,
UWNJ and UWNY share allocations of water from DeForest Lae Reervoir. UWNJ also has
fairly considerable interaction with Mid-Atlantic, charging the affiliate about $50,000 to
$70,000 each of the past thee years for providing such services as analytical testing (at the
Hawort laboratory) and other support services to Mid-Atlantic's 10 subsidiary utilties.
UWNJ's involvement with Hoboken 'Water. Services Company (Hoboken WSC), a subsidiary
of Mid-Atlantic which manages UW's O&M contract with the City of Hoboken, is even
more extensive. UWJ's charges to Hoboken WSC is rug at more than $50,00 per
month for operations and maintenance services. UWNJ has very. little interaction with United
Waterworks, UW's regulated entity composed of the form~r General Wat~rworks utilities.
Of the non-regulated affiliates, UWNJ's most importnt relationship is with United
Water Management & Services, Inc. (UM&S). UW&S bils UWNJ more than $900,000
per month for centralized support services and for allocation of Company-wide costs, such as
purchased health inurace, etc. About 80 fonner UWNJ employees were tranferr to
UW&S's payroll following the merger with General Waterworks. This is UWNJ's most
importnt affliated relationship and is a major focus of ths chapter. Among the other non.
regulated companies, UWJ has very little interaction. UWNJ has been involved in a couple
of propert transactions with United Properties Group, related to watershed management. In
addition, although UWJ has not yet been impacted by UW's new O&M contråct with
Jersey City, the Utilty may be involved with the effort in the future. Also, United Water
Services New Jersey, wil be pursuing additional O&M contracts in New Jersey in the future;
UWNJ may be looked on as a source of operations and maintenance personnel for theseO&M
contracts as well, should UW win some of these jobs.
11-2
i,
~:~~~S~~J¿ ift~~~ Å~s'b"8ij§¡7
RELATIONSIDP WITH UNTED WATER MAAGEMENT & SERVICES, INC.
UW&S, formed in January of 1995, provides a number of centralized services to all
of UWR's regulated affIliates, includingUWJ. It also purchases inurance for all regulated
companes and allocates these costs among the affliates. UWM&S is a carr over from
General Waterworks Management & Services, which provided 'centraliz services to the
former General Waterworks utilties prior to the merger between UWR and GWC. However,
UWNJ's relationship with UWM&S is different from UW's other regulated utilties in two
importnt ways: first, UWNJ performed these same centralized services for itself and the
former Spring Valley Water Company prior to the merger; second, many of UWM&S
employees are former UWNJ employees tht have been transferred. Even at the present time,
the services demanded by UWNJ from UWM&S are different from those demanded by
UWR's other regulated utilties, especially those under Unite Waterworks. Further, UWNJ
stil provides services to UWNY that might otherwise be provided by UWM&S. What the
optimal relationship between UWNJ and UW&S is stil needs to be determined by UWR and
UWNJ.
Services Provided by UW&S,to UWJ.
The Agreement between UW&S and UWJ is mostly a carr over. of previous
contracts between General Waterworks Mangement and Service Company and its affliates
prior to the merger. UWNJ signed its Agreement withUW&S on April 19th, 1995. . The
Agreement defines the tys of service. to be perfonned and the manner in which expenses
and charges are allocated and biled. Following are the list of services that UW&S agrees to
provide. (In actuality, UWNJ has thus fâr continued to provide itself with some of these
services, as is discussed in italics.)
A. Administrative: UW&S makes qualifed employees available to perform or
assist in the performance of affliates' corporate admstration. These employees are expected
to keep themselves infonned on aU aspects of the Utilty's operations and regularly visit the
Utilty's facilties. They are expected to make recommendations for operating expenditures,
and for additions to and improvements of propert, plant and equipment. In addition,
UW&S may assist in proceedings before, and in its compliance with the rulings of
regulatory bodies. (Most of these services are being provided by former employees of UW!
who have been transferred to UW&S.)
B. Engineering: UW&S advises and provides engineering services to assist in
planng, operating, maintenance and constrction functions. In addition, UWM&S conducts
distribution system sureys and hydraulic anlyses, reviews proceures for water quality
control, and prepares or reviews maps, chart, operating statistics, reports and other pertinent
data. UW&S may conduct periodic inpections of strctures, tank, reservoirs, wells and
electrical and mechanical equipment. Among other services available are the conduct of field
investigations, preparation of studies, report, designs and drawings, cost estimates,
specifications, and contracts for constrction of facilties. (Currently, UWJ continues to
11-3
Request NP,ftl1D.ttacteii2,lNJ..í LSI
Page 10 o~e-l'lle NO. Wny.:mWJöö
provide itself with the lion's share of; its engineering capabilties. Hydraulic analyses,
distribution surveys, engineering designs and drawings, cost estimations, inspections of
propert, etc. are stil peiformed in-house.)
C~ Customer and Public Relations: UWM&S provides recommended pr~dures
to promote satisfactory customer and public relations, and assists with news an customer
iIonntion releases, and arrangements for public inpections, displays and other related
services.
D. Employee Relations: UWM&S assists affliates in procuring qualified
personnel, establishig rates of pay, and negotiating with bargaing units. In addition,
UW&S advises on federal and state regulations affecting personnel, recomiend~ and
administers group insurance and pension plan, and assists in the establishment of program
relating to employee health and welfare.
E. Accountig: UWM&S keeps the general books of affiliates, prepares monthy
financial statements and analyses of accounts an special accountig and fmancial report as
required by affIliates, prepares reports on the costs incurred for propert additions. and
improvements, and prepares or assists in the preparation of federal, state and local tax return.
UW&S also establishes and maintain continuing propert records when requested.
Though internl audits, UW&S revieWs accounting procedures, methods and form, and
evaluates systeDi of internl control for recipt and disbursements of fuds, materials and
supplies, and other assets. Periodic audits of accounts, records and procedures of affliates are
conducted by UW&S. (Although many of UWJ's accounting staff were transferred to
UW&S, UWJ stil maintains considerable staff (about 20 people) for both UWJ an
UW under the direction of UWl's Director of Accounting. This ma change when UW's
IT initiative is implemented).
F. Corporate Secretarial: UW&S maintain documents of affIliates such as
miute books, charrs, by-laws, contracts, deeds, and other corporate records, and peiforms
other corporate secretarial fuctions as required including preparation of notices of stockholder
and director meetings and keeping the minutes thereof. In addition, UW&S reviews and
may assist in the preparation of documents required such as deeds, easements, contracts,
charters, franchises, trst indentures, and regulatory report.
G. Treasur: UW&S coordintes financial arrangements with the financial
community to arange and provides for furnshig of affliates' capital nees from e~ternal
sources. UW&S also assists affliates with cash management, collection policies, and
development of temporary investment programs.
H. Purchasing: UW&S aránges for the purchase of equipment, materials, and
supplies in volume on a basis advantageous to the Utilty Company.
11-4
Request N..o.11 QAttchment 2 NJMA 1997
Page 11 o~e File No. WA9S080388
I. Insurance: UWM&S purchases of all tyes of insurance, as well as superises
investigation procedures, and reviews claims and proposals for settements, if requested. ..
J. Data Processing: UW&S makes electronic data processing services
available, including system analysis aDid" programing, accounting, fmancial analysis and
studies.
K. Rates: UW&S prepares rate cases, provides expert testimony support, and
perfonns other regulatory tasks.
In Agreements between UWM&S and UWNJ (and in fact all of UWR's affliates), the
Utility may engage a non-affiliated organition to provide any of the above services.. The
Agreement stipulates that any such engagement requires mutual consent.
Exhibit ll-t
United Water New Jersey
AffJiated Relationships
. I
II-5
Request No. 110 Attachment 2 NJMA 1997
Page 12 olèe File No. WA95080388
~ I
Transfer of UWJ Employees to UW&S
Approximately 80 employees were tranferred from UWJ's payroll to UW&S's
payroll. Exhbit 11-2 lists the employees that were transferred. The first 17 transfers
occurred on Januar 1, 1995 and included executive management. The larger tranfer went
iito effect as of August 1, 1995. In par, these transfers were necessar to staff up the newly
fonned UWM&S. Fonner General Waterworks employees from the King of Prussia,
Pennylvania offce who elected to leave the utilty rather than tang jobs at Harrington Park
had to be replaced. Much of these employee transfers would have occurred anyWay to
faciltate achieving efficiencies though centraliztion of certin functions. A furter purpose
of the transfers was to achieve consistency of staff across the operating utiities of UW to the
extent possible. Following the tranfers, UW&S had 145 people versus the approximately
1400 staff thoughout UW. The former General Waterworks management company had 70
employees out of a total of 700 employees company-wide. Thus, the M&S group has roughly .
maintained the proportion of its staff to total staff post-merger.
The employees transferred included virally the entire executive staff of UWNJ (Frank
DeMicco now serves as President of UWJ). In addition, approximtely 15 accounting, 10
human resources/personnel, eight inormation technology, four fmance/treasury, 10 corporate
communications, and five administrative support sta were transferred, among others. Some
of these employees stil perform 90 percent of their work on behalf of UWNJ. Many of th
employees that remained with UWNJ were the engineering staff. Also, approximately 20
accounting staff remain with UWNJ.
There has been no analysis of the cost impact of these tranfers on UWNJ, although
executive management believes that the cost effect is nearly neutral. Conceptually, it should
result in an overall decrease in costs for these fuctions due to efficiencies associated with
sharing of functions with affliate utilties. As it turn out, the establishment of UW&S and
the subsequent transfer of UWNJ employees has thus far resulted in about a net decrease of 15to 20 employees. ::'
No furter significant employee transfers are planed, except that implementation of
the new IT environment may lead to a furter reduction of data processing and accounting
personnel in UWNJ and UW&S. Management expects that UWNJ wil continue to perfol1
the vast majority of engineering functions with UWNJ staff.
Accounting for UW&S's Costs to UWJ
Direct biling and cost allocation methodologies used by UW&S are in part a
carrover from the former General Waterworks M&S, although subsequent modifications have
enhanced accounting methodologies even furter and provide for greater analytical resolution.
The method for the assembly of M&S costs are explicit and detailed, and' provide clear
direction to employees.
11-6
~:g~~Si ~J~a~:rel~~~~Sb~lg
UWM&S incurs all of the expenses related to employees providing services to UWNJ
(or any of UW's affliates), including salaries, benefits, rent, overhead, which are then biled
out monthy using the time report prepared by those employees. The cost of the time biled
out is based on an hourly rate for that employee, which is composed of the employee's
compensation, includig benefits, and an allocation of the general overhead costs of the. M&S
company which are estimated and projected each year. Biling rates are not prepared for each
iIdividual employee, but for categories (strata) of employees in each cost center. For each
cost center, hourly rates are calculated for four employee categories -- executive, director,
manager, and staff based on the cost center's projected budget from the UWM&S Operating
I
I
\i
.. I
II-7
Request NA_l1 QAttachmetu2.I\A-t9
Page 14 oMfe l'Ue No. WA~:i\)lSUjlSlS
Date of
Transfer
1/1/95
1/1/95
1/1/95
1/1195
1/1195
1/1195
1/1/95
1/1/95
1/1/95
1/1195
1/1/95
1/1/95
1/1/95
1/1195
1/1195
1/1195
1/1195
1/1195
1/1195
111195
8/1195
8/1/95
811/95
811/95
8/1/95
8/1195
8/1/95
8/1/95
8/1/95
8/1/95
8/1195
8/1195
8/1/95
811/95
8/1195
8/1/95
811/95
811/95
8/1195
811195
811/95
Exhbit ß-2
United Water Management & Servces, Inc.
Employees Tranferred From UWJ to UW&S
Employee Departent
Vice Pres-Admin
President
Supv-Investor Relations
Sr. Vice Pres-Operations
Engineer-Grade V
Dir-Reguatory Compliance
Mgr. Employee Benefits
Vice Pres-Rate Devel
Accountant-Senior
Asst Controller
Supv-General Accounting
Engineer-Grade IV
Treasurer
Dir-Internl Audit
Payables Analyst; GW
Dir-Water Quality
Sr VP-Mktg/Ext AFF
Sr Consolidations Acct
Vice President & Controller
Plant Engineer
Manager-Taxes
Programerl Analyst-Sr
Director-Financial Analysis
Human Resources Rep
Supervisor-Payroll
Manager-Info Center
Admin Support Rep C
Legal Assistant II
Manager-Internal Audit
Rate Analyst-Grade II
Admin Assistant-Treasury
Admin Support Rep A
Admin Assistant-Treasury
Project Director
Manager~Corp Offce
Human Resources Rep
Corporate Counsel
Assistant to VP-Adm
Manager- TraiiglHRIS
Mgr-Media Ret/Spec Event
Admi-Employment
Executive
Executive
Investor Relations
Executive
Engineering
Purification
Human Resources
Rate Development
Accounting
Finance
Finance
Engineering
Treasury
Internl Audit
Accounting
Purification
Executive
Accounting
Executive
Engineering
Tax
Info Tech
Finance
Human Resources
Accounting
Ino Tech
Corp Communications
Legal
Internal Audit
Rate Development
Investor Relation
Corp Communications
Treasury
Executive
Adm Support
Human Resources
Legal
Executive
Human Resources
Corporate Comm
Hwnan Resources
11.8
.1
Ii
8/1/95
8/1/95
8/1/95
8/1/95
811/95
8/1/95
811195
8/1/95
8/1/95
8/1/95
8/1/95
8/1195
8/1195
8/1/95
8/1/95
8/1195
8/1195
8/1/95
8/1/95
8/1/95
8/1/95
8/1/95
811/95
8/1/95
8/1195
8/1/95
8/1/95
8/1/95
8/1/95
8/1/95
8/1195
8/1195
8/1/95
8/1195
8/1195
811195
8/1/95
8/1195
811195
8/1/95
8/1195
811/95
811195
Request Ne. 11 ~iiltadmea 2..'J997
Page 15 M~ eNo. WA!l~\)~U ~lS
Systems Accountant
Water Operations Eng
Dir-Corporate Crimm
Payroll Analyst '
Supv:-Corporate Offce
Publications Editor
Admin Assistant
Coord-Special Events
Accountant-Payroll
Admin Assistant
Accountant-Tax
Admin Assistant-CEO
Ext Affairs/Mktg Coord
Admi Asst- VP Corp Comm
Budget Anlyst-Grade I
Human Resources Rep
Supervisor-Budgets
Supv-Process Research
Admin Asst
Temporary
Benefits Rep
Multimedia Designer
Admin-Network
Supervisor ~i,S I.
Manager-Communications
Mgr Gov't Relations
Manager-Rates
Corporate Counsel
Admin Support Rep A
Admin Asst-Senior
Systems Analyst-Sr
Supv-Employee Benefits
Mgr-Purchasing/Stores
Asst Secl Asst Treasurer
Manager-Compensation
Admin Support Rep A
Mgr-New BuslRisk Mgmt
Programmer-Analyst-Sr
Systems Accountant
Internal Auditor TI
Project Manager-CIS
Director-Human Resources
Director-Info Systems
Accounting
Purification
Corp Communications
Accounting
Admin Supprot
Corp Communications
Admin Support
Corp Commuiucations
Accountig
Legal
Tax
Executive
External Affairs
Corp Communications
Budgets
Human Resources
Budgets
Research
Admin Support
Budgets
Human Resources
Corp Communications
Info Tech
Human Resources
Corp Communications
Corp Commuiucations
Rate Development
Legal
Admin Support
Admn Support
Info Tech
Human Resources
Purchaing
Investor ReI
Humn Resources
Info Tech
Risk Management
Info Tech
Accounting
Internal Audit
Info Tech
Human Resources
Info Tech
11-9
Request Nn.110Atacbmen12 NJMA.l! !l9L
Page 16 ot'8SC rile No. WA'J,;U!SjlSlS
Plan for that year. The rates may be modified periodically as unbiled UW&S costs are
reviewed. Hourly rates are based on a 2080 hour work-year.
All payroll and expenses of UW&S are accumulated into 21 cost centers. (As
recently as 1995, there were only 12 cost centers. The addition to the number of cost centers
enhances allocation of costs and increases inormtion to managers). Exhbit 11-3 presents a
listing of the cost centers. As each employee is part of a partcular cost center there is no
cross-eharging of an employees' salary to any other cost center, with few exceptions.
Employee time allocations not directly bilable to an affliate or subsidiary are allocated
based on: number of employees; number of customers; total O&M expenses; net utiity plant;
volume of water delivered; fuel, power, and chemical costs; and total capitaliztion.
Exhibitll-3
United Water Management & Services, Inc.
Cost Centers
Ni Cost Center
10 Operations
20 Engineering
30 Rates
40 Administration
41 Partnership
42 Information Technology
43 cis Project (new information system)
44 Financial Project (new inormation system)
45 Human Resources
50 Legal
60 Investor Relations
62 Corporate Communications
70 Utilty Accounting
72 General Accounting.
74 Budgets
76 Taxes
78 Payroll
79 Systems Accounting
80 Internal Audit
90 Treasury & Financial Analysis
95 General & Administrative Expenses (M&S overhead allocated to each cost center based on total
salary)
11-10
~:~~~Si ~1ßl~~W~3Wf
Non-direct expenditures paid by the M&S company on behalf of its affliates, such as
inurance premiums, etc. are allocated to each affliate based on the following characteristics
of the affliate (see ExhbitII-4 for detailed breakdown of allocation methodology):..
Grup health insuranc - number of employees and dependents covered.
General liabilty insrance - total assets less cash and receivables.
Propert insurance - total fixed assets.
Worker's comensation insurance - total payroll.
pension expenses - results of actuarial reports.
Intret expenses - total capitaliation.
Outside auditor fees - 50 percent based on total capitaliztion and 50 percent based. on
total revenues.
11-11
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Request NQ. 11 ~îÎltadmiw ~~gg7
Page 19 MMP e No.
Billing System
It is intended that UW&S should bil out all of its costs to its regulated and non-
regulated affliates. The billig system has thee main components:
· Company Code or Allocation Level Code -- First payroll tie is allocated to the
various affiliates receiving service though use of a Company Code or Allocation
Level Code. A Company Code is a direct charge to an affliate. UWNJ's
Company Code is #100; UWNY's is #200. Payroll time not directly chargeable to
a particular affliate is allocated to an Allocated Level Code which automatically
distributes charges.
· Activity Code -- Payroll time allocated to a particular Company Code or Allocation
Level Code is furter proken down by Activity Code to provide management with
additional information regarding the activity. The Activity Code "Series" has nine
categories, as presented in Exhbit n-s.
Exhibit II-5
United Water Management & Service Company
. Activity Code Series
100 Administrative and General
200 Operations
300 Customer Service, Biling and Communications
400 Human Resources, Payroll, and Employee Relations
500 Accounting, Information Technology & Planning
600 Treasury and Investor Relations
700 Engineering and Construction
800 Marketing and Specific Projects
900 Regulatory Matters and Rate Cases
11-13
Request Np,J10.Achenl2NJMAj99.I.
Page 20 ot9se l'ile No. WAY,)UIS:.lSlS
Exhbit 11-6 presents the final Activity Code breakdown of Activity Code Series 500 -
Accounting, Inormation Technology & 'Plannng.
"
· Project Code -- Charges for certin projects, for example rate cases, have
specified codes. The UWJ Audit is an example of a project that receives a
Project Code.
The monthy invoice that UWJ receives includes a breakdown of charges by
UWM&S employee, broken down by general categories of Activity Codes.
Tie Sheet Reportg
Time sheets for UW&S employees are comprehensive and permt a though tracking
of hours spent and biled for various affliates and subsidiaries. On the time sheet are codes
for the followin:
. Employee number. (Thère is a number for each UWM&S employee)
. Deparent number. Tils is not the cost center number, as discussed above,
but is used by Payroll and Human Resources to identify the group of employees
with which the employees are identified (a cost center may have employees with
more than one departent number).
. Ear number. Identifes regular hours spent versus holidays, vacation,
absence, etc.
. Company Code, Activity Code,' and Project Code. These codes were
discussed above.
. Absence Code. This distiguishes types of absences, including unpaid versus
paid.
Ii.
Oradell and .Harrington Park Facilties
UWNJ's relationsilp with UW&S extends to the Harrington Park and Oradell
facilties, which the two entities share as work space. The Harington Park facilty is owned
by UWNJ. The costs are allocated 78 percent to UW&S, in accordance with the proporton
of floor space utilized. The Oradell facilty is leased by UWNJ and is also allocated according
to floor space used. UWNJ l in turn, makes a secondary allocation to UWNY for services
rendered on behalf of the affliate from the facilty. The basis for ths secondary allocation is
the proportion of direct personnel charges to UWNY versus total UWJ costs of employees
located at the building.
11-14
i
I
Request No. 110 Attachment 2 NJMA 1997
Page 21Cè~ File No. WA95080388
500
501
505
510
515
520
525
530
540
541
542
545
550
560
570
575
580
590
591
595
593
594
Exhibit 11-6
United Water Management & Servce Company
Activity Codes Within the Cost Center 500
Accounting, Information TechnolQgy & Planning'
Maintenance of Books and Records
Biling & Accounts Receivable
Fixed Assets (including CPR's)
Intercompany BilingI&S Fees
Financial Reporting (SEC, Bondholders, Quarterly, etc.)
Accounting Policies and Procedures
RatelRegulatory Matters
Infonnation Systems
Infonnation Technology Strategic Development
Info Teçh Hardware & Softare Development & Evaluation
Internal Audit
Planing and Analysis
Supervision & Development of Staffecruiting
Taxes
Marketing, Financial Analysis and Planning
Other
Holiday
Sickness, Medical Appointments, Jury Duty
Vacation
Seminars and Conferences
Internal Management Meetings
RELATIONSHI WITH UNITED WATER NEW YORK
UW is a subsidiary of UWNJ, and its fiancials are combined with UWJ's for
reporting purposes. Even more importntly, UWNJ employees provide services to UWNY in
about 10 functional areas; resulting in two to thee milion dollars in bilings each year. The
Service Agreement between UWNJ and UWNY has been in effect since 1978. Exhbit 11-7
shows UWNJ's billngs to UWNY and UWNY's bilings to UWJ for the years 1991 to
1995. UWNJ's bilings to UWNY decreased significantly in 1995, as UW&S began to tae
on human resources, corporate communication, adminstrative, and other functional
responsibilties on behalf of UWNY. UWNY's bilings to UWNJ is primarily associated with
the operations of the DeForest Lae Reservoir. which is discussed below.
The most importt services UWNJ provides UWNY are in the areas of accounting and
data processing; with Payroll being the largest charge. The reason for the close relationship in
accounting and data processing is that both of the utilties use a McCormck and Dodge
accounting package that operates off a mainame and uses batch processing. UW and many
11-15
Request No. 110 Attachment 2 NJMA 1997
Page 22 oi(ose File No. W A95080388
of its other subsidiaries are PC-base~, while United Waterworks is on a completely different
mainame system that it leases from a,yendor. All of UW's subsidiaries wil be on the
same system under the planned new IT environment. A complete listin of the major services
UWNJ stil provides UWNY is as follows:
· Payroll and Accounting ~~ Ms. Manfield is Director of Accounting for both
UWJ and UWNY. Mansfield is a UWNJ employee.
· Transporttion -- UWNJ vehicle leasing arrangement covers UWNY's fleet as
well.
· Water Quality (Prifcation) -- Mr. Leo Fung, a UWJ employee, is in charge of
day-to-day operations at UWY's plant in regards to water purification. He
decides the chemical dosage levels.
· Process Laboratory Analyses -- Although UWY uses a commercial testing lab
for SDWA compliance testing, the Hawort lab is used for procss analysis.
· Engineering and Planing -- UWNJ conducts hydraulic analyses for UWNY's
distribution system. In addition, members of UWNJ's engineering staff assist with
design of smal wells and with engineering planng. (UNY also has two
engineers on its own payroll to. assist with these effort).
, \
· Environmenta -- Recently, cross connection control was moved into UWJ's
Meter Departent.
. Operations -- UWNJ performs large meter repairs and setting, heavy maintenance
on the treatment plant, and may help with problems, such as at the pumping
stations.
(Recently, UWNY has begu soliciting competitive bids from outside vendors
to compete with UWNJ on the largest jobs).
· Security -- UWNY uses Burn Secrity Services under a contract entered into by
UWNJ
The above services actually represent a slight increase in the service level to UWNY as
compared to previous years. Recent reorgantions have reduced the staff allocation to New
York in such areas as engineering and cross connection control.' Lokig into the future, the
;i!
\11-16
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Request NPr_l1IlttacleD12i',(JM,A.l 191
Page 24 ol1e l'lJe No. W hY:lUIS:;lSlS
level of service provided by UWNJ to UWY is not expected to change significantly, unless
UW's IT intiative results in UWNJ and UWY adopting the new accounting and payroll,
which would then be performed by UW&S.
Accounting for Services Provided to UW
i
UWNJ carefully accounts for costs associated with providing support services to , I
UWNY, although at present the biling and cost allocation methodologies are not as
sophisticated as those used by UW&S. For certin large and easily identified projects,
personnel charges to UWNY are based on actual time spent. Work performed on a rate case
or a special analysis of post-retiement benefits are examples of projects that would be biled
based on the tracking of actual tie spent. For the more routine services, charges are based
on the "stadard distribution" method, whereby at the beging of the budget yeat each
UWNJ employee estimates the percentage of time they spend on UWNY-related work, based
on historical experience. The standard distribution formula may be revised periodically.
Invoices are split between UWJ and UWNY, based on the best judgment of UWNJ's
managers.
Wlle less precise, the standard distribution method is easier to admister. This has
been the rationale for using this method. However, UWJ plans to convert to Activity Codes,
similar to UW&S's manner of accounting, for the beging of 1997, when the accounting
system convert to Peoplesoft under the new IT environment.
DeForest Lake Reservoir
UWNJ also has an agreement with UWNY governg the allocation of costs associated
with operating the DeForest Lae Reservoir. This agreement has been modified a number of
times; the last tie in 1992. The agreement involved meetings between UWNJ and UWNY,
as well as with the New York Public Service Conussion, the New Jersey Board of Public
Utilties, and the Departent of the Public Advocate, Division of Rate Counsel. Under the
agreement, ÚWNJ makes an annual payment to UWNY for 1) the benefit of stream flow
releases received, and 2) to compensate UWNY for costs associated with operation and
maintenace of the reservoir.' UWNJ pays 44 percent of the annual operating costs for the
reservoir. This percentage is calculated by the following formula:
i
Tota Safe Yield of DeForest Lae Reservoir
less: UWNY's Ayerage Allocate Anal Diveion and th Diyersion to Nyac
Total Safe Yield of DeForest Lae Reservoir
In the calculation, UWY is provided with a Rate of Return on Capital Investment.
The new agreement is an. improvement over the prior agreement in which UWJ paid an
average of 71 percent of the total annual operatig expenses.
11-18
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Request No. 110 Attchment 2 NJMA 1997
Page 25 ~e File No. WA95080388
RELATIONSHI WITH UNTED WATER MID-ATLANIC
UWNl's relationship with Mid-Atlantic is two-fold. First, UWNJ provides a limted
amount of services to Mid-Atlantic's subsidiary operating utilties, such as anaytical testing
services though its Hawort laboratory. These bilings have been less than $100,000 per
year. Exhbit 11-8 is a summary of billings for the years 1993 though 1995:
Exbibitll-8
United Water New Jersey
Charges By UWJ To United Water Mid-Atlantic
(Not including charges to Hoboken Water Services Company)
Year Charges by UWJ
1993
1994
1995
$ 56,685
$ 49,162
$ 71,359
The agreement between UWJ and Mid-Atlantic is dated November 1994, and covers
numerous services which are now performed for Mid-Atlantic by UW&S, including
Communications, Admnistration, Information Systems and Corprate SecretariaL.
O&M Contract With the City of Hoboken
The more substantial relationship is with Mid-Atlantic's contract O&M subsidiary,
Hoboken Water Services. UWNJ provides virally all of the operations and maintenance
support, as part of the O&M contract between Mid-Atlantic and the City of Hoboken.
The contract with Hoboken is between Mid-Atlantic and the City of Hoboken. Ths
means that the profits or losses emanating from ,the .contract have DQ impact. on UWNJ's
fincial performance, exceptig revenues received from biling of services rendered.
According to UWR, the decision to establish Hoboken Water Services Company as a part of
Mid-Atlantic, as opposed to UWNJ (which after all is performg the lion's share of the
contract's service obligations), was partly because Mid-Atlantic already had legal status as a
holding company. Placmg Hoboken Water Services under Mid-Atlantic ensured that a non-
regulated affliate -- Mid Atlantic - owned Hoboken Water Services. It was also easier from a
logistic and legal standpoint.
The Hoboken contract runs for 10 years; there is stil more than eight left on the
contract. Under the agreement, a concession fee was paid for the right to provide O&M
services. In addition, UWR paid for intallation of the HOMER system thoughout Hoboken,
as an "equity insion." Hoboken Water Services keeps all revenues, and pays for expenses
out of revenues received, hoping to realize a profit from the venture. The agreement calls for
$300,000 anually in capital expenditures as well. If capital expenditues consistently exceed
this amount, Hoboken is expected to provide the additional funding.
ll-19
Request No. 110 Attachment 2 NJMA 1997
Page 26 ojCe File No. W A9S080388
In 1996, monthy bilings by UWNJ to Hoboken have ranged between $33,000 and
$66,000 thus far. In 1995, bilings totaled about $875,000, which represented a little over
28.5 percent of total bilings from UW to Hoboken (see Exhbit TI-9). Bils for services are
issued monthy by UWNJ to Mid-Atlantic. Inter-company biling is tracked though the ll
code.
UWNJ performs virtally all of the operations an maitenace activities required to
satisfy the O&M contract, excepting most accounting activities which are performed by Mid-
Atlantic, as is discussed below. The Hoboken water system serves a population of 33,000.
Specifcally the services provided by UWJ include the following:
· Customer Service, Billig and Collections -- though the Customer Service
Center.
· Accounting -- Plant Accounting, Construction Work-In-Progress, and Capital
Expenditures are performed by UWNJ staff.
· Corporate Communications
· Distibution and Constrction -- including the following:
Inspections of meter, service lines, etc. resulting from customer calls;
Exercising of valves;
Hydrant testing (416 hfdrants were tested during the first two years);
Distribution system. flushig, if there are customer complaints about water
quality
(the Hawort lab also tests samples);
Fire line inspections
Small taps (under three inches). UWJ charges a tapping fee;
Leak detection, as needed. (Whenever a roadway is being paved, the pipes are
sounded);
Supply and install meters;
Repair estimations and generation of work orders; and
Most system repair work (outside contractors are used when UWNJ personnel
are overextended or when the jobs are especially large).
0-20
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Request N.9c ~ 1 01\ttadlmeo12 N.JMA 1991
Page 28 o~e File No. W A950BQ38S
The impact of the relationship with the Hoboken O&M contract on UWNJ's labor
resources is relatively minor and is shrinkg. The General Manger for the project (Mr.
Clementi), although formerly a UWNJ employee, tranferred to UWM&S's payroll as of April
1996. Prior to April 1996, Mr. Clementi was biling a litte more than 50 percent of his time
to Hoboken as a UWNJ employee. Simlarly, the chief operations manager for the project
(Mr. Sensale) has been a UW&S employee since August 1995. As a result, currently there
are only two UWNJ employees dedicate to the Hoboken contract. One is the system
inspector who regularly investigates customer complaints, inpects new services, and performs
valve testing. There was also the recent addition of a temporary worker to support the
collections function. Otherwise, UWNJ employee are "on call" to perform work on the
Hoboken contract, such as distribution repair work, etc. : there are no other dedicated
employees. The labor pool available to Sensale for distribution repair work is exactly the
same as available to UWNJ's Distribution Supervisor. There are no dedicated maintenance
crews for Hoboken. Employees in Accounting, in Corporate Communications, and at the
Haworth laboratory bil Hoboken for the services they occasionally provide.
Accounting for the Hoboken O&M Contract
There are completely separate books for Hoboken Water Services, which are eventually.
combined with Mid-Atlantic's consolidated finncials under "Other Operations" for tax
purposes. The Accountig Manager for Mid-Atlanic kees the books for Hoboken, although
as noted above, he receives accounting support from UWNJ staff in the areas of Plant
Accounting, CWIP, and Capital Expenditues. UWJ employees use a code on their time
sheets for hours spent on Hoboken. Allocation of material and supplies is stil being
addressed; there is no allocation for these costs as yet. DWJ is currently coming up with an
allocation formula. In the meantime, UWNJ is paying these costs. These costs are mior, as
materials and supplies captured by thé work order system are already bein accounted for and
biled to Hoboken. There is also an. Inventory System set up for Hoboken for materials and
supplies.
In sumary, the Hoboken O&M contract does not impact UWNJ significantly in terms
of labor or other resource requirements, and profits and losses on the contract wil not impact
UWJ either, except for the fact that it is a subsidiary of the parent company.
RELATIONSHI WITH UNTED WATER JERSEY CITY
The contract with Jersey City is with United Water Services Company, and therefore,
as with the Hoboken contract, profits or losses have m direct impact on UWNJ. Currently,
UWNJ has very little interaction with the Jersey City O&M contract, and it is unclear as to
whether this relationship wil grow more intimate. Ths O&M contract is very different from
the Hoboken contract in that Jersey City is supplying the lion's share of the staffmg
complement, including that needed for system operation and maintenance. In fact, available
labor force is likely to exceed what j~ actually optial. UW's affùiate, JM Operational
Services Inc. is providing plant management and is putting in a new computer system.
;" 11-22
I
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:1
Request No. 110 Attachment 2 NJMA 1997
Page 29 ot'e File No. W A95080388
The Jersey City contract is for five yeas duration, with no roll-over provisions. Under
the terms of the contract, UW receives a fixed management fee (in other words, revenues
collected are kept by Jersey City).
It appears to be the plan tht UWNJ accounting staff wil provide Plant Accounting,
GWI, an Capital Expenditures, as is being done in Hoboken. In addition, it can be expected
that the Hawort lab wil provide analytical testin support. Besides these areas, it remains to
be seen whether UWNJ wil have any material involvement with Jersey City.
Other Potential O&M Contracts
While UWNJ's involvement in Jersey City is likely to be minal, ths may not be the
case for other potential O&M contracts that UW may win in New Jersey or surrouíding
areas. New Jersey Governor Christine Todd Whitmn has approved legislation for private-
public partership arrangements up to 40 years duration, which may be a precedent for such
arangements thoughout the Sate of New Jersey. This may present UWR with a number of
opportnities simlar to Hoboken, and could possibly involve UWNJ. This remains to be
seen.
II-23
Request No. 130 Atlchoient Z NJMA1.9.97
PageGløile No. W A!l5UlSUJlSlS
C. FININGS AN CONCLUSIONS
":RELATIONSHI WI UW&S
II-Fl The relationship with UW&S bas the Pottial of bringig sustanial benefts to
UWJ in terms of increased efficiency and effectiveess of oPerations. But, th
impac of the eyolving relatship thus far on costs, financial perormance, and
operational effectivees is not eaily discernible. It wod be useful for UWJ to
conduct 3n intrnal assessme of the impact th far and future exPected impac
of ths relatonship, including reen employee tranfers from UWJ's to
UW&S's payoll. (Refer to Recomendation TI-Rl.)
The advantages of UW&S's centraliz services to most of UW's affiliates is
considerable and includes: 1) increased effciencies; 2) access to greater technology; 3) access
to teclucal know-how and expert assistance; 4) enhnced purchasing power; and 5) economies
from sharing of support personneL. In addition, the relationship between UW&S and its
affliates allows for a fair degree of flexibilty with respect to services received from M&S and
how often, including the freedom to perform some of the activities themselves or contract
them out. Ths helps ensure tht strategy and policy decisions trly reflect the needs of the
affi1iates. AIl of these potential benefits apply to UWJ as well, but because UWNJ is the
largest regulated affiiate by far, and many employee on M&S's payroll are fonner UWNJ
employees, the impact has been especially substantial and less easy to assess.
Qualitatively, it is likely tht UWNJ wil realize reduced persomie1 costs, especially
admistrative, though the tranfer of employees to M&S's payroll and the resulting spreading
of these costs among all affiate. The trade-off is that these employees are no longer
dedicated to UWJ. In some cases; this trade-off is almost certiny a net gain for UWNJ.
For example, there may be no reason for UWNJ to have a Chief Financial Offcer or Treasury
Deparment personnel fully dedicated to its operations. Simlarly, it is advantageous to UWNJ
to get Joseph Clementi, who because of a change in position is now spending the vast majority
of his time on the Hoboken and Jersey City O&M contracts, off of UWJ's payroll. In other
cases, the resulting trade-off may not be as obvious, such as the intial transfer of UWNJ's
chief operating offcer to UW&S (recently, this offcial has been transferred back to UWNJ,
as is discussed in Finding TI-F3 below).
It is likely that the accrued benefits from the relationship with M&S wil irlcreasein the
future. UWNJ may stil benefit from M&S's IT and accounting support, once the new IT
environment is in place. In addition, further effciencies in tenns of persomiel are likely
witl M&S, as UWR co~tinues to reorgan post-merger.
In the meantime, an internl assessment of the impact of UWNJ's relationship with
UW&S thus far could be conducted to establish a benchmark. The assessment would
include: '
ll-24
; i
i
I
i
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~ I
Request No. 110 Attachment 2 NJMA 1997
Page 31 oG6e File No. W A95080388
· A trend analysis of laqor and other costs on UWNJ's operations, by Cost Center
and Activity Code,. tring to match the accounts óf UWNJ's and M&S's
management accountig systems to enable comparison to be made. Exhbit D-IO
presents charges from UW Corprate (pre-merger) and UWM&S plus Corporate
(post-merger) for the years 1991 though the first quarter of 1996. These charges,
of course, increased considerably in 1995 and 1996 in large part as a result of thetransfer of personnel from UWNJ's payroll to UW&S's and the centralization of
some services that UWNJ used to provide itself. Charges in the first quarer of
1996 were runng 63.7 percent over the annual rate for 1995. This is a
considerable increase in payments. It would be interesting to see if there were a
simar decrease in UWJ's internal payroll and related costs; and
· An analysis of time sheets of employees transferred from UWNJ's to UWM&S's
payroll and the percentage of time being spent on UWNJ-specific activities.
(Exhbit D-ll that follows presents such an anlysis for 12 UWNJ and M&S
employees, some of which were transferees).
D-F2 Dire billng and cost allocation metdoogies used by UW&S are thorough,
systeatc and equitble, and provide for accurate biling and subsequen trang
of biled services. Maagement prses to manage and control M&S cost to
affliate are coprehsive and logicaL. (No Recommendation.)
The direct biling and cost allocation methodologies and proceures, as described in the
"background" section of this chapter, are among the most thorough and systematic this auditor
has seen in the industry. A review of intercompany invoices, summary report of charges and
project bilings, general ledgers, memo report on prepaids, and other backup documents, for
the month of December 1995 support this contention.
The process for developing UWM&S budgets and for trackig and controlling costs is
comprehensive. A detailed operating plan is prepared for each Cqst Center within M&S.
These accumulated costs are used to determe hourly rates, by cost center, for each category
of employee (e.g., executive, director, manager, etc.. as discussed above). Individual time
allocations and historical trends are used to for determg beginng-year budget allocations
to the various affliates. The M&S budget is presented to UW's executive Budget Comnttee.
Monthly variance report are sent to managers and directors of UW&S. In addition, there is
a quarterly review of expenses and allocations, and generation of year-end projections showing
actual M&S costs and projections for the remaing months of year. In 1996, revised yea-end
forecasts are due in June, August, and November. These analyses may result in modifications
to allocations and adjustments on invoices to affliates.
II-25
Request No. 110 Attachment 2 NJMA 1997
Page 32 of ISase File No. WA95080388
Year
Exhibit 11-10
United Water Management And Services, Inc.
Allocation of Costs from UWRlUWM&S to UWNJActual Plan
~ . -, ... ~ ,"
'.: ,..:.~~-::~ '~.~~:~~:.:¡:~~:~7- -~:~'~~.~.~~. ~ :;.~ ~~-7: .~~. ~ ~~~~.~. ~'~'~':-
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1991 938,145 666,048
,~ ........", :.' :..~d;.;~;.~.:~,.'':"f::.~t;:'~;(f.:' ~ ~. ..
1992 1,140,067 955,128
,I r. ~", '.';'.. :.":(.~,:':: i:' :;;,~,:,;:;",:::'I~:7':~:2':,,' ':. .''. ,"':.... ~..".... .
, ~. ."f:~' ",:.
1993 1,347,671 1,166,782
1994 1,862,482 1,894,790.. -.--' "". ,;-~ . ,
.. ,'":."." .
.:."'_ ..:', :':":,~-.::'.. ',~,'i...,:"..'. :'.._-,;...¡...~ ";'C ., '..:,'':. .-.
1995,3,411,000
~, .i.... '". _ :".. .'- .3,323,000, ,
.:: "::. ~ -. . ,.'- .'-.
. -::.'. - :':.'_' I ...- ;..,:!:. ..
First Qtr. 1996 1,396,041
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Estimated 1996*5,584,164
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% increase 1991-1994 98.5 184.5
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% increase 1995-1996 63.7
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Notes:
1. Types of costs included (1991-1994):
General Costs - payroll and expenses related to employees who penorm corporate activites. Also Included in this
category: corporate professional fees, dues and subscnptions, auto leases, director fees, delivery charges
and miscellaneous expenses.
Shareholder Reporting & Relations. costs and expenses relating to financial reporting to shareholders, the Securites
and Exchange Commission, and the Internal Revenue Service, expenses relating to annual meeting of shareholders
and other expenses related to shareholder relations.
Employee Relation Acivites. primanly costs and expenses Incurred for professional fees and outside services for
maintenance of employee benefi programs and personnel management.
2. Types of costs included (1995):
. As per Discussion of UWNJ's Relationship with UWM&S
* 1996 estimated charges extpolate on first quarter results
11-26
Mary Ellen Mansfield 100.0 100.0 100.0 100.0 100.0
Rosemary Romaine 100.0 100.0 100.0 100.0 100.0
Pen C. Tao 100.0 83.7 96.3 82.5 75.2
11-27
Request No. 110 Attachment 2 NJMA 1997
Page 34 oitse File No. WA9S080388
II-F3 UW and UWJ Can tae advage of efor to imprve the IT arcitecte to
enhance the information cotaiIied in UW&S billngs and reor to UWJ (and
other afmiat, to hep managers assess the effecness of seyice. being
redered. (Refer to Recommendation II-R2.)
Cuently, UWNJ receives a monthy summ statement (invoice) from M&S'which
shows labor charges by M&S employee and by general categories of Activity Codes (e.g., 100
- Admistration, 200- Operations, etc.). The biling statement is accompanied by an analysis
of charges separated into direct versus allocated charges. While ths is certiny adequate, the
planned Peoplesoft IT environment may provide UW&S with an opportnity to enhance the
inormation provided to UWJ's managers on invoices and report. UWR has an extremely
comprehensive magement accounting system which tracks hours not oruy by general
categories of Activity Codes, but by more detailed codes withn these general categories.
Providing UWNJ's managers with a further breakdown of charges within the general
categories of.Activity Codes, would allow UWNJ to verify the services provided and whether
they are proving cost-effective.
RELATIONSID WITH UND WA1ER NEW YORK
II-F4 The amunt of UW'i's annua biJUngs to UW are substantial enough to
wart Conidetion of convrting to a more sOJsticate methodoogy for
çhaldng UW labor expense. UWJ's plan to possibly co to a biling.
metd whe payroll margeli ar based on actual labor hours sPent on various
acvies are justified. Refer to Recommendation II-R3.)
UWNJ bilings to UWNY have been in the thee to six milion dollar range. Payroll
charges alone have exceeded two millon dollars each of the past five years. As noted in the
"Background" section, payroll charges are based in part on the "standard distribution"
method, whereby at the beginng of the budget year each UWNJ employee estimates the
percentage of time they expect to spend on UWNY -related work, based on historical
experience. UWNJ is planng to convert to a biling method more like that of UW&S,
whereby hours are tracked more precisely and bilings are based on actual hours spent.
Pursuing ths conversion is wortwhile.
..._.'
II-28
Request No. 110 Attachment 2 NJÌ'A 1997
Page 35 oOe File No. W A95080388
RELATIONSHI WITH UW'S O&M CONTRACTS
II-F5 The Hoboken O&M coact is havjn2 a lot of positive reults for the Ci1;of
Hoboken. Giyen the relatiyely S1all size of th joh~ use of UWJcrws and staff
to perform on the coac is a"rQpriat and its impa 00 UWJ's QJerDthms
and labor reources is minimal. Should UW involve UWNJ in a numer of
O&M coract, In the region, UW may have to esblish otr means ;;
satisfyng the requiremen, rather than reyig solely on lJJ personnel,. (No
Recommendation. )
4.
UW's existin O&M contracts with Hoboken does not have a significant impáct on
UWNJ's operations; the Jersey City contract is not likely to either. The services provided to
Hoboken using UWNJ payroll employees are not very burdensome and are on a non-dedicated
basis, and do not contribute to overhead or loss of service to UWNJ customers.
. ;~
, I
Any impact they may have are likely to be positive for UWNJ. For example, closer
relationships with these two neighboring jurisdiction is likely to promote better region-wide
plannng, in terms of use of interconnects, more effcient use of water sources and reservoirs,
etc. This would be to the benefit of UWJ's customers. In addition, it is conceivable that the
profit motive more imbedded in an O&M contract may result in the identifcation and
implementation. of improved effciencies that could be traoferrrd to UWJ's overall
operations. For the region as a whole, the benefits are signficant. Not only is better regional
water use plang likely to result, but the cities of Hoboken and Jersey City wil benefit as a
result of UWR's operating their utilties. Hoboken has already benefited from a hydrant
inpection program, rehabiltation of valves and main, among other thgs.
However, a large number of such contracts, should they require substantial
involvement of UWNJ's resources, could impact on UWNJ's customers in terms of additional
overhead and the use of dedicated employees. When ths happens, an alternative method of
satisfying these contracts wil be needed. .These alternatives could be: 1) dedicating employees
to O&M contracts and placing them either' on UW&S payroll or under the payroll of a new
corporate entity; or 2) modifying UWNJ's accountig system to ensure that overhead and
other costs associated with satisfying the contracts are properly accounted for and that
accounting is not biased toward maximing profits from the O&M contracts at the expense of
UWNJ customers.
11-29
Request No, 110 Attachment 2 NJMA 1997
Page 36 æ.e File No. WA95080388
D. RECOMMNDATIONS
II-Rl Condut an intenal analysjs or auit of the impact of UWJ's new relatlonship
with lJ&S, incJuding recent transfers of staff, on UWJ's operatlons and
ms (Refer to Finding II-Fl.)
The Internl Audit Departent could appropriately conduct such a study. The study
should include the following:
1. An analysis of UWNJ payroll and other costs tht were afected by reorgantions
related to the merger and UWJ's evolving relationship with UWM&S. To the
extent possible, costs related to certin activities should be compared by matchig
Activity Codes and Cost Center Codes of UW&S with cost breakdowns used by
UWNJ's cost/management accounting system;
2. An analysis of tie sheets of employees tranferred from UWNJ's to UW&S's
payroll; and
3. Interviews with departent managers and supervisors at UWJ regarding the
impact of reorganitions on their operations and the level of service being obtained
from UW&S.
Among the objectives of the study would be: .
. To assess the cost impact of recent reorganitions on certin key activities, and to
ascertin where savings may be occurring;
. To assess the impact or recent reorganitions on the quality of service in key
activities; and
. ¡
ì
. To assess the effect on manpower reqirments, including where staffmg at OWNJ
may be reduced even fuer though attition, traIfers or other mean, or
conversely where staffmg may need to be increased as a result of recent transfers.
, :
Given that the major transfer of employees from UWNJ's to UWM&S's payroll
occurrd on August 1, 1995, and some transfers were even more recent, it may be best to
delay ths type of study unti 1997 when there is more history behid the reorganitions.
The cost of ths recommendation would principally be the "opportnity cost" of using
the resources of the internl audit function to conduct ths study rather than other anlyses that
may be scheduled. It would appear to require approximtely 200 to 400 man-hours, although
it is somewhat difficult to predict. The potential savings are difficult to quantify as well, but
would primarily consist of identifying opportties to fuer reduce manpower, either at
UWNJ or UW&S.
II-30
Request No, 110 Attachment 2 NJMA 1997
Page 37 o(9e File No. WA95080388
n-R2 Ta advange of the new IT architeure and the planned Financial inforiat=
System so that UWJ ca rece repor and biling statement from üW
that separa charge accrding to mlÛor activiies within the geeral cate
Actiyity Codes. (Refer to Finding II-F3.)
Currently, UWNJ receives monthy biling statements from UWM&S that show a
breakdown of charges by M&S employee and by general categories of Activity Codes. In
addition, a statement is provided that separates total charges into direct and allocated charges.
M&S's method of accounting and tie sheet reporting is comprehensive and thorough enough
such that, combined with the capabilties of the planned Financial Inormtion System in thePeoplesoft environment, even more useful biling sumies could be provided, thus giving
UWNJ managers a better idea of the nature of the services being perfonned and at what cost.
Summaries that show bilings by detailed codes, representig major types of services, withn
the general categories of Activity Codes (or logical groupings of these detailed codes) would
provide UWNJ with this level of inight.
: j'
Given the large number of detailed codes tracked within each of the general categories
of Activity Codes, separating out every single such code may provide UWNJ managers with
too much detailed information to be usefuL. (It would also be unjustifiably expensive to
provide such detailed inormation). There is no reason to provide inormation at too great a
level of detail. However, biling inormation separated into logical groupings with the
general categories of Activity Codes would prove very usefuL. Such inormation would
faciltate the conduct of "reverse audits" on various M&S services in th futue. These
reverse audits could (a.) compare the costs of obtaing certin services from UW&S versus
performg them "in-house" or contracting out, (b.) identify possible redundancies in services
provided; and (c.) assess whether the service is needed or desired, and whether it is at a
reasonable cost. These could identify areas of cost savings. The planned updating of tle IT
architecture provides an opportnity to implement ths recommendation at a nominal cost. The
possibilty of such reverse audits would also promote the flexibilty and autonomy the contract
between UWM&S and UWNJ (and with the other affliates) is intended to allow.
~ I. ,
,
Given that UW is in the process of intalling a new FIS and IT arhitecture,
implementing this recommendation should entail very little additional cost. There might be
some additional programng required. Also, management wil need to conut time to
determinig the subcategories of codes that wil be tracked and reported. But, much of this
wil be happenig in any case to ensure that maximum benefits are gained from the new FIS.
II-31
Request No, 110 Attachment 2 NJMA 1997
Page 38 ~_ File No. W A95080388
II-R3 Continue with plan to convert lJJ's biling and cot allocaion methodology for
service renderd to UWNY to a'more sQlbistcate meodolo2Y wherebs payroll
charge for serce prded are' based on actal hours sPent on various acýies.
(Refer to Findin ll-F4.)
The amount of bilings to UWNY and the planned Peoplesoft IT enviroiuent justifies
moving is tls direction.
. I . i"
11-32
i i
I ,
i
i
Request No. 110 Attachment 2 NJMA 1997
Page 39 of 96
l~l';i:i,¡isi~;,'ii~i~ì~.i~ltP~~~lJ~I'
SUPPORT SERVICES
Request No. 110 Attachment 2 NJMA 1997
Page 40 0196
Case File No. WA9S080388
CHAR VI - SUPPORT SERVICES
This chapter assesses the support services of United Water New Jersey (UNJ). These
support services include:
. hiurance and Claim (includes Risk Mangement)
. Legal
. Facilties Management
. Purchasing and Materials Management (includes Stores)
. Tranporttion Management
. Real Estate and Land Management
. Computer Systems and Services
. Records Management
I.
At UWJ) four of the above support services are provided and adminstered by United
Water Management and Service Company (U&S). These four services are: Insurance and
Claims, Purchasing and Materials Management, Computer Systems and Services, and Records
Management. The other four support services are provided by UW&S Administration
Departent, which is organi as shown in Exhbit VII"1.
The Legal and Real Estate and Land Management services are provided by UWNJ's Legal
Departent. The Facilties Management and Transporttion Mangement Services are also
provided directly from with UWNJ. In fact these latter two support services also support the
UW&S and UWR operations because of shared facilties.
A. EVALUATIV CRITERIA
The Support Services at UWNJ were evaluated against the following criteria.
INSURCE AN CLAIS
. A clear risk management strategy to identify) assess and address risk versus loss should
be in place. This strategy should be based on a quantitative evaluation of risk,
premium and loss alternatives.
. Risk management decisions should be based on evaluation of viable) cost-effective
alternatives rather than on past practices. Studies should be conducted on a routine
schedule and be well-documented.
VII - 1
Request No, 110 Attachment 2 NJMA 1997
Page 41 of 96
Case File No. W A95080388
Exhbit VI-I
United Water Management & Servces, Inc.
Overal Admtion Departent
Vice President -
Administration
Administrative Assistant
Assistant VP
Chief Information Offcer
Manager -
Purchasing and Stores
Manager -
Corporate Offce
Director -
Human Resources
Manager - .
New Business and Risk Management
Assistant to VP Administrtion
LEGAL
· The legal function should meet UWNJ's economic, strategic and corporate policy
objectives, and should use the appropriate mix of intern and external counsel to meet
those objectives.
· External legal resources should be cost effectively acquired and carefully monitored
and controlled.
.. ,PURCHASING AN MATERI MANAGEMENT
· Organiation strcture, policies, and procedures should provide effective central
control and coordintion of materials procurement and management operations, while
simultaneously and effciently supporting remote activities with mium duplication of
, resources.
VII - 2
Request No. 110 Attachment 2 NJMA 1997
Page 42 of 96
Case File No. WA95080388
· Requisition and procurement procedures should have appropriate levels. of' budget
authority control.
· Vendor/contractor bidding procedures should minie the total cost of procurement
by: ensuring suffcient competition relative to the value of the materials and services
being procured; and ensuring fair evaluation relative to the cost and quality of the
materials and services being procured.
. The purchasing function should contiually strive to: find qualified bidders for its
materials and services, improve the quality and delivery of its vendors and contractors,
engage in "value engineering" activities to ensure that the appropriate materials and
services are being procured, understand and reduce the total cost of procurement, and
measure and improve the performance of the purchasing function.
. The materials management function should have suffcient authority to recommend and
implement economic order policies, stacking procedures, etc. in order to reduce
inventory levels, improve service levels or improve control of UWNJ's material
resources.
. Materials management personnel should be appropriately trained and, if possible,
certified.
· The materials management function should have appropriate measurement, forecasting
and analysis tools in order ,to minie inventory holding costs while maximizing
service level performance!,
· UWNJ's materials management inormtion system should be appropriately automated
and integrated, and should address the following activities: requisitioning, bidding and
purchasing control, receiving, invoice matching, and accounts. payable,
stores/distribution tranactions, expense/capital accounting, and propert records.
. The stores' function should support construction, maintenance, operations and other
user groups, yet maintain positive control of UWNJ's inventories, especially after
normal business hours.
· Stores should be organi and staffed so as to ensure effcient distribution of material
resources.
· Stores procedures stiould ensure positive control of all material transactions. Stores
personnel should be trained with respect to their activities.
I:
VII - 3
Request No. 110 Attachment 2 NJMA 1997
Page 43 of 96 . .Case File No. W A9S080388
FACILITIE MAAGEMENT
. The selection and procurement of offces and facilties should be based on their
cost-effectiveness and operational flexibilty.
. All leasing and acquisition of facilties should be done in concert with long-range
Corporate strategic plans to ensre maximum utiliztion of such facilties.
· Land use strategy should be coordinted and consistent with UWNJ's expansion
marketing plans, water demand levels and supply availabilty, storage and
transporttion costs, historical lan productivity, and regulatory issues,. as well as
present and projected land holding costs.
· The land management functions should be organid to develop cost-effective action
plans from well-conceived objectives, and should execute them effciently, measure the
degree of their success, and promptly report resUlts.
· Proper feedback mechanisms should be in place which allow for existin strategies to
be continued or modifed based on the results being produced.
TRSPORTATION MANAGEMENT
. The transporttion function should support the operations needs of the Company, by
providing the appropriate and cost effective distribution of vehicles, non-stationary
equipment and tranporttion services.
. The procurement, operation, and maintenance activities pertinig to fleet resources
should be based on soundeconomic analysis.
REAL ESTATE AN LAN MANAGEMENT
. Formal procedures for the acquisition or disposal of real estate should be in place and
not duplicative of any function performed by United Properties Group, another
subsidiar of UW.
Procedures for identification and disposal of surplus land should be coordinated for
effective use of land which is being held for future utility plant expansion.
. Recent acquisition or disposal activities should adhere to company policies andprocedures. !
. Proper feedback mechanisms should be in place to allow for existing strategies to be
continued or modified based upon the results achieved.
VII -4
Request No. 110 Attachment 2 NJMA 1997
Page 44 of 96
Case File No. WA95080388
· The land use strategy should be coordinated and consistent with UWNJ's marketing
plan, as well as with present and projected land usage and holding costs.
· The real estate and land management functions should be organied to develop cost-
effective action plans from well-conceived objectives; the plan should be organied
effciently; and the results and degree of success should be measured and promptly
reported.
COMPUTR SYSTEMS AN SERVICES
To offer effcient and cost-effèctive service to UWNJ, the Inormation Technology (IT)
organition must focus on performing activities that furter the company's abilty to meet
existing and future business needs. This objective requires the following:
· A long-range technology plan tht takes advantage of newer technologies.
¡
· Knowledgeable and techncally proficient management, employees, and steering
conutt members.
· Cost-effcient, modem systems and applications that are appropriately selected,
properly maintained, and meet the requirements for runng United Water's operations.
· A viable capacity plang methodology for computer resources that assists United
Water in implementing its long-range plan.
· An appropriate life-cycle methodology for implementing softare.
· Reliable and responsive computer systems available to users.
· A workable and documented disaster recovery plan.
RECORDS MAAGEMENT
· Records management encompasses controlling the creation, use, maintenance, and
disposition of records generated during normal operations.
· Effective policies, processes, and technologies ensure records management activities
support the classifcation, retention, retrieval, and destrction of various utility records,
while complying with statutory and regulatory laws and guidelies.
· To be considered an effcient organition, the records management function must
readily respond to departents with the UWNJ organation, or make records easily
accessible to them.
VII - 5
Request No. 110 Attaclment 2 NJMA 1997
Page 45 of 96
Case File No. W A95080388
B. BACKGROUN
INSURCE AN CLAIS
This section reviews UWNJ's inurance and risk management function and organation.
The review focused on the organtion, policies, processes and procures for identifying risks
and managing claims and inurance coverage. Inurance coverage and risk management are
corporate responsibilties of UW&S' Manager of New Business and Risk Management and his
staff. The organation of ths group is as shown in Exhbit VII-2.
The Risk Management group'š primary responsibilties are to establish and oversee the
overall inurance coverage for UW and all its subsidiaries (including UWNJ) and investigate and
resolve propert damage and bodily injury claim against UWR and the subsidiaries. In an effort
to avoid litigation and promote good customer relations, a routine claim is resolved within thee
weeks. Claim that involve more complex circumstances tae longer, but are stil resolved within
six weeks. All claims are researched and challenged by the manager where appropriate.
The UW&S Risk Management group has two staff personnel who devote and allocate
their time mostly to UWNJ, since that is UW's .largest operating subsidiary, but also provide
support services to the other subsidiaries and related companies. The Risk Mànager directs the
departent and also provides services to UWNJ. Rik management plannng, development and
improvement have been conducted by the Risk Manager since the UWGWC merger and
consolidation of the risk management functions. These functions are also performed within
UWJ's Environmenta Resources Section (discussed in detail in Chapter III - System
Operations). An estiated 25% of the Risk Manager's time is devoted to plang, development
and improvement, whereas the estimate is 5 % for UWJ personneL.
1
.~
Imediately following the merger of GWC Corporation and UWR in 1994, three separate
brokers were being used for the placement of UW's propert and casualty insurance program.
Senior management reviewed the existig strcture and determed that utilizing a single broker
instead of thee would ensure that variouS lines of inurance coverage and enhancements would be
consistent for all subsidiaries, and that a consolidation of the separate subsidiary programs would
provide the broadest coverage at cost-effective pricing. Marsh & McLennan, one of the
incumbent brokers, was selected as the sole broker to work with the Risk Management group.
Subsequently, the inurance levels, needs and coverages of the former two companies were
reviewed, revised and consolidated, resulting in $655,000 annual premium savings for the
combined corporation from 1994 to 1996. For the same period, UWNJ realized annual premium
savings of $348,231. The types and levçls of inurance coverage and premiums paid for a five
year period are shown in Exhbit VII-3. To generate these savings, UW consolidated primary
inurance coverages, broadened pollution coverage, lowered general liabilty self inured
retention, increased excess workers compensation to the statutory limts required for UWNJ,
consolidated umbrella and excess liabilty layers, elimnated overlaps, and renegotiated premium
fees.
VII-6
Request No. 110 Attachment 2 NJMA 1997
Page 46 of 96Case File No. W A95080388
Exhbit VI-2
United Water New Jersey
Inurance and Clai Support
Vice President -
Admintration
Manager -
New Business and Risk Managment
Risk Management 2 Supervisor -
Assistant n -~New Business
I
2 Bargaing Unit
Risk Management
Assistat I -
Additional safety trainig and loss control programs and services are frequently provided
by various inurance carriers providig automobile, workers compensation and propert insrance
coverage. These services are negotiated as part of the total inurance coverage provided to UW
though payment of premiums. UWR takes advantage of these opportnities by bringing in
selected speakers and putting on in-house seminars for employees to attend.
LEGAL
The Legal Departent is under the direction of UW&S' Vice President and General
Counsel, and consists of thee functional areas: 1) water supply, environmental issues, and real
estate, 2) rates and regulatory functions, and 3) acquisitions and corporate financing.. The fust
area listed provides the majority of legal services to UWNJ. The organiation of the overall Legal
Departent and the Area 1 (water supply, environmental issues, and real estate) group are shown
in Exhbits VII-4 and VII-5.
The Area 1 group was the prjmary focus of this audit. It consists of a Corporate Counsel
and a staff of seven people: including two attorneys, a real estate assistant, a full-time paralegal, a
temporary paralegal, and two administrative support personneL. All of these people interact
frequently with UWNJ and UWNY staff. One staff attorney, exclusively handles all matters
VII -7
Request No. 11 fAl~~l~t~~UW~980388
Page 47 0196
Exhibit VII-3
United Water New Jersey
Insurance Premium Coverage and Cost ~y Type Per Year
Pnncipal Coverage and Total Premiums
Type of Insurance Terms 1996 1995 1994 1993
Generl Liabilty Limits :I 2,000,000 $2,000,000 $1,000,000 $I,ÖOO,OOO
Retention :I 250,000 $250,000 $250,000 $250,000
Premium $152,924 :I 141,372 $188,000 $199,407
Rate/IOOO.:I 76.46 $70.69 $188 $199.41
AumobUe Liabilty Limits :I 1,000,000 :I 1,000,000 $1,000,000 $1,000,000
Retention :I 100,000 $100,000 :I $
Premium :I 35,61 I $35,175 $154,067 $170,059
Per Vehicle :I 175 $175 :I 763 $842
UmbrlJalcess Liabilty Limits $ 75,000,000 :I 75,000,000 $ 75,000,000 $ 50,000,000
Excess of :I 2,000,000 $2,000,000 :I 1,000,000 $1,000,000
Premium $221,960 :I 236,250 $365,825 :I 373,161
Rate/IOOO $2.959 :I 3.150 $4.878 $,7.463
Propert!BoiJer & Machiner Limits :I 96,612,913 :I 92,411,464 $ 89,924,63 I $ 96,103,743
Retention :I 25,000 :I 25,000 $10,000 :I 10,000
Prmium :I 79,688 :I 67,805 $91,784 $91,204
Rate/l 000 :I 0.825 :I 0.734 :I 1.021 $0.949
Directors & Offices Limits :I 50,000,000 $ 50,000,000 $ 40,000,000 $ 40,000,000
EmplO,ment Practices ,Limits $ 20,000,000 $ 20,000,000 :I :IEnLimits:I 50,000,000 :I $:I
Retention $200,000 :I 200,000 $200,000 $200,000
Premium :I 192,880 $165,468 :I 237,670 $226,684
RatellOOO :I 3.86 $3.31 $5.94 :I 5.67
Fiduciar Limits $ 15,000,000 $ 15,000,000 :I 5,000,000 :I 5,000,000
Retention $25,000 $25,000 :I 10,000 $10,000
Premium :I 20,000 :I 17,010 $21,477 $20,760
Rate/I 000 :I 1.33 :I I.3 $4.30 $4.15~Limits :I 10,000,000 :I 10,000,000 $1,000,000 $1,000,000
Retention $50,000 :I 50,000 :I 25,000 $25,000
Premium :I 10,620 :I 10,036 :I 6,434 :I 6,553
Rate/I 000 :I 1.06 $1.00 $6.43 $6.55
Woers Compensation Limits Statutory Statutory :I 5,000,000 :I 5,000,000
Retention $300,000 :I 300,000 $300,000 $300,000
Premium $32,500 $38,500 $29,157 $28,590
Total Premiums N/A $746,183 S 711,616 $1,094,414 S 1,116,418
VII.8
Request No. 110 Attachment 2 NJMA 1997
Page 48 of 96
Case File No. W A95080388
Exhbit Vß-4
United Water Manement & Servces, Inc.
Overal Legal Departent
Vice President -
General Counsel
Adminstrtive Asista
Vice President -
Corprate Law
Vice President ~
Regulatory Law
Corporate Counsel
i"Offce Assistant -
Legal Corporate Counsel
\
Corporate Attrny
Pension an Bennefits Admnistrative Assista
Offce Assistat -
Legal
relating to UWNJ and the other staff attorney handles all matters related to UWY. Work is
assigned by the Corporate Counsel and by the Vice President - Corporate Law. The size of the
legal staff is appropriate to handle most day-to-day legal requirements for UWNJ, and to manage
outside counsel when required for larger legal proceedings.
Outside counsel is used frquently; several fir are used in specialty areas, and for
litigation, because there are no trial lawyers on staff. Seventy five percent of the costs of the Area
1 group are fees paid to outside counsel. The in-house attorneys have cheaper hourly rates than
outside counsel, but because of the nature of legal work and time constraints frequently imposed
on assignments, outside counsel is sought. Exhbit VII-6 shows that UWNJ used 10 outside law
firs in 1994 and six outside law fir in 1995, thee of which account for more than 75 % of the
bilings in each year.
VII - 9
Request No. 110 Attachment 2 NJMA 1997Page 49 of 96 .Case File No. WA95080388
Exbit VI-5
United Water New Jersey
Legal, Rea Este, & Land Management Support
Vice President-
General Counsel
Corprate Counsel
Supervisor -
Real Estate
Corporate Attorney
Rates and Regulations, UWNJ
Corprate Attmey .
RAtes and Regulations, UWNY
2 Offce Assistants Assistant to Supersor Real Estate
Some of the ongoing work in-house consists of reviewing National Pollution Discharge
Elimation System (NPDES) pennts, and reviewing new proposed rules, such as the Mega Rule,
watershed protection policies, and other DEP rules. The Area 1 group works with UW&S
Regulatory Compliance Director on environmental issues, and UWNJ on rules that effect its
operations. One of the sta attorneys serves as advisor for UWNJ collection actions (part of
customer service). These are very small in number because outside collection agencies are used
mostly. Those agencies work with their own law firm for obtaing judgments. UWNJ canot
levy liens againt properties for customers' failure to pay delinquent water bils. The Area i
group also assists UWNJ's Customer Service Departent in prosecuting theft of service cases.
The primar paralegal handles bankptcy cases. Collection actions regarding landlord/tenant
cases are handled in-house to assure that NJ BPU requirements are complied with.
j
,i.'l
FACILITIE MANAGEMENT
The facilties management fuction is performed by UWNJ's Watershed and Facilties
Maintenance section, which is part of UWNJ's System Operation and Plant Maintenànce group
withi UWJ's System Operation and Reguatory Compliance Departent. The organation of
the overall larger departent and the smaller sub group are shown in Exhbits 111-1 and VII.7,
respectively.
The Division Foreman of the Watershed and Building Maintenance sub group manages
nie bargaing unit personnel in the W átershed section and thee in the Facilties group. There
arc two additional employees under his direction that work exclusively for UWNY.
VII - 10
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Request No. 110 Attachment 2 NJMA 1997
Page 51 Of96Case File No. WA95080388
The Watershed group, comprised of a leader and eight maintenance men, is responsible for
the maintenance and up-keep of th water supply reservoirs and watershed land. The staff are
authorized to treat the lakes with copper sulfate, as frequent as determined necessar by the
laboratory, to control weeds, algae and other aquatic growth. Under the Foreman's Pesticide
License, the staff are authorized to apply specific over-the-counter herbicides, such as "Round -
'Up", on the watershed. Insecticides and fungicides are also applied to the surrounding watershed
Exit Vl-7
United Water New Jerey
FacUities Management Support
,..,-"
I
Vice President -
Operations
I
Director -
System Operations and Regulatory Compliance
I
Manager -
System Operations and Plant Maintenance
I
Division Foreman il
Watershed and Buiding Maintenanc
.,
I
12 Bargaing Unit UWNJ
2 Bargaing Unit UWNY
,
l
¡
r
,i
land, via outside contractors. Ths workload is driven by requests from the UWNJ chemists when
the quality of water becomes impacted by aquatic growth.
During the peak summer growing season, the staff must treat the Union City reservoir
weekly. The watershed treatments account for 25 - 40% of the staff's tie between March and
October. During the remainder of the year, the Watershed section perform the following types of
activities: repair fences, cut down trees which endanger UWNJ or neighboring properties,
maintain service or access roads, maitain drainge ditches and culvert, re-seeding and restore
lawns (post-construction), plant grass or vegetation on slopes to control erosion, and provide
support to other UWJ sub groups, as needed.
VII - 12
Request No. 110 Attachment 2 NJMA 1997
Page 52 of 96
Case File No. W A9S080388
The Facilties group, comprised of a carpenter and two buildin maintenance men, perform
mior maintenance and repairs to approximately 55 buildings (including remote pump stations)
operated by UWNJ, UWM&S and UW. The later two entities are biled for any work
performed by UWNJ personneL. Work orders from building tenants (Le., UW employees) are
routed either though the Manager of System Operations and Maintenance, or the Division
Foreman. Emergency calls can be made directly to the staff.
All work performed outside of Haworth Treatment Plant is charged to the "requesting"
deparent at the building where the work is performed. The work orders have a place for the
maintenance men to fill in the man-hours expended, but not for costs of part/materials used. The
par are listed on the ticket and the cost is filled-in (or estiated) by the work leader or Foreman
when the work order is closed out at the end of the week. The maintenance mens' travel sheets
are completed for each job and attached to the completed work order. These documents are then
sent to the outside contractor (HSB) who oversees and operates UWNJ i S preventive maintenance
program from an out of state location.
Snow plowing for all UWNJ-operated office, plant, booster, and maintenance facilties is
performed by the Watershed Maintenace staf (central and nortern UWJ areas) and the
Construction Division staff (southern UWNJ areas) with the System Maintenance Departent.
PURCHAING AN MATERI MAAGEMENT
i,.
Ths section reviews UWJ's purchasing and materials management procedures, including
stores functions. This review focused on the organition, policies, processes and procedures for
procuring contracte services and materials and plang for receiving, storing, distributing and
issuing material and supplies to each of the users throughout UWNJ.
The Purchasing and Stores fuction at UW&S is led by the Manager of Purchasing and
Stores, who report to the Vice President of Admirustration. He has a staff of eight people, two
of which are in the offce, and six others, including a night watchman, who are located at
Hackensack Yard. The organation of ths group is shown in Exhbit VI-S. The manager and
the two offce people are responsible' for overseeing the purchasing, procurement, and materials
management fuctions of UWR and àl1 the subsidiaries .
Purchasing is intiated via requisition by the user. Purchase Orders are issued for items
costing less than $1,00, with only supervisory approvaL. Purchases between $1,000 and $5,000
must have the approval of the Departent Head. Purchases between $5,000 and $15,000 must
have the approval of the Director of the Division. Purchases between $15,000 and $100;000 must
have the approval of the appropriate Vice President. Purchases greater than $100,000 must have
the approval of the President or Chief Executive Offcer.
VII - 13
Request No. 110 Attachment 2 NJMA 1997
Page 53 of 96
Case File No. W A95080388
Exhbit Vl-8
United Water New Jersey
Puchasing and Materi Management Support
Vice President -
Admistration
--
Manager -
Purchasing & Stores
I Administrative Support Representative I-H Senior Clerk I
6 Bargaining Unit (Stores)
Verbal quotations are obtained from a minium of thee suppliers when the estimated cost
is expected to be greater than $1,000 but less than $5,000. Written quotations are obtained from a
minum of thee suppliers when the estimated cost is expected to be greater than $5,000. Bid
requests are sent to a mium of thee pre-qualified suppliers, unless it is for specialized items
that are only carried by selected vendors. The reasonableness of all prices paid for materials and
services is based on five factors: 1) adherence to prescribed specifcations, 2) price per unt, 3)
quality of items of vendor, 4) delivery schedule, and 5) vendor's past service record.
, ;.1;UW and all its subsidiaries' use standard forms for making purchases, as follows:
purchase orders (carbonied - five copy form), request for quotation (carbonid - four copy
fom), requisition on order deparent (manually generated - single copy form), inventory control
order request (computer generated - sinle copy form), material received ticket (manually
generated - duplicate copy form), and a material received ticket (computer generated -single copy
form).
UW negotiates and maintain national contracts for the following items: Meters, Brass
Fittings, Valves and Valve Boxes, Tapping Sleeves, Fire Hydrants, Pipe, Copper Tubing for
Service, Certin Chemicals, Lubricants, Offce Supplies and Equipment, Packaging Materials,
and Vehicles. Pipe is re-bid every four month; all other items have open contracts, which are re-
bid annually. All items under national contract must be purchased from the identified national
contract supplier via a direct purchase order by the local water company. All other items may be
purchased at suppliers deemed reasonable by the local water company.
UWNJ maintain a computerized perpemal inventory system that tracks all inventory
transactions, including receipts, issues, remrn, adjustments, etc. The system utilizeS a material
VB - 14
Request No. 110 Attachment 2 NJMA 1997
Page 54 of 96
Case File No. WA95080388
inventory code index, identifies reorder points, and calculates and adjusts the minium/maximum
quantities of materials and supplies, based on two pre-prograed management goals. These'
goals are to: miie the Company's investment in inventory while maintainig a service level
of98%, and achieve an inventory tuover ratio of 3.0. This system also provides comprehensive
reports and work order accounting records for continuous propert records updates, and allows
the manager to expedite the placement of material orders. The Storekeeper and Yard Leader have
the responsibilty of initiating material requisitions, receiving, storing, salvaging, scrapping, anissuing materiaL. '
TRSPORTATION MANAGEMENT
The tranportation function at UWNJ is coordinated by the Fleet Manger, who reports to
the Director of Distribution System Maintenance, who in turn reports to the Vice President of
Operations. The fleet manager oversees a staff of II, six of which are mechanics. The
organition of ths group is shown in Exhbit VII-9. The Transporttion Departent is located
at Hackensack Yard and operates 16 hours per day; a leader and tbee mechancs are on duty
during the day shift and two mechaiucs are on duty during the second shift.
UWNJ is also responsible for the leasin and maintenance of the fleets of UW (23
vehicles) and UW&S (42 vehicles). They also provide support maintenance for UWNY (66
vehicles), UW New Rochelle, UW Toms River, UW Jersey City (55 vehicles), and Mid-Atlantic
Utilties (Hoboken operations). Later in 1996, the Transporttion Departent wil move into a
larger maintenance facilty in Hackensack, with drive-though bays and a car wash, to peñonn
additional service-related taks.
In the early 1980s, UWJ made a policy decision to lease the majority of its vehicles.
While some special vehicles are purchased outright, al other new vehicles are leased. ., Cars and
light trcks are usually leased tbee years with a 50,000 mile usage warranty, covering major
repairs. Research conducted by UWNJ has demonstrated that maintenance costs tend to increase
significantly for vehicles held longer than 45,000 miles, and the majority of major repairs are
covered by a 45,000 mile warranty. Almost every car and trck within UWJ's fleet (except for
trucks with special bodies) are less than 3'.years old. Lager trcks with special bodies are leased
for five years or greater, under an open lèåsing agreement, because they are expensive to custom
fit. Special equipment can be either leased or purchased. The decision to replace vehicles or
special equipment is made by comparing the cost of repair and length of service to the purchase or
leasing costs of the replacement.
VII- 15
Request No, 110 Attachment 2 NJMA 1997
Page 55 of 96 Case File No. W A95080388
Exhbit Vl-9
United Water New Jersey
Transportation Management Support
Vice President -
Operations
I
Director -
Distribution System Maintenace
I
Fleet Manger
UWNJ and UWNY
I
i 1 Bargaining Unit
In 1995, UWNJ had approximately 244 vehicles in its fleet, which included 23 vehicles
assigned to UW and 42 vehicles assigned to UWM&S. In addition, there were 30 pieces of
special equipment such as cranes, compressors, fork lifts, and a front end loader. UWNJ own
and operates its fleet maintenance and gas fueling facilty, and perform all of the preventive
maintenace and mior repairs, and th majority of the major repairs at its in-house facilties. Its
1995 maintenance cost for the fleet was $505,700. This cost included labor and part for all
maintenance and repairs, and all fuel costs. Vehicle maintenance and inurance costs averaged
about $2,250 per vehicle in 1995, or about $188 per month.
In 1995, the average atUual lease per vehicle was $3,673, or about $306 per month. It
should be noted that ths amount includes UWNJ's return on resale (i.e., the rebate given on
vehicles retued before the lease was up) of approximately 33 percent of the total annual vehicle
leasing cost. UWJ averages a litte more thn 12,000 miles per vehicle per year. Maintenance
and fuel costs per vehicle average about $0.18 per mile, or about $0.36 per mile ifinsurance is
included. If leasing costs are added, the cost of leasing, maintaing, and fueling vehicles is about
$0.64 per mile.
Based on a random sample of work orders, UWNJ estimtes that its garage can mrnaround
preventive maintenance and mior repairs in one day, and major repairs in 3-5 days. UWNJ
estimates tht tyically, 2 percent of its fleet is out of commission at any given time due to
maintenance and repairs.
VII - 16
Request No. 110 Attchment 2 NJMA 1997
Page 56 of 96
Case File No. WA95080388
Fleet requirements at UWNJ are based on demonstrated need. There are very specifc
policies regarding the use of fleet vehicles, including personal mileage. Vehicle leasing and
maintenance costs are specifically charged as an expense to UWNJ and the other entities, which
tends to limt excess or unnecssary vehicles, and promotes higher vehicle utilization. Vehicles
are assigned to specific individuals and not to departents. Each vehicle has a number and the
history of usage and maintenance is tracked though the assigned number, using a pc~based fleet
management software program.
REAL ESTATE AN LAN MAAGEMENT .' .
As mentioned previously, the Real Estate Group is located within the Legal Departent
(Refer back to Exlbit VD-5). The Supervisor of Real Estate holds a real estate license and her
primary responsibilties are to: manage the real estate holdings for UWNJ and UWNY, and
negotiate license agreements, indemnty transactions, and leases. She reports to the Corporate
Counsel of the Area 1 group and utilizes the two staff attorneys in his group for most land
transactions. Outside attorneys are used inrequently for real estate purposes. There is one full-
time person to assist her. Their time is allocated on time sheets for tie spent for UWNJ and
UWNY.
. The Real Estate Supervisor utilizs outside attorneys as necessary for utilty real estate tax
appeals, acquisitions, title searches, and closings. There are currently a small amount of
acquisitions in New York and none in New Jersey. None of UWR's other operating utilties have
large land holdings; UWJ has the most. Another UW subsidiar, United Properties Group
(UO), handles the non-utilty (non-regulated) properties. UPO also uses outside attorneys as
necessary. Also, leasing arrangements of UWNJ buildings are handled by UPG Personnel, in
conjunction with the Real Estate Departent and the Engineering Departent of UWNJ. Brokers
and realtors are used when necessar and the lease is generally prepared by outside counsel.
UWNJ and UWNY own very litte of the total watershed land. UWNJ owns
approximately 3,400 acres, and UWNY owns approximtely 2,000 acres. Most of this lan is
located in Bergen and Hudson Counties and is used as a buffer zone around the reservoirs, as
recommended by a study performed in 1984 by Havens and Emerson. These land holdings have
been approved by the NJ BPU prèviously. Currently, there is no active program to acquire
additional parcels of watershed, for source of supply protection purposes. However, UWNJ has
recently completed negotiations with an independent engineering consultant to conduct a land
management study. The outcome of the study is to recommend specific watershed 'protection
management practices which includes identifying and evaluating for purchase specific parcels of
. land that could be acquired for watershed protection purposes.
A Real Estate Deparent procedures manual was developed in 1985. The manual is for
the acquisition of real estate. Outside appraisers, brokers, and realtors are used when necessar.
Land surveys are performed by in-house people. Outside counsel is used for title searches and
closings.
VII - 17
Request No. 110 Attachment 2 NJMA 1997
Page 57 of 96 Case File No. WA95080388
The Supervisor of Real Estate frequently interacts with UWM&S ' Regulatory Compliance
and Water Quality Departents. She also reviews public notices and submits coinents and
makes presentations for local planng and zonig boards, on matters that may impact UWNJ's
and UWNY's operations. The volume of public notice fluctuates, depending on the economy of
the region. At least 40% of her work is field work and meetings, related to the processing of
requests by outsiders for use of UWJ or UWNY properties. She regularly meets with
contractors, homeowners, leasin parners, realtors, and plang and zonig boards. She also
meets with the Corporate Counsel and his two attorneys at least twice per week to keep them
informed of real estate transactions. For planng and zonig and sign ordinances, outside
counsel is used but research is usually done by the two staff attorneys.
UWNJ transferred land and the former New Milford Water Treatment Plant to Bergen
County in 1992-93. This plant and land has been removed from UWNJ's rate base, for rate-
makg puroses. Since there is no statewide system for clasifcation of lands, UWNJ frequently
fies tax appeals for lower status of assessment. To date these appeals have been somewhat
successful.
UWNJ's buildings are either ówned or leased under current contracts. Quotes for a
specifed amount of space, price per square foot, and terms of leases are received frequently to
compare current leases, before they are renewed. A market analysis is performed once it has been
determed by Executive management to lease or purchase additional space. Leasing is relatively
new for UWJ; it is simply done if cost effectiveness is proven. Leases generally include
maintenance, lawn services, and easements. Lengt of time for leases vary based on UWJ's
needs. For example, the lease for the building in Frankin Laes is for 10 years with renewal
options, while Devo Place has a longer term because it impacts more on operations than just
people.
Many daily functions are computerizd. LOTUS software is used for spreadsheets and
Word Perfect softare is used to generate letters and report. E-mail can be used to distribute
inormtion. A tax information data base is also on the computer. In addition UWJ maintains a
hard copy of land parcel fies which track deeds by block and plot number and shows the history
of each parceL. Hard copies of municipal propert assessment cards evidencing the valuation of
each parcel of land are also maintained. Records are kept for many years regarding eaSements.
COMPUTR SYSTEM AN SERVICES
The IT organation is part of UWM&S, located at Harington Park, New Jersey. Many
changes to the IT organiation have transpired in recent years. The Chief Information Officer
(CIO) position resulted from informatioh' tecliology strategic planng conducted in 1994. The
organition has evolved since then to its present form, depicted in Exhibit VII-tO.
Vll-18
Request No. 110 Attachment 2 NJMA 1997
Page 58 of 96
Case File No. WA95080388
Exhbit VI-tO
United Water New Jersey
Inormation Technology Organtion
A..Ï$ia Vice Presldent
Chef Jiimrin Oller
Admin. Assbtat
Reprecolatle
................................
r-.Ä~~;;i lol~ï~;..! EDS
IT Council
(18)
I UW I füVÑIÑ1 (-iï;'-.Il_______ ._..__.
Two cross-fuctional project teams were fonned following development of the IT Strategic
Plan in 1994 to implement the Integrated Financial Management System (IFMS) and Customer
Inormation System (CIS). At United Water, implementing major IT projects is coordinted by a
cross-functional team 'of Operations, IT, and Budgeting/Accounting employees, becauseUW&S
management strongly believe~ that non-IT staff should actively participate in such projects. For
example, the two current project directors were previously managers or directors at United Water
operating companies. The Financial Systems Project Team is fully staffed, while the cis Project
Team is stil being assembled, as the cis work is in an early implementation stage. Team
members do not have titles and receive no increase or decrease in pay from their. previous
position. Each tea is expected to disband when its system becomes operationaL. Team members
. have no guarantee of employment once ths occurs. Outside vendors wil support both IFMS and
CIS once intalled.
A small, but growing, Client Services organiation provides infrastrcture support for.
United Water's wide and local area networks as they are implemented. The Client Services
Manager manages the effort of Electronic Data Systems (EDS), which primarily installs and
support a combination of locaiiy~networked PC systems (using Novell NetWare based fùe servers
interconnected with other local offces), stad-alone personal computers, and mainrame termnals.
EnS also provides 7x24 monitoring of United Water networks, a centralized 5x8 1-800 help desk,
and 4-hour break/fix service for equipment.
The two Client Services systems -analysts (one a UW&S employee and one a UWNJ
employee) provide admnistration, security, and microcomputer applications development and
support for departent-wide, not enterprise-wide, systems such as: .
· HOMER
VII -19
Request No. 110 Attachment 2 NJMA 1997
Page 59 of 96 .Case File No. W A95080388
. Pen-based mobile computig
. Case management system
. Huma resources
. Marketing and external relations
United Water no longer maintains an on-site data center in Harrington Park (New Jersey) staffed
by UW&S employees, as al computer operations have been outsourced. Following the merger
of General Waterworks Corporation (GWC) into United Water Resources (U) as United Water
Works (U, UW data processing employees declined to move from Pennsylvania to New
Jersey. At that time, UW fmacial mangement processing was outsourced to EDS in
Philadelphia (pennylvania). Subseqùently, all United Water fmancial management processin
was outsourced to EDS in St. Louis (Missouri) when the Harrington Park data center was closed
in early 1996. The UW Automated Customer Biling System (ACBS), previously run by UMS
(a Phiadelphia Suburban Water Company affliate) in Philadelphia, is now also processed by EDS
in St. Louis. All UWNJ I UWNY customer processin is stil handled by Utilty Biling Services
(DBS), an Elizbeth, New Jersey, service bureau.
Any UWNJ personnel located in local offces are responsible for inputting data, validating
transaction data, and distributing report locally. Requests related to computer processing are
approved though management and then. forwarded to UBS though an assigned member of the IT
organition who functions as a liaison between UWJ's Customer Service organiation and UBS.
Staffing Level
The IT staffng levels from 1991 to 1994 were relatively constant, as depicted in Exhibit
VII-H, which reflects a situation when IT was primrily a support organiation with few
development projects. In 1995, the data center was outsourced, which decreased IT staffng
levels, but the IFMS and cis development projects and the HRSlPayroll System implementation
project were formed, which increased IT staffg levels.
Operating Expenses and Capital Expenditures
Oprating expenses increased from 1991 to 1993, then begån decreasing in 1995 to a level
of roughly $1.16 millon, as shown in Exhbit VI-12, reflecting the changes occurrin withn the
IT organation. The 1996 budgeted O&M figues are roughly $853,000, with $585,500 already
expened durig the first half of 1996.
Capital expenditures increased signficantly from 1994 forward, especially those budgeted
for 1996, as shown Exhibit yn-l,:i, because of IFMS and additional networks and, - I,microcomputers.
VII - 20
L
r'
i
L .
Request No. 110 Attachment 2 NJMA 1997
Page 60 of 96
Case File No. W A95080388
. Exhbit VII-LL
United Water New Jersey
Trends in StatTmg Level
26
æ ______________________
15
10 _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
6 ______________________
o1991 199 199 199 199 199
FJp\õ11
160 $ Thousands
Exhbit Vl-12
United Water New Jersey
Operatig Expenses*-1400 ---- --- --:. _ _,____ __ __~_ _ _ _ __~
1200 - - _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _-
1000 - - - - - - _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
800 - -- --- _ _ ___ __ _ ______ _ __ _ _ _ ______ _ _ _ ____
600 - - --___ _ __ ____ _ ____ _ _ ____ _ _ _ ____ _ _ _ _ ___
400
200 - - - - - - - _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
o
1991 1992 1993 1994
pctuai-eudgetedl
*UW&S, not UWJ, figures
1995
Strategic Direction
The IT strategic direction is based on a long-range IT Strategic Plan developed in 1994.
Activities are executed based on the priorities established in this plan.
VII - 21
Request No. 110 Attachment 2 NJMA 1997
Page 61 of 96 .Case Pde No. W A95080388
Long-Range Strategic Plan
The UWGWC merger in early 1994 prompted United Water to develop a long-range IT
strategic direction. After the merger, the corporation was left with thee separate, non-integrated
general ledger systems (two mainame, one microcomputer based) and thee non-integrated
customer biling and inormation systems (two processed by outside service bureaus, one ru in-
house on microcomputers), along with a myriad of personal computers and networks in various
stages of non-compatibilty. From August through November 1994, a strategic plannng project
was conducted jointly by United Water employees and a consulting fin. The joint, strategic
planng team gathered input on IT needs from more than 150 employees (via a series of
Exhbit Vl-13
United Water New Jersey
Capital Expnditues*
L
10000000
100000
= = = = = =: ~=~~~= ~========1000000
_Actual
_ .Origlnal Budget
- I!Revlsed Budget
10000
1991 1992 1993 1994 1995 1996
. * UWM&S. not UWJ, figures
. (a) 1995 includes over $.-8 milion (WAN) and $1.7 milion (IFMS) actually spent on capital
expendinires for projects approved outside of budgeting cycle in 1995 as a result of 1994 IT
strategic planing cycle
interviews, meetings, conference calls, and surveys). The objective, schematically depicted in
Exhbit VI-14, was "to establish a vision for how IT could be used to help UWR achieve its
strategic objectives ~ and then define a specific action plan listing the steps required to reach this
vision. "
i;VII - 22
Request No. 110 Attachment 2 NJMA 1997
Page 62 of 96
Case File No. WA95080388
Exhbit Vß-14
United Water New Jersey
Basic IT Strategic Direction Objective
Strategy and Goals ~
Applications
Business and IT Needs ~
Exhbit vii-is graphically ilustrates the approach taken in developing the IT Strategic
Plan.
The resulting plan, adopted on December 1, 1994, addressed the next thee to five years
and became the offcial guidelie for technology within United Water. The first step
recoiiended was creation of the executive-level CIO position, with other intiatives grouped into
three categories:
· Organization - To define a new IT organtion which is proactive and parers with
client deparents to help them use IT to meet their business needs.
- Develop the new IT organition
- hnprove network/desktop services and support
- Conduct a help-desk pilot
Form an IT Council
· Technology Infrastructure - To establish a long-term, modem foundation on which to
. build new applications by defig an architectue and standards for desktop, network,
and mainame computing platforms.
- Develop a techncal architecture/infastructure
Replace obsolete Datapointnardware
- Consolidate data centers ,
Develop a SWAT team approach to support marketing efforts
- Perform a pen-based pilot intiative '
- Develop an employee PC purchase program
· Applications - To develop new inormation systems to meet compelling business needs,
which include the following items:
- Integrated fmancial management system
Customer inormtion system
- Work management system
- Laboratory inormation management system
Operations database
VII - 23
Request No. 110 Attachment 2 NJMA 1997
Page 63 of 96 Case File No. W A95080388
Exhbit Vß-1S
Unite Water New Jersey
IT Strategc Plang Approach
Asess Business Develop~and Competitive ~Organization I-Environment
I
Plan
,
Define Scope IdentifY Business and Define Define Data and DeveloplnfonnallonInfonnationand Organize Technology -Technology I-Application f-Information
Project Opportnities SlJategy Plan Action Plan
.'
Ases Present DevelopL.Statu '-Technology i-
Plan
Restrcturing the IT organition and designig the techncal architecture have been
completed. Intalling a wide area network and implementing IFMS and cis (the first two
applications listed) are stil underway. During the IFMS and cis installations, United Water is
evaluating the feasibilty of outsourcing payroll and benefits processing. A work management
system project is expected to begin in late 1997, with implementation anticipated prior to the year
2000, to automate many disconnected and primariy manual processes.
The IFMS Project involves intallation of an integrated suite of finacial applications to
replace the thee separate general ledger systems presently in use thoughout the United Water
organiation. At UWJ mainame applications (general ledger, accounts payable, and fixed
assets) purchased from Dun & Bradstreet (D&B), formerly McCormck & Dodge, were
implemented in 1985. The D&B softare, along with the two other existing United Water general
ledger systems, wil be replaced bÝa Pe.øpieSoft package that is based on client/server technology
using an Oracle database in an HP UNIX environment. Ths package also replaces an in-house
materials & supplies inventory system and a constrction work in progress (CWI) system, both
intalled in the early 1990s. The cis Project involves intallation of one stadardized customer
inormation system package across United Water companes. The cis Project Team, with other
United Water participants, have narrowed the options to two, both implemented in a client/server
environment operating at the vendor's site.
The design and deployment of a wide area network (WAN connecting all United Water
sites is considered the backbone of the communications inastructure necessar for supporting
IFMS, cis, the Operations Dataase, Payroll, Personnel, and e-mail communcations, as well as
all future systems, such as the Work Management System. (Five of the company's New Jersey
locations have operated local area networks for mially two years as part of a metropolitan area
network or MAN. The MAN is interconnected only with UWY, but by end of July 1996 IT
expects to interconnect all United Water locations via a wide area network). The cia expects thatVII - 24 .
Request No. 110 Attchment 2 NJMA 1997
Page 64 of 96
Case File No. WA95080388
other legacy systems wil migrate to a client/server environment in conjunction with, or following,
the conversion of the two major applications (IFMS and CIS).
Business Process Re-engineering
The United Water philosophy for implementing applications is to buy a package, then
make as few as modifications as needed to quickly implement the package, as management would
rather modify processes than systems. The seed for this philosophy began with creation of the
Vision 2000 Team, which evolved from:the UWRlOWC Transition Team. The Vision 2000 goals
are to help UWR achieve company goals and objectives through:
. Culture
· Communcations
· Productivity
The Vision 2000 Te~, comprised of 19 members, created the following three committees
to address its goals:
. Culture
· Communications
· Work force Effectiveness Team or WET Team (addressing business process re-
\. engineering and pay for performance issues)
The Vision 2000 Team has an executive sponsor and each of the thee commttees also has
a steering committee. Each of the 19 Vision 2000 Team members are either on the Culture or
Communications Commttee, with selected members also on the WET Team. The CIO, IFS
Project Director, and CiS Project Director are all Vision 2000 Team members; the IFMS Project
Director is also on the WET Team. The WET Team is lookig at re-engineering of business
processes, including impact of inormtion technology, by developing: .
. Studies of five core business proCêsses
- Customer service . i
Marketing
Ratemakng
Water delivery
Waste water collection
· Studies of support processes
· Dril-downs for each core business process area (except marketing
Each of the core business and support processes were analyzed and documented, then the
dril--owns resulted in core business process analyses, gap analyses, and visionig sessions.
Subsequently, two Process Improvement Teams were formed - one for water delivery and waste
water collection processes and another for rate making processes.
· The water delivery and wastewater areas were combined for study by one teai because
of the simlarity of results from the original dril downs. Intial effort have been
completed during which a draft plang document was develope. Upon completion
of furter review, the team wil perform additional in-depth analysis of the .
VII - 25
Request No. 110 Attachment 2 NJMA 1997
Page 65 of 96 Case File No. WA95080388
reconuendations made, identify those to be pursued, and develop plans for
implementation.
. The ratemaking area has not developed a written plan but one of the major
recommendations of the original dril-downs has been implemented, in which cross-
functional teams are formed to develop the strategy and coordinte the work on
individual rate cases.
The technology impact resulting from processes studied has yet to be fully detenned.
Technology Leadership and Diection
The United Water orgaiuzation is formalizing its mission as it pertins to. information
technology, but until such time as a formal mission statement has been adopted, the corporation's
overall mission has been. the guiding factor used for technology effort. An IT Steering
Commttee (lTSC), responsible for inormtion tehnology oversight, provides support and vision
for United Water IT activities by setting corporate direction and strategies relating to; information
technology and approving associated IT projects. The ITSC is comprised of five senior managers
(VP Administration (chair), Senior VP Operations, VP Finance, Assistat VP External
Affairs/Customer Service, and Cia) and meet at least every two months. An IT Council,
comprised of 16 operating company and UW&S employees and 2 technology parter
representatives (EDS and EMA), has a dotted-line responsibilty to the cia. The IT Council
members represent various United Water organitions for settig IT priorities and identifying
system sponsors on all legacy and new systems by meeting the following objectives:
. Provide a forum for sharing technology solutions thoughout the United Water
organition
. Provide necessar coordination and implementation of policies, procedures, andpractices with United Water .
. Provide a workig committee to research, resolve, or recommend action to identified~~ ,
. Represent IT in identifying potential projects, resolving issues, and recommending
techical solutions
. Provide an expanded techicalbase of resource availabilty from which to solicit
information and potential solutions beyond the centralized IT staff
. Promote a uiufied approach to inormation technology as a key-enabler to achieving
corporate objectives
The ITSC and IT Council are designed to work together for assuring adherence to the
goals and objectives developed as part of the IT Strategic Plan.
VII - 26
Request No. 110 Attchment 2 NJMA 1997
Page 66 of 96
Case File No. W A95080388
Project Management
The IT organiation has developed partnerships with thee outside firs (listed below)
which provide technology support:
,. Andersen Consulting
.. Electronic Data Systems (EDS)
· EMA (for operational systems, such as SCADA, only)
This partering technque has been used by United Water as a means to leverage UWM&S
resources, competence, and knowledge with parers' project mangement and business
experience. The UW&S management prefers to use parters to provide the project management
expertise that are unavailable or uneconomical for UWM&S to provide when needed only for the
short-term. (The need for additional expertise in project management skils was identified in 1994
IT Strategic Plan.) The following project management procedures are integrated into project
plans:
! .· Computer-based project management software is used to develop project plans, assess
critical path activities, establish staffing levels, and identify time schedules.
· . Weekly status meetings are held with vendors to confrm progress, define issues,
resolve problems, and regularly communicate among parties involved.
· .. At least quarerly, or more frequently if needed, status meetings are held with ITSC
members.
Security, BackuplRestoration, and Disaster Recovery
Security
Both the EDS and UBS data centers require user identification (ID) and passwords for
access, plus all major mainfame applicatiori require an additional user in and password.
Procedures exist for changing these passwords periodically. User IDs and passwords are also
required for access to local area networks. Procedures exist tht require changing these passwordsevery thee months. .
BackuplRestoration
All mainame application fies and customer data files are backed up daily and rotated to
an off-site storage facilty. Additional backups of other application data files are made at the
beging and end of nightly processing for those applications. Files resident on local area
networks are backed up daily as part of stadard operating procedures, while users of individual
workstations are encouraged to back up periodically.
Disaster Recovery
Ens maintain a contractual arrangement with a thd-part company to provide a backup
mainame computer system and data center facilties for use in the event of a disaster. EnS also
has a formal disaster recovery plan, which is updated semi-annually and tested at least annually.
Vll-27
Request No. 110 Attachment 2 NJMA 1997
Page 67 of 96 Case File No. W A95080388
Staff Development and Technology Training
Another area identified as lacking in the IT Strategic Plan is staff development and
traing. There has been little, if any, such activities over the last few years within the existing IT
organition. The increased trainng during 1995, 1996, and 1997 wil be focused on developing
the necessary skills required by project team members to ensure succssful implementation,
support, and on-going use of IFMS, CiS, and the Microsoft suite of products. Traing for users
and support personnel of these two systems is expected to continue going forward; therefore, upon
implementation, the possibilty of creating an in-house traing center is likely to be considered.
In late 1995 and early 1996, EDS perfonned a "Microsoft Roll-out" in which a
prelimna traing set of compact disks were provided at each of 31 sites to ease the upcoming
transitions from a DOS enviromnerit (WordPerfect and Lotus) to a Windowsenviromnent
(Microsoft suite of products). Besides preliar computer-based traing (CBT) at these 31
sites, additional training media wil be available during the actual roll-out to occur in mid-1996.
By end of July 1996, the WAN and Microsoft products are scheduled for intallation, after which
employees wil be given six to nie months to convert to the Windows products before older DOS-
based products are removed. By stadardizing workstation software, United Water. management
expets to eliminate many problems. Employees have been runnng multiple versions of the DOS-
based programs, which has caused problems for sharing of data among different groups within the
corporation. Although often older software versions were not supported by vendors, company
management did not always allocate funds for new eqipment required to run newer versions. To
address this situation, United Water recently adopted a four-year cycle for upgrading or replacing
workstations using a standard equipment confguration.
To furter help employees to become more computer literate, a computer purchase
program was announced in mid-1995 whereby employees were offered a thee-year interest-free
loan to buy a PC. Approximately 300 United Water employees accepted this offer.
RECORDS MAAGEMENT
NARMCO Services, Inc. (NARMCO) was retained in 1978 to review Uiuted Water's
record keeping policies, durig whÍch time a comprehensive records retention procedure and fiing
system was developed. The consultants' recommendations, however, were instituted only for
adminstrative records. An inventory of these records was maintained by a records rètention clerk
who was solely responsible for accessing and destroying these records. It was decided to forego
the consultants' recommendations for other departents and to have each departent maintain its
own records. hi a 1984 Internl Audit (lA) report, several recommendations were made to
improve United Water's operations and to develop a comprehensive records retention system.
Numerous intaces of stale-date records and mislabeled boxes and me cabinets were noted.
Stored records were not inventoried, and were retained beyond set time limits. No documentation
was prepared to substantiate what reords were destroyed, who approved their destruction, and
who performed the destruction.
Since 1984, many improvements have been made in records management. The Record
Center at United Water is now organ. Records management procedures have been developed
and formally documented. The National Association of Regulatory Utility Commissioners
(NARUC) Guidelines for Records Retention (revised May, 1985) have been used by United Water
VII - 28
Request No. 110 Attachment 2 NJMA 1997
Page 68 of 96
Case File No. WA95080388
I '
i
;
for developing their own procedures for retention and destrction of records. NARMCO was
retained again in 1991 by Unite Water to assist the Record Center in improving its practices. A
subsequent 1992 IA report offered the following analysis:
Administrative controls are adequate, functionig, and assure that ths departent isproviding admistrative support services efficiently and effectively. Work
performed by the staff is appro()riately and adequately supervised and personnèl are
used in an economical and effcient manner. Access to iriormation of a sensitive or
confdential nature proessed on computers is suffciently restricted.
Presently, all active records are kept by individual departents. When records become
inactive, the Corporate Offce coordinates with departental personnel to transfer records to
centralized storage at Harrington Park, Oradell, Hackensack, or Franin Lakes Pumping Station,
or to external storage at Pierce Leahy Archives in Somerset and E. Brunswick, New Jersey. At
Harrington Park, records for selected 'departents are temporarily stored in individual fies
(claims, BPU complaints, and president's letters only) and kept in boxes labeled by departent
and by type. Records in fies are not itemied in the Record Center's inventory until (and if) they
are tranferred to boxes, although a central index of fies is maintained. Claims are the only fies
transferred to boxes annually. All others are destroyed as they reach the end of the prescribed
retention period (generally less than a year). AU files at Harrington Park are monitored by
Corporate Offce employees: propert records are locked in fire proof cabinets, while others are
stored in mobile fies locked nightly. Any permanent records (in boxes) not kept at Harrington
Park or Oradell are stored at one of the off-site archive locations unti they reach the end of the
prescribed retention period. At any time, departental employees may request access to the
records maintained by the Record Center or stored at Pierce Leahy Archives. Confdential
records (such as personnel records) are generally kept by individual departents until deemed no
longer confdential; although, some confdential records are locked in a cage at Frankin Lakes.
The United Water records management function is performed by the UWM&S Corporate
Offce displayed in Exhibit VLL-16.
The Corporate Offce also perfonns various other admistrative support functions
involving lunchroom, mailroom, reprpduction, and word processing/typing activities on behalf of
United Water companies. Four of the bargainig unit employees also act as backup for others
within United Water in New Jersey. i
Staffing'
The records management function is perfonned part ~time by selected employees within the
Corporate Offce organtion. United Water estiates that approximately 5% of the manager's
time and 10% of the supervisor's time involves records maagement activities, while thee other
employees spend 25% to 30% of their time on records management activities. These estimates
may vary based on the volume of records sent to the Records Center, as well as the tie spent
traing new employees or cross-traing existing employees.
VII - 29
Request No. 110 Attachment 2 NJMA 1997
Page 69 of 96 Case File No. WA95080388
Exhbit VD-16
United Water New Jersey
Corporate Offce Organtion
BuíldllSercc
(2)
Clcr
(I)
MalRo
(I)
Ho.PkNJ Hll.PkNJ
MalRo
(I)
I UW I I UW i
.
* Shaded boxes represent employees who perform records management activities
Cost
Approximate yearly records management costs from 1991 to 1995 (for major categories)
are displayed in Exhbit VII-17. Besides salary costs for Corporate Offce employees, included
are payments to Pierce Ley Archives (who reguarly provides off-site permanent fie storage)
and NARCO Services, a firm who occasionally llrovides consulting services.
Capital expenditures for the years 1991 to 1995 have been zero, however, United Water's
Corporate Offce organition has budgeted $20,000 in 1996 for a pilot program for document
handling technology. This effort is to be coordinated with the Inorition Technology
organiation, who budgeted $167,000 in 1996 to review, evaluate. and selected a product and
technology to allow United Water to move forward in document imaging technology.
VII - 30
Request No. 110 Attachment 2 NJMA 1997
Page 70 of 96
Case File No. WA95080388
Exhbit VI-I'
UDited Water New Jersey
Approxiate Yearly Records Management Costs
100%
NAREMCOim
Pierce Leahy Archlvetm
Employees.
80%
60%
40%
20%
0%
14800
18800
15500
20900
18700
17700
22000
19800
Employees costs only include salaries
VII - 31
Request No. 110 Attachment 2 NJMA 1997
Page 71 of96 Case File No. WA95080388
C. FININGS AN CONCLUSIONS
INSURCE AN CLAIMS
VII-Fl The consolidation of the risk manageen funtion and insurance coverages
subsequent to the merger with ('yeneraJ Waworks Corporation bas. reulted in
significant saygs to Unitd Water New Jersey, and it customers.. (Refer to
Recommendation Vl-R1.)
Expenditures for inurance related admistrative and external expenses are comprised of
risk management departent staff and admstrative expenses and, externally, inurance
brokerage fees. The primar external expeIle is the brokerage fee associated with placement of
insurance coverages. ,A comparison of UWNJ's internal admiiustrative and external services
expenses againt the total insrance premium paid was made for 1995. This ratio wàs calculated
to be approximately 0.25 or 25 percent, which is considered reasonable, when compared to other
utilties. An example of savings achieved by consolidation of the risk management function and
insurance coverages subsequent to the merger, is the use of a single inurance broker. As
compared to the corporate broker commssions which exceeded $250,000 in 1994, a broker fee of
$150,000 was negotiated for 1996. For UWNJ this resulted in commssions and fees being
reduced from $105,000 in 1994 to $60,000 in 1996.
VI-F2 UW (and UWJ) does not have an adequate stategic plan for risk management
and insurance coverage. (Refer to Recommendation Vl-R2.)
The various liabilty exposures and inurance demands frequently placed on UW and its
subsidiaries require a continuous review of existing methods and development of improvements
and alternatives. The Risk Departent recognies that these activities must be ongoing efforts to
strengthen the risk mangement and inurance programs and tae advantage of changes in
opportIUties and economies of scale. Whle the Risk Mangement group does have an
established guidance manual for risk management and inurance coverage, said document is 10
years old. Many of the business procedures contained therein are somewhat outdated and need to
be revised to reflect the current mode of operation (Le., specifically the way things are since the
merger has occurred).
Risk assessments and facilty inpections are conducted formally and regularly.' Plans exist
and drils are conducted in compliance with the Toxic Catastrophe Prevention Act (TCPA) and
Superfnd Amendment Recovery Act (SAR il). The Company also conducts its own
evaluations and critiques under the OSHA regulation entitled "Process Safety Management.
11
These laws and regulations are primarily intended to address the environmental and chemical risk
exposure to the public at large and to the employees. The risk assessments result in the
implementation of loss prevention programs. The Company's propert insurance carrier also
performs annual inpections of major facilties (at least semi-anually at the Haworth Plant) to
ensure that all principle facilties have adequate preventive maintenance programs in place. AU
major facilties are also inpected anually by employee safety commttees to identify problems
VII - 32
i
i
I
,.
I
Request No. 110 Attachment 2 NJMA 1997
Page 72 of 96
Case File No. WA95080388
and intitute changes to prevent employee injury. The safety committees perform field inspections
of work practices to ensure compliance with recommended safe operating procedures. Consultants
are also used for risk and safety assessments and traing.
The risk management guidance manual is inadequate in that it does not reflect the current
strategy for assessing the exposures of the merged company and how they are addressed. The
manual could serve as a compilation of assessments neeed and performed, and would aid in
further risk identification. Since the Company self-inures environmenta exposures, the first
$300,000 of workers' compensation losses and $250,000 of general liabilty losses, it is'importt
that additional vulnerabilty assessments be conducted to miniiz the loss exposure.
Vl-FJ The number of automobile, and workers' copensation claims agains UWJ need to
be intigated and reduced. (Refer to Reconuendation VI-R3.)
For the 1991 to 1995 period, UWNJ has done an adequate job overall of reducing the total
number of liabilty claims against it per year, as well as the total dollar value of all claim, as
detailed in Exhbit VII-I8. The number of claim dropped by 24.3% and the overall dollar
values of all claims were reduced by 77.0% from 1991 to 1995. However, while the dollar value
of automobile claims decreased by 51.4%, the number of claim increased by 3.7% during that
period. il the case of workers' compensation claims, the dollar values and number of claims both
decreased by 32.5% and 26.3%, respectively, from 1991 to 1995, but both of these figures
increased more than 34% from 1994 to 1995.
LEGAL
Vß-F4 UW&S Legal Deparent bas impiemented formal busines procedures based on
the last management audit performed for the former Hacknsack Water Company
in 1987, and is in the proce of implening a computerized trackng and
monitoring progr of outde consel expenses. (Refer to Recommendation Vn-R4.)
Monitoring outside counsel bills is currently done by one of the paralegals. A computer
trackig system wil be installed by Fall 1996; the full-time paralegal wil be the system
administrator and the admistrative support personnel wil provide the input. The new computer
system, which is expected to cost approximately $80,000 to intal, wil have an activity based
cost accounting system. The new system wil be capable of better work management, improved
report generation, and one of the direct outputs wil be a printout of lists of all projects each
attorney is working on at any specific point in time. These enhancements would support the
corporate mission regarding the Legal Departent and make it more effcient.
VII - 33
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Request No. 110 Attachment 2 NJMA 1997
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Case File No. WA95080388
VII-F5 The Legal Departent does not perform any trend analyses of cots of outside legal
service recved but does periodically conduct cost effectiveness eyaluations. (Refer
to Recommendation Vl-R4.)
The inormation necssary for these analyses is available but is not in any standardized
format; it must be manually extracted and manipulate to track the budget and actual expenditures
for individual projects. The cost effectiveness of use of outside counsel is presently evaluated
twice per year by inside counsel, though a manual and time-consuming process. .
The new computer trackig system wil allow the utiliztion of the American Bar
Association Litigation and Counseling'code sets to build a uniform data base which wil faciltate
cost effectiveness determinations by inide counseL. The system wil accept electronic data
transmission as it becomes available from outside firms, and permit cost trend analyses on an
automated basis.
VI-F6 UW has a copreensive policy for acquiring and managing ouide legal
reourc, and approving extrnal counsel charges. (No Recommendation.)
UW's staff attorneys periodically shop around for outside attorneys; they makes inquiries
but do not send out any RFs. Budgets for individual projects are based on the scope of work
anticipated. Negotiations are conducted with outside firms to use junior level attorneys where
practical to keep the costs reasonable. Contracts are drawn up to perform the outside work andany subsequent changes in the scope of work or the substitution of external staff must be approved
by the in-house attorney assigned to the matter. A retention and biling policy letter is then
drafted and submitted to the Vice President and General Counsel for final approval before outside
counsel is retained. Each month the'in-höuse attorneys receive biling invoices from outside firms
and they must sign off on them before they go to the Vice President and General Counsel for
approval for payment.
FACILITIE MAAGEMENT
Vll-Fï Rip-Rap ares of surface war supplie are not being adequat maintained.
(Refer to Recommendation Vn-R5.)
The Watershed group is restricted from using herbicides and other plant growth retardants
on rip-rap areas around UWNJ reservoirs, because of the potential of contaminants entering the
sources of supply. The prohibitions are imposed by UWNJ's Environmental Resources group and
UWM&S l Environmental Resources Departent. The consequence is that there are several small
and medium-sized trees growing in the rip-rap which has the potential to cause serious damage to
the embankent if toppled by winds, due to roots loosenig the soil and the rip-rap becoming
unstable. Burrowing verm can also get into the embankent once the soil is loosened. Trees
are also an invitation (or challenge) for children to attempt to climb on the embankent,
potentially resulting in unecessary inurance claims.
VII - 35
Request No. 110 Attachment 2 NJMA 1997
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VII-F8 The routine funtions of tbe Watshed and Facilities Maintenance group
have not been aumated. (Refer to Recommendation Vl-R6.)
Currently, there is no personal computer located within the offce work. area of the
Watershed and Facilties Maintenace group. The Foreman of the group plans to retire in 1997
and is not interested in automating any portion of his maagement activities, such as work order
tracking, productivity trackig, or work categoriztion. Examples of where automation of ths
area would prove beneficial are: prioritizing work orders (currently, prioritiztion is based solely
on the degree to which the work directly affects the operations of the treatment plant.),
categorizing work orders by cost or by estiated number of work hous, and categorizing work
orders by whether the efforts are "new work" such as renovations or additions, II repeat work"
where something has been fixed previously, or "repair work
ii such as fixing somethng that has
broken for the first time. All of these activities should be tracked for establishing benchmarks and
monitoring productivity to determe where ineffciencies can be elimated. All completed work
performed by ths group is taen off the work order forms and inputted into the automated
preventive maintenance system by the outside contractor, HSB Technologies.
VII-F9 Buildings Owned by UWJ are not being adequately inspectd for potential
'engineering-related probemS. (Refer to Recommendation VD-R7.)
Inspections of company-owned buildings for potential electrical, mechancal and strctural
problems are not conducted by UWNJ on a regular cyclic basis. If such inspections were
conducted, maintenance-related work could be better scheduled using the existing HSB developed
PM softare.
PURCHASING AN MATERI MAAGEMENT
VII-FlO The stoerooms and outide stockpiles at Hackeack Yard are adequaty coroled
with repect to maintaining transacton accuracY, but the strerooms at the Hawh
Plant do not receive the same leyel of scrutiny. (Refer to Recommendation VlI-R8.)
UWNJ performs a monthy physical inventory on its primary storerooms (tools, general
offce supplies and equipment, and disposable commodities such as gloves, etc.) and the outside
stock at Hackensack Yard. The Yard Leader monitors the inventory on-line on a daily basis.
Each of these areas is monitored using the computerized perpetul inventory system. Four reports
are generated monthly and reviewed by the Manager of Purchasing and Stores: Inventory Level
Status Report, Open Order Request Status Report. Physical Inventory Count Worksheet. and
Physical Inventory Spot-Check Report. Based on a review of physical inventory adjustments,
UWNJ s inventory accuracy at Hackensack Yard is greater thn 99.5 percent when calculated by
net dollar adjustment, and between 92-97 percent (depending on storeroom location and inventory
period) when calculated by the absolute physical count abovelbelow system quantity method.
Annual net dollar adjustments for the past two years were less than $4,000 per year.
I. l VII- 36
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Page 76 of 96Case File No. WA95080388
There are one "storeroom" and two locked storage cages at th Haworth Treatment Plant.
The storeroom contain tools, some electrical components, valves and fittings. and other items.
One of the welded steel cages (both are located in the fonner chlorine room in the older part of
the plant). conta specialized maintenance equipment, hazardous spil equipment.. and other
inequently used items. The other steel cage contain paints. There are also four craft shops
(carpentry shop. machine shop. electrical shop. and welding shop) that contain specifc craft
related supplies such as wood. electrical components. mechanical components. an welding
materials. The storeroom is maned by a storekeeper who oversees the inventory and the paint
cage. but the inventory is not computerized. The Foreman of Mechanical Maintenance & System
Controls and Plant Maintenance monitors the storeroom activities and inventories. and reviews
and approves all purchase orders for åny replenislnent of stock. including the craft shops. All
tranactions at Haworth are performed manually with little or no review by the Purchasing
Departent. Inventory is not reconciled on a monthy basis. as done at Hackensack Yard. There
is no person assigned to monitor th inventories in the steel cage or the craft shops.
VII-Fll UWJ's current procureen prcess is mostly manual, and provides a reduced
level of conrol oyer th overall procurent proces, (Refer to Recommenclation VI-
R9.)
Purchase orders must now be manually entered. processed. tracked and received. except
for inventoried items which are tracked electronically from requisition to order entr. to
receiving. The electronic tracking is interfaced with the work order magement system. In order
to provide appropriate control. manual systems require significantly more effort than automated
purchasing systems, and usually extend 'the time needed to convert requisitions into purchase
orders. Now. with the exception of reduced bidding requirements. lower value purchase orders
require the sam handling throughout the procurement cycle as higher value purchase orders.
VII-F12 Although UW's natioal contac proces resUlts in reasonable prices for contract
items, additional savings in total procuremen costs and procurement effor are
possible. (Refer to Recommendation VI-RIO.)
Under UWR.s national contract procurement strategy, UWNJ and other subsidiaries. in
conjunction with UW&S engineering personnel. develop anual estimated procurement
quantities for several major item classes, as discussed in the Background section of this chapter.
Once estimated annual quantities are established for each subsidiar. identical bid packages are
sent out to those vendors who are qualified to supply the major item classes. Typically four or
five vendors are solicited. Vendors provide firm bid prices for each item, good for one year.
UWM&S then evaluates the entire portfolio price for each bid and generally selects the two or
three vendors with the lowest evaluated price. Little or no additional negotiation is performed.
National contracts also require executive review and approval.
As materials delivery is required under a national contract. purchase orders are issued and
processed. Purchase orders are sometimes faxed to accelerate processing. Since pricing is set per
the contract. only quantities of specific items and delivery timetables need to be addressed. These
purchase order invoices are tyically approved at the supervisory and manager levels. and
occasionally by the division director.
VII - 37
Request No. 110 Attachment 2 NJMA 1997
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Non-national contract item procurement does not involve lengthy bid specifcations, or an
extensive bid submission, review and approval process. For these non-recurrent purchases, bids
are requested of several vendors by telephone or fax, and a purchase order issued upon Purchasing
Departent evaluation of the bids or quotes submitted. This bid, review and award proess
typically takes a few days compared to the several week process involved for national contracts.
With the advent of more highly automated systems, many companies are turnng to more
sophisticated blanket contracts andQther,¡arrangements with their vendors which eliminate the need
to develop separate purchase orders for items that have been priced and quantities estiated.
These arrangements may also include "monthy invoicing or other payment terms which faciltate
the accounts payable process.
Vl-F13 In addition to national contract vendors. UW&S maintains fies of qualified
vendors. but does not updat quottions unil requesd. (Refer to Recommendation
VI-R10.)
The purchasing system is partally computerizd and vendor records are kept for a couple
of years to faciltate the purchasing process. Bid inormation is only updated when a new request
for commodities and services is presented to the purchasing manager.
Vl-F14 The Purcasing Deparnt does not ta full advantage of consolidatio of vendor
pants and prompt payment oppornities. (Refer to Recommendation VII-R1L.)
Some of the methods available for maxing the earng capacity of cash used in
operations include: requesting and tag prompt payment discounts; using a mechanism known
as Zero Balance Accounting (ZBA), which maintain zero or low balance unti a check is
presented againt the account, at ¡ which time money is tranferred to the account from an
investment accunt; and aggregating invoices from the same vendor and paying the vendor on a
regular basis.
UWJ utilizs a mechansm known as Controlled Disbursements for the account payable
disbursement account. This mechanism is simlar to a ZBA in that it maintains a zero daily
balance. However, it is more advantageous than a ZBA in tht a zero balance is achieved by
10:30 am each day, whereas in a ZBA account, checks can clear all day long and the zero balance
is not achieved unti the close of the ban day.
Vendor payments are sometimes consolidated. Payment processing is currently being
improved. The time during which cash is non-productive can be further mined if better
advantage is taen of prompt payment opportnities.
VII - 38
Request No. 110 Attachment 2 NJMA 1997Page 78 of 96 .
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TRSPORTATION MAAGEMENT
VI-FIS Oyerall, the Transporation Departent provides signifcat benefits to UWJ at a
good yalue. (No Recommendation.)
The vehicle-to-employee ratio for UWJ in 1995 (not including special equipment) was
179 vehicles per 275 employees, or 65.1 percent, which is within an acceptable range (55% - 80%
is the acceptable industr standard) for a company the siz of UWNJ. Too high a ratio suggests
under-usage and too Iowa ratio indicates ineffciencies due to too much sharing.
The Tranporttion Departerit provides UWNJ employees (and others) with safe and
dependable vehicles and equipment for them to perform their duties without significant downtime.
They provide a well-managed preventive maintenance program, emergency road sèrvice and
repairs, refueling, NJ state inspections, chauffeur and messenger service, ordering new vehicles
from the leasing company, aranging for return of the vehicles at the end of the lease, and
coordinting with the leaing company for warranty work, loaner vehicles, and replacement
vehicles. Maintenace and repair records are accurately maintained and can be relied on for
plang.
VII-F16 The Fleet Manager and Senior Cler shoud be on the payroll of UW&S instead of
UWJ, since they spend a large poron of their time coordinating the
transporation needs of oter UW subsidiaries. (Refer to Recommendation VI-R12.) .: ./
In September 1995, the Vice President of Operations of UW&S issued a memo to both
of the Regional Vice Presidents informg 'them of new corporate policies regarding ordenng and
leasing of vehicles. The memo inferred tht the Fleet Manager would become the Transportation
Coordinator for UW and all of its subsidiaries, while continuing to oversee the UWNJ
Transporttion Departent, with direct responsibilties for purchasing and leasing vehicles for all
UW subsidiaries. Furter, transfers between subsidiaries may occur if needed vehicles become
available from other locations. The Fleet Manager is directly supported in this effort by his
Senior Clerk. Because these people provide an economical and value-added service to UWR and
UW&S, they should be employed directly by UW&S and allocate their time to whichever
subsidiary they are workig for on any given day.
VI-F17 The oveall co of the Transportation Deparnt will increase in 1997 due to
some pending federal and state legislaton. (Refer to Reconuendation VII-RI3.)
Three pieces of legislation, currently under consideration, wil impact on the operations of
the Tranporttion Departent. First, the Federal governent is considering amendments to the
Clean Air Act that may require UW and itS subsidiaries to use alternate fueled vehicles to reduce
air pollution. An alternate fuel facilty might have to be constrcted and there would be a per
vehicle cost to convert each vehicle to operate on the alternate fueL. Second, aneManced
maintenance bil has been proposed at the state and federal level to prohibit maintenance/repair
VII - 39
Request No. 110 Attchment 2 NJMA 1997
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facilties to perfonn bo state inpections and make repairs necessary to comply with the
inspections. If passed, UWJ might have to have an outside service station perform all the
necessary inpectíon work. Finally, the State of New Jersey is considering an employee trip
reduction plan, which would require UWNJ to implement ride sharing program, aplit working
hours, and add annual miles to the fleet if union employees are permtted to take their vehicles
home.
VII-FI8 The incrase in reponsiblitie and th type and numer of taks performed in the
Tranporation Department. necsitate a re-evaluation of the staffng requiremen
(in both number and sklls of peronel). (Refer to Recommendation VI-R14.)
The Tranporttion Departent has or wil undergo many changes by the end of 1996.
Since i 988, UWNJ has added 65 vehicles to its own fleet, while staffng has remained the same
for the last five years. Diesel vehicles are being added to the fleet, requiring the mechanics to
receive additional trainig, in order to be able to service such vehicles. Additional maintenance
responsibilties have been added with respect to vehicles of UWM&S, UW, UWNY, UWJC,
UW New Rochelle, UW Toms River, an Mid-Atlantic Utilties. Finally, the Fleet Manager has
taen on the additional adminstrative duties of fleet management of all UW subsidiaries, while
preparing the Departent for movement into a new larger facilty. The combination of all of
these factors wil make it nearly impossible for the Transporttion Deparent to adhere to
preventive maintenance schedules and implement new admistrative programs, such as intallng
the fleet maintenance softare program at each of UW's subsidiaries.
VII-FI9 There are no safety stickers on UW vehicles to warn motorists not to follow too
do.(Refer to Recommendation Vl-R15.)
It is common practice. in the water industr and in other utilty industries to alert motorists
that utilty vehicles frequently stop; in order to reduce potential rear end collsions. UWNJ should
consider applying brightly-coioredsafe~ stickers to the rear of its vehicles.
I
I
REAL ESTATE AN LAN MAAGEMENT
VII-F20 Ther is no systm for tracking the work load by type of task performed. (Refer to
Recommendation VI-R16.)
The Real Estate Group keeps a tie trackig system in accordnce with UWNJ i S present
accounting system. For benchmarkig purposes and for accurately detenninig how much time it
taes to ,perfonn the various tasks. The current method of tracking tie and costs is inadequate.
A computerized system should be implemented to track the work load performed by the Real
Estate group. Perhaps the same system being intaled in the rest of the Legal Departent could
be expanded or modified to meet the trackig needs of the real estate group.
VII - 40
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VIIwF21 UWJ has an established land and building manageent plan to identify long-term
facilty needs in New Jersey. (No Recommendation.)
An evaluation of organation, staff levels, etc. has been conducted by UWNJ and
UW&S in the past two years, since the merger with General Waterworks. Ths evaluation has
resulted in identification of both corporate and local needs, and offce and commercial space
needed to meet those needs. Current owned and leased spaces appear to be adequately utilzed.
New facilties are proposed for the Transporttion Deparent and meter shop in the near funire.
Market surveys are being conducted to obtain the best possible price for leasing new Space.
COMPUTR SYSTEMS AN SERVICES
VIlwF22 The IFS impiementation is progresing toards installaton during 1997. (No
Recommendation.)
The purose of a 1995 financial softare selection project was to identify financial
software with a full suite of applications that best support United Water's re-engineering financial
processes when implemented in "near-vanila" form. This project èvolvêd; 'from 'the IFMS
Business Case Project (when developing United Water's IT Strategic Plan) and the processfollowed is graphically ilustrated in Exhbit VI-19. '
Exhbit VI-19
United Water New Jersey
Financial Software Selecton Proces
rJ: I
I i
Ir+i íI I
IJI Ii I~. .I l
,
I
ConvelSlon
Planing
I
; Managemeni
I Review&.
! . Approval
Orgniz
Project
Evalute&
Select
Vendor(s)
Deieimíne
Seleçtlon
Criiena
Updic
Cosllenelit
Analysis
Confin&
Deign
Startng intially with 31 contenders for possible consideration as vendors, United Water
narrowed ths Jist to five vendors by evaluating their associated packages againt the following
knock-out criteria.
· Full suite of applications
· Flexibilty
· Intaled base
· Ad~hoc reporting and query capabilty
· Consolidation capabilty
· Prior period adjustments
VII - 41
Request No. 110 Attachment 2 NJMA 1997
Page 81 o~ 96 Case File No. W A95080388
. Utilty~based fixed assets module
. Forecasting capabilty
. Easy access to archives
. User-friendly interface
. Multi-states/locations
. Integration with desktop
The list of filists was eventually restricted to a short list of thee vendors (DBS, Lawson,
and PeopleSoft) who were then evaluated usin the following finl decision criteria:
. Business fit or functionality.
. Cost
. Vendor stabilty and support
. Techncal viabilty
. Ongoing maintenace, IT support needs
Written responses regarding softare functions and features, telephone references,
demonstrations, and site visits were factors in confrming PeopleSoft as the preferred package.
This package, which allows activity-based management by including cost drivers in its accounting
code capabilty, is an Oracle-based client/server package to be operate on a HP 400 in a UNIX
environment. The cost for PeopleS oft modules was approximately $636,000 in one-tie charges
(inclusive of some base traing), and 17 % annually (for years following the year after
implementation) in ongoing license fees for maintenace upgrades and support. These license fees
entitle United Water to at least one upgrade anually, partcipation in PeopleSoftsuser group via
the Internet, dowiùoaded fixes, etc.
The IFMS Project Team has also engaged an outside consulting firm for its knowledge of
PeopleSoft modules and projec,t management expertise. Activities accomplished jointly by the
IFMS Project Team and the consuitiii fin include a re-engineering design phase, a conference
room pilot, and training. Following implementation, United Water wil rely on PeopleSoft for all
IFMS support.
VII-F23 Alough the prQject for repacing United Water's CIS began in early 1995, a final
yendor selection was delayed until mid-1996. (Refer to Recommendation Vll-R17).
A project began in late Februar, 1995 and completed in June, 1995 to define cis
requirements, resulting in 367 items. These items were identified from Customer Service
workshops (St. Louis, Delaware, and Idaho) and parcipation from WET Team members, CAD
specialists, and Rates! Accounting departents. In mid-1995, a request for proposal (RP) was
sent to seven vendors, of which five responded (Andersen Consulting, EDS, OrCom, Lyonnaise,
and UBS).
The bidders' responses were evaluated, first by rankng functionality (based on 367
requirements), then by ranng non-functional elements as size, number of employees, level of
employee support, revenues of finn, etc. A short list of thee (Andersen Consulting, EDS, and
OrCom) was developed. Two-day demonstrations were held, with many United Water employees
:i'
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with people other than just project team members participating. Although invited to attend, no
iTSC members came. Subsequently, a vendor selection report was developed in which Anersen
Consulting was recommended to th ITSC based solely on functionality and non-functional
elements (as prices had not been evaluated by the CiS Project Tea at this juncture in the
evaluation), although they also stated that EDS was acceptable. The Project Director for cis,
along with the Director of Budgets and Financial Analysis, then performed a costs and benefits
analysis for presentation to ITSC members in which, based on this further analysis,.. EOS was
recommended. Since then, EOS presented another bid for Customer *Star II, a clìent/server
version of their software, and the functionality analysis was re-visited by the cis Project Team.
Although the evaluations of both versions were relatively even, the client/server version was
preferred as it is more in line with ünited Water's IT strategic direction.
The vendor selection decision was substatially behind the targets initially developed as
part of the CiS Requirements Definition stage. Meanwhile United Water is implementing a billing
system using Customer *Star n for Jersey City, as neither of the existing systems allow for the
functionality required by Jersey City. Use of Customer *Star n also allows United Water to
become famiar with the package, in case it is selected by the ITSC.
The implementation of a new customer information syste at UWNJ is expected to take
between 18 and 24 month, depending on the vendor selected. When vendor selection steps are
completed, a larger project team wil be established. The total team count is expected to reach at
least ten (Director of Customer Inormation, a Project Manager, and eight project team members),
possibly up to 16, if needed, by adding other temporary contributors to the team. The Director of
Customer Information wil be responsible for internally communicating with United Water
management and employees, while the Project Manger wil be responsible for day-to-day
interactions with the selected vendor.
Original vendor responses all included a "big bang" conversion for all United Water
companies; however, the revised EDS response is based on a phased-in approach by' company
over a 20 month period. The UW. companies would begin (with the basic package as
Customer *Sta n already exceds the; 'functionality of their existing system), with UWNJ
converted roughy 17 month after implementation sta. Any enhancements developed for
UWNJ's use would be rolled back later to UW companes.
The vendor prices ranged from $2 millon to $11 milion in one-time charges, with
Customer *Star II at roughly $6.5 millon. With both Andersen Consulting and EDS solutions,
processing at a the vendor site is proposed, although EOS would provide United Water with a
software license and Andersen Consulting would not.
Since audit field work has been conducted, a vendor has been selected and a final
negotiated contract is pending. An implementation plan has been developed with effort to begin
pending contract signig.
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VI.F24 Outside vendor are exsive employd for prision of information technology
service to VWJ and oter Unitd wa copanies. (Refer to Recommendation
Vll-R18.)
The UW&S computer data center in the Harrington Park data center was closed in early
1996. All UIUted Water finncial management procssing is outsourced to EDS .in St. Louis
(Missouri), and the UW Automated Customer Biling System (ACBS), previonsly run by UMS
in Philadelphia, is now also processed by Ens in St. Louis. All UWNJ I ÙWNY customer
processing is handled by UBS in Elizbeth, New Jersey.
Additionally, thee technology' parters (Andersen Consulting, BOS, and EMA) provide
consulting and technology support services to United Water. Since late 1994, when the IT
Strategic Plan was developed, thee major projects (WAN, IFMS, and CIS) have been initiated,
all expected to involve outside services. Specifically to date:
. -PeopleSoft Financials package was purchased and is expected to provide support once
IFS is intalled, with Andersen Consulting helping with the IFS implementation.
. Andersen Consulting was also engaged to perform the design of the technology
inrastructure, with EnS consultig during the design process, followed by sign-off of
the design and implementation of the WAN at 31 sites thoughout the United Water
organtion.
The United Water organition paid approxitely $636,00 for the PeopleS oft Financials
package (lFMS) comprised of the General Ledger, Accounts Payable, Asset Management,
Purchasing, Project Costing, and In~entory modules, as well as workstation/server support
software. To assist the company thougn.implementation of IFS, Andersen Consulting has been
engaged to assist United Water on over' 10 consultig assignments, including:
. Financial Syst Packae. Selecion - The consultants provided assistanCe during the
review and investigation of fincial software packages resulting in the. selection of
PeopleSoft as the desired vendor for the IFS implementation. Also developed were
detailed work plan for implementation.
. Financial Be-engineering Design - This project's goal was to develop business
processes that supported improved business performnce and allowed for future United
Water growt. Special attntion was given to identifying "quick wins" or those
business process changes that could be made short term. It was thought that these
"quick win;' would provide relief for Accountig and Finance employees until the new
system was fully implemented. Additionally the "quick wins" were expected to free up
time to, all these employees to participate at the needed levels of future IFMS
intiatives. (Refer to Chapter 4 Finances for additional discussion).
. Code mock/Bechmaks - The consltats provided assistance to Uiuted Water in
defining a standard char of accounts. The Project Team determed what kind of
inormation was required by management for monitoring performce of activities and
the new accounting codeblock was designed to integrate financial and operational
inormation to support company-wide benchmarking.
"
VII - 44
Request No. 110 Attchment 2 NJMA 1997Page 84 of 96 .
Case File No. W A95080388
· Pilot Qptions & Buiness Cas -The consultants assessed the costs and options
associated with setting up the tehncal environment in which to conduct the
Conference Room and Distributed Architecture pilots.
· Pilot Set-up and Su¡ion -The consultats physically set-up the tehncal environment
and provided techncal support for the two pilots.
· Financial Pilot - The consultants provided support for ths project to understand and
document the impact of the new systems and the re-engineered processes. User
representatives assisted. the IFS Project Team by piloting the new system and
identifying gaps betweeii'system functionality and the newly re-engineered processes.
Two key deliverables from this project were to be documentation of detailed
implementation work plans' and project scope. This step was also designed to build
Project Team skills in the understanding and use of PeopleSoft's Financials package, to
serve as the initial introduction to new technologies and productivity tools, and to
afford a hands-on feel for streamined processes.
· Finncial He-engineering Im.Qlementation - Ths project is expected. to take
approximately two and a half years, and involves coordination of the imlementation of
re-engineered processes and IFMS in which consultats are to understad. issues of
scheduling and intalation and then to coordinate these with user representatives
implementing the re-enginered processes.
· BueÛng luqlementation -The consultant wil provide assistance during
implementation.
· General Ledger Im..QlementaÛOl - The consltants wil provide assistance during
implementation.
· General Leer Environment Sup..QOn - To support the General Ledger Implementation
Project, the development environment wil be provided by Andersen Consulting's
Center for PeopleSoft Solutions (CPSS) in Minneapolis, involving all server-related
work (UIX, Oracle, and technology support; application of program fixes; and
upgrade management).
~ ;
The consulting fees though 1997 for these specific IFS-related projects are expected to
total approximtely $2.5 milion. During pilot and implementation (from September, 1995
forward), United Water is spending roughly $12,500 monthy (nearly $375,000 in total) (possibly
up to $17,500 monthly for increased tranactions volumes) in processor and communications
charges. In conjunction with IFMS, an enterprise wide area network was designed and then
implemented in which Andersen Consulting perfonned the design and EDS the implementation for
nearly $400,000 each. EDS is also expected to provide ongoing support following
implementation.
The approximate tota payments (though 1997 for projects already begun) to PeopleSoft,
Andersen Consulting, and EDS are expected to total $4.3 milion. Other IFMS consulting
projects may follow as modules other th General Ledger and Budgeting are implemented.
VII - 45
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Vll-F25 Adequate step are no being tan to identify user satisfaction wih the IT
organization or the use of technology bi UW empioyees, or to obtain performance
measures for miourced operations. (Refer to Recommendation Vß-R19.)
The IT organition does not use formal customer satisfaction surveys to elicit anonymous
feedback regarding user satisfaction with either the IT organition or use of technology. The
United Water organtion is undergoing significant change and IT management has been waiting
to conduct user surveys until the backlash associated with the severe changes in. technology,
policies, processes, and the data center outsourcing could be differentiated from the actual services
provided. Such feedback would be helpful, however, as input into IT planng that is scheduled
for late 1996. At ths time United Water must rely on inormal comments from users.
Neither does IT management have benefit of regularly monitoring performance statistics
from its vendors (EDS and UBS) who provide data center or network services to United Water.
EDS is providing both data center and network services to United Water; UBS provides data I
center biling services. Prior to March 1996 (when in-house data processing operations were
outsourced to EDS), UW&S kept (1) system operating data for average CPU utiizàtion, pagin
rate, and downtime (2) application downtime I rutie and system workload data ard (3) log of I
processing incidents. EDS is currently developing benchmrk statistics as required by the
agreements for provision of outsourced services. There are commtted service level agreements in
both contracts with allowed time frames (not yet arrived) for development of tle reporting I
mechansm. UBS does not regularly provide IT magement with any biling service statistics,
nor has the IT organiation requested them. Regularly-provided performance reporting - and
close monitoring by United Water": is needed in aU situations where outsourcing occurs. i
VII-F26 The tw-year cyle for Updating the IT Stategic Plan is rapidly approaching. (Refer I.
to Recommendation VI-R20.)
The original IT Strategic Plan was produced in late 1994, over Ph years ago. At that
time, United Water management stated that the plan was to be reviewed at a miUm of every I
two years, a time frame that is rapidly approachi and needs addressing.
VII-F27 As netWOrk usage expands, a 5x8 help des may not lJe suficient to mee United I
Wat's needs. (Refer to Recommendation VI-R21.)
Many companies fmd that as network usage expands, IT users want, and often demand, I
expanded help desk hours beyond the traditional five days a week I eight hours a day coverage.
As employees are expected do more with less, overte occurs, thereby increasing hours of
workstation usage. At the same time, usage of workstation software is becoming an increasingly
large part of how employees perform their duties and responsibilties, which also increases the
extent to which workstations are used. Although the help desk was originally designed to be
available from 8 a.m. to 5 p.m. (local time), which for United Water companies is a 12-hour
window of opportnity due to the difference in time zones, United Water may be required to
expand help desk coverage, especialy week-ends, more quickly than they suspect.
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RECORDS MANAGEMENT
VII-F28 Technology is not being effectivey applied by lJJ to capture. records infoonation
and data. (Refer to Recommendation Vl-R22.)
The procedures for receiving records, fiing records on site, shipping records to Pierce
Leahy Archives for off-site permnent storage, and retaining/destroying records are stored in
word processing fies. An inventory of records kept (by departents) is also maintained in word
processing fies. The actual inormtion and data in records managed by the UWM&S Record
Center, however, is kept primarily in hard-eopy form. Traditionally, DUcrofiling is used only
by Utilty Biling Services (on behalf, of UWJ) to provide Customer Service employees with
microfiche of account data. Microfilmg is an older technology being replaced by computer
imaging at many organiations. Although a $20,000 pilot program for document handling
technology has been budgeted for 1996, efforts to analyze the impact that using such technology
wil have on United Water are not yet underway. .
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D. RECOMMNDATIONS
INSURCE AN CLAIS
Vß-Rl Continue to use a single insurance broke and negotiate brok commissions. (Referto Findig VII-FL.) ,
UW&S should contiue to pursue opportties to fuher reduce premiums while
strengtheni the risk management and inurance coverages to meet changing needs. There
should be no additional costs to UWNj to implement ths recommendation.
Vß-R2 Updat the 1986 Risk Management and Insurance Guidance Manual to reflec th
current business procedures. (Refer to Finding Vl-F2.)
UWM&S should update the corporate risk management program in tandem with UWNJ's
Environmental Resources Departent and conduct risk assessment technques as often as
necessary to address the environmental risks facing UWNJ. Because UWNJ is the largest
operating subsidiary of UW, the corporate risk management prograi should meet most of
UWNJ's needs and consider the risks listed in the next paragraph, as a guideline in strengtening
the existing risk management program. This list should be reduced or expanded to meet the actual
operational needs of UWNJ. The updatig of the risk magement program should be completed
over a five year period because it wil tae tim to perform the necessary assessments, once the
specific environmental risks are identified.
Examples of risks that a tyical water utilty wil face in the 1990s include: . air quality,
asbestos in older buildings, business and industr sources of pollution, contamiated soils,
chemical hazards, chemical releases/spils, climatic conditions (hurricanes, severe thuiider storms,
etc.). drining water quality. ecosystem/bitat. quality. rare fish and wildlife, flood hazad areas,
fire protection, forestry management, frequency of very large-sized main breaks (detailed main
break analyses should be conducte for this category), groundwatei: quality, hazardous waste sites,
land use/topography (plang and zonig issues), lead paint hazards, lead and copper rule in
drinkg water, leachate from landfills .and old cemeteries, nonpoint source pollution, on-site
pretreatment facilties, pesticides (including fungicides and herbicides), radon, recreation areas on
watershed properties, specific regulatory agencies requirements (i.e., DEP, Health Department,
etc.), solid waste, stormwater and surface water runoff, underground storage tanks,
wellhead/watershed protection, and wetlands.
Costs for UWNJ to implement this recommendation are at least $75,000. The Company
wil benefit from this effort by strengtening its risk management program significantly.
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VII-R3 . Analyze trends and inveigate automobile and wors' coiPeDsationclaims in
detl in an effort to reduce such claims. (Refer to Finding VI-F3.)
A risk management inormation system was recently intalled in the Risk Management
Departent to be used in investigating general liabilty and automobile liabilty claims and losses.
In addition, UWR has commenced use of Occupational Health Mangers & Resources programs to
assist in implementing a managed care approach to the more complicated workers i compensation
cases. These tools are a sta to help analyze th trnds and possibly the causes of workers'
injuries and vehicle accidents, but they are not the total solution.
Among other things, the Transporttion and Risk Management Departents track statistics
on vehicle accidents. In 1995, a total of 61 accidents ocurred of which 27 were judged
preventable by the Risk Manager. An investigation of the 1995 accidents and those in prior years
identified repeat offenders. The Transporttion, Human Resources and Risk Management
Departents worked together to implement, on June 1, 1995, a Vehicle Accidents Damage policy
which specifically provides for disciplinary actions. UWNJ maagement and Risk Mangement
should continue to identify exposures and implement appropriate programs to reduce losses.
There should be no additional costs to UWNJ to implement ths recommendation.
LEGAL
Vß-R4 The Upl Deparmen should cotinue wih its plans to install a computized
aciviy based accouting syst to improe work manageent. (Refer to FindingsVI-4 and Vl-5.) ,
The new computer system wil be able to track each in-house attorney's assignments as
well as perform trend analyses on outside legal services received. Cost comparisons of use of
outside counsel versus inside counel wil be available, greatly faciltating cost effectiveness
evaluations. It wil cost UWNJ approximtely $80,000 to intall the computerizd activity based
accounting system in the Legal Departent. However the new system wil improve work
management in the departent.
FACILITIES MAAGEMENT
l,
I \ VII-RS Review th existing policy to reov or eliminate vegeation growth from rip-rap
areas arond surfac water sources of supply. (Refer to Finding Vll-F7.)
In the design of sudace water supplies, rip-rap is required on the upstream face of the
embanent to prevent erosion and washout by wave action due to high winds. Sod or very fine
rip-rap is required on the downstream face to prevent washouts due to heavy precipitation. The
rip-rap must be maintained to protect the integrity of the impoundment.
Under the current policy, the spraying of herbicides on rip-rap is prohibited. Instead the
vegetation is permtted to grow until it is large enough to theaten the stabilty of the rip-rap,
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should it be toppled by high winds. At that point in time, the Watershed group is permitted to cut
down the trees and brush tht have grown and use spot applications of toxic substances to dissolve
the roots, once the trees and brush have been cleared. Representatives of the Environmental
Resources Departent and the Watershed Maintenan group, jointly inspect the areas of concern,
twice per year.
The establistied policy does not apply to earten dams or levees, because of more stringent
requirements of dam safety, so spraying of approved herbicides is permtted. In addition,
approved herbicides are used along fences in watershed areas. All of these policies should be
consistent, with goals to preserve the integrity of the strctures, to minie or eliminate
environmental risks, and to elimate unnecessar labor an maintenance costs. UWNJ should not
allow vegetation to grow among the rip-rap. Costs to implement this recmmendation should be
miaL.
Vll-R6 Install a personal compute in the office area of the Wateshed and Failties
Maintenance Group. (Refer to Finding Vl-F8.)
Implement a work management system capable of creating, categorizing, and prioritizing
work orders to better mange the scheduling of work and trackig of work completed. (Work
force management is discussed in more detail in Chapter III of ths report.) Since the Foreman of
ths group is nearing retirement, his successor (who has already been selected) should be provided
trainng on the computer and softare, once it has ben intalled. From now until the Foreman
retires, the future foreman could learn the admistrative portion of the position, with the
computer as an aid, whie simultaneously learng the on-the-job routine. He is currently working
beside the existing foreman to gain general knowledge of his new position requirements. Costs to
implement ths recommendation are less than $5,00.
VII-R7 Schle, coplete and prpar a "needs" repor fro a walk-though of evy
bulding Owned by UWJ by the Plant Maintance Manager and. an ouide
conacto to ascertain th electrica, mecanical, and stuctural coditions. (Refer
to Fining Vl-F9.)
Once every four years, UWNJ should have a qualified contractor, whose specialty is
electrical and mechanical systems and structures, accompany the Plant Maintenance Manager and
perform a walk-through of each building owned by UWNJ to identify any engineering-related
problems which might have developed, or are beginng to. The contractor brings a different
perspective to the review of the facilties; he or she is looking beyond the normal wear-and-tear-
tye problems to those which may be cause for long-range planng. This individual can generate
a report of any problems noted, potential alterntive solutions, and cost estimtes for each
alternative.
The first inpection would be very detailed, and would provide cost estimates and
recommended solutions for any electrical, mechanical, and structural problem items identifed.
This first phase would provide UWNJ with a major source of maintenance requirements data and
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give management a tool to use when planng routine and capital-maintenance budgets for the
future. Subsequent inpections in later years would provide a follow-up condition assessment, an
evaluation of repairs or service-life extension program, and revisions to the cost estimates for
continued budgeting and planng.
A similar inspection should be conducted by the Mechanical Maintenance Foreman, the
Plant Supei:isor, and the Plant Maintenance Manager which focuses on mechanical components
with the Hawort plant. This, repnrt of maintenance requirements should be focused on
identifying new "needed" repairs, checkig the status of repair requirements previously identified,
inpecting a sample of completed repairs, and obtaining suggestions and feedback from on-site
personnel. Ths walk-though could 'coincide, with the quarterly inspections performed by the
UWNJ safety coordinator and UW&S safety offcer and wil assist the Foremen and Manager to
verify that a representative sample of PM items have ben completed as reported and to discuss
l,pcoming activities which may impact maintenace needs. Requests for modifications,
alterations, and renovations by UWNJ internl customers should be limited to once a year, prior
to development of the budget.
The estiated costs to implement ths recommendation are $50,000 once every four years
for the detailed inpections and $10,000 per year for the routie inpections by the plant people.
PURCHASING AN MATERI MAAGEMENT
VII-R8 Instal a personal copu and the coputeized perpetual invnty sysem at the
.Hawort Traten Plant to properly track and accou for the inventory in the
storerom, the pain cage, and the craft shap. (Refer to Finding VII-FlO.)
Currently, the storeroom at the Hawort Plant is a manual operation. A personal computer
should be intalled in the storeroom atea with the computerizd perpetual-inventory software."
intaled. The storekeeper, and other system operations employees trained to substitute in his
absence, should be subjected to the same scrutiny and rules as the storekeepers at Hackensack
Yard. While all the inventory at Haworth is purchased in the same fashion, and under the same
rules, as the inventory at Hackensack Yard, it is not accounted for or reconciled with nearly the
same accuracy as tht at Hackensack Yard. The Foreman, who oversee the Hawort storeroom
operations, should be responsible for reconcilng the Plant inventory, on a monthy basis, and
submitting a report to the Manager of Puhasing. Costs to implement ths recommendation areless than $5,000. .
VI-R9 Implement an automated requisitioning and purhasing sytem. (Refer to Finding
VII-FIt.)
Although UW is now in the process of implementing a corporate-wide fiancial
management system as part of their Infonnation Technology plan, it should consider a number of
options to further enhance the procurement process, and accelerate implementation of an
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improved, automated function. As part of re-engineering the overall procurement process, the
following elements should also be assessed:
. Identification of costs associated with the various requisition processes to detennine
where the greatest savings can be achieved.
. Reduction of redundant review/approval requirements.
. Reduction of efforts required to procure and control low value purchases. For
example, investigate use of procurement cards for low value, local purchases. The
procurement card would allow service personnel to purchase directly from ;vendors and
supply houses. Ths would eliate the need to maintain material inventories for
certin types of items.
Vll-R10 Evaluate the ben of re-engineeine the national conact prcurent strategy.
(Refer to Findings VII-F12 andVI-F13.)
Under current procurement strategy, UW has developed a significant number of blanket
purchasing accounts with major vendors. The enhanced procurement strategy should .also include
the following features:
. A greater level of vendor negotiation for tenns and conditions commensurate to the
purchasin power of a consolidated purchasing function.
. Vendor consignment, or at least, standard delivery term for normally defined order
quantities.
. Enhanced ordering or releasing capabilty from vendors, including the abilty to
electronically tranfer or fax requisitions for various items on approved projects,
without the need for complex internal approvals.
. Consolidated invoicing from vendors which include line items related to releases,
miing the effort needed to approve payment for specifc items, and vastly
reducin the accounts payable process.
This process should be considered as part of the overall procurement/materials
mangement re-engineering project, with vendor negotiations beging prior to implementation of
the IT Plan procurement system. . MoSt; vendors are recogniing that they no longer just supply
part and equipment, but are providing a service to their customers.
Costs should be miL. Benefits include: additional procurement savings due to vendor
partnering arangements. (Based on experience withn the maufacturing industry, and more I
recently with electric utilties, savings well in excess of 1 percent of total procurement costs can be .;
expected.) If ths is determined to be a viable approach, savings wil result from a reduction in
effort and increased control of purchases, reduced order processing and fulfillment cycle times,
and reduced inventory requirements.
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Vll-Rll Request prompt payent discun in bid requests and imprve
management of invoice proceing. (Refer to Finding VI-14.)
A cost reduction an annual savings can be realized if UW&S and UWNJ 1) improve the
effciency of invoice processing, and 2) invite additional prompt payment discounts in their bid
documents. Prompt payment discounts are not always a policy of vendors. UWM&S and UWNJ
have enough bargaing power to inist on such discounts. There should be no additional costs to
UWNJ to implement ths recommendation.
TRASPORTATION MANAGEMENT
VII-R12.Cosider makng the JJJ Fleet Manager and his senor clerk part of the
UW&S payroll instead of UWJ's payroJl. (Refer to Finding VI-F16.)
Review the time sheets of the Fleet Manger and Senior Clerk from October 1, 1995
(approximate time Fleet Manager became UW's overall fleet coordinator) to September 30,
1996, to detertine what percentage. of their time was spent working for UWNJ 'and what
percentage was spent working on the tranporttion needs of other UWR subsidiaries. If the
percentage of time is greater for the other subsidiaries thn for UWJ, consider shiftg them to
UW&S payroll instead of UWJ's payroll, and allocate their time either based on the actual
hours spent on each subsidiar or as percent of the total fleet. For example, if the total fleet of
UW and its subsidiaries were 600 vehicles and 100 pieces of special equipment and UWNJ's
portion of the fleet were 179 vehicles and 30 piece of speial equipment, the Fleet Manager and
Senior Clerk's time would be allocated 29.9% to UWNJ. UWJ would benefi from further
reduced costs if these people were on UW&S' payroll. There should be no additional costs to
UWNJ to implement ths recommendation, simply a transfer of salaries and fringe benefits from
the UWNJ payroll to the UW&S payroll.
VII-R13 Monitor all pending legislation to deteine wbat the impacts QD UW and other
subsidiaries might be iftbe bils are passed. (Refer to Finding VI-FI7.)
UW i S corporate Externl Affairs Deparent should be monitoring all pending legislation
to detennine potential impacts upon passage. Where appropriate, written comments should be
provided to the state or federal delegations to inonn the law makers of potential adverse effects of
. proposed legislation. Estiates of the costs to comply with future laws should also be :prepared
and submitted to the legislators. Costs to iiplement ths recommendation should be miniaL.
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VII-R14 Followng the movement of UWJ's Transpotion Depament to its ne faciliies,
re-evaluate the statig Deeds (both nubers and required skins of personne of th
Departt. (Refer to Finding Vl-F18.)
The changing scope and time requirements of UWJ's Transporttion. Departent
activities indicate that a re-evaluation of the appropriate staffing levels and skil mi would be
valuable. The inormation gained though ths exercise could be used to more clearly identify the
Departent's needs and to determe ways in which the Deparnt could be operated on a more
cost effcient basis. In performg such an evaluation, consideration should be given to the
following items:
. If the Fleet Manger becomes par of UW&S payroll, hire an additional mechanic on
the day sWf to accommodate the increased preventive maintenance. work.
. Hire a part-tie gas attendant fròm 4:00 p.m. to 8:00 p.m. who can also run vehicles
though the car wash at the new facilties. Ths would free up one mechanic on the
second sWf who currently spends an average of 2.5 hours per day fueling ,vehicles. It
would also alow more vehicles to be serviced at night. The gas attendant wil also be
needed to implement one of the Recommendations in the Operations Chapter -- to
refuel and restock distrbution trcks and vehicles each night so as not to waste
valuable tie each morng in getting out of Hackensack Yard.
. Track the auto part and supplies inventory using the computerizd perperua1 inventory
system, like the other storerooms in Hackensack Yard.
The cost to UWNJ to implement ths recommendation should not exceed $70,000 I '
(including benefits) if two people are hied and would be less if only one person were hied.
VII-R15 Eslish a new safet polic regarding UWJ's vehicles. (Refer to Finding VII-F19.) I
Apply a large, brightly-coiored;. sticker across the Meter Deparent vans which warn
drivers that "THIS VEHICLE STOPS'FRQUENTLY - PLEASE DO NOT TAIGATE" or
"CAUTION - TilS VEHICLE STOPS FREQUENTLY." Other utility companies use these types
of warng on 'service vehicles to reduce potential rear-end collsions. In 'addition to the Meter
Deparent, it maybe appropriate to apply simlar stickers to construction and other tye
vehicles. Costs to implement ths recommendation should be minal, since bumper stickers can
be purchased in large quantities, at a relatively low cost.
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REAL ESTATE AN LAN MANAGEMENT
VII-R16 Begin to track the amount of time spe on each different task, for benchmarkng
purposes. (Refer to Finding V1-20.)
Beause UW is interested in benchmarkig various activities, th Real Estate group
should begin trackig the time spent in performng its duties, broken down by the various tasks.
Costs to implement ths recommendation should be inaL. .
COMPUTR SYSTEMS AN SERVICES
VII-R17Promptly begin' CIS impementation efor and instill effor tords a timey
completin. (Refer to Finding Vl-F23.)
Too much tie passed from inception of ths project (in early 1995) to August 1996 when
the company made the vendor selection decision. If the cis Project is to be completed within a
reasonable time frame, then progress must begin imediately, staing with implementation plan
development that aggressively moves United Water forward.
I
VII-R18 Ensure that reponsibilty for setng IT strategic direction and applying technology
to Qperations is not totaJly ab4icatd to IT vendors. (Refer to Findin VI-24.)
The United Water organition has identified many projects involving IFS
implementation. Outside fins are actively paricipating with United Water staff in many of these
projects. Some of these projects have already been completed, others are stil in progress, and a
few remain to be startd. The CiS implementation is only beging, but given United Water's
strategic decision to mini internal IT staffing, many CiS projects wil likely involve outside
consulting firm or companies providing technology and support services. The decision to use
vendors for provision of IT services is not inerently good or bad; it must be based on sound
business anlysis. Proper oversight is required to ensure tht benefits are cost effectively
obtained, but more importnt, that responsibilty for setting IT strategic direction and achieving
associated initiatives is not totally abdicated to vendors. Outside technology vendors may offer
invaluable techncal and business expertise to company management, but United Water employees
- not outside vendors - are best able to determe how technology should be applied to its
businss operations.
Senior United Water management should increase its involvement with and oversight of
firms providing technology consulting and support services. The more than $4.5 minion to be
spent by 1997 year-end with outside vendors regarding IFS and WAN are significant to United
Water, and ultimately to UWNJ. Once cis implementation continues, these figures wil increase
substantially. The heavy dependence on outside vendors, if not properly directed, could tragicaUy
impact the organition. Of more concern than mismanagement of the dollars directly spent,
however, is a concern that inappropriate application of technology could sufficiently handicap the
organiation in meetin the company's future challenges of a changing industry.
The ITSC and IT Council have been established to help provide direction to United
Water's IT activities. Especially at a time when technology is critical to the company's future,
additional participation with vendors may be required. At least quarerly the ITSC should meet
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with each technology parter and any other major tecliology vendor to discuss how actions being
taen impact United Water's IT direction.
The day-to-day project oversight by Project Team management is handled now primarily
though vendor meetings and discussions, and use of project management software, to track
progress against schedule. It could also be improved by:
· Requiring detailed implementation plans from vendors early in the project.
. Makng sure that all vendors provide monthy progress report detailii activities
performed, how activities impact IT strategic diection, hours spent by consultat, fees
and expenses by consultat" equipment (if any) bought, problems encountered and how
resolved, upcomig eve~ts, etc.
. Developing a management report tht monitors not only actual to scheduled hours and
duration, but also actual to estiated costs (by consultat), with hours and costs
identified for each month of a project. Any deviations (in either direction) greater than
10% should require explanation to senior United Water magement.
. Discussing any schedule delays or budget overrns with . United Water management
before they happen, so tht all possible options for miing tie alid costs are
explored.
IT management should also begin discussions imediately with EDS (or any others
providing data center operations, network support services, or biling services) as to the tye of
performance measures that can be reguly provided for proper mangement by United Water.
The user satisfaction survey results, as described in Recommndtion VlI-R19, may also provide
input into desired data.
VII-R19 Perfor an IT satisfaction surve of UWJ emp10ies and. deyelQP appropriate
programs based on suey results. (Refer to Finding VI-25.)
UWNJ, like many organations, is attmptin to increase its IT knowledge as its networks
and workstations are implemented. United Water may want to catalog the existing IT skills of
employees or identify those that ar'desrred and/or needed by employees. One way to begin is by
conducting formal sureys. At the'sathime, the company can assess whether UWJ employees
are satisfied with tecliology provided and IT effort regarding traiiung and development. In
1996, Uiuted Water's WAN was fully implemented and new Windows-based software intalled;
therefore, such a survey should be conducted before the end of 1997. Once results have been
talied, United Water should appropriate programs tailored to the needs of its employees.
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VD-R20Begin IT Strategic Plan updates imediaty. (Refer to Finding Vl-F26.)
Ideally, the existig IT Strategic Plan should be reviewed, and revised as necessary, by the
end of 1996 Ü United Water is to keep on a two-year cycle. IT management should develop a
game plan for meetig tls deadline, which most likely indicates that actions need to be taken
imediately. It should be incorporated into corporate strategic plang and budgetin processes
to ensure it continuously reflects the needs of the client departents and provides a clear
commtment plan for issues related to inormation tecliology. More than just IT staff should be
involved in tls process; significant representation from many areas within the United Water
organiation must be actively involved.
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During ths process, UJUted Water should reassess the specific needs of user departents
over the next five yeas and update the IT Strategic Plan to comprehensively identify all of the
issues that should be addressed on an enterprise-wide basis. This plan should specify the time
frames and completion miestones for all key resolutions. .
VI-R21Invetigate exansion of IT help de coa=. (Refer to Finding Vl-F27.)
The Client Services organation should explore options available from EDS for expandingcoverage of the IT help desk, then develop a formal cost and benefit analysis by the end of 1996.
Not only the workabilty of, but also the timg for implementing, expanded coverage should be
addressed.
RECORDS MAAGEMENT
Vl-R22 Produce a comprnsive cost and benef analysis to eyaluate the potential for
impementing ne technologies (such as a database invntory of records an
imaging of records data). (Refer to Finding Vl-F28.)
As part of its effort to pilot document handling technology, UJUted Water should analyze
the costs and benefits associated with implementing newer technologies to aid the records
management fuction. Technology could potentially be used to create a database application for
maintaiig records and to imge record data. Ths anaysis should also evaluate the elimination
of Pierce Leahy Archives for permanent record storage (to the extent allowed by the Board of
Public Utilities) by tota imaging of data.
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Request No. 110 Attachment 3PA 1996
Page 1 of 34
A Stratified Management
and Operations Audit of
United Water Pennsylvania
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Final Report
Prepared for:
Commonwealth of Pennsylvania
Pennsylvana Publìc Utility Commission
P.O. Box 3265
Harrisburg, Pennsylvania 17105-3265
Prepared By: '
Vista Consulting Group, Inc.
8200 Greensboro Drive
Suite 1400
McLean, Virginia 22102-3803
March 20,1996
~\/ISTA
r~ V CONSULTING GROUP, INC.
Request No. 110 Attachment 3 PA 1996
Page 2 of 34
TABLE OF CONTENTS
CHER I - AFTI AClON; EEO; AN DIVRSIT PLANS
A. EVALUATIV CRERI..............................................................................................~..I-i
B. BACKGROUN.....................................................................................................................1-1
AFFIRTI ACTION PLANS AN REGULATORY COMPLIACE..............................l-1
UTILIZATION OF MIORIS AN WOMEN IN TH WORKORCE.............................1-2
UTIIZATION OF MIORIY AND WOMEN-OWND VENDORS ....................................1-2
INTERNAL CON1OLS.............................................................................................................1-2
C. FININGS AN CONCLUSIONS .....................................................................................1-4
AFFIRTI ACTION PLANS AND REGULATORY COMPLIACE..............................1-4
UTILIZATION OF MIORITIS AN WOME IN TH WORKORCE.............................1-5
UTIIZATION OF MIORIY AN WOMEN-OWND VENDORS ....................................1-7
INRNAL CONTROLS.............................................................................................................1-7
D. RECOMlNDATIONS................~........................................................................................1-8
AFFIRTN ACTION PLANS AN REGULATORY COMPLIANCE..............................1-8
UTIIZTION OF MIORITffS AN WOMEN IN TH WORKORCE............................. 1-9UTIZATION OF l\ORITY AN WOMEN~OWND VENDORS ....................................1-9
rnRNAL CONTROLS...........................................................................................................1-10
LIST OF EXHITS
EXlIT 1 ........................................................................................................................................1-6
Employee Population at Hasburg/echancsburg Opertions
EXlIT 2 ......................................................................................................................................;.1-6
\ l Employee Population at th Bloomsburg/allas Operations
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TABLE OF CONTENTS
CHR II- COMPENSATION AN BENEFIS
A.. EVALUATIV CRRI.......................................................................l!.......................D-l
B. BACKGROUN.................................................................................................................. ß-l
EXECUT COldENSA nON PROGRA..........................................................................II.l
OTllR COldENSATION SmuCTU................................................................................II.4
PERFORMCE APPRASAL .................................................................................................II. 7.
BENEFITS PROGRA ..............................................................................................................II-7
c. FIINGS AN CONCLUSIONS ................................................................................... IT..9
EXECUTIV COldENSAnON PROGRA..........................................................................II-9
OTIR COMPENSA nON STRUCTI..............................................................................II-17
PERFORMCE APPRASAL ...............................................................................................II.18
BENEFITS PROGRA ............................................................................................................II.19
D. RECOMMNDATIONS................................................................................................... II..23
EXECUT COMPENSATION PROGRA........................................................................ll-23
OTllR COldENSA nON SmuCT..............................................................................ll-23
PERFORMCE APPRASAL ...............................................................................................ll.24
BENEFITS PROGRA ..........................¡.................................................................................ll-24
LIST OF EXHITS
EXHIT 1.......................................................................................................................................ll-2
Compensation Strct Design
EXHIT 2 .................................................;.....................................................................................ll-3
Market Value ofUW Common Stock
EXHIT 3 .......................................................................................................................................ll-4
UW Perormance Agast Seleced Financial Measurs
EXHIT 4 .......................................................................................................................................ll-4
Tareted and Actul Merit Increes for Hasbur Operation
EXHITS.......................................................................................................................................ll-5
Targeted and Actu Mert Increses for Mechancsburg Operation
EXHIT 6 .......................................................................................................................................ll-5
Targeted and Act Merit Incrases for Bloomsbug Operation
EXHIT 7 .......................................................................................................................................II-5
Target and Actul Merit Increases for Dallas Operation
EXHIT 8 .......................................................................................................................................ll-6
Averge Salai Strctu Changes Versus Market
EXHIT 9 .......................................................................................................................................ll-6
Average Anual Merit Increases Versus Maket
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EXHIT 10 ..............................................:......................................................................................1I-6
CPI Average Increases
EXIT 11.....................................................................................................................................1I-7
Personnel Evaluation Program Measurs
EXHIT 12 .....................................................................................................................................1l-8
Benefits Program for Employes ofUW
EXHIT 13 ...................................................................................................................................1I-11
Pay Positionig Relative to Maket
EXHIT 14 ..................................................................................:.................................................1l-12
1994 UWSIU to Maret Comparsons for All Salar Groups
EXIT 15...................................................................................................................................1I-12
Perctage of Offcer' Time Allocated to Reguated Business in 1994
EXHIT 16...................................................................................................................................1I-13
Maagement Incentive Plan Target Opportty
EXIT 17 ...................................................................................................................................1l-14
Anua Incentive Cash Compensation Tart as a Percent of Base Salar
EXHIT lS...................................................................................................................................1l-15
UW to Peer Compan Trends in Eags Per Shar
EXHIT 19 ...................................................................................................................................1l-15
UW to Peer Company Trends in Retu on Equity
EXHIT 20 ...................................................................................................................................1I-16
UW to Peer Company Trends in Operating Revenues
EXIT 21...................................................................................................................................1l-16
UW to Peer Company Trends in Net Income
EXHIT 22...................................................... .............................................................................1l-17
1994 UW&SIU to Market Camparsons for All Salar Grups
EXHIT 23 ...................................................................................................................................1l-18
UW&S Perquisites
EXHIT 24 ...................................................................................................................................R-20
Pedormance Ratigs for the UW Facilties
EXHIT 25...................................................................................................................................II-21
UW Frige Benefits Costs Per Category
EXHIT 26...................................................................................................................................n-22
Changes in the Benefits Program for UW
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TABLE OF CONTENTS
CHR m - STAFG LEVELS
A. EVALUATI CRITERI..........................................................................................; il-I
B. BACKGROUN ............................................................................................................ il-I
C. FIINGS AN CONCLUSIONS ............................................................................... ID-7
D. RECOMlNDATIONS .............................................................................................. ID-12
UST OF EXHITS
EXHIT 1..................................................................................................................................... il-3
UW Stafg Leves by Distct
EXHIT 2............... ............................. ......................................................... ........ .............. ........... 1I-4
UW Turnover Rates
EXHIT 3....................................................................................................................................,. il-4
UW Applicatle Statistics by Facilty
EXHIT 4.................................................................................................,.................................... il-S
Average Tenure at UW by Employe Group
EXHIT 5.......... ....... ........................... ......................... ........ ......... .......... ...................................... II-6
Average Age ofUW Workers
EXHIT 6...........................................................................,.......................................................... il-8
Stafg Levels ofUW Compared to Peer Water Utilties
Employeesilon Gaons of Water Produce .
EXIT 7...................................................................................................................................... ID-9
Ratio ofUW Non-Maagement to Maagement Employee
EXHlIT 8.................................................,................,................................................................. il-IO
UW Span of Control
EXHIT 9...................................................................................................,...............................111-11.
UW Maagement Positions by Operating Company
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TABLE OF CONTNTS
CHR IV - AFIATED/ASSOCITED RELATIONSHIS
A. EVALUATI CRITERI ..............................................................................................IV. i
B. BACKGROUN...................................................................................................................lV-2
SERVICES PROVIED BY M&S TO AFFILIATE OPERATIG COMPANS................IV-2
UW&S ACCOUNG AN COST ALLOCATION ........................................................ IV-3
TIM SIIET REPORTlNG.....................................................................................................IV-7
c. FIINGS AN CONCLUSIONS ...................................................................................IV-9
D. RECOMMNDATIONS..................................................................................................IV-16
LIST OF EXlITS
EXIT 1 ..................................................................................................................................... iv-S
Listig ofM&S Company Cost Center
EXIIT 2 ..................................................................................................................................... IV-6
Allocation Factors Used for M&S Time Charged to Allocation Levels
EXIIT 3 ..................................................................................................................................... IV-8
Activity Codes
EXIIT 4 ................................................................................................................................... IV-II
M&S Billg Rates
EXIIT S...................................................................................................................................IV-12
Treds in M&S Hourly Rates of Some Selected Employees Classifcations
EXIIT 6 ...................................................................................................................................IV-14
Sumar ofM&S Labor Charges to UW
EXIIT 7 ...................................................................................................................................IV-lS
Sumar of Inter-Company Ches to UW
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TABLE OF CONTENTS
CHTER V - TH MERGER OF GWC AN UW
mTRODUCTION........................................................................................................................ V-I
A. EVALUATI CRTERI................................................................................................;V-l
B. BACKGROUN..................................................................................................................:V-2
STRUCTU OF TI MERGER............................................................................................. V-2
TOTAL CONSIDERATION PAI BY UW...........................................................................V-4
ACQuiSmON ADJUSTMS AN GOODWlL.............................................................. V-4
USED AN USEFUL PLANT m SERVICE............................................................................ .V-7
PROPER ACCOUNG AN RATEMAG TREATMNT OF ACQUISITION
ADJUSTMENTS ........................................................................................................................ V-7
COST AN QUALIT OF SERVICE PROVIDED AND COMPLIANCE WITH PUC
REGULATIONS........................................................................................................................ V-7
PRICE OF REGULATED SERVICES SOLD TO AFFJIATES............................................. V-7
CAPITAL STRUCTU ......................................................................................................... V -1 I
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c. FININGS AN CONCLUSIONS................................................................................. V-IS
D. RECOl\NDATIONS.................................................................................................. V-20
LIST OF EXHITS
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EXHIT 1......................................;..;................................................................................:............ V-6
Puchase Price and Goodwill Paid for GWC Coporation
EXHIT 2 ...................................................................................................................................... V-9
United Water M&S Company - 1995 Hourly Rates - Janua 1995
EXlIT3.................................................................................................................................... V-10
United Water M&S Company - 1995 Hourly Rates - August 1995
EXIT4.................................................................................................................................... V-14
Unadjusted Pro Forma Balance Sheet - As of September 30, 1993
EXHIT 5 .................................................................................................................................... v-is
United Water Resources, Inc. and Subsidiares Consolidated Balance Sheet
EXIT 6 ......................................,............................................................................................. V-16
Sumar ofUW and Subsidiaries Capita Stre
EXll:r 7 .................................................................................................................................... V -17
United Water Resources Penyslvanhi Maagement Audit
Sumar ofM&S Fee and UW Costs
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TABLE OF CONTNTS
CHR VI - EXECU MAAGEMENT AN LONG RAGE PLANG
A. EV ALUATI" CRTERI..............................................................................................VI-l
ORGANATIONAL STRUCTU........................................................................................ VI-I
OVERALL STRATEGIC PLANG..................................................................................... VI-I
EXTERNAL RELATIONS ........................................................................................................VI-I
MANAGEMENT COMMCATIONS AN CONTROL................................................... VI-2
B. BACKGROUN................................................................................................................. VI-2
BRIF InSTORY AN OVERVlEW OF UNTED WATER................................................. VI-2
InSTORY AND OVERVlEW OF UND WATER PENNSYL V AN.............................VI-3
ORGANTIONAL STRUCTU OF UNTED WATER PENNSYLVAN................... VI-7
FUNCTIONAL ORGANATIONIRSPONSfflLITS OF TH UW OPERATION..... VI-13
GEOGRAInC AN FUCTIONAL STRUCTU OF UW............................................ VI-16
TI STRATEGIC PLANG PROCESS ........................................................................... VI-16
EXTERNAL RELATIONS ..................................................................................................... VI-21
MAAGEMENT COMMCATIONS AN CONTROL................................................. VI-22
C. FININGS AN CONCLUSIONS ................................................................................ VI-26
D. RECOMMNDATIONS..................................................................................................VI-29
LIST OF EXHITS
EXlIT 1..................................................................................................................................... VI-4
United Water, Magement & Services Company, Executive Functions
EXlIT 2 ..................................................................................................................................... VI-6
UW - Overvew Statistcs' ;
EXIIT 3 ..................................................................................................................................... VI-8
United Water Pensylvana
EXBIT 4 ..................................................................................................................................... VI-9
United Water Penylvana, Operaions
EXlIT 5 ................................................................................................................................... VI- i 0
United Water Pennsylvana
EXlIT 6 ................................................................................................................................... VI- 1 i
United Water Pennylvana, Dallas Operation
EXIIT7 ................................................................................................................................... VI-12
United Water Pennsylvana, Bloomsburg Operation
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TABLE OF CONTNTS
CHR vn - CUSTOMER SERVICES
A. EVALUATI CRITERI............................................................................................. Vl-l
METER READING .................................................................................................................. Vll- i
CUSTOMER RELATIONS..................................................................................................... Vl-l
CUSTOMER BllLINGS AN COLLECTIONS.................................................................... V;-2
CUSTOMER COMPLAIN AN INQUIS.................................................................... Vll-2
B. BACKGRO'U............................................................................................................... Vl-3
ORGANATIONAL STRUCTU....................................................................................... VLL-3
METER READING .................................................................................................................. Vl-5
CUSTOMER REATIONS.................................................................................................... Vl-ll
CUSTOMER BllLING AN COLLECTIONS .................................................................... VLL-12
CUSTOMER COMPLAITS AN INQUIS.................................................................. Vll-20
c. FIINGS.AN CONCLUSIONS................................................................................ Vl-23
D. RECOMMNDATIONS............................................................................................... 'V-26
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LIST OF EXlITS
EXIIT i ....................................................................................................................................Vl-4
Organtion Char of the Customer Servce FlUction
EXllT 2 .................................................................................................................................... vI-6
Anual Cutoer Service Budget, Actul Cos. and Stag Levels 1990- i 995
EXllT 3 .................................................................................................................................. Vl-l 0
Head COlUt and Budget for Meter Reading Departent
EXIIT 4 .................................................................................................................................. Vl-:18
Bad Debt Writeoft and Net Bad Debt i 990-1994
EXlIT 5 .................................................................................................................................. Vl-20
Percet of Payment By Method by Operation
EXIIT 6 .................................................,................................................................................ Vl-20
Bils Procesed and Revenues Generate 1990-1994
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TABLE OF CONTNTS
CHR vm - FIANCI MAAGEMENT
A. EVALUATNE CRTERI...........................................................................................'V-l
CORPORA TE FIANCE........................................................................................................Vil-l
FINANCIA REQUIhfNTS PLANG.......................................................................Vl-l
ACCOUNG .......................................................................................................................VI-2
BUDGET MAAGEhfNT AN CON'lOL......................................................................VI-2
CASH MAAGEld .........................................................................................................Vil-2
TAXS....................................................;................................................................................Vil-2
RATES AN RATE DESIGN ................................................................................................VI-2
INRNAL AUDITING .........................................................................................................Vl-3
B.. BACKGROUND............................................................................................................... VI-3
ORGANATION ...................................................................................................................Vil-3
CORPORATE FINANCE.......................................................................................................Vil-4
FINANCIAL REQUIMENTS PLANNG AN ANALYSIS.......................................vm-ll
ACCOUNING .....................................................................................................................Vil-12
BUDGET MAAGEME AN COST CONTROL.........................................................Vil-13
CASH MAAGEMET .......................................................................................................Vil-IS
TAXS...................................................................................................................................vm-16
RATES AN REVENUS ...................................................................................................vm-16
INRNAL AUDITlG .......................................................................................................Vil-17
C. FININGS AN CONCLUSIONS..............................................................................vn-18
D. RECO~NDATIONS..............................................................................................VD-20
LIST OF EXlITS
EXIT 1...................................................................................................................................VI-4
United Water Pennylvana - Financial Management Function .
EXlIT 2 ...................................................................................................................................vi-s
United Water Maagement & Servces Company - Finance Dearent
EXlIT 3 ...................................................................................................................................VI-6
UW's Corporate Strct
EXIIT 4 ...................................................................................................................................VI-8Balance Sh~t Sumar .
EXIIT 5 ...................................................................................................................................Vl-9
Income Statement Sumar
EXIIT 6 .................................................................................................................................Vl-IO
Statement of Cash Flows
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TABLE OF CONTENTS
CHR IX - HU RESOURCES
A. EVALUATI CRTERI..............................................................................................IX-l
HU RESOURCES ORGANATION OVERVIW.......................................................lX-I
MAAGEl\NT DEVELOPl\NT AN TRG .......................................................... IX-I
LABOR RELATIONS...............................................................................................................lX-I
SAFTY MAAGElNT....................................................................................................... lX-2
B. BACKGROUN.................................................................................................................IX-2
HU RESOURCES ORGANTION OVERVIEW........................................ ...............IX-4 i 'MAAGEl\NT DEVELOPMENT AN TRG .......................................................... IX-4
LABOR RELATIONS .............................................................................................................. IX-6
SAFTY MAAGEMENT.......................................................................................................IX-7
C. FIINGS AN CONCLUSIONS................................................................................
IX-I 0
HU RESOURCES ORGAN nON ........................................................................... IX-I 0
MANAGEMENT DEVELOPMET AN TRAG ........................................................ IX-II
LABOR RELATIONS,............................................................................................................. IX-I2
SAFETY MAAGEMENT............................................... ......................................................IX-14 ii
D. RECOMMNDATIONS.................................................................................................IX-18
HUN RESOURCES ORGAN nON ........................................................................... IX-I
8MAAGEl\NT DEVELOPME AN TRG ........................................................ IX-20
LABOR RELATIONS.............................................................................................................IX-20
SAFTY MANAGEMENT.....................................................................................................IX,.2I iil
LIST OF EXHITS
EXIIT 1 ...................:................................................................................................................. IX-2
Stag Levels at UW Facilties
EXIIT 2 ..................................................................................................................................... IX-3
UW&S Hwnan Resoures Organtion Char
EXIIT 3 ..................................................................................................................................... IX-5
Human Reources Organtion Char
EXIIT 4 ..................................................................................................................................... IX-6
Trag Conducted at UW
EXIIT 5 ..................................................................................................................................... IX-8
Safe Work Practices Included in UW Employee Hadbook
EXlIT 6 ..................................................................................................................................... IX-9
UW Safety Video Libr
EXIIT 7 ................................................................................................................................... IX-I2
UW Traig Programs for 1995
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EXlIT 8 ...................................................................................................................................IX-15
UW Number of Recrdable Inidences
EXlIT 9 .;.................................................................................................................................IX-15
UW Number of Recordable Events/lOO Employees
EXlIT 10.................................................................................................................................IX-16
UW Lost Workdaysl 00 Employees
EXHIT 11.................................................................................................................................IX-16
UW to Utity Industi Tota Recordable Incidence Rate
EXlIT 12.................................................................................................................................IX-17
UW's Workers' Compnsation Costs
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TABLE OF CONTENTS
CHR X - ENGINERIG & CONSTRUCTON MAAGEMENT
A. EVALUATI CRERI................................................................................................,X-l
ORGANTION ......................................................................................................................X-l
CONSTRUCTION PROGRA PLANG AN DEVELOPME.................................... X-I
ENGINERIG DESIGN .......................................................................................................... X-I
CONSTRUCTION MAAGEMENT.................................:......................................................X-2
B. BACKGROUND................................................................................................................... X..3
ORGANTION .....................................................................................................................X-3
CAPITAL PROJECT PLANG AND BUDGETIG........................................................... X-4
ENGINERIG DESIGN .......................................................................................................... X-5
CONSTRUCTION MAAGEMENT........................................................................................ X-6
C. FIINGS AN CONCLUSIONS .................................................................................... X..9
D. RECOMMNDATIONS.................................................................................................. X-to
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LIST OF EXHITS
EXHIT 1...................................................................................................................................... X-6
UW Internal and External Engieerig Expenditus 1991- i 994
EXHIT 2.................................................. ....................................................................................X-7
UW Internal and External Constrction and Maintenance Labor
Expendinres 1991-1194
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TABLE OF CONTNTS
CHTERXI- WATER SUPPLY MAAGEMENT AN PLAG
Á. EVALUATIV CRITERI................................................................................................XI-l
DEMA FORECASTlG...................................................................................................... XI-I
LONG- AN SHORT-TERM WATER SUPPLY PLANG............................................... XI-I
WATER PURCHASE AN SALES AGREMENTSIRGIONAL SUPPLY PLANG.. XI-2
DROUGHT AN EMERGENCY CONTINGENCY PLANNG ........................................ XI-2
B. BACKGROUN..................................................................................................................XI-2
CURNT SOURCES OF WA TER SUPPLy......................................................................... XI-2
DEMA FORECASTlG AN WATER SUPPLY PLANG......................................XI-IO
WATER PURCHASE AGREEMENTS AN REGIONALIZATION...................................XI-l 1
DROUGHT AND EMERGENCY CONTGENCY PLANNG .......................................XI-13
C¡, FININGS AN CONCLUSIONS .................................................................................XI-14
D. RECOMMNDATIONS.................................................................................................XI-19
LIST OF EXIITS
EXIIT t...............................................!..................................................................................... XI-3
Sources of Supply, Production Capacities and Demand, By Water Sysem
EXIIT 2 .....................................................................................................................,............. XI-i 2
Example Strategic Plan Worksheet
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LIST OF EXIITS
EXIIT 1...................................................................................................................................xm-2
Support Services Function
EXlIT 2 ...................................................................................................................................xm-6
Inonnation Technology Organtional Char .
EXHIT 3 ...................................................................................................................................xm-9
Inonntion Technology Projec
EXIIT 4 .................................................................................................................................XI- 1 0
Opratig Costs ofUW Properties
EXIIT 5 .................................................................................................................................XI-I0
Risk Management Organtion
EXHIT 6.................................................................................................................................Xl-11
1994 vs. 1995 Insmace Premiwn Comparson
EXHIT 7 .................................................................................................................................XI-ll
1991-1994 Claim Totas
EXIIT 8 .................................................................................................................................XI-12
1992-1994 UW Legal Costs
EXlIT 9 .................................................................................................................................XI-13
Nwnber of Purhase Orders Issued
EXlIT 10...............................................................................................................................Xl-14
UW Storeroom Inventory, Issues and Turover by Location
EXlIT 11 ...............................................................................................................................XI-16
UW Company Vehicles by Ty and Loation
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TABLE OF CONTNTS
CHER XI . COMPARTI FIANCI AN OPERATIONAL STATISTICS
TIl CONNCTCUT WATER COl\ AN ....................................................................XI..2
CONSUMRS omo WATER COMPAN ........................................................,............XIV-2
INIAA CITIES WATER CORPORATION.................................................................xIV_3
NORTHRN ILLINOIS WATER CORPORATION.......................................................XI.3
omo SUBu:AN WATER COMPAN.........................................................................XIV-3
PENNSY:VAN.AMRICAN WATER COMPAN ...................................................XI.4
LIST OF EXIITS
Customer Class Statistics - Unted Water Pennylvana ............................................................ XI-5
Expense Anlysis - United Water Pennsylvana.......................................................................... XI-6
Operatig Characteristics and Penonnance Raios .................................................................... XI-7
United Water Pennsylvana
T&D Expenseslles ofT &D Mai .......................................................................................... XI-8
Production Expensesfousand Customer................................................................................. XI-8
Puficaton Expensesfousand Customers................................................................................ XI-8
T&D Expensesfousand Customers .......................................................................................... XI-9
Operatig & Maitenance Expenssfousand Customers ........................................................ XI-9
Customer Accountig & Collecion Expensousd Customers......................................... XI-9
G&A Expensesfousand Customers........................................................................................ XI _ i 0
Total Opertig Expensesousand Customers....................................................................... XI-I 0
Production ExopenseslMlUon Gallons ..................................................................................... XI-I 0
Pufication Expensesllion Galons ................................... ................................................... XI - i i
T&D Expenseslion Galons................................................................................................. XI _ i i
Opertig & Maintenance ExpenseslMllon Gallons ............................................................... XI-II
Customer Accountig & Collecon Expees/llon Gallons ............................................... XI -12
G&A Expenseslllion Gallons ................................................................................................ XI- i 2
Total Operating Expensesllion Gallons................................................................................ XI -12
Net Utility Plantfousand Cutomers ..................................................................................... XI -13
Revenues/Customer .................................................................................................................... XI. i 3
Empoyeeillion Gallons.......................................................................................................... XI-I 3
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AFFILIATED I ASSOCIATED RELATIONSllS
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CHAER IV - AFIATED/ASSOCITED RELATIONSHJS
Ths chapter preents the reults of the investigation of the natu and extent of trsactions
between affated and associated interests. Ths included an examination of the relationship and
trsactions between UW and United Water Management & Servces (US), which
provides such, centralid servces as accountig, rate case prepartion, data processin, and
engeerig and techncal servces. Prior to the merger with UW these centralid services
were performed by General Waterworks M&S, in King of Prusia, Penylvana. Althugh the
M&S fucton has been moved to Haon Park, New Jersey the relationship between the
Management & Servces company and UW's divisions and the natue of the services provided
have changed very little. The natue, effcacy, cost-efftiveness, and faess of cost allocations
with respect to these centr servces from th stadpoint of UW and its four divisions wer¡:
anyzed.
On a second level, the relationship and tranactions betwen UW and non-reguated entities
owned and operated by the former General Waterworks Coiporation (GWC) and UW was
investigated.
The chapte fuer addesses cost allocation policies and actul transactions prior and
subsequent to the April 1994 merger. Specifcaly, the period tht was examed was from
Januar 1, 1992 though December 31, 1994. For the vaous major trsactions between
afated/associated interests, the project team determed (a.) associated costs, (b.) the adequacy
of data available for appropriate cost allocation, and (c.) the reasonableness of alocations. The
followig describes the Statement of Work of our audit of ths ar, beging with those tak
aras specified by the Pennylvana Public Utity Commission (PUC) in its RFP for the
management audit, followed by addtional taks proposed by us.
A. EVALUATI CRTERI
. Major strategy and policy decisions should reflect the needs of the Utilty, the operatig
utilities, and their cusomers, rather th the nee of the parnt company or. other
. affliates.
. Dirct biling/cost alocation metods should provide accurte biling for services.
. Servces provided by affates should be cost effective.
. There should be speifc criteria for the assembly of costs at the afliate company level
by depamnent and by activity/tak with each deparent and for the
allocation/assignent of such costs to the afliated companes. .
. Local control of servces provided by the parent company or an afliated service
company should be clearly documented.
. Offcials of the Utilty and each of the operating utilities should have the authority to
approve afliated-related project and expenditu importt to its ratepayers.
IV-i
., IISTA
e VCONSUtTINGGROUP,INC.A MANAGBMBN ANALYSIS. INCORATeD COMPANY
Request No. 110 Attachment 3PA 1996
Page 19 of 34
B. BACKGROUN
SERVICES PROVIED BY M&S TO AFFILIATE OPERATING COMPANES
The Agreement between UW&S (M&S) and afliates is the sae that existed between the
former General Waterworks M&S and its afiates. 1bs Agrment was fomilly adopted by
UW&S in ealy 1995. According to such Agreements, M&S is expete to provide service as
descrbed below.
A. Admintrative: M&S makes qualed employees available to perform or assist in the
peronnce of affliates' corpora admstrtion. These employees ar expcte to keep
themselves informed on all aspects of Utility Company's operations and reguatly visit Utility
Company's facilties. They are expected to make recommendations for operating expeditus,
and for additions to and improvements of propert, plant and equipment. In addition, M&S may
assist in proceedings before, an in its compliance with the rulings of reguatory boes.
B. Engineering: M&S advises and provides engineerng services to assist in plang,
operatig, maintenance and constrction fuctions. In addition, M&S wil conduct distrbution
system sureys and hydrulic anlyses, reiew procedures for water quaity contrl, and prepare
or review maps, char, operating sttistics, report and other pertent data. To assist affliate
in the proper maitenance and protection of propertes, M&S is expected to conduct periodic
inspections of strctues, tan, reservoirs, wells and electrical and mechacal equipment.
Servces include the conduct of field investigations, prepartion of stùdies, reports, designs and
drawings, cost estiate, specifcations, and contract for constrction of facilties.
C. Customer and Public Relations: M&S provides recommended procedures to promote
satisfactory customer and public relations, fushes inormational materal, includig advertising
copy, layouts, and scripts, and assists with news and customer inormation releases, and
argements for public inspections, displays and other related services.
D. Employee Relations: M&S assists afliates in procurng qualified personnel,
establishig rates of pay, and negotiatig with bargaig unts. In addition, M&S advises on
federa and stte reguations afecting personnel, recommends and adminsters group insurance
and pension plans, and establishes programs relating to employee health and welfare.
E. Accountig: M&S keeps the genera books of afliate, prepares monthy ficial
statements and anyses of accounts and special accuntig and fiancial report as reuied by
afliates, prepar reports on the costs incured for propert additions and improvements, and
prepars or assists in the preparation of feder, stte and local ta retu. M&S also establishes
and maintans continuig propert reords when reuested. Though internal audits, M&S
reviews accuntig procedurs, methods and forms, and evaluates systems of internal control for
receipt and disbursements of fuds, materials and supplies, and other assets. Periodic audits of
accounts, records and procedurs of affliates are conducted by M&S.
IV-2
J1\t!I!TINGGROUP' INC.A MANAGEMEN ANALYSIS, ",CORPRATE COANY
Request No. 110 Attachment 3 PA 1996
Page 20 of 34
F. Corporate Secretarial: M&S maintas documents of afliates such as miute books,
charers, by-laws, contracts, dees, 81d other coiporate records, and performs other corPorate
secretaal fuctions as requi iiluding praration of notices of stockholder and dirctor
meetigs and keeping the miutes thereof. In addition, M&S reviews and may assist in the
preparation of documents requi such as deed, easements, contracts, charters, frchies, trst
indentues, and regulatory report.
G. Treasury: M&S coordintes fiancial amgements with the fiancial communty to
arange and provides for fushig of afliates' capita needs from external soures. M&S also
assists afiates with cash management, collection policies, and development of temporar
inveent progrs.
H. Purchasing: M&S endeavors to arange for the purchase of equipment, matenals, and
supplies in volume on a basis advatageous to the Utiity Company.
. I. Insurance: M&S recommends and purhases of all tyes of insurce, as well as
supervses investigation procedurs, and reviews clais and proposals for settements, if
requested.
J. Data Processing: M&S makes eleconic data processing services available, including
system analysis and progring, accowiting, fiancial analysis and stuies, demand studies,
and engieerig studies at th request of afliates.
K. Rates: M&S prepars and fies rate schedules, rate case testimony and exhbits with
assistace from the local utilty. '
In Agreements between M&S and afliates, afliates may engage a non-afliated
organtion to provide any of the above services. The Agreement stipulates that any such
engagement requirs mutu consent. For the most par, the services provided by M&S are
appropnately centrald to ecnomi on cost. In addition, UW benefts from M&S
personnel that are extmely laowledgeable and expenenced in operating water and sewer
companes. The smaller systems, such as at Dallas and Newberr, paricularly benefitig from
ths arangement. The inadequacy of the automated ficial mangement, customer servce,
biling, and other systems at UW&S severely hampers its effectiveness in performing many of
its servces to affliates. IfM&S had not already begu a ful-scale assessment of its Inonnation
Technology, it would have been wortwhie for UW to assess whether cert fiancial
mangement, customer servce, and other activities might be best handled in-house or though an
outside contrctor, as is curntly the case with respect to customer biling.
UW&S ACCOUNING AN COST ALLOCATION
Dirct bilin and cost allocation methodologies used by UW&S provide for accurte
bilg of serices and subsequent trckig of biled services. The cntena for the assembly of
M&S cost ar explicit and detailed, and provide clear diection to employees for accurate biling
of services.
lV.3
EVJ!lIT'NGGROUP'INC.A MANAGEMEN ANALYSIS. INCORPRATED COMPANY
Request No. 110 Attchment 3 PA 1996
Page 21 of 34
UW&S employs most of the employees who regularly provide management and servces to
more th one of the affliates of United Water Resources, includig UW. UW&S incus all
of the expenses related to those employee, includig salares, benefits, rent, overhead, which ar
then biled out monthy to UWS' affliates usin the time report prepared by those
employees. The cost of the tie biled out is based on an hourly rate for that employee, which is
composed of the employee's compensation, includig benefits, and an allocation of the general
overhead costs of the M&S company which ar estiated and projected each year. Biling rates
are not preard for each individual employee, but for categories (strata) of employees in each
cost center.
There are 16 cost centers with UW&S. Exhbit IV-I presents a listig of these. All
payroll and expenses are gathere into specifc cost centers. General expens of UW&S
company not specificaly charged to an individua cost center are chaged to the Geeral &
Admstrtive (G&A) cost center; and is then allocated back to all the other cost centers based
on the level of salares in each cost center. As each employee is par of a parcular cost center
there is no cross-chargig of an employees salar to any other cost center, with few exceptions.
Employee time alocations not directly bilable to an afliate or subsidiary ar allocated
based on: number of employees; number of customers; total O&M expenses; net utilty plant;
volwne of water delivere; fuel, power, and chemica costs; and total capitaiztion. Exhibit VI-
2 presents the allocation methodology.
Non-diect expnditus paid by the M&S company on behalf of its affiates, such as
insurance preinwns, etc. are allocated to each afliate based on the followig chaacteristics. ofthe expnmme: .
· Group health insurce - number of employees and dependents covered.
· Genera liabilty insurce - total assets less cah and receivables.
· Proper insurce - tota fixed assets.
· Worker's compensation inurance - total payrlL.
· Pension expenses - results of actal reports. (pension expense is biled by United
Waterworks to its subsidiares only.)
· Interest expenses - tota. capitalization. (Iteret expenses are alocated by United
Waterworks Inc. to its subsidiares only.)
· Outside auditor fees - 50 percent baed on tota capitaliztion and 50 percnt based ontotal revenues. .
IV-4
.VJ!l!T'NGGROUP' INC.A MAAOEMENT ANALYSIS. INCORlItTED COMPANY
Request No. 110 Attachment 3 PA 1996
Page 22 of 34
Exhibit IV-I
Listing ofM&S company Cost Centers
Cost Center
Number
10 Operations
20 Engineering
30 Rates
40 Adniustration
42 Informtion Technology
43 cis Project (Customer Information System)
4,4 IFMS Project (Itegrated Financial Management System)
45 Human ResoW's
50 Legal
60 Investor Relations
62 Corporate Communcations
70 Accountig, Budgetig & Taxes
80 Internal Audit
90 Treaswy & Financial Analysis
95 Genera & Admsttive Expenses
(no salares; only cost to be allocate to other cost centers)
IV-5
.VJ11!uNGGROUl.INC.A MANAGEMEN ANALYSIS, INCQI\Tl COPANY
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Request No. 110 Attachment 3 PA 1996
Page 23 of 34
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IV.6
IIVJ!l!TlNGGROUP, INC.AMAOEIE ANYSIS, IKCORAlE COMAN
Request No. 110 Attachment 3 PA 1996
Page 24 of 34 .
It is intended tht UW&S should bil out all of its costs to its reguated and non-reguated
afiates. Those corprate cost which ar not bilable to affiates are biled out to the UW
parnt company.
Salares and other costs may also be chaged by employees of an affiate back to UW&S.
These costs ar also distrbuted though the M&S time distrbution system. Non- M&S
employees chargig time to other afliates ente and "M" coe on their tie report, and then
enter the proper M&S company time distrbution codes. Those hour that are biled to the M&S
distrbution codes ar used to rebil the costs chaged to the M&S company to the other affliates
of United Water.
Pror to the merger the UW&S Rate Deparent used a time biling system for rate cases
separte from the one used by the other M&S employees. In UW&S, the biling systems have
been streained by mergig the rate time biling process in with the normal M&S biling
system. Outside charges are incurd for rate cases, but ar paid for dictly by the local
company to which the charge applies.
Constrtion-related services performed by the Capital Projects Group and other personnel
on capita projects ar not biled out to though the M&S biling system, but rather are collected
from the local companes as a coxporate overhead rate applied to capital expenditues, (except for
direct purchases). Such tie spent by UW&S employees capital (contrction) projects are
charges to company Code 799 and then to an appropriate 700 Activity code. The M&S
accuntig deparent works with engieerig to estiate the amount of time expected to be
chaged to capita project for the year, and then calculates an overhead rate to be applied to all
capita expenditu, except di purchases.
The time charged by M&S employees as "700" time is deferrd into an unbiled constrtion
overheads accunt at UW&S. As overheads ar applied each month to the constrction
projects by the local utilty companes and are paid by those local companes to UW&S, those
payments are creited to that unbiled constrction overheads account. .
TI SHEET REPORTING
Time sheets for UW&S employees are comprehensive and permt a thorough trckig of
hour spent and biled for varous affliates and subsidiares. On the time sheet are codes for the
followig:
1. Employeenumber. (for each UW&S employee)
2. Departent number. Ths is not the cost center number, as discussed above, but is used
by Payroll and Human Resoures to identifY the group of employees with which the
employees are idetified (a cost center may have employees with more than one
deparent numbe).
3. Earn number. Identies reguar hours spent versus holidays, vacation, absences, etc.
IV-7
~4\ IISTA~ V CONSULTING GROUP, INC.A MANAGEMEN ANAI.YSIS. INCORPRATED COMPANY
Request No. 110 Attachment 3 PA 1996
Page 25 of 34
4. Company Code Activity Code (or Project Code, if applicable). Ths identifes the
affate or subsidiar for which tie is being allocate (Company Code), the natue of
the activity (Activity Code), and additional detas concerng certin specific projects.
such as rate cases or special projects. Exhbit IV-3 is a listig of Activity codes with
the Accounti Inormation Technology & Plang cost center.
5. Absence Code. Ths distigushes tyes of absences, includig unpaid verus paid.
Exhibit IV-3
Activity Codes
. ,
!
500 Accounting, Info Technology & Planning
501 Maintenace of Books and Records
505 Biling & Accounts Recivable
510 Fixed Assets (includig CPR's)
515 hitercompany BilingI&S Fees
520 Financial Reportg (SEC. Bondholders, Quarly. etc.)
525 Accounting Policies and Procedur
530 RatelReguatory Matters
540 hiormation Systems
541 Inormation Technology Strategic Development
542 Ino Tech Hadware & Soft Development & Evaluation
545 hitemal Audit
550 Plang & Analysis
560 Supervsion & Development of Staecrutig
570 Taxes
575 Maketig, Financial Analysis and Plang
580 Oter
590 Holiday
591 Sickness, Medica Appointments, Jur Dut
592 Vacation
593 Seminar and Conferences
594 mtemal Maagement Meetigs
\i ,
IV-8
.VJ!.l!i'NGGROUP, INC.A MAAGI!EN ANALYSIS, INCOIURATED COMPANY
Request No. 110 Attachment 3 PA 1996
Page 26 of 34
C. FINDINGS AND CONCLUSIONS
IV-Fl The relatonship betwee JJS and its affiliat, including UW, allows
for a gr deal of local autoom with repect to certain serices received.
This helps ensure that strateg and policy decisions reflect the nees of uw
and it operng divisions rather than the nees or desires of the pamt
company.
The degre of local autonomy given M&S's afliates in such ar as engieerig and
plan contrass with the stctue and argement that exist in other large investr-owned
water utility companes, such as Amencan Water Work Service Company. Ths is
advantageous in that it gives UW and other afùiates increased flexibilty with respect to which
activities are perormed, how often, an at what cost or level of efforts. It also gives UWP and
its operating divisions the from to perform some of these activities themselves or contrct
them out.
IV-F2 Diret biling and cost allocation methodologi used by JJ&S are
thorough, systematc and equitale, and proide for accurate biling of
services and subsequent tracking of biled services. Guidelines for assembly
of costs by department by servce task actiyity and by indiyidual, and
assignment of these costs to affliated companies are clear.
Direct biling and cost allocation methodologies and procedures used by UWM&S are among
the most thorough and systematic ths auditor ha seen in the industr. These methodologies and
procedures were detaled in the "Background" section of this chapter.
, .
IV-F3 A more formal assesSinent of serices provided by UWS would hel to
veri and assess the :cost-effectiess of the serCes proided. (Refer to
Recmmendation iv -Rl)
Whle it caot be dened that, for the most par, the tyes of serces provided by M&S to
UWP ar appropnately centralized, a penodic assessment of M&S would help to verify the
servces provided, and that they are cost-effective. M&S bilings to UW in excess of $600,000
anually would justify ths review and analysis. Curntly, UW recives a monthy sUDar
statement (invoice) from M&S which shows labor charges by,M&S employee and by major
category (accounting, operations, trasur, etc.). The biling sttement is accmpaned by a more
detaled sum analysis that presents tota charges separated into direct and allocated charges.
UW&S's accountig of activities is thorough enough such that more usfu suiares
could be provided. These sumes could provide UWP's managers with a better idea of the
natue of the services that have been performed. Cumulative data for the year could also be
provided. Ths tye of data is aldy accumulated by M&S, although the present inormation
technology environment does not allow ths information to be reeved easily. UWM&S should
tae advantage of curnt effort to enhance the IT architectue to faciltate development of suchsumar data in the futu. .
IV-9
.VJ~l!TINGGROUP.1NC.
.-il
A MAGIi ANALYSIS. INCORPRATE COMPANY .
Request No. 110 Attachment 3 PA 1996
Page 27 of 34
UWP could probably benefit from a periodic assessment of major services and charges,
including benchmarkig agait othr utilties or outside vendors; Without a sum of
servces and charges, UW's managers are not in a position to easily verifY the delivery, cost-
effectiveness, nee, or performce of the services provided by M&S.
IV-F4 Hourly rates of M&S emplOJees are based on annual cost projectons wbich
are perodically updated using actal costs, and are reUonable. Hourly
biling raes hay cotinued its rece deçreasing trd since the UW-GWC
merer.
Exhibit IV -4 shows the hourly biling rates of M&S employees. Billig rates for each
deparent ar calculated separtely. With each deparent, composite rates are caculated for
four employee clasifcations: Executives, Dirctors, Managers, and Sta Hourly rates ar
updated at leas anually an ar basd on anual cost projections for the comig year. Biling
rates ar based on employee salar compensation plus an overhead allocation of indirect costs.
In 1995, overhead wa approximately 97 percnt of salares, which is reasonable. Ths results in
a biling multiplier of 1.98, which is also reaonable. The resultig rate is based on a 2080-hour
work yea.
Hourly rates range from $74 to $147 for employees classified as executives, $55 to $118 for
dirctors, $46 to $89 for manager, and $39 to $94 for staff For the most par, although not in
every case, these rates are lower th tht which would be charged by outside contractors and
consultats deliverig comparable services. For example, the billng rates of the Legal
Deparment, which rage from $94 to $120 ar far lower than the rates of private legal fis.
Simlarly, the rates of engineerig personnel ar lower than rates charged by consultig
engieerig fis, excepting perhas ver small, local fis.
Stil, in general, the hourly rates are a little higher than might be expected given that, being
an internal division of water company, M&S does not incur marketig costs nor the costs and
business risks of fluctuating work loads and unused capacity facing outside consultig fis and
vendors.
Hourly rates have come down sharly. in recent yeas, and are for the most par continuing to
decrease post-merger. The hourly rate brnearly all employee classifications are lower th they
were in 1987 in real terms, and in some may caes, even in nominal term. Exhibit IV -5 shows
recnt trends for a few selected employee classifcations. Hourly rates for many employee
classifications have fallen upwas of30 percent since 1987. Post-merger 1995 rates were lower
than the pre-merger 1994 rates for nealy every classification as well, the one exception being the
Operations Maager classification.
iv-lO
EVJ!lIT'NGGROUP, INC.A MAAGEMENT ANALYSIS. INCORPRATED COMPANY
Request No. 110 Attchment 3 PA 1996
Page 28 of 34 '
Exhibit IV-4
M&S Biling Rate
.Vc!llnNG GROUP, INC.
$103 $87 $78 $71
78 65 49
74 53 44
147 118 89 80
82 76 64 57
73 53 47
120 109 94
103 75
58 50 41
92 58 46 39
55 43
83 71 61 46
lV-ll
A MANAGEMEN ANALYSIS. INCORPRATE COMPANY
Request No. 110 Attachment 3 PA 1996
Page 29 of 34
Exhbit iv-S
Trends in M&S Hourly Rates of Some Selected
Employees Classifications
IV-12
.~IlIlT'NGGROUP' INC.A MAAOB/EN ANALYSIS, INCORATe COMPAN
Request No. 110 Attachment 3 PA 1996
Page 30 of 34
IV-F5 Analysis of the bilg records for 10 M&S employees across all UW
affliates does not indicate any "padding" of labor hours.
"Paddig" of hours by biling multiple afates for the same hour expended is one way for the
parnt to arficially increase cost, and therefore, revenue requiements and rets on
investment. Under such a hypothetical scenano. employees may bil more th a ful yea of
hours. A random sampling of the billig rerds of 10 M&S employees offers no indication that
such acton occurs. The 10 employees sampled averaged 1953 bilable hours, which is. a 94
percent bilabilty rate based on a 2080 hour work year. The hours of additional employees were
also analyzed.
IV-F6 There has been a decrease in M&S labor charges to UW since 1992.
Furthermore, the immediate overall impact of the merger on total M&S
charges to UW has been some reduction in costs. Reduced cost and
improved servce should be realied in some functional areas over the . long
term, most notably Accounting, Information Technology and Planning, once
the full potential for cost savings from the merger is achieved. The exception
is that charges for Administrtive & General services have increased
significantly.
Exhibit IV-6 provides a sumar ofM&S labor chages to UW for the period 1992-1995.
Exhibit IV-7 is a swnar oftota M&S charges to UW for the same period. M&S charges for
the year 1994 were unchaacteristicaly low due to the tranition durg the merger. Both labor
and total M&S charges ar lower post-merger as compared to premerger. Both labor and total
M&S are lower post-merger as compared to prior to the merger. Estimates for 1995 labor
charges of $762.533 ar 9.2% lower than 1992, 17.1% lower than 1993, and even 2.5% lower
than the average for the entire 1992-1995 period, which includes 19941s arcially low chaes.
Even tag into account the fact that UW no longer receives billg service from M&S,
estimated chares for 1995 show a distict downward trnd.
Sigicant benefits, both in terms of reduced costs and improved servce once the planed IT
enhcements ar implemented, should be reiz in. the Accountig and IT fuctons over the
long-term. It can be anticipated that the imediate fue will brg increased costs in
Accuntig and IT, due to intiatives to improve these fuctons; intiatives that have lead to the
establishment of several new Cost Centers. Recent cost reductions, prior to these intiatives, in
1995 as compared to 1993 are nearly 40%. Economies of scale, and more importtly, more
effcient accountig and IT fuctions are the resons. For reason of economies of scale, M&S
chages for the Human Resoures and Payroll Functions ar 16.5% lower as compard to 1993
and 3.2% versus 1992. .
Much of M&S labor savigs resultig frm the merger, however, are lost due to much higher
Adminstrtive an General charges, which are more th double in 1995 versus 1992 and 1993.
UW has a higher labor cost structu in ths fuctional area which UW has inerited. The full
potential cost savings that should result from the merger canot be realiz until these costs are
reduced.
IV-13
.Vcl!l!rINGGROUP' INC.A MANGEMEN ANLYSI. INCIUTED COMPANY
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IV-IS
Request No. 110 Attachment 3 PA 1996
Page 32 of 34
*
A _GI! ANYSIS D1CORPRA1E COAN
Request No. 110 Attachment 3PA 1996
Page 33 of 34
D. RECOMMENDATIONS
IV-Rl Assess M&S services on a more formal and freuent basis to verö. the
successful delvery cost effectveness, need, and pedormance of serices.
(Refer to Finding iv -F3) .
It ca,ot be expected that UWP and UW&S have a tr, ars-lengt client-service
provider relationship, as they ar both par of the same company. It is still wortwhile, however,
for UWP's mangers to trck and anyze servces being received frm M&S.
The followig should be considered to enable UWP's mangers to better track and assess
M& S service reived:
1. Take advantage of efforts to improve IT architectu and Financial Information Systems
on a company-wide basis to estblish a policy in which UWP receives monthly
sumares of charges to accmpany M&S's monthy billng statements. These
capabilties should be incorporated into the new Integrated Financial Management
System (IMS). This data should be cumulative for the year. Ths inormation is
necessar for UWP's maner to gain a better understading of the natue of servces
being provided and at what cost. Ths basic level of inormation will help to focus
inquies to M&S, as discused in the recommendations that follow.
2. Make inquis to M&S whenever there is a varance in charges in any Activity Code that
canot be explained. Keep informed about special projects tht are being charged to
UWP and assess the cost-effectiveness of projects bein performed by M&S.
3. Detemue the merits of conducting periodic "reverse" audits on tagete M&S servce.
These reviews could include bench markig of costs again other utilities and agait
outside vendors where appropriate. Engineering and Plamg, Distrbution and
Hydraulic Analysis, and Rate Case Prepartion are aras that ar likely candidates for
such reviews. Even some aras where centralization of activities at M&S makes obvious
economic sense could be candidates for such reviews to assess performane and
appropriateness of the types of servces provided. These reviews should not be limted to
cost comparsons, but could also be used to assess: (a.) possible redundancy of activities
aleady performed by UWP employees; (b.) whether the servce is needed or usefu; (c.)
whether it is being performed satisfactorily; and (d.) whether the level of biling is
reasonable. The reviews may indicate that some services may be perrmed by UWP or
by an outside vendor, or may simply indicate that a difrent set of services is requied
from M&S. UW should be a discerng cusomer in its relationship with M&S.
These recommendaons wil result in benefits that may tu out to be signficant. They
would give UWP's managers a better understading and more control of the natu and level of
services received from UWM&S and could result in savings by uncovering redundacies of
efforts at UWP and M&S, and identifying services which UWP does not need. Only in ths way
1V-16
.VISTA~~ CONSULTING GROUP, INC.A MANAGEMEN ANALYSIS, INRATE COAN
I
I
i
I
I
I
I
I
Request No. 110 Attachment 3 PA 1996
Page 34 of 34
can UW's manager make inormed decisions regarding affliate-relate projects and
expenditues importt to their ratepayers.
IV-17
., IISTA
~ V CONSULnNGGROUP, INC.A MANAGEMEN ANALYSIS, INCIUTED COMPII
Request No 110 Attachment 4 GW 88
Page 1 of47
Final Report of the
GENERAL WATERWORKS CORPORATION
(PENNSYLVANIA OPERATIONS)
Coprehensive Management and Operations Study
PENNSYLVANIA PUBLIC UTILITY COMMISSION
June 1988
Request No 110 Attachment 4 GW 88
Page 2 of 47
GENERAL WATERWORKS CORPORATION
(Pennsylvania Operations)
MANAGEMENT AND OPERATIONS STUDY
TABLE OF CONTENTS
CHAPTER PAGE-
I.INTRODUCTION
A. Objectives and Scope
B. Approach
C. Recommendations Summary
D. Cost and Benefits Sumary
E. Functional Evaluations
1..1
1:-6
1':9
1;"10ii-ii
II. EXECUTIVE MAAGEMENT
A. Introduction
B. Background
C. Findings and Conclusions
D. Recommendations
11-1
11-2
11-8
11-13
III. ACQUISITION POLICIES AND PROCEDURES
A. Background
B . Acquisition Process
C. Acquisition Trends
D. Findings and Conclusions
E. Recommenda tions
111-1
111-3
111-4
111-5
111-9
IV. STAFFING AND COMPENSATION
A. Introduction
B. Findings and Conclusions
C. Recommendations
IV-1
IV-4
IV-l 9
V. SYSTEM OPERATIONS
A. Background
B. System Engineering and Construction
C. Transmission and Distribution
D. Customer Services
V,. 1
V-4
V--9
V..24
- 1 -
CHAPTER
VI.
Request No 110 Attachment 4 GW 88
Page 3 of 47
GENERAL WATERWORKS CORPORATION
(Pennsylvania Operations)
MAAGEMENT AND OPERATIONS STUDY
TABLE OF CONTENTS
SYSTEM MAINTENANCE AND UPGRAING
A. Introduction
B. Background
C. Findings and Conclusions
D. Recommendations
VI I. FINANCE AND ACCOUNTING
VIII.
A. Background
B. Findings and Conclusions
C. Recommendations
SUPPORT SERVICES
A. Purchasing and Materials Management
B. Transportation and Operating Management
C. Facilities and Land Management
D. Legal
E. Communications
F. Data and Word Processing
PAGE
vi-i
VI-3VI-7vi-16
ViI-lVII-3
VII~32
VIII-lVIII-lSVIII-l9VIII-20VIII-24VIII-26
ix. ASSOCIATED COMPANY FEE AND OTHER COST ALLOCATIONS
A. Background
B. Organization of GWC Corporation
C. Description of Pennsylvania Operating
Companies 1 Expenses
D. Corporatewide Allocated Expenses
E. M&S Charges
F. Aqua-Tech General Billings
G. Findings and Conclusions
H. Recommendation
APPENDIX A
Supporting Financial and Operating Data
and Statistics
- 2 -
IX-l
IX-3
IX-S
IX-7
IX-9IX-ie
IX-~O
IX-~7
EXHIBIT
I-I
1-2
1-3
11-1
11-2
11-3
11-4
11-5
11-6
111-1
111-2
111-3
111-4
111-5
111-6
111-7
IV-l
Request No 110 Attachment 4 GW 88
Page 4 of47
GENERA WATERWORKS CORPORATION
(Pennsylvania Operations)
MAAGEMENT AND OPERATIONS STUDY
TABLE OF EXHIBITS
Recommendations Summary
FOLLOWING
: PAGE
1-9
Cost and Benefits Summary
Functional Evaluation Summary
Organizational and Ownership Relationship
List of GWC Corporation Subsidiaries
1-10
x-ii
:i1-2
11-2
General Waterworks Management and Service
Company Organiza tion 11-2
Central Region Organization
Officers and Directors of Pennsylvania
Operating Companies
11-3
11-4
Organization of Pennsylvania Operating
Companies 11-4
111-1Corporate Structure of GWC Corporation
General Waterworks Corporation AcquisitionProcess 111-3
111-3Acquisition Criteria and Application
General Waterworks corporation Water
Company Acquisitions
General Waterworks Corporation OtherSubsidiaries
'111-4
111-4
Divested General Waterworks Corporation
Water Companies 111-4
Bloomsburg Wa ter Company Operating and
Financial Statistics 111-7
1987 Staffing Breakdown by EmployeeClassification 1V-4
- 1 -
EXHIBIT
IV-2
IV-3
IV-4
IV-5
IV-6
IV-7
IV-8
IV-9
IV-10
V-l
V-2
V-3
V-4
V-5
V-6
V-7
V-8
V-9
Request No 110 Attachment 4 GW 88
Page 5 of 47
GENERAL WATERWORKS CORPORATION
(Pennsylvania Operations)
MAAGEMENT AND OPERATIONS STUDY
TABLE OF EXHIBITS
Operating Companies Employees by Position
Applications and New Hires
Pennsylvania Operating Companies
Nonexempt and Union Wage Comparison
Overtime by Company
Exempt Employee Salary Grades
Comparison of Operating Company Managers iSalaries
Management Salary Evaluation
Annual Wage Increases
GWC Pennsylvania Operating Companies
Employee Benefits and Payroll Costs
Raw Water Treatment
Engineering Organization
System Supply and Demand
Required System Improvements
Project Labor Analysis
Organization and Distribution System Profile
Pennsylvania Properties Transmission
and Distribution Expense Analysis
Outside Construction Contractor Costs
T&D Maintenance and Outside Construction
Contractor Costs
- 2 -
FOLLOWING
PAGE
iV"'S
IV-S
IV-8
IV;" 9
IV-9
IV-Il
IV-12
IV-13
IV-18
V-3
V-4
V-S
V-5
V-6
V-~
V-9
V-ll
V-12
EXHIBIT
V-iO
V-ll
V-12
V-13
V-14
V-15
V-16
V-l7
V-18
V-19
V-20
V-21
VI-l
VI-2
VI-3
VI-4
VI-5
VI-6
Request No 110 Attachment 4 GW 88
Page 6 of 47
GENERAL WATERWORKS CORPORATION
(Pennsylvania Operations)
MANAGEMENT AND OPERATIONS STUDY
TABLE OF EXHIBITS
T&D Overtime and Base Hour Summary
Service Level Performance Statistics
Pennsylvania Properties Customer Service
Expense Analysis
Customer Inquiry/Complaint - Flow Chart
Customer Inquiry and Complaint Summary
Summary of Customer Complaints to the PUC
Water Service Termination Procedure and
Timeline of Events
Meter Types, Locations and Reading Cycles
Average Meter Reads/Hour Summary
Meter Repair Statistics
New Meter and Replacement Meter Summary
Customer Service Overtime and Base Hour
Summary
Location of Operating Utilities - State ofPennsylvania
System Profile
Capi tal Planning and Budgeting Process
Unaccounted-for Water
Dauphin, Wrightsville, Mechanicsburg:
Unaccounted-for Water
Expenses Related to Controlling Unaccounted-
for Water
- 3 -
FOLLOWING
· PAGE
V-l3
\7-14
V-24
V-30
V-30
V-31
V-34
V-36
V-37
V-39
V-39
V-41
VI-4
VI-4
VI-5
VI-6
VI-6
VI-lO
Request No 110 Attchment 4 GW 88
Page 7 of 47
J
GENERAL WATERWORKS CORPORATION
(Pennsylvania Operations)
MANAGEMENT AND OPERATIONS STUDY
TABLE OF EXHIBITS
FOLLOWINGEXHIBIT PAGE
VI-? Theoretical Savings (or Costs) for Purchased
Power and Chemical for 1987
VI-8 Blanket Work Order Capital Plans
VI-9 Investment Work Order History
VI-IO Projection Study Tracking Analysis
VI-I! Maintenance Spending History
VII-! Distribution of Finance andAdministration Responsibilities
VII-2 Capital Structure
VII-3 GWC Debt Interest Rates Versus "A" Rated Bonds
VII-4 Budget Versus Actual O&M Expenses
VII-5 Budget Versus Actual Capital Expenditures
VII-6 Distribution of Accounting Activities
Vii-7 Requested Versus Granted Rate Increases
VII-8 Actual Versus Allowed Return on Common Equity
VII-9 Insurance Premiums
VIII-1 1987 Purchases
VIII-2 Data Processing Department
IX-1 Corporate Structure of General WaterworksCorporation
IX-2 Top-Level Organization of General Waterworks
Management and Service Company
IX-3 Top-Level Organization of General Waterworks
Management and Service Company - Central Region
- 4 -
VI;.11
VI~11
VI..11
VI713
VI-14
Vll-1
VII-l
VII-4
VII-21
VII-21
VII-22 l'
VII-26
VII-26
VII-31
VllI-l
VIII-27
IX-3
ix.. 3
iX;" 4
EXHIBIT
IX-4
iX-S
IX-6
IX-7
IX-8
IX-9
Request No 110 Attachment 4 GW 88
Page 8 of 47
GENERAL WATERWORKS CORPORATION
(Pennsylvania Operations)
MANAGEMENT AND OPERATIONS STUDY
TABLE OF EXHIBITS
FOLLOWING
. PAGE
Pennsylvania Operating Companies -
Operating Expenses
Applicability of Corporatewide Expenses
M&S Billing Rates
IX-6
IX-7
IX-13
M&S Charges by M&S Department
M&S Charge Summary
IX-14
IX-23
Per Customer M&S Charges IX-24
- 5 -
Request No 110 Attchment 4 GW 88
Page 9 of 47
ix - ASSOCIATED COMPANY FEE AND OTHER COST ALLOCATIONS
A - BACKGROUND
CENTRALIZATION OF SERVICE FUNCTIONS
A holding company, such as General Waterworks
Corporation, with a number of smaller operating companies
can benefit from certain functional activities beingperformed centrally by a service company. Theoreticàlly,
the operating companies should benefit from such an
arrangement through lower costs associated with economies ofscale, greater technical expertise due to specialization,
stronger management and operating controls, and a greater
level of attention since an affiliate is providing theservice.
While the service company approach offers these
potential advantages, it requires an equitable expense
allocation process and accurate record keeping to ensurethat subsidiarie's are charged only for their II fair" share of
corporate expenses. This is particularly true in a
regulated business where cost recovery must be approved by
the PUC, based upon its own independent assessment.
SCOPE OF AUDIT WORK
This portion of the Management and Operations Study was
conducted to determine if GWC' s methodology for charging M&S
fees and corporate wide expenses to Pennsylvania operating
companies is reasonable and systematic. To make such a
determination, the following questions were answered:
o Is a service company arrangement, such as that of
GWC' s, in the best interest of the Pennsylvania
operating companies?
o What types of corporate services are
what expenses are allocated to the
operating companies?
o Are the arrangements for services provided to the
Pennsylvania operating companies by M&S and other
GWC subsidiaries well defined and documented?
provided andPennsylvania
IX-l
Request No 110 Attachment 4 GW 88
Page 10 of47
o Is the manner by which allocable expenses are
chargGd to Pennsylvania operating companies
equitable in that it is correlated directly to the
receipt of services?
IX-2
Request No 110 Attchment 4 GW 88
Page 11 of47
B - ORGANIZATION OF GWC CORPORATION
GWC Corporation is the holding company which owns
subsidiaries doing business in both regulated and
nonregulated industries. The corporate structure of. GWC
Corporation reiterated here as Exhibit IX-I. The holding
company i s principal units are described below.
o Nonregulated subsidiaries GWC Corporation owns
four companies whose operations are not subject to
regulation by any state public service commission.
General Waterworks Corporation - owns the regulated
water utility companies and General Waterwòrks
Management and Service Company.
o
o General Waterworks Management and Service companï
eM&S) - is the entity which provides a variety 0
servIces to other GWC companies. M&S consists of a
corporate group and three regional operating groups
(Central Region, Atlantic Region, and NorthwestDistrict) ..
GWC Corporation is a principal asset of LAH (Lyonnaise
American Holding, Inc.) which is the wholly-owned subsidiary
of the French company, Lyonnaise des Eaux.
REGULATED UTILITY COMPANIES
As shown in Exhibit IX-2, M&S contains corporate-level
functions including financial, legal, rates, engineering,
corporate development, and administrative services, as well
as regional operations. M&S performs services for all GWC
companies, including the Pennsylvania operating companies.
In return, GWC companies who are recipients of these
services are allocated a portion of M&S expenses. Virtually
all of the expenses ofM&S are allocated to GWC companies.
M&S also provides services to GWC' s nonregulated
companies, including Geographic General and Aqua-Tech
General. The M&S Corporate Development group pursues., new
business opportuni ties, inc luding the acquis i tion or
start-up of other regulated and nonregulated businesses.
For purposes of regulatory cost recovery, the expenses
associated with these activities are considered "below the
line. "
The employees of the Central Region of the M&S provide
middle management supervision to Pennsylvania operating
companies in addition to engineering and accounting
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:
:
Ql

e
l
IC

J
:
el

l
6
..

'
"
""

.
.
s,
z
"'
0
..

.
.
..o ~g.3 ~"'~00
~
0
0
::ii::Xi'"
Request No 110 Attchment 4 GW 88
Page 14 of 47
services. The organization of the M&S Central Region is
shown in Exhibit IX-3. As with M&S corporate, the regionalorganization i s costs are borne by the operating companies itserves.
NON REGULATED COMPANIES
GWC Corporation iS nonregulated businesses, as describedbelow, are separate corporate entities.
o Infilco Degremont, Inc. (lDI) IDI designs and
sells water and wastewater treatment equipment,
supplies, and services. Its equipment is
manufactured entirely by other companies. The
company was purchased in 1987 and is headquarteredin Richmond, Virginia. IDI is substantially
independent of other GWC companies in that it
receives relatively little support from M&S.
o General, Cor oration (A ua-Tech)
provi es leak detection services to GWC
operating companies and to other municipal and
investor-owned water utilities. The company has
four employees and three vehicles used in the
detection process. Its principal place of business
is Valencia, Pennsylvania, although its president
occupies an office in GWC i S Bryn Mawr corporateheadquarters.
o Geographic General, Inc. (Geo) Geo was
established in 1986 to perform digitized mapping
services for municipalities, utilities, and various
other customers. It is headquartered in Boise,
Idaho and presently employs 15 people.
o GWC Pine Bluff 'Service Company (PBSC) - PBSC was
created in July 1985 when it entered into a 20-year
service agreement with the City of Pine Bluff,
Arkansas to construct, own, and operate a pumping
station and a number of sewage transmission lines
wi thin the city. The company has no employees.
When necessary, employees from General Waterworks of
Pine Bluff (a regulated company) are utilized to
support PBSC' s facilities. In this instance, the
regula ted company's employees i time and expense are
charged to PBSC.
IX-4,
1:1
Request No 110 Attachment 4 GW 88
Page 15 of 47
EXHIBIT IX-3
General Waterworks Corporation
(Pennsylvania Operations)
Management and Operations Study
TOP-LEVEL ORGANIZATION OF GENERAL WATERWORKS
MANAGEMENT AND SERVICE COMPANY - CENTRAL REGION
(Pennsylvania Companies)
Vic Prest
CentralRegio
I I I
Asstat Regioal ReioalVicFinaniaPresientEngineerCoina
. -Manager-. -Manager-.-Manager-LStaff Eniner-LReg PlanerBlosbrgDauph. Bethel Towip Pennsania
. -Manager-Coidte
East McKepot . Dauphin
. -Manger-. Wrigtsville
Freepot
. -Maager-
Mechanicburg
. Employes of Each Respetiv Oprating Copay
Request No 110 Attachment 4 GW 88
Page 16 of 47
C - DESCRIPTION OF PENNSYLVANIA OPERATING COMPANIES' EXPENSES
The expenses of each Pennsylvania operating company fall
into the following four categories:
o Operating Company-Specific Expenses are
directly by an operating company. Nonei terns are invoiced by GWC or M&S to the
company. Primary among these expenses are:
incurred
of theseoperating
Wages and salaries of operating company
employeesTaxes (ad valorem, gross receipts)
Purchased power (electricity)
Purchased waterDepreciationChemicals
Contracted maintenance expenses.
o Allocatedexpenses
but which cannot always be attributed directly to a
specific operating company. These expenses include:
Insurance (medical, auto, general liability,
and workers 'êompensation)
Pension expense
Peat, Marwick, Main audit fees.
o M&S Char~es are the expenses of M&S which are charged
to operating companies in two ways. First, they are
billed directly to a GWC company based upon M&S' s
direct support of that company. Secondly, they maybe allocated based upon a predefined prorata
distribution among applicable GWC subsidiaries. The
more significant M&S expenses which are being
allocated in this process include:
Wages and salaries of M&S employees
Da ta processing charges
Rent on the corporate headquarters
Transportation and travel expenses
Consultant and contractor costs
Outside legal fees
Office supplies and postage.
Most of these items are billed to M&S which, in turn,
allocates them to the applicable companies based on
certain prede,£in~d factors.
.¡"
iX-S
Request No 110 Attchment 4 GW 88
Page 17 of 47
o Aqua-Tech Fees are billings from Aqua-Tech for 'leak
detection services performed for an operating
company.
Only two GWC companies charge the Pennsylvania
operating companies for services -- M&S and Aqua-Tech. No
other GWC subsidiary is involved in cross-charging another.
Exhibi t IX-4 presents each Pennsylvania operating
companies i expenses for the years 1984 through year-to~date
1987.
The first expense category, Operating Company-Specific,
involves no allocation, and thus, no evaluation was
performed. The allocation or billing methodology of the
other three expense ca tegor ies, however, were subj ected to
scrutiny as described in the following sections.
IX-6
Request No~~~iJ~nt:\~8
Page18of41age 1 of 4
GENERAL WATERWORKS CORPORATION
(Pennsylvania Operations)
MANAGEMENT AND OPERATIONS STUDY
PENNSYLVANIA OPERATING COMPANIES - OPERATING EXPENSES(1984-1987*)
IUlII lAST . HICHAlles ylleKrS PIHHflLYAili
IlfKI~ ILQQ"SaURC DIUPHIH XCXIISPORT 'IIIPORT .IUIG .YILLI COHSOLIDl TID
.......... .......... .......--- .......... .......... .......... .......... ....;.......
op!llrl_C COKPixr.splclrlcmum
.. .... .... ..... ............
Yieri 114 Sii.rle.
PIrehud Povcr
Purdue4 Yah,
C\uicili
r.oilriclcd Haiatc.IAcC
Dr,rcchlloa
Ad Viloree Tutl
Oihr Taru
Oller hpciiu
Tohl
iLLOr.1TlO CORPOI1T,.YlÐl
miirus
. .............. ............
Crou, Bealll laiuiiaee
Auto luuuce
CeAeri\ Llibillt7 IA'UTlftCt
Vorler. CoipcalalloA I.ivrince
Pciiioa (.pcue
PlIN Audll reu
Tohl
xu cUlm........................-.~ .
HlS FCl.IDllcct or Allocited)
ACISllutolllcd Cuitoier
11111i( S,ilci' Cotll
HfRSIKcc\.llted rli,lcl.1
leportlo( S,iteii Coili
lile Ciie Erpe,ie.
I.c.. I
Coipiler Coati
Di,\rlc\ Office Cllteei
Total
AQUA-Tiei CKllGIS
TOTAL. O'lllTIVC IIPIN'.'
l',m
10
m,on
lHO,OU
501,108
',m
19,m
it,Si9
III ,501
H,IOIiJ,uim,m
3 ,OS I
I,HI
I, SOD
I l1, '00
SI,ml1
10, S IT
3,WI,m
" ii
30,100
l1,lH
I, '01
t,mlI,mlI,m
S,IH
, ,ill
31,11
IUI,UO
m,otS
IH
It, tSo
lS, ic
H,SHtl,m
SS,UI
u,sss
IU,S"
IS, JS
3,1U
11, iio
. . Il,lID
1, lt
II ,5"
31, tt
II,IH,GHm,m
l1I,Ulll,m
11l,U1m,m"',m
HO, )lm,m
......... ......... ......... ---_....- ....-.... ......... ._.--_..- ..........
IH1,Zl H/A It,5JI,111 1151,S" l151,'IO 1I11,Olå Illt,IOO 11,01.."1 ii.s\
l101,511IS 5, JUHl t1,IU
SS,Otl
',HII,UI isim......... ....-.... .........
II ,iot H/A 11U,U!
tl',SU
IZ
m
t,m
IHI,in
11,05
I,m
'is, ii
\ ,101I,m
U,m
H,m
auIl
I,m
1,19is
11,11
IU,nt3,m
I,m
',m
it
,.,m
If, iiim
I, iit,mI,miu
UI,OI1
I, til
I,mIl,mI,m
I, l5
Himui
I,m
3,m
1,1"
55
IUO,m
1,I5ti," I
H,1I0
I I ,I"
11,11
1',503 ISI,31t 113,1J5 It'I.151 5.'1
tu,USau
I,m
H,m
u
1,11
"I,UI
1,110
I,OIt
u,m
I,UIm
11,011
IU,J"J,m
I,SlO
Him
u
I,UO
15U,ut
)0,~''
B,Ul
\H,ml,tILm
az,tH
l!l,m MIA
.. ....... ......... ......... ......... ......... ......... ......... ...... ....
15~',3'' 1l',I3i 111,'ll 1110,11' I(S,5" I"S,l(t 1'.(1
lI,m H,m III,IS O.ll
......... ...._.... ....-.~.. ......... ......... ,........ .......-. .......... .....-
IUI,m X/A 11,tl0,Ol1 1111,10( Itll,"O 1111,111 'lSt,O" ",III,llt 100.01;:::::::: ::::::;:: ::::;::::. ::::::::: i:::::::: :;;::;;:i ::::::::i I;:::::::: :i:::
* Through August of 1987.
Source: Company Documents
Request No 110 Attachment 4 GW 88
Page 19 of 47 EXHIBIT IX-4
Page 2 of 4
GENERAL WATERWORKS CORPORATION
(Pennsylvania Operations)
MAAGEMENT AND OPERATIONS STUDY
PENNSYLVANIA OPERATING COMPANIES -OPERATING EXPENSES
(1984-1987*)
(IUS)UST HICHlICS VRGRT PIlIlSTLVUU
maIL 8LOOKSBURG OAUPHfJ KCUlSPOBr nauon-.iuea .YILLI I:UIISOLIOUID
.......... .. ........ .......... .......... .......... ...... .... .......... ....... ........
OP21AflMG COXPAIIJ.splclrlcmum
..... ......................
Valtr aid Salarles U,m 11,10',59 1$5,0&IH,OH IUl,OiO sn,ll lI,m,IU
Purchud Pover 100 m,m ',m I1,UO II.U'7%5,51
Purehred Vshr m,m ,,US 60,U1 15 UI,l5
C~tlicah H,OOI 1,01 l I,m il, II liUS H,m
r.oilraeled KalDlt.ance II to.IOU ',m 11 ,005 n,....ii,8O UI,Ooi
Deprechlioa " sot ItS,lll I,m IS, '"iiim ii, si is, si
Ad Valorei Tates 96,011 I,IH t,tH H,m 1, ,ot UI,OIS
Oner Tatu I,m Zl,W I,m 10,001 U,ltI iiini m,IlS
OLker bpeues t,m tt,ZS U,IH uim H,GH 35.m it, ti..........-.................--_.-_._.............................-.._.....
Total SUl,5U ~/A IZ,JU,&1 tlU,m l\5&, so ,m,it IUl,5S Sl,ui,01 11. ti
ALLOCATED COiPOiATi.VIDImum......-.....................
Croup leilt' laiuraace lIU,Of H,IOf 't,m HO,m 16,fI tlH,m
. Aulo luuruee m ',18 l3 US t,m m I hm
Ceneral Lliblll tJ Iniurance t,m JO,Ut 1,tl I,m 1,'U l,ue H,m
Vorker. Coipe.iation IAsurance 82,an 1,81 t,m lI,m I,'"10',HI
Ptuloa hpuu ',tOO '"'51 m m ii,m
PKX Aud it Feu l,tOO lI,m fl I,m t,m i,l'l 11,11.....................-.-...._._.._.-....-........__.........................
Tolal H,m MIA StI,m ",HZ tI,ut IH,IH t1S,in 111.011 '.ts
HU CHUCI...............__.......~..
KU FeulDirel or Allocihd I 111,18 l3U,lU tt,is SU,UO l10S,OU tJ,it ma,uo
AC8S(Autol.ted Cuitoier m 11,89 J,OIO 9I ',GH J,m 11 ,1S
Billlii S7ltel) Cost.
XraS(Kec'a.ited Finiicl.i 55 t,m I,UI I,UI 1,111 I,m Il,m
ReportiAl Siitea) Costi
Rale Caie (rpei.ei iu 1I',m 10,m It,m It,U'to,nO tOO,m
Leiil t,m t,m 10,110
Coipiiltr COft.l,n.lit il i ll tt I, ts I.........................................................................
Tolal tit, no ~/;A S5I,II1 1U,505 IU,SU IIU,na 161,10 SIU, to It. It
AqUA.TICI CBAICI'19,m 13,IU si ,100 IIC,lOt O. )l
............................-.............................................................. . ....
TOTAL OPllAfllO IIPIKSI'sm,OH KIA U,Sl,m im,u,ttOr."i 11,001,'"St5.UI 15,'51,511 100.01....................:::::::::.........-._.................::::::::::::::::::: :::::............... ..........- ....... ....-.. ........
* Through August of 1987.
Source: Company Documents
Request N~lJe~vi 88
Page 20 of pfage 3 of 4
GENERA WATERWORKS CORPORATION
(Pennsylvania Operations)
MAAGEMENT AND OPERATIONS STUDY
PENNSYLVANIA OPERATING COMPANIES - OPERATING EXPENSES
(1984-1987*)
(Itl'l lAST NECHANICI VRieHTI PINNSTLVArrA
BiTHIL BLOOkSBURe DAUPHIN kCrllSPORT ,aIIP~Rr -BURe -YILLI CONSO~I~Ar!O
OPliATING COXPANT.SPICIPICiimus
.......... .................
Vifc. .id Salirlc.
Pvrc~astd Povcr
PlIrchstd Viler
Chaieali
Contricted "a¡alciance
Deprccialioi
Ad Vilorei Tilts
Olhr Tues
Oller hpcnscs
Total
ALLOCATED CORPORAfi-VIDIlimns...........................
Croup Htlll~ lasurinee
Allo liuuruct
Geieril Llibi i I t7 lllurince
Yorker. Co.ptftiitlon 1.lurl4ce
Pculoll hpeAse
P"il Audi Pm
Total
iu' CHuers. .......... ....._-.........
Ilis Ptel(Direcl or Allocatcd)
AC8S(Aulolaled Cu.lo.er
8111,1, ',ilei) Coili
"'is (Xeekinl Ctd Plnlftci i I
- lepoilii( S,sle.) Coil.
Rile eire EipCllCS
Leul
Coipultr Cull
Tolal
AQUA. rici CIARel,
tOTAL OPIIATI.G IIP!.SI'
.......... .......... .......... .......... .......... .......... .......... ......4.....
'IOf,Ot! II,ZI3,fll
55,11' 616,811t,mH,mZ1,m
11 I, ii
8S,m
UZ,5t
ZlI38
18,mu
HO,m
'i t5
I,m',m
Zl,mI,m
", f51
H,m
115l
6,J6
IH,m
10,15
1,010
S,30t',m
1,190
I,UI
!I,m
Hoim
10,m
5,100
S,ltl
l5,m
4,161
"'81
ZS,33S
'HO,min,m
3,m
II,Ul
$l,mm,mIt,m
il,5Jl
to,U1
Ul,'"
1S,5t
3,Z1
11,511
. ZZ,5Z
I,ZI
Ji,aHlI,m
II,'" ,ZlO
Uó,OIllJ,m
131, JOOm,m
CZ,OUii,lU
m,izs
m,COI
......... .._.- .... ......... ......-_. ......... _.... .... ......... ..........
'313,6'S 'l61,'1113,035,3J3 1113,110 Ilf6,811 1111.515 Il06,tll 15,055,1" 10.11
iii
S,55
H,on
815
m
5l1
1,503'"
l\U,ln
10,11
mmH,m
8,60
31,13
U,mm
2,m
I,m
99m
H,"!m
3,112
1,JD
m
I,m
US, ttzI,m
It, lZ
ii,301m
I,m
1',100m(,m
3,m
m
~,56
'lU,m
15,90
108,IU
lOS¡ lU
If ,Oil
IS, ii
~........ .~._.._.. ......... ......... ........e ......... ......... ..........
l1,m 't,501 1311,llZ 1',310 113,'51 '11,016 111,6'1 '('1,016 1.5'
ICI'ZI 131,195 t3iO,siz IIC,S7t 111,11t156 1,1" 11,1ll 3,OZI '"
5t m. C,081 I,m 1,185
3fl 1,'fO 53,615 II,CZI 10,9Cf
IzI ',lU10' ',351 IOl 101
18C,ISS ll',ll'
5,1l l,IOS
1,101 I,Ht
Z),lll ZI,f'8isus 155
mimi
iz; l1
1%;0'0
1)1; fG1
io;iu
5;ZU
11,7l8 'Ct,'t3 lll',Ill 130,511 12t,ll) 1111.06' ISl,f" ,,05;lt1 11.31
11I,m tl.COO H,m 11,100 lZ,Z11 Ui
.. ....... ..... .... .... ..... .... ....- ......... ......... . ........ ...............
1)'8,116 IJll,CI'13,"',8IS 1115,ll& 1181,e,1 11,051,101 '171,ll( Il,25'.2.0 100.0\::::::::: ::::::::: ::::::::: ::::::::: ::::::::: ;:::::::: ::::::::: :::::::::i i::::
* Through August of 1987.
Source: Company Documents
Request No 11 0 Att~B38 I X - 4
Page 21 of 47 Page 4 of 4
GENERAL WATERWORKS CORPORATION
(Pennsylvania Operations)
MANAGEMENT AND OPERATIONS STUDY
PENNSYLVANIA OPERATING COMPANIES - OPERATING EXPENSES
(1984-1987*)
11~~1 Ihrough Augusl)CASJ MECHANICS WRICHIS :'(HHSll YANJA
SEJHEL BLOOHSBURG DAUPHIN MCrEESPORf FREEPORT -IURG -yiitr ,COHSOlIDAICD
.......... --_.._-... ...__..... .....----- ._......-. .-_.._.-.. .......... .............
OPERA'ING COHPAHy.sp£crrrc
mENSES
Vages and Sal3rlfS
PurChlStd POIlt(
Purtl,astd Kaler
Chuicals
Conlrac ltd Kaintenance
Oep(tchtloii
Ad v.lortl rUts
Oihtr lun
o IIltr (lpenstS
total
AllOCArEO CORPORAJElVrOE
EXFrHSES
Group Htallh Jnsur.nCt
Aulo Insuunce
Gtiieral liability InsuranCt
Vorlers Co.pensation rnsurance
'tnsion Eipense
Plflf Audi t hts
lolal
ius CHAmS
HIS feeslDirect or Allocated)
ACISIAulo.aled Cuslc.,r
lillihg Sysle.) Cosls
XFRslH,chanil,d financial
Repor t Ing 51st'.) Costs
Rat, Cast Elp,ns,s
legal
Coaput l( Cos is
Total
AÐUA. rECK CHARGES
JorAl OPERAr ING EXPENSES
S3,Ol8
18
278,ii
S,373
I,m
S,770
S12i23
96,1&4
15,217
18,568
48,753
12,08S
39,ON
IOS,9H
1813.90
462,'98
',759
82,554m,ll
J?J,OOJ
60,361
?07,'dl
38S,500
lJ,Ol'
50,037
625
l,OSI
6,06&
1,074
5,'J4
2&,243
IShoii
',218
~,130
16,m
12,&18
2,980
9,38&
18,&l8
l26,S40
851407
U,027
?5,S4&
81,SJ2
13,860
52,4&(
105,79
1SI,560
15,312
J,887
5,11
'12,21l
4,431
','1'
SOlllS--------- :
It ,393,&83
&&8,9J7
Jj8,m
122 ,500
?~I ,~&11
S&1,SSe
94,'11
326,oia
698,1111
1293,803 1508,335 12,588,'81 1125.084 1127,43& 1655,170 1152,094 1.,4SI,701 11.&1
10
526
3,82S
o
a
704
Ut,900
1,274
8,m
5,541
2,854
2,'17
S1',874
7,854
103,500
21,016
SJ,94S
',725
si ,997
301
1,274
900
1,201
704
15,548
314
2,700
'00
J ,969
804
m,037
1,72
21,825
7,514
Il ,895
I,'lt
U,si, .
450
J,Il25
1,21
2,71
904
si97,19l
12,503m,m
43,273
77,575
17,m
---_.__.- --.~.._-- --_._~--- --_.._.-- .-------- ---_._.-- -----.... _._-------
IS,OSS 1381130 1131,974
S&,340
247
18' ,524
6,&78
522 1,150
i5,2009J
2,128
SlU,'82
22,749
3,978
97,760
10,844
J,705
16,371 112,295 183,688 11&,000, 1413,S17 B.LI
UJ,O'S
3,001
1,1'
18.018
$1S,2J5
1,000
I,m
s,m
165
180,191
5,831
2,772
181
12,262
1,817
~46
lI.,'80
3,226
1,218
J,72S
l5JO,255
U,7&4
12,294
.._.__._~ ----_.-.- _._...... ...---..- --_...--- --_.~..-- ---_....- -------_.-
12)
152,650
13,S78
1,848
261
17,370 SIIJ,43$ 1452,718 SJ5,482 123,OJ7 SI0.,03$ 123,J32 S159,40' 11.11
i 14,17 12,275 SI ,3$0 II ,J50 117,150 D.lI
.__...._- ._.-_...- .-.------ _..__.~-- ....._--- ._._._--- ......... .-._..~-.. ....-
1306,228 S&S9,?OO si,3~1,848 $16',218 $161,768 1844,241 ll93,S16 15,72J.1al 100.01
::::::::: ::::::::: ::::::::: ::::::::: ::::::::: ::::::::: ::::::::: :::::::::: :::::
* Through August of 1987.
Source: Company Documen ts
Request No 110 Attachment 4 GW 88
Page 22 of 47
D - CORPORATEWIDE ALLOCATED EXPENSES
A certain number of expenses are incurred by the
holding company, GWC, which benefit substantially all
subsidiaries, both regulated and nonregulated. Thesecorporatewide items include:
o Group heal th insurance
o Auto insurance
o General and excess liability insurance
o Property insurance
o Workers compensation insurance
o Pension expense
o Peat, Marwick, Main audit fees
o Interest expense
o Data processing charges.
The first step in the allocation process involved
determining whether an expense applies to a subsidiary. For
example, Bethel has no employees of its own and thus gets no
allocation of pension expense. The table shown in Exhibit
iX-S defines which expenses apply to which companies.
Once the applicability of an expense has been
determined, the total expense is then allocated to the
appropriate subsidiaries on a prorata basis. The allocation
factors used attempt to relate the extent of benefit
received with the amount being allocated. The basis for
allocating each type of expense is described below:
o Pension expense - an actuarial report specifies the
amount of total corporate pension expense that is
attributed to each GWC company.
o Group health insurance - based upon the number ofemployees and their dependents of applicablesubsidiaries.
o Auto insurance based upon the revenues of
applicable subsidiaries consistent with the M&S
method of allocating all liability insurance. GWC
has no auto insurance-costs for property damage
because the Company is self-insured in this area. .
o General and excess ltab!li ty. insurance - based upon
total assets less cash and accounts receivable, ofapplicable subsidiaries.
o property insuranc~;. - based upon total fixed assetsof applicable s~bsidiaries.
IX-7
GE
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e
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H~I VI
Request No 110 Attachment 4 GW 88
Page 24 of 47
o Workers compensation insurance - based upon totalpayroll of applicable subsidiaries.
o Peat, Marwick, Main audit fees - based 50 percent ontotal revenues and 50 percent on total capital
structure of applicable subsidiaries.
o Interest expense based upon total
structure of applicable subsidiaries.
capital
o Computer system charges based upon the tot a 1
number of transactions of applicable subsidiaries.
IX-B,
Request No 110 Attchment 4 GW 88
Page 25 of 47
E - M&S CHARGES
SERVICES PROVIDED BY M&S
M&S corporate or regional groups
direction to the operating companies,
variety of services, including:
provide management
as well as a wide
o Accounting
Processing transactionsMaintaining accounting records
Preparing accounting, operating, and
regulatory reports
preparation and monitoring of the operatingbudget
Performing internal audits of operating
companies
Financial planning.
o Engineering
Forecasts and projection studies
Economic analysis of construction projects
Preparation and monitoring of the constructionbudgetDesign engineering
Operating engineering
Construction management.
o Employee Benefits Coverage
Procurement of benefit coverage
Administration of benefit programs
Oversight of pension fund asset managers.
o purchasing
Procurement of piping, valves, fittings,hydrants, and meters (the remaining materials
and supplies are purchased by the operatingcompanies themselves)
Administration of national material purchasecontracts.
o Customer Billing
Preparation of customer bills.
IX-9
Request No 110 Attachment 4 GW 88
Page 26 of 47
o Treasury
Financial planning
Cash managementLong-term financings
Banking relations.
o Labor Relations
Contract negotiationsProcessing grievances.
o Data Processing
Management of contract with the computer
service company
Application system development and maintenance
Acquisi tion of PC hardware and software.
o Rate and Regulatory Matters
Preparation of rate case filing materialsRate case testimony
Administration of tariffs and rate schedules
Regulatory relations.
o Tax
, iTax research and planning
Preparation of tax returns
Administration and resolution of tax audits.
o Training
Safety training
Customer service
New regulation.
o Risk Management
Procurement of insurance coverage.
o Legal
Management of legal proceedings
Provide counsel to operating subsidiaries
Review financings, SEC filings, and various
other documents.
; i
IX-10
Request No 110 Attachment 4 GW 88
Page 27 of 47
OVERVIEW OF M&S EXPENSE ALLOCATION
The expenses incurred by M&S are either allocated
individually to GWC companies or are combined and
incorporated into an hourly billing rate which is then used
to charge GWC companies. The operating companies reimburse
M&S only for the actual amount of its expenses. There is no
profit or markup added to M&S expenses which would permit
GWC, in effect, to earn more than allowed return on equity
from its regulated businesses.
The principal M&S expenses which are individually
billed to a company include:
o Automated Customer Billing S~stem (ACBS) - expense
associated with the system wliich prepares customer
bills. A count of transactions by company is
maintained by the system and is used in the
allocation process.
o Mechanized S stem (MFRS)
expense assoc ated w th t e general edger systemwhich maintains the financial statements of
operating companies. Here too, transaction counts
form the basis of allocation.
o Rate Case Extense - the cost of conducting a. rate
case, the al ocation for which is based upon hours
spent by each M&S employee on the case.
Legal - in-house and outside legal costs associated
with work performed directly for a company.
The process of associating these expenses with a GWC
company is relatively straightforward. The remainder of
this section discusses the second M&S expense alloc¡:tion
process, the charging of other M&S expenses on the basis of
an hourly billing rate.
o
ALLOCATION BY M&S BILLING RATES - OVERVIEW
The foundation for allocating most M&S expenses is the
time reporting system for M&S professional employees. Time
reports are utilized .by M&S employees to report their time.
The time reports are;the basis for determining the dollar
amounts which will be charged to individual companies.
The process of allocating M&S expenses can be thought
of as a three-step process, consisting of:
o Calculation of an hourly billing rate
IX-II
Request No 110 Attachment 4 GW 88
Page 28 of 47
o Reporting of time by M&S professional employees
o Calculation of the amount to be allocated to the
operating companies.
Calculation Of M&S Hourly Billing Rate
Hourly billing rates are calculated on a quarterly
basis for employees in the following M&S groups:
o Executive
o Operations
o Engineering
o Word Processing
o Data Processing
o Controllers
o Planning
o Audit
o Regional Accounting
o Treasury
o Corporate Development
o Legal and Rates.
For each of these areas there may be as many as three
different hourly rates to reflect the following levels of
employee income:
o "Management" -
:iiover $45,000
$25,000 to $45,000
o "Executive"
o "Staff"under S 25,000.
The formula for calculating an area's billing rate
consists of a numerator which is the sum of:
+ Projected Total Expenses for the Remainder of the
Year
+/- Under/Overbilled expenses, as of the previous
quarter's end
The denominator is the area's projected total
professional hours for the remainder of the year. A
hypothetical billing rate is calculated below for the 4thquarter.
IX-12
Request No 110 Attchment GW 88
Page 29 of47
Projected expenses (October 1 - December 31) $100,000Underbilled expenses as of September 30 + 10,000
$110,600
Projected total professional hours
(October i - December 31)
Hourly Billing Rate
.T 2,0:00
$55.00
Projected expenses are the area's budgeted expense~ for
the rest of the year. Included are the following items:
o Wages and salaries
professional personnel
of M&S managerial and
o Wages and salaries of M&S secretaries and clericalpersonnel
o Pension and insurance premiums related to M&Semployees
o Office rent, utilities, depreciation, general office
supplies, and related expenses
o Legal, audi ting , and other fees for services
rendered to M&S
o Taxes.
The over/underbilled amount represents the difference
between the previous quarter's actual expenses versus whathad been lIbilled".
Total professional hours include the number of hours
remaining in the year for the area 1 s employees. It is the
product of the following formula.
Remaining Number Of Total Hours Per Employee (based
upon a seven hour day)
X Number Of Employees In The Area
Employees are not allowed to report more than seven
hours per day, regardless of the number of hours actually
worked. This prevents overrecovery of M&S expenses byreporting more than the number used in calculating the
hourly billing rate. Billing rates for M&S for the last four
years are shown in Exhibit IX-6.
iX,.13
1986
# Emp.
1
2
1
1
3
1
3
2
2
2
3
1
2
2
4
2
3
4
2
7
Request No 110 Attachment 4 GW 88
Page 30 of 47 EXH IB IT ix - 6
GENERAL WATERWORKS CORPORATION
.(PertIlsylvania Operations)
MANAGEMENT AND OPERATIONS STUDY
M&S BILLING RATES
CC #
Ol-Executive
Category
E
1983-
228
10303-0perations E
M
OS-Engineering 110
83
E
M
1 I-Word Process S 15
12-Data Process 60
52
E
M
2 I-Controllers E
M
S
56
45
40
49
40
32
2 2-P lanning M
S'.
M
S
23-Audit
24-Region Acctg.M
S
36
32
30-Treasury E
M
86
62
40-Atlantic Reg. Mgmt.
Eng.
BO-Corporate
Development
E
M
101
70
90-Rates and LegalSVP, RatesVP, RatesAttorneyRate Analysis
100
55
45
48 TOTAL M&S EMPLOYEES
1984
312
1985
287
106 106
109 112
88 100
16 16
56 5849 50
67 6857 5850 51
43 40
37 35
32 33
41 37
35 31
95 92
68
121 150
ios 110
57 60
47 50
Legend: E = Executive salary range $45,001 +
M = Management salary range $25,001 - $45,000
S = Staff salary range under $25,000
(a) Rates as of September 30, 1987
Source: Company Documents
1986 1987 (a)--
357 424
103
91
73
19
44
39
61
54
48
34
35
30
31
28
95
79
69
142
120
120
85
65
119
98
73
21
46
36
61
54
46
41
32
30
30
27
91
149
120
120
85
65
Request No 110 Attachment 4 GW 88
Page 31 of47
Reporting Of Time By M&S Professional Employees
Each month, M&S professional employees complete a time
sheet showing hours charged to both an M&S activity code and
to the GWC entity for which the activities were performed.
The activity code is used for reference purposes. Only the
entity code is used for expense allocation. with regard to
the activity code, each department of M&S is grouped into
the following areas:
100 - Administrative and General
200 - Operations
300 - Customer Billing and Communications
400 - Employee Relations
500 - Accounting, Data processing and Planning
600 - Treasury
700 - Engineering and Construction
800 - Corporate Development
900 - Rate and Rate Cases
A standard set of activities exist for each area.
Included among them are code numbers for nonwork
"activities" such as holiday, sick time, and vacation.
These exist to ensure that individuals account for all of
their time during the month. Exhibit IX-7 presents a
breakdown of M&S fees, by Department, charged to the
Pennsylvania operating companies (amounts for 1984 are not
available because the runs for that year were previÇ)usly
destroyed) .
As shown on Exhibit IX-7, the charges to entity code
100 (Administrative & General) have increased significantly
at Bloomsburg and Dauphin during the first nine months of
1987 compared with 1986. DCI investigated further todetermine why the charges had increased so substantially
year-to-year. The principal reason given by GWC for the
significant increase is the management audit being conducted
for the Pennsylvania Public Utility Commission.
The largest increase in both dollars and percent was
found at Dauphin Consolidated Water Company. As indicated
in Exhibit IX-7, A&G expenses at Dauphin totaled $48,206 in
1986. For the first nine months of 1987 A&G expenses
amounted to $80,103; an increase of 66 percent. During 1986
GWC i S Senior Attorney and Assistant Vice Pre~ident charged a
total of only $1,131 to Dauphin. However, during nine
months of 1987 this same individual is A&G charges totaled
S40,966.
o The Senior Attorney and Assistant Vice President
explained to DCI that essentially all of ,these
charges, and similarly allocated charges tQ the
IX-14
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HX l..
Request No 110 Attachment 4 GW 88
Page 33 of 47
other Pennsylvania companies, represented management
audit expenses -- either preparation for the audit
or participation in the active conduct of the audit.
o The increase in A&G charges to Bloomsburg should bediscounted, since 1986 data represents only fivemonths.
o However, it is important to note that the companies
are not actually being billed for the audit-related
costs. Those costs will be presented in the next
rate case.
Company or "entity" code numbers exist for each GWC
subsidiary, either regulated or nonregulated. Depending
upon the scope of the service which was performed, time can
be charged to an individual operating company, to the state
to reflect something which benefited .all the operating
companies therein, to a region, or to the entire system.
The entity codes applicable to the Pennsylvania operating
companies are:
301 - Systemwide
540 - Central Region
402 - Pennsylvania properties
202 - Dauphin Consolidated
207 - Mechanicsburg Water Co.
211 - wrightsville Water Supply Co.
212 - Bloomsburg Water Co.
237 - East McKeesport Water Co.
238 - Freeport Wa ter Co.
029 - Bethel Water Co.
The entity codes for each of the nonregulated companies
are shown below:
309 - Miscellaneous Privatization
640 - Geographic, General, Inc.
650 - Aqua-Tech General
670 - GWC Pine Bluff Service Company
870 - Infilco Degremont, Inc.
900 - Lyonnaise American Holding, Inc.
Calculation of the Monthly Operating Company M&S Charge
A company is charged for M&S expenses either because
M&S performed work directly for the subsidiary or because
the work performed was of indirect benefit.
Where M&S professional employees have spent time indirect support of an operating company (e. g ., in performing
IX-IS
Request No 110 Attachment 4 GW 88
Page 34 of 47
tax research), that company is charged for the number of
hours at the current billing rate.
Where M&S professional employees have supported the
operating companies in an entire state or a region, or have
performed work for the entire corporation, then a series of
allocations are performed to develop the amounts to be
charge~ to an individual GWC company.
o The process starts with the allocation of systemwide
charges (entity 1301) to the next lower entity level
(regions, in the case of the regulated businesses).
o Systemwide M&S allocations are added to direct M&S
charges and then àllocated to the next lower entity
level, states.
o Once again the direct state M&S charges are added to
the systemwide and region allocations and then
allocated to individual operating companies.
o These allocated M&S charges are added to the
operating companies' direct M&S billings to arrive
at the total amount of M&S charges for the month.
This elaborate allocation routine further differs by
the type of service being performed, as described below.
o Administrative, Purchasing, Insurance, and General
Services - based 33.3 percent on total number of
employees and 33.3 percent on the number of
customers served, both as of the end of the
preceding calendar year, and 33.3 percent onoperations and maintenance expense (exclusive of
regulatory expenses and provisions for depreciation
and taxes) for the preceding year.
o Engineering services - based 40 percent on utility
plant in service ~nd construction work in progress
at the end of the preceding calendar year, 40
percent on the volume of water delivered during the
preceding calendar year, and 20 percent on total
fuel, power, and chemical costs during the precedingcalendar year.
o Customer Billing and Communications Services - based
on the number of customers at the end of thepreceding year.
o Employee Relations Services - based on the number of
employees at the end of the preceding year.
IX-16
Request No 110 Attachment 4 GW 88
Page 35 of 47
o Accounting and Data processinfi Services - based on
capitalization at the end of t e preceding year, not
transactions (e_g., journal entries) because thereare no transactions utilized.
o Treasury Services - based upon total capitalization
at the end of the preceding year. As in Accounting
and Data Processing, no transactions are utilized.
This allocation methodology is defined in an agreement
between M&S and each of the operating companies. As
required by law (66 P.S. #2102 (a) 1, this agreement was
filed with and approved by the Pennsylvania Public Utility
Commission.
GWC's President allocates his time according to the
methodology described. In 1986 the Pennsylvania operating
companies bore a total of $61,395 in aiiocated expenses from
the President which, on the basis of $357.00 per hour,represented approximately 172 hours. The President can
allocate a total of '1,820 hours per year. Thus, he
allocated 9.4 percent of his time to the Pennsylvania
companies in 1986.
For year-to-date 1987 (January through October) the
President allocated $61,395 in total costs to the
Pennsylvania companies, representing 144.8 hours based on
his 1987 billing rate of $424.00 per hour. Assuming
that
approximately 1,516 hours could have been allocated in the
ten-month period (83.3 percent of 1,820), the President
allocated 9.4 percent of his time to the Pennsylvania
companies in the first ten months of 1987.
1.-:
IX-17
Request No 110 Attachment 4 GW 88
Page 36 of 47
F - AQUA-TECH GENERAL BILLINGS
Aqua-Tech provides leak detection services for GWC
operating companies and non-GWC water utilities. For this
service, the operating companies compensate Aqua-Tech at a
fixed daily rate. This is the only way in which Aqua-Tech
receives any remuneration from GWC regulated businesses.
On November 16, 1983 M&S filed an affiliated interest
agreement between Aqua-Tech and the Pennsylvania operating
companies, with the Pennsylvania Public Utility Commission.
This document specified the prices, terms and conditions of
the services to be provided by Aqua-Tech. On March 16,
1984, the Commission ordered that the proposed contract be
disallowed because the costs were not considered "reasonable
and consistent with the public interest". GWC subsequently
agreed to reduce the rate charged to operating companies
from SO.12/foot to SO.10/foot. This revision was eventually
approved by the Commission in an order dated April 6, 1984.
Later, Aqua-Tech greatly reduced its charge to GWC
operating companies by utilizing a daily rate for a
detection crew rather than a per-foot charge. This was
brought about by the reluctance of non-GWC customers, whose
rates are based upon "what the market will bear," to pay
S.IO/foot. However, the daily rate charged to GWC operating
companies is much tower than that charged to non-GWC
customers. This is demonstrated by looking at Aqua-Tech's
billing for the month of July 1987, as shown on thefollowing table:
GWC
Wrightsville Water Supply Company $675
(42,600 feet)
July 1987 Billings
Daily * of Days Total
Ra te Worked Charged
2 $1,350
Non-GWC
Myerstown Water Authority 850
(29,600 feet)
Blairstown Paving & Excavating Co. 875
(l,366 feet)Fountains Condominiums 850
(218 feet)Halpern Enterprises 775(2,695 feet)
1
2
i
i
850
1,750
850
i ¡
775
Source: Company Documents
¡ ,
IX-I8
Request No 110 Attchment 4 GW SS
Page 37 of 47
Aqua-Tech is the only leak detection service being
utilized by the Pennsylvania companies. GWC believes that
Aqua-Tech is the only company offering the sophisticated
technology and equipment necessary to identify leaks
throughout the various systems. Because of this, the
companies do not compare rates or utilize other leakdetection services.
IX-19
Request No 110 Attachment 4 GW 88
Page 38 of 47
G - FINDINGS AND CONCLUSIONS
The Structure Of M&S And The Services Provided By It
Are In The Best Interest Of The Pennsylvania OperatingCompanies. .
The types of services which M&S provides to the
subsidiaries of GWC can be placed into two broad categories
__ management and professional/staff. Management support
includes the activities of the Senior Vice President ofOperations and the Regional Vice Presidents who have line
responsibility for overseeing the operations of each
operating company. In this regard, the structure of M&S
enhances supervision and control by positioning experienced
middle management resources (the Vice Presidents) between
senior management and individual operating company general
managers. It also has the effect of motivating general
managers since there is a distinct career path leading
beyond their operating company.
Professional/staff support, the remaining serviceprovided by M&S, includes engineering, data processing,
treasury, accounting, legal, rate case, human resources and
purchasing support activities. For several reasons,
centralizing these activities within a service company makes
a great deal of sense.
o First, each activity is technically unique and the
operating companies benefit from the specialization
of service company personnel.
o Second, the service company approach provides shared
economies since operating companies pay only forthose services. that they require and they need notmaintain their own support sta ff .
o Finally, the cost of M&S services are less expensive
than contracting outside for the same services.
A review of billing rates for M&S employee categories
(Exhibit IX-G) shows that the M&S hourly rates are below
market rates for professional services. For example, an
experienced outside attorney would cost considerably more
than the $85 per hour billing rate for M&S lawyers. The
same is true of M&S auditors whose billing rates are
significantly below those charged by public accountingfirms.
IX-20
Request No 110 Attchment 4 GW 66
Page 39 of 47
The Billing Rate of GWC's President Appears Excessive,
particuiarla When Compared With The Rates Of Other M&SOfficers An Staff.
As illustrated on Exhibit IX-6, a comparison of 1983
M&S billing rates with the rates in effect on September 30,
1987, shows that most rates have remained relatively steady,
or even declined. Nineteen of the 27 rates in the Exhibit
can be compared between 1983 and 1987. Eleven rates rose,
seven declined, and one remained the same. Eight of the 27
rates cannot be compared for the 1983-1987 span.
. The largest rate increase during this period occurredin Account CC-Oi. This category, which includes only the
President of General Waterworks Corporation, increased $196
per hour (86 percent) from 1983 to 1987. The next highest
increase during this same period was in Corporate
Development, Category E, where the rate increased from
$101
to $149 per hour (48 percent).
Upon inquiry, GWC indicated that much of this increase
is attributable to the fact that until mid-1985 the
President was serving both IU as Vice President and GWC, and
that his costs were borne in part by IU and in part by GWC.
When IU sold its remaining interest in GWC, the president's
costs become wholly chargeable to GWC. Notwithstanding the
former division of costs, the billing rate of the President
appears high when compared with other M&S rates.
The Arrangements For
Pennsylvania OperatIng
Defined And Documented.
Services
Companies
Provided To TheBy M&S Are Well
The foundation for charging M&S fees or allocating
corporatewide expenses to operating companies is providèd bythe following:o Ex enses thein t e accounting
o M&S Char es/Individuall Allocated Ex enses - the
operating agreement etween M&S and each operating
company states that:
"All costs of the Service Company incurred in
connection with services rendered by Service
Company which can be identified and related
exclusively to Utility Company, shall be
charged directly to Utility Company. II
IX~21
Request No 110 Attachment 4 GW 66
Page 40 of 47
The operating agreement also describes the
alloca tion basis for these expenses.
o M&S Charges/Allocated By Hourly Billing Rate - tne
operating agreement also states that:
"All costs incurred in rendering services toUtili ty Company in common with similar
services to other Utility Companies whidh
cannot be identified and related exclusively
to services rendered to a particular Utility
Company, shall be allocated among all Utility
Companies so served, or, in the case of costs
incurred with respect to services rendered to'1, a particular group of Utility Companies,
among the members of such group, the manner
hereinafter set forth..."
In addition, accounting procedures exist for the M&S
time reporting system.
As previously mentioned, the M&S operating
for each Pennsylvania operating company
filed with the Pennsylvania Public
Commission.
agrèement
has beenUtility
o Aqua-Tech Billings are defined in an April 6,
1984, order from the Pennsylvania Public Utility
Commission.
The Process By Which Corporatewide
Allocated To Pennsylvania OperatingSystematic And Rational.
The basis upon which corporatewide GWC expenses are
allocated, as described in, previous sections, is reasonable
and equitable. The factors used in this process bear a
direct relationship to the level of benefits received byeach subsidiary.
Expenses
Companies
Ar~Is
In addition, the Company's determination of which
corporatewide expense pertains to which GWC subsidiary isappropriate.
The Process By Which M&S Expenses Are Charged To The
Pennsylvania Operating Companies Is Systematic AndRational.
The manner in which M&S expenses are allocated
individually to GWC companies is reasonable.
IX-22
!
Request No 110 Attachment 4 GW 88
Page 41 of47
o Computer system-related expenses are billed based
upon the number of transactions processed for each
company.
o Rate case and legal expenses are billed based on
those costs directly associated with each company.
The process by which other M&S expenses are allocated
is also reasonable. First, the grouping of M&S cost centers
by type of service provided is appropriate. Second, using
professional hours as the allocation denominator is correct
since the activities of these people undoubtedly drive the
incurrence of expenses b~ M&S for the GWC companies beingserved.
As shown in Exhibit IX-8, the level of M&S chargeS to
nonregulated GWC companies has risen during the past two
years to the extent that regulated operating company charges
have declined. In addition to paying a larger absolute
amount of M&S fees, nonregulated companies are bearing a
greater proportional share of M&S charges:
(Amounts in Thousands)*il il !l !i
Charge To Amount \Amount ,Amount \Amount \
Regulated $3,785.1 94.3\$2,583.8 94.1\Companies S4,224.1 99.9\$4,192.0 98.3\
Nonregulated 74.0 -.228.4 .2 162.4 ..Companies 5.5 -.
$4,229.6 ~\$4,266.0 ~\$4,013.5 .!\S2,746.2 ioo.O\
* Through 8/31
As shown below, between 1985 and 1986, M&S fees charged
to the Pennsylvania operating companies fell more than the
reduction in total M&S fees charged to all regulated
companies.
Total M&S Fees Charge~ To
Regulated GWC Companiesi
/ .
Amount
Percent Change
1984
$4,224.1
1985
$4,192.0(.8)%
~
$3,785.1(9.7)%
I'IX-23
Request No 110 Attachment 4 GW 88
Page 42 of 47 EXHIBIT IX-8
,,,
GENERAL WATERWORKS CORPORATION
(Pennsylvania Operations)
MANAGEMENT AND OPERATIONS STUDY
M&S CHARGE SUMMRY
M&S Charges to Regulated Companies
Corporate M&S Fees
Atlantic Region
Central Region
Northwest District
Total Regions
Region M&S Fees
Atlantic Region
Central Region
Northwest District
Total Region M&S Billings
Total M&S Charges to
Regulated Companies by Region
Atlantic Region
Central Region
Northwest District
Total Region M&S Billings
M&S Charges to Nonregulated Companies
IDI
PBSC
Aqua-Tech
Geographic General
LAH
All Other
Total Nonreg. & Nonutil.
1984
(Amounts in Thousands)1985 1986- -*1987-
$1,338.51,331.4
541.6
$3,211.5
$1,274.71,302.6
549.7
$3,127.0
(A)$1,606.6 $1,033.21,205.1 939.8
489.9 294.7
$3,301.6 $2,267.7
$ 423.6 $ 491.8 $ (A) $589.0 573.2 483.5 316.1
$1,012.6 $1,065.0 $ 483.5 $ 316.1
! -
$1,762.1 $1,766.5 $1,606.6 $1,033.21,920.4 1,875.8 1,688.6 1,255.9
541.6 549.7 489.0 294.7 ' .
$4,224.1 $4,192.0 $3,785.1 $2,583.8
$$$9.2 42.02.2 94.93.426.9 82.0
5.5 35.7 6.1
$5.5 $74.0 $228.4
TOTAL M&S CHARGES $ 4 , 229 . 6 $ 4 ,266 . 0 $ 4 , 013.5
* Through 8/31
(A) Atlantic Region included with Corporate M&S beginning 1/1/86;
the Atlantic Region Cost Center was $396.8 in 1986.
Source: Company Documents
$ 23.318.0
20.4
20.234.4 '\45.1
S 162.4
$2,746.2
Request No 110 Attachment 4 GW 88
Page 43 of 47
M&S Fees Charged to PA
operating Companies
WrightsvilleFreeport
East McKeesport
Dauphin
MechanicsburgBethelTotal
Percent Change
$ 36.329.5
24.9
361.1
91.519.5
$562.8
$ 36.224.9
21.4
359.5105.0
11.9
$558.9(.7)'%
$ 19.714.814.6330.684.96.6
$471. 2(15.7)%
Finally, as calculated below, M&S fees as a percent of
Pennsylvania operating companies revenues have declined from
1984 to 1986.
M&S Fees Charged to PAOpera ting Companies
1984
$ 562.8
1985-
$ 558.9
Total Revenues of PA
Opera ting Companies ;. $8,017.6
7.0%
.. $9,144.3
6.1%
\
: i
s
1986
471. 2
T SIO,309.6.!
This is due mainly to the newness of the non regulated
businesses and their recent expansion.
M&S expenses charged to the Pennsylvania operating
companies appear reasonable on a per-customer basis compared
to other states' operating companies. This is demonstrated
by Exhibit IX-9 which shows that for 1984 to 1986 (1987
year-to-date was unavailable) the per-customer average for
Pennsylvania was approximately mid-range compared to the
other states served by GWC.
The Aqua-Tech Billin~ Process Is Appropriate And Does
Not Create Opportunities For Cross-Subsidization.
There are several general opportunities for
cross-subsidization to occur with respect to Aqua-Tech:
¡ l
o Operating companies may be overcharged for services
rendered by a nonregulated company by means of an
excessive billing rate.
o Nonregu1ated companies, although receiving thebenefi t of systemwide services, may not pay their
fair share.
1 \
,:j
IX-24
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Request No 110 Attachment 4 GW 88
Page 44 of47EXHIBIT IX-9
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Request No 110 Attachment ,4 GW 88
Page 45 of 47
This first concern was resolved earlier in this chapterwhere we reviewed one month i s Aqua-Tech billings, which
showed tha t :
o Aqua-Tech i s billings to the Pennsylvania operating
companies complied with, and were in fact .lower
than, the billing rate approved by the Pennsylvania
Public Utility Commission.
, j
o Aqua-Tech i s billings to non-GWC customers were in
fact much higher than those charged to Pennsylvania
operating companies.
To further test for this concern, the accounting records of
Aqua-Tech were reviewed in the following manner:
o The invoices for one month i s revenues were' examined
to determine that support existed for totalrevenues.
o The invoice to a Pennsylvania operating company was
traced to the sales journal, a subsidiary ledger of
the General Ledger, to ensure that it had been
properly recorded.
o The sales journal was reviewed for unusual items
(e.g., unusually large dollar amounts).
¡ .,
o Aqua-Tech' s expenses were reviewed and a sample of
several accounts analyzed to determine the nature of
expenses being incurred by the GWC subsidiary.
o Finally, it was determined that Aqua-Tech is
reimbursed by GWC operating companies by means of a
direct billing for services rendered.
Aqua-Tech is receiving no other direct or
indirect compensation which could be construed
as cross-subsidization of its deficit
operations by an operating company.
, \
To test for the second concern, the applicability of
corporatewide expenses to Aqua-Tech showed that all such
expenses are being billed to Aqua-Tech. In addition, it was
noted that M&S charges to Aqua-Tech have appropriately
increased from 1985 'to 1986. Finally, the consolidation ofAqua-Tech i s income statement into a corporate-wide GWC
income sta tement was traced through the following sequence:
o The operating results of Aqua-Tech were noted to
have. been combined with that of Geo-General and PBSC
IX-25
Request No 110 Attachment 4 GW 88
Page 46 of 47
o Total operating results for these subsidiaries were
tied into a summary income statement fornonregula ted businesses
o Total nonregu~ated operating results were then tied
into the total GWC consolidation.
This accounting trail demonstrated
cross-subsidization is not occurring.that
IX-26
Request No 110 Attachment 4 GW 88
Page 47 of 47
H - RECOMMENDATION
Conduct A Survey Of The Billing Rates Of The Chief
Executives Of Other Comparable Companies.
At least superficially, the President i s billing rate
appears abnormally high, especially when compared with other
M&S rates. To assure the Commission and the ratepayers that
the President i s rate is not excessive, M&S should conduct a
survey to determine the rates of Chief Executives at other
comparable companies.
! .,
IX-27
I I
Request No. 110 Attachment 5 PA 04
FOCUSED MANAGEMENT
AND
OPERATIONS AUDIT
OF
UNITED WATER
PENNSYLVANIA
PREPARED BY THE
PENNSYLVANIA PUBLIC UTILITY COMMISSION
BUREAU OF AUDITS
MANAGEMENT AUDIT DIVISION
ISSUED APRIL 2004
Request No. 110 Attachment 5 PA 04
UNITED WATER PENNSYLVANIA
FOCUSED MANAGEMENT AND OPERATIONS AUDIT
TABLE OF CONTENTS
Chapter Page
i.INTRODUCTION 1
A. Objectives and Scope I
B. Audit Approach 2
C. Functional Area Ratings 3
D. Recommendation Summar 4
II.BACKGROUN 9
III.CORPORATE GOVERNANCE 13
IV.WATER OPERATIONS 18
V.MATERIALS MANAGEMENT 25
VI.CUSTOMER SERVICE 35 .
VII.DIVERSITY 40
VIII.COST ALLOCATIONS 47
IX.FINANCIAL MANAGEMENT 52
X.ACKNOWLEDGEMENTS 55
XI.APPENDIX 56
Request No. 110 Attachment 5 PA 04
UNITED WATER PENNSYLVANIA
FOCUSED MANAGEMENT AND OPERATIONS AUDIT
TABLE OF EXHIBITS
Exhibit
No.Page
I-I Functional Rating Summary 41-2 Recommendation Summary 5
II-I Corporate Organization Structure - Legal Entities 10
II-2 Corporate Organization Strcture - Operational I I
II-3 United Water Pennsylvania Employee Organization Char 12
IV -1 United Water Pennsylvania Water Operations Organization Chart 19
V-I Average Monthly Inventory Balances by Business Units 2001 - 2002 26V -2 Inventory Turnover 200 I - 2002 27
V -3 Perpetual Inventory by Business Unit 200 I - 2002 28
V -4 Average Monthly Inventory Balances 1998 - 2002 28V -5 Inventory Pipe Analysis - 2002 29
V-6 Materials & Supplies as a Percent of Net Plant 1997 - 2001 30
V -7 Average Periodic Inventory by Business Unit for 2001 - 2002 32
VI-1 Percent of Bad Debt to Revenue 1998 - 2002 38
VII-1 Number of Employees by EEO Category, Gender, and Race for the 41
Years 1999 - 2002
VII-2 Minority and Female Utilzation Comparison between September 30, 44
1999 and September 30, 2002
VIII-L United Water Management & Services Company Basis for Inter-unit 50
Allocations of Management and Service Fees to UWPA
11
Request No. 110 Attachment 5 PA 04
I. INTRODUCTION
In accordance with the Pennsylvania Public Utilty Commission's (PUC or
Commission) program to identify improvements in the management and operations of
fixed utilties under its jurisdiction, it was determined that a focused management and
operations audit should be conducted of United Water Pennsylvania (UWP A or
Company). Management and operational reviews, which are required of certain utilty
companies pursuant to 66 PA C.S. §516(a), come under the Commission's general
administrative power and authority to supervise and regulate all public utilties in the
Commonwealth, 66 PA C.S. §501(b). More specifically, the Commission can investigate
and examine the condition and management of any public utilty, 66 PA C.S. §331(a).
This report represents the written product ofthe focused management and
operations audit and contains the resultant findings and recommendations for
improvement in the management and operations ofUWPA. The findings presented in the
report identify certain areas and aspects where weaknesses or deficiencies exist. In all
cases, recommendations have been offered to improve, correct, or eliminate these
conditions. The final and most important step in the management audit process is to
initiate actions toward implementation of the recommendations.
A. Objectives and Scope
The objectives of this focused management and operations audit were threefold:
. To provide the Commission, UWPA, and the public with an assessment of the
economy, efficiency, and effectiveness of the Company's operations,
management methods, organization, practices, and procedures.
. To identify opportunities for improvement and develop recommendations to
address those opportnities.
. To provide an information base for future regulatory and other inquiries into
the management and operations of UWP A.
The scope of this audit was limited to certin areas of the Company as explained
in Section B, Audit Approach, below. i
I
Request No. 110 Attachment 5 PA 04
B. Audit Approach
This focused management and operations audit was performed by the
Management Audit Staff of the PUC's Bureau of Audits (Audit Staff). The audit process
began with a pre-field work analysis as outlned below:
. A five-year internal trend and ratio analysis was completed using financial and
operational data obtained from the Company, Commission, and other available
sources. This analysis, which focused on the period 1997-2001, was
supplemented by comparisons to a panel of water utilties for the period 1997-
2001.
· Input was solicited from Commission Bureaus and Offices, certain external
paries, and the Company regarding any concerns or issues they would like to
have addressed during the course of our review.
· Prior management and operations audits, follow-up management efficiency
investigations, implementation plans, and other available documents were
reviewed.
Information from the above steps was used to initially focus the Audit Staff s
work efforts in the field. Some areas or functions of UWP A were selected for in-depth
analysis. Specifically, the following areas or functions were selected for in-depth
analysis and are included in this report.
. Corporate Governance
. Water Operations
. Materials Management
. Customer Service
. Diversity
. Cost Allocations
. Financial Managementludgeting
The pre-field work analysis should not be construed as a comprehensive
evaluation of the management or operations in the functional areas not selected for in-
depth examination. Had we conducted a thorough review of those areas, weaknesses or
deficiencies may have come to our attention that had not been identified in the limited
pre-field work review.
The actual fieldwork began on November 12,2002 and continued intermittently
through May 1, 2003. The principal components of the fact gathering process included:
2
Request No. 110 Attachment 5 PA 04
. Interviews with Company personneL.
· Analysis of records, documents, and reports of a financial and operational
nature. This analysis focused primarily on the period 1997-2002, as available.
. Visits to inventory warehouse facilties, customer call centers, service centers,
treatment plant facilties as well as observation of selected work practices.
C. Functional Area Ratings
For the functions or areas of the Company that were selected for in-depth
examination, the Audit Staff rated the actual operating or performance level relative to
the expected performance level at the time of the audit. This expected performance level
is the state at which each area or function should be operating given the Utilty's
resources and general operating environment. Expected performance is not a "cutting
edge" operating condition; rather, it is management of an area or function such that it
produces reasonably expected operating results.
Presented below are the evaluative categories utilzed to rate each function or
area's actual operating or performance level relative to its expected performance level:
. Meets Expected Performance Level
. Minor Improvement Necessar
. Moderate Improvement Necessary
· Significant Improvement Necessar
. Major Improvement Necessary
Our ratings for each fuction or area reviewed in-depth can be found in Exhibit 1- 1 on the
next page.
3
Request No. 110 Attachment 5 PA 04
Exhibit 1-1
United Water Pennsylvania
Focused Management and Operations Audit
Functional Rating Summary
Meets
Expected Minor Moderate Significant Major
Performance Improvement Improvement Improvement Improvement
Functional Area Level Necessary Necessar Necessar . Necessary
Corporate Governance X
Water Operations X
Materials Management X
Customer Service X
Diversity X
Cost Allocations X
FinanCial Management X
D. Recommendation Summary
Chapters III through iX provide findings, conclusions, and recommendations for
each function or area reviewed in-depth during this focused audit. Exhibit 1-2
summarizes the recommendations with the following priority assessments for
implementation:
. HIGH PRIORITY - implementation of the recommendation would result in
significant cost savings, major service improvements, and/or substantial
improvements in management practices or performance. These
recommendations should be implemented as soon as practicaL.
. MEDIUM PRIORITY - implementation of the recommendation would result
in important cost savings, service improvements, and/or meaningful
improvements in management practices and performance. Implementation of
these recommendations should begin within 12 months.
. LOW PRIORITY - implementation of the recommendation could potentially
enhance cost controls, service improvements, and/or management practices and
performances. Implementation of these recommendations should begin within
18 months.
These priorities were assigned based on the Audit Staff s assessment of the potential
impact of the recommendations and the Companies' available resources.
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II. BACKGROUND
United Water Pennsylvania (UWPA or Company) is a subsidiary of United Water
Resources (UWR). Exhibit II-I presents the Company's legal entity Corporate
Organization structure. In 1994 following a merger with General Waterworks
Corporation, UWR became the nation's second largest investor-owned water services
company. Also, in 1994 Suez Lyonnaise Des Eaux, an international leader in water,
wastewater, energy and communication services, became a principal shareholder. On
July 27,2000, UWR became a wholly-owned subsidiar of Suez Lyonnaise Des Eaux.
In March 2001, Suez Lyonnaise Des Eaux changed its name to Suez and in January 2002
became a publicly traded company on the New York Stock Exchange. Also in 200 i,
Suez created a wholly-owned subsidiar called ONDEO, the world's largest water
service provider with annual revenues of$8.5 bilion and operations in 130 countries
serving a population of approximately 110 milion. UWR which is now a wholly-owned
subsidiar ofONDEO, provides water and wastewater services to 12.5 milion people in
the United States. UWR, in addition to owning and operating regulated utilties, also
operates municipal water and wastewater systems through public-private parterships and
contract agreements.
In January 2003, UWR completed its reorganization of its operations to a regional
based strcture to more closely reflect how it does business. The four regions designated
as Metro, West, East, and South combine both regulated and deregulated entities within
each region as discussed in Chapter VIII- Cost Allocations. As shown in Exhibit II-2,
UWP A is organized under the East Region.
UWP A provides water service to approximately 50,000 customers in 36 boroughs
or townships throughout seven counties in Pennsylvania. As of December 31, 2002, the
Company employed 87 employees having expertise in areas of water utilty operations
including engineering, water quality, treatment plant operation and maintenance,
distribution system operation and maintenance, customer service and biling, etc. The
Company's employee organization chart is shown in Exhibit II-3.
The Company, headquarered in Harrisburg, is divided into four operating areas
(Le., Harrisburg, Mechanicsburg, Bloomsburg, and Dallas). The Company's water
supply is provided principally from surface supplies such as rivers, streams, and
reservoirs. Water is also supplied from wells and through purchase contracts via
interconnections with other water suppliers. Approximately 90% of its customers are
residential (with 53% ofits sales residential), 32% commercial, and 8% industrial with
the remaining 7% comprised of various miscellaneous customers.
! ~
9
Ei"
United W~ sylvania
Corporate (Legal F.anizatiOn Chart
I..
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I
Source: Response to Data Request GD- i 9
10
J
11
Exhibit 11-3
United Water Pennsylvania
Emplofee Organization Chart
..
i"~
Source: Response to Data Request GD-2
12
III. CORPORATE GOVERNANCE
Background
In August 2002, the Audit Staff released a report, which summarized and
evaluated the corporate governance practices of 27 regulated Pennsylvania utilties,
entitled A Review of Corporate Governance Controls and Audit-Related Practices
Pertaining to the Financial Reporting Process Survey (Surey). As a follow-up to that
Survey, Audit Staff included in this audit an examination of the current status of
corporate governance practices at UWP A and its affiliates in relation to the Sarbanes-
Oxley Act. As discussed in the background of the report, UWP A is a subsidiar of
UWR. UWR once traded on the New York Stock Exchange (NYSE) as a publicly traded
company. However, in July of2000, UWR became a wholly-owned subsidiary (and no
longer listed on the NYSE) of a privately owned Paris-based conglomerate called Suez
Lyonnaise Des Eaux which in 2001 changed its name to Suez. Suez is a société
anonyme, a form of limited liabilty company, organized under the laws of the Republic
of France, and thus, is governed by the French Business Code. It is also a foreign private
issuer within the meaning of the Securities Act of 1933 with a class of securities
registered with the U.S. Securities and Exchange Commission (the "SEC"). Suez's
American Depositary Shares have been listed on the New York Stock Exchange since
September 18, 2001 and it is a reporting company pursuant to the Securities Exchange
Act of 1934. As such, Suez is subject to the provisions of the Sarbanes-Oxley Act as
they apply to foreign private issuers. Suez intends to fully comply with the Sarbanes-
Oxley Act and rules thereunder in its capacity as foreign private issuer, in consultation
with U.S. counseL. However, conflctsoflaws may arise, as acknowledged by the SEC in
its rulemaking under the Sarbanes-Oxley Act, and Suez reserves the right to
accommodate such conflcts in an appropriate maner. Suez's position is expressed
under the current applicable law and further legislation on corporate governance may be
enacted in France in the near future.
Findings and Conclusions
Our examination ofthe Corporate Governance function included a review from
the Suez perspective of corporate policy or current position regarding adherence to the
Sarbanes-Oxley Act. In particular we reviewed the Company's policies and procedures
related to: rotation of the external audit firm; limitation of the external audit parner's
involvement; performance of non-audit services by the external auditor; audit committee
member independence from Company management and Company affiliates, and
disclosure of related par transactions.
13
1. UWR is complying with the applicable French Business Corporation Laws
which in many cases are equivalent to the requirements of the Sarbanes-Oxley Act.
Our review the Company's current status of corporate governance practices in
relation to the Sarbanes-Oxley Act revealed that it is generally in compliance with current
requirements and is actively monitoring and updating its policies and procedures as
appropriate. In particular the Audit Staff reviewed the following areas:
- Rotation of the external audit firm
In France, the statutory term of an audit firm's mandate is six years and is
renewable. French listed companies must have two statutory auditors. The
auditors must be appointed by the shareholders in a general meeting. Recently
published SEC rules have accOmmodated such rules as they apply to foreign
issuers in their home country. Suez's two statutory auditors are Deloitte &
Touche and Ernst & Young, and their mandates expire at the 2005 and 2007
annual shareholders' meetings, respectively.
- Limitation of the external audit partner involvement
With respect to the audit parners' rotation, the rules of conduct of auditors in
France recommend such rotation which, according to the European
Commission and the COB (the French equivalent ofthe SEC), should be every
7 years at a maximum. Under SEC rules, lead and concurring audit partner
wil be required to rotate off an audit engagement after five years of service for
a ''time out" period of at least five years. The rules include significant
transition periods for foreign audit partners (for calendar year end issuers such
as Suez, no rotation is required until the 2008 fiscal year audit is completed)
and staggered transition periods for lead and concurring audit parners. . Suez is
working with its auditors to address rotation issues under both legal systems.
- Performance of non-audit services by the external auditor
In France, according to the recommendations of the Bouton Report of 2002 on
Corporate Governance (the "Bouton Report"), the current authority on
corporate governance in France, auditors of an issuer should only be allowed to
perform audit work for that issuer, i.e. the legal audit and certification of
financial statements as defined under French law. All other services for the
benefit of the issuer or members of its group would be prohibited, although
services ancilary to or directly related to the audit would be permitted, subject
to pre-approval by the audit committee. A draft bil currently before the
French Parliament would adopt similar principles. In the U.S., the SEC has
adopted rules implementing Section 201 of the Sarbanes-Oxley Act with a
transition period for services commenced before May 16, 2003 and performed
14
before May 16,2004. Beyond that, any permitted services wil require pre-
approval by the audit cotnittee. Suez's policy is to apply both French and
u.s. principles to the extent they do not conflct. .
- Audit Committee member independence from Company management and
Company affiiates
Proposed rules had been issued by the SEC for which the Sarbanes-Oxley Act
required companies adopt final rules implementing audit committee
requirements by April 26, 2003. On April 1, the SEC adopted new rules that
would direct national securities markets to prohibit the listing of any security
of an issuer not complying with audit committee requirements set out in the
Sarbanes-Oxley Act of 2002. The SEC has made certain accommodations for
foreign private issuers with compliance mandated by July 3 1,2005. In France,
under the Bouton Report, two-thirds of the Audit Committee must be
independent. Currently, Suez's Audit Committee is composed of three
members, two of which are independent under French rules. At Suez's annual
meeting to be held on April 25, 2003 shareholders wil vote on resolutions for
the renewal or appointment of three directors. The Board of Directors wil
subsequently review Audit Committee membership to accommodate both
French Rules and the SOA in due course.
- Policy for disclosing related part transactions
Under French law, transactions entered into (directly or indirectly and except
in the ordinary course of business) between a company and a related par
(officer, director, 5% shareholder) must be submitted to the board of directors
for approvaL. A list of transactions accompanied by a report from the statutory
auditors is then submitted to the shareholders at the anual shareholders
meeting for approval. Information on related pary transactions is also being
included in Suez's annual report.
Other key corporate governance measures/practices established or pending at the
Suez level include:
. Suez currently requires its CEO and CFO to certify financial statements as
well as requires the CEO and CFO of its operating subsidiaries (including
UWR) to certify their respective financial statements in order to establish
accountabilty.
. Suez recently retained a U.S. law firm to aid its efforts to comply with the
Sarbanes-Oxley Act provisions.
. Suez distributes ethic policy manuals to its subsidiaries.
15
· Suez's CFO and a member of Suez's Board of Directors (BOD) sits on the
Audit Committee of UWR which provides a direct corporate governance
link from Suez to UWR.
· The Chairman of the UWR Audit Committee is an outside director (Suez
Offcer) with expertise in financial accounting.
. Business units within the Suez subsidiaries (e.g., UWR legal department,
etc.) are required to routinely provide business unit activity data to Suez.
Additionally, although UWR is no longer publicly traded and therefore not subject
to the Sarbanes-Oxley Act, it intends to implement policies and guidelines consistent
with the Act into its business practices. UWR corporate governance practices were
obtained from the Audit Staffs review of the Company's responses from the
Commission's August 2002 report. Some of the more notable practices employed by
UWR are as follows:
· UWR maintains an ethics policy and a conflct of interest disclosure policy
for its Board of Directors, officers, and employees of the Company.
· An Ethics violation hotlne has been established where calls are directed to
representatives from Human Resources, Internal Audit Department, or the
Legal Deparment.
. The Company has a formal policy with respect to selection of audit
committee members.
· The Audit Comrittee'menibers do no business with the Company or work
for companies that do business with the Company.
. The Audit Committee meets at least twice per year with agendas circulated
prior to the meetings.
. The Audit Committee is responsible for recommending the selection of the
external auditing firm to the Board of Directors.
. The Audit Committee meets upon request with both the external and
internal auditors.
. The Audit Committee has the abilty to retain outside counsel with Board of
Director approval to initiate special investigations.
. UWR prior to 2000 engaged the same external auditing firm for 32 years,
but has employed different firms for 200 1 (Arthur Andersen) and 2002
(Ernst & Young).
. Over the past thee years, UWR has paid no non-audit fees to its external
auditor and discloses both audit and non-audit fees in its annual SEC
fiings.
. UWR has an internal audit department that conducts financial/operational
audits, internal control rev,iews, conflct of interest reviews, risk assessment
reviews, ethic investigations, and fraud audits. The department reports
functionally to the Audit Committee four times annually.
16
Based on the Audit Staffs review of the practices established or pending, it
appears that Suez and UWP A place a fairly strong emphasis on corporate governance
issues.
Recommendation - None.
17
iv. WATEROPERATIONS
Background
As discussed in the Company background, UWP A is comprised of four distinct
operations (Harisburg, Mechanicsburg, Bloomsburg, and Dallas) which draw water from
surface and underground supplies to serve customers. In Harisburg, the Sixth Street
Water Treatment Plant draws from the Susquehana River and Stony Creek, whilè the
Hummelstown Water Treatment Plant draws from the Swatara Creek. Additionally, nine
underground wells serve the Newberr area. In Mechanicsburg, the Rabold Water
Treatment Plant draws water from the Yellow Breeches Creek while the Market Street
Water Treatment Plant taps a groundwater welL. Additionally, four groundwater wells
supply the Grantham and Center Square areas. In Bloomsburg, the Irondale Water
Treatment Plant draws from the Fishing Creek while two groundwater wells supply the
Scenic Knolls subsystem. The Dallas operation relies on nine groundwater wells to serve
customers in Dallas, Shavertown, Harvey's Lake, and Noxen.
As par of a corporate reorganization in 2000, United Water Pennsylvania and
United Water Delaware consolidated certain responsibilties in order to streamline
operations. Currently, the General Manager ofUWPA serves as the VP of both the
Pennsylvania and Delaware operations, and the Engineering Manager oversees the
engineering operations of both companies. Both incumbents are registered professional
engineers which ensures that the Company is in compliance with the Engineers, Land
Surveyor and Geologist Registration Law Act 367 of 1945. Additionally, the Safety
Manager and Water Quality Manager positions (both of which were vacant during the
period of our fieldwork) bear responsibilty for operations in both Pennsylvania and
Delaware.
The Company's Water Operations organization encompasses the Production,
Distribution, and Engineering/Constrction functions, as shown in Exhibit IV-I.
Reporting to the VP/General Manager ofUWPA is the Director of Operations whose
responsibilties include oversight of the Production and Distribution functions of the
Company. Activities performed in these functions typically include the operation and
maintenance of production facilties which are defined as treatment plants, intakes,
booster stations, and finished water storage tanks as well as operation and maintenance of
the distribution system. Production activities include quarterly preventative maintenance
inspections for all pumping facilties; instrumentation maintenance for on-line water
quality analyzers; calibration of process flow meters, pressure transmitters, and level
transmitters; inspection and maintenance of chlorine analyzers; calibration ofturbidity
meters; calibration of water treatment plant effuent flow meters; chemical feed system
maintenance; and maintenance for all major electrical equipment. More recently"the
Director of Operations has been charged with administering internal efforts to ensure that
18
the Company is addressing the changes required to comply with the Water and
Wasterwater Systems Operator's Certification Act.
Distribution activities include main flushing, operation and maintenance of
distribution valves, inspection of pressure reducing valves, hydrant inspection and
flushing, leak surveys, utilty locates, small main installations, installation of new and
replacement service lines, and hydrant replacements. Approximately 70-80% of the in-
house crew work is dedicated to maintenance while 20-30% is dedicated to light ·
constrction work. Contractors, based on competitive bids, are utilzed to perform main
installations for projects over $10,000.
The Engineering/Construction function led by the Engineering Manager is
responsible for the design, material specification, and constrction of system
infrastrcture as well as assisting the Corporate Engineering department in conducting
system planning studies. Additionally, the Corporate Engineering deparment provides
specialty services related to highly technical design considerations.
Source: Response to Date Request GD-2
*Responsible for both UWPA and United
19
Findings and Conclusions
Our examination of Water Operations included a review of system planning
documents, preventative maintenance policies and procedures, drought contingency
plans, project estimating, unaccounted for water levels, leak survey practices, main
replacement program, etc. Based on our review, the Company should initiate or devote
additional efforts to improving the efficiency and/or effectiveness of its water operations
by addressing the following:
1. Unaccounted-for-Water (UFW) levels for the Mechanicsburg operation
are too high.
The Mechanicsburg operations UFW levels which increased from 20% to 29%
from 2001 to 2002 have moderately impacted overall company UFW levels from 19% to
23% during the same time period. The Company maintains a prescribed UFW program
that includes anual UFW goals, monthly UFW reports, ongoing leak detection, anual
main and service line replacements, annual production meter calibrations, hydrant leak
inspections, pressure studies, meter replacements, valve maintenance inspections, and
customer biling analyses.
Under Commission regulation 52 Pa. Code §65.20 (4), levels ofUFW should be
kept within reasonable levels with levels above 20% considered to be excessive.
Additionally, the Company's short-term UFW goal is to maintain unaccounted for water
levels at or below 20% with a long term goal of achieving an optimum level of 15%.
As par of its monthly reporting, the Company has identified and acknowledged
the negative UFW trends in the Mechanicsburg operation and recently implemented
corrective measures in terms of management personnel changes to ensure compliance
with operating policies and procedures. By attaining the minimum UFW levels deemed
acceptable by the Commission for the Mechanicsburg operation, the Company would
achieve an anual cost expense reduction associated with producing potable water of
approximately $25,000 as well as comply with its own short-term operating goal.
2.
manual.
The Company does not have a formalized cross-connection control
The Company maintains a cross-connection control program in terms of requiring
installation of backflow prevention devices for residential, commercial, and industrial
customers. Program documentation is limited to installation schematics for the various
types of backflow prevention devices employed.
20
A cross-connection is a point in the distribution system where it is possible for
non-potable water to come into contact with the potable drinking water supply.
Whenever there is a cross-connection between a potable water system and a non-potable
environment, backflow may occur. Backflow is any unwanted flow of used or non-
potable water, or other substances from any residential, industrial, or institutional piping
system that enters the potable water distribution system. The reverse pressure that leads
to backflow is caused by either backsiphonage or backpressure. Loss of water pressure
or an improper connection to a pump or a water line could result in dangerous materials
being siphoned or pumped back into the water supply. Thus, without adequate
protection, non-potable water would be allowed to move through the system to other
water users.
Under Title 25 §109.709 of the Pennsylvania Deparment of Environmental
Protection regulations, public water suppliers must develop and implement a
comprehensive cross-connection control program for the elimination of existing cross-
connections and prevention of future cross connections. Documentation governing the
program should include but not be limited to the following:
. Description of the methods and procedures to be used.
. Implementation schedule for the program.
. Legal authority for implementation of the program (Le., by ordinance or rules).
. Time schedule for inspection of nonresidential customers' premises for cross-
connections with appropriate recordkeeping.
. A public education program for residential customers.
. Description of the methods and devices which wil be used to protect the water
system.
. Program for the review of plans for new users to assure that no new cross-
connections are developed.
. Provisions for discontinuance of water service, after reasonable notice, to
premises where cross-conneytions exist.
,
The Company acknowledged the absence of a formalized program and indicated a
willngness to develop a documented manual and/or standard operating procedures.
Establishment of governing procedures wil help the Company to comply with its own
operating practices as well as any regulatory requirements. Additionally, the manual
would provide regulators, customers, public health personnel, plumbing inspectors,
installers, building managers, and others with information pertaining to the Company's
cross-connection control.
3.
not exist.
An electronic database for the cross-connection control program does
21
Curently, the Company maintains no formal records with respect to its cross-
connection control program. However, due to an extensive meter changeout program in
the early 1990's, the Company estimates that approximately 95% of all commercial and
industrial customers are equipped with an approved backflow prevention device.
However, only 50% of all residential customers are estimated to be equipped with such a
device.
A proper and actively enforced cross-connection control program is critical to the
safety of all community water supplies. Protection can be ensured only through a
program which not only locates potential cross-connections and requires installation of
devices, but which also requires the inspection, testing, and maintenance of those .devices.
An effective tool for monitoring accomplishment of this objective would be the
development of an electronic database. The database would allow generation of special
queries and exception reports to ensure that inspection, testing, and maintenance intervals
are being properly maintained.
The Company acknowledges that an electronic database would enhance its abilty
to administer the program. Additionally, an electronic database would allow
management to properly monitor and account for installation of back flow prevention
devices. This would ensure that any theat of contamination of the potable water supply
(especially from high risk users such as industrial customers) is minimized.
4. A system operation vulnerabilty assessment and revised emergency
response plans need to be completed by the Company for each of its four operating
regions (Harrisburg, Mechanicsburg, Bloomsburg, and Dallas).
The 2002 Operation and Maintenance (O&M) manuals for Harisburg and
Mechanicsburg contain sections labeled emergency operation plans and vulnerabilty
analysis. However, a review of the manuals revealed that no vulnerabilty analysis had
been completed for the Harrisburg operation while the analysis documented for the
Mechanicsburg operation was simply a system description of the water production,
storage, and distribution facilties. Futhermore, vulnerabilty analyses or references to
such documents for the Bloomsburg and Dallas operations were not available because the
Company has yet to compile O&M manuals for these operations due to their relatively
small size. Reportedly, the Company is'in the process of developing these manuals.
Management indicated that as a result of the September i 1,2001 terrorist attacks
Federal legislation has been enacted to provide grants administered by the Environmental
Protection Agency (EPA) to large water utilties in part to develop vulnerabilty
assessments for identifying and addressing security concerns. In September 2002, the
Company issued a request for proposal to prospective consultants to conduct a
vulnerabilty analysis of the Pennsylvania and Delaware Operations. In November 2002,
22
a consultant was selected to perform the analyses, with fieldwork to commence sometime
in the first quarer of2003 and a final report anticipated by the third quarer of2003.
On June 12, 2002, President Bush signed the Public Health Security and
Bioterrorism Preparedness and Response Act of2002 into Law. The Act amends the
Safe Drinking Water Act, adding Section 1433. Section 1433 requires that certain
community water systems conduct vulnerabilty assessments, certify to EPA that the
vulnerabilty assessments were conducted, and submit a copy of the vulnerabilty
assessments to EPA. Additionally, Section 1433 requires the preparation ofa new or a
revised emergency response plan that incorporates the results of the vulnerabilty
assessment and a certification to the EPA within six months of completing the
vulnerabilty assessment that the system has completed or updated its emergency'
response plan. UWPA's vulnerabilty assessments must be certified and submitted to
EPA by December 31, 2003 and its emergency response plans must be submitted no later
than June 30, 2004.
The threat of a contamination event or physical destruction of systems are ongoing
concerns in the water utilty industr; however, the events of September 11,2001
reinforced the need to reassess the risks and vulnerabilties of such attacks. Vulnerabilty
analyses provide assessments that allow utilties to re-evaluate their critical areas and
look at system infrastructure, specific locations, and vital operational needs based on a
ranked threat of an event. System vulnerabilty analyses should also identify protection
measures, detection measures, and Tesponse measures related to security vulnerabilty
points in the production, storage, and d,istribution system.
Because the EPA grants did not become available until July 2002, the Company
was unable to include these analyses as par of its anual update to its O&M manuals.
Upon completion of the vulnerabilty analyses, management wil be able to more
effectively assess and take timely corrective action to address security deficiencies in its
system as well as enhance its preparedness to minimize disruption; mitigate risks or
vulnerabilties; and be prepared to react, respond, and restore service in a safe and timely
manner.
Recommendations
1. Reduce the UFW levels for the Mechanicsburg operation to levels consistent with
Commission regulations of approximately 20% or less.
2. Develop standard operating procedures and a procedure/policy manual to govern
the cross-connection control program. "
3. Develop an electronic database to monitor and manage cross-connection control
program.
23
4. Complete the system operation vulnerabilty analyses and emergency respònse
plans for each of the four UPW A operations in compliance with the time lines outlned by
the Public Health Security and Bioterrorism Preparedness and Response Act of2002, and
implement recommendations in a timely maner.
24
V. MATEmALS MANAGEMENT
Background
UWP has no personnel at any of its operations that perform materials management
related duties of storekeeper or inventory clerk on a full-time basis. The Coordinator -
System Construction and the T &D Superintendent have joint responsibilty for the
Harrisburg business unit's storeroom and store yard. The Superintendent-
Mechanicsburg, Superintendent- Bloomsburg, and Foreperson-Dallas have responsibilty
for the storerooms and store yards in their respective business units. Specific materials
management responsibilties include maintenance of inventory records, issuance and
receipt of materials, storeroom maintenance, and any other storeroom or store yard
activity. The Company handles materials according to written guidelines that require
authorized requisition slips and issue/return slips. Authorized personnel send these
documents to the Accountant or Accounting Clerk for recording into the accounting
records. The Accounting Clerk forwards the requisitions to corporate office personnel
who order most materials through corporate national contracts established through a
competitive bid process.
UWP A uses a perpetual inventory system for its "non-exempt" inventory of
approximately 170 items. The system tracks all inventory transactions, including issues,
returns, adjustments, balances, etc. Mechanicsburg, Bloomsburg and Dallas keep their
perpetual systems manually on inventory cards. Harsburg is on the automated
PeopleSoft Inventory Management System (IMS). IMS faciltates the keeping of
perpetual records and provides system reports for this business unit. The Company uses
a periodic inventory system for items "exempt" (charged periodically to expense) from
the perpetual inventory system. UWP A physically counts, and records inventory
adjustments on both perpetual and periodic inventories annually. The inventory is
inclusive of materials and supplies held for future use but does not include chemicals.
UWPA expenses chemicals when purchased because it keeps less than a month's supply
on hand. Meter inventory is capitalized Upon receipt per regulatory guidelines.
Because there is no central warehouse, each business unit maintains and manages
its own inventory; however, most ofUWPA's total inventory investment is located in the
Harrisburg business unit. Corporate personnel do not provide guidance to the business
units in inventory management. Average inventory balances for UWP A's four business
units are shown in Exhibit V-i.
25
Exhibit V-I
United Water Pennsylvania
Average Monthly Inventory Balances by Business Units
2001- 2002
Year Harsburg Mechanicsburg Bloomsburg Dallas Total
2001 $304,717 $34,597
2002 $306,694 $39,331
Source: Response to Data Request MM- 17
$75,595
$42,398
$29,627
$33,862
$444,536
$422,285
Findings and Conclusions
Our examination of the Materials Management fuction included a review of
assigned responsibilties, policies and procedures, information systems, reporting
capabilties, inventory control, inventory levels, turnover, and warehouse operations.
Based on our review, the Company should initiate or devote additional efforts to
improving the efficiency and/or effectiveness of its materials management by addressing
the following:
1. UWP A does not fully utilize inventory management and control
procedures.
The Company does not have formal methodologies in place to manage inventory
and determine optimal inventory levels. Neither UWP A nor UWR have any inventory
management goals, procedures, or processes to keep inventory at optimal levels.
Corporate personnel do not monitor reports generated for UWP A and do not provide
guidance to the Pennsylvania operating company regarding performance measures and
other management control tools.
A program should be in place to achieve optimal inventory levels by attaining the
highest possible turnover rate while keeping out-of-stock percentages as low as possible.
Optimal inventory levels would avoid unnecessar purchases as well as associated
inventory carring costs. The following are inventory management and control
procedures which UWP A could incorporate into its practices:
. Use ofminimllm and maximum levels
. Use of reorder points
. Creation of safety stock
. Measurement of inventory turns or months/days of supply
. Measurement of out-of-stock percentage
. Identification of obsolete inventory
26
Without an effective inventory management program spearheaded by corporate-
developed goals, procedures, and processes, UWP A wil not have adequate information
available to keep its inventory at optimal levels.
2. Inventory turnover levels are too low resulting in excess inventory levels.
As noted in Finding and Conclusion No. I, neither UWP A nor UWR measures
inventory turover, stock-out percent, etc. or utilze any inventory measurement and
control tools. Typical inventory control mechanisms such as the establishment of
minimum and maximum levels and reorder points for stock items are not utilzed either
manually or with the PeopleSoft inventory management program. The perpetual
inventory cards for Mechanicsburg and Dallas are recorded and kept in Harisburg;
therefore, personnel in those business units do not have any information readily available
regarding stock levels. Neither the corporate office nor the operating unit has any goals
and objectives or plans designed to keep inventory levels under control.
Exhibit V-2 shows that UWPA's inventory turnover (based on the annual
inventory issues divided by the average monthly inventory balance) was 0.98 in 2001 and
0.83 in 2002. This is equivalent to 12.25 months of supply on-hand (MOS) in 2001 and
14.5 MOS in 2002. MOS is the number of months in a year divided by the inventory
turnover ratio. Items exempt from perpetual records (Le., periodic inventory items),
which are updated annually after a physical inventory count, have inventory tuovers
equivalent to 24 MOS in 2001 and approximately 33 MOS in 2002.
ExhibitV-2
United Water Pennsylvania
Inventory Turnover
2001 - 2002
Year Category Perpetual Periodic Totals
2001 Anual Issues $387,542 $48,851 $436,393
12 Month Average Balance $347,744 $96,792 $444,536
Inventory Turover 1.11 0.50 0.98
Months of Supply On-Hand 10.81 24.00 12.25
2002 Anual Issues $308,191 $40,793 $348,984
12 Month Average Balance $309,167 $113,118 $422,285
Inventory Turover 0.99 0.36 0.83
Months ofSu ly On-Hand 12.12 33.33 14.46
Source: Response to Data Request MM- i 7
27
The Audit Staff examined the perpetual inventory broken down by business unit
(see Exhibit V-3) to determine each unit's turnover and MOS. This breakdown of
perpetual inventory by business unit indicates that the Mechanicsburg unit had extremely
low turnover because of low usage of its materials. UWP A does not record issues for
periodic inventory by business unit; therefore, we could not determine turnover and MOS
for periodic inventory by business unit.
Exhibit V-3
United Water Pennsylvania
Perpetual Inventory by Business Unit
2001- 2002
Year Category Harisburg Mech.Bloomsburg Dallas . Total
2001 Anual Issues $262,410 $3,823 $109,789 $11,420 $387,542
12 mo. Ave. Balance $242,088 $20,164 $68,581 $16,911 $347,744
Inventory Turover 1.08 0.19 1.60 0.68 1.11
Months of Supply 11.11 63.15 7.50 17.65 10.81
2002 Annua Issues $229,289 $17,598 $42,319 $18,985 $308,191
12 mo. Ave. Balance $231,086 $27,622 $30,073 $20,386 $309,167
Inventory. Turover 0.99 0.64 1.41 0.93 0.99
Months of Suppl 12.12 18.75 8.51 12.90 12.12
Source: Response to Data Request MM- i 9
We also found that 10.7% of total Company's inventory value was not used at all
during a 12-month period ending in October 2002. Finally, as shown in Exhibit V-4,
average monthly inventory balances have increased from $300,855 in 1998 to $422,285
in 2002, a 40.4% increase in four years.
Kxhibit V-4
United Water Pennsylvania
Average Monthly Inventory Balances
1998 - 2002
1998 1999 2000 2001
$444,536
2002 Net Increase
$300,855 $268,238 $363,095
Source: Response to Data Request MM- i 7
$422,285 40.4%
Anual issues have been significantly reduced because UWP A no longer uses its
own materials and supplies when a developer installs water supply infrastructure for new
developments. The sharply reduced issues have resulted in substantially lower inyentory
turnover. In 1994, a consultant reported that UWPA issued perpetual inventory items
28
valued at $840,556 and achieved a turnover of 4.5. In 1997, the Commission approved
an order accepting UWPA's tariff to allow developers to use their own materials and
supplies. By 2001, annual issues had dropped to $387,542 and by 2002, had further
decreased to $308,191. This, in part has resulted in lower inventory turnovers.
The Audit Staff specifically reviewed the four highest-value pipe inventories in
the Harisburg yard as shown in Exhibit V-5. For calendar years 2002, average total
value of the inventory on-hand for the four categories of pipe was approximately $80,000
or 35% of the Harrisburg business unit's perpetual inventory. The overall tuover for
the four types of pipe was 1.65, equating to 7.3 MOS. Because these types of pipe are
purchased through national contracts via blanket purchase orders, the typical lead times
are only two to four weeks, suggesting excess levels of pipe materiaL. Establishing a
reasonable three MaS for these four types of pipe yields a potential one-time inventory
reduction of$47,286. As indicated in Exhibit V-5, the 12" PVC pipe for 2002
experienced turnover levels far greater (or better) than our suggested level of four.
Exhibit V-5
United Water Pennsylvania
Inventory Pipe Analysis - 2002
2002 Avg.2002 Excess
Item Balance Usage Turover MOS Inventory
($)($)($)
PVC DR 18 C900 Class 1508"15,630 1 9,696 1.26 9.50 lO,358
pipe
PVC DR 18 C900 Class 150 12"16,380 91,499 5.58 2.15 -$6,495
pipe
POJ Class 52 DI, 8" pipe 8,946 8,612 0.96 12.5 $6,799
POJ Class 52 DI, 12" pipe 39,320 12,676 0.32 37.5 36,175
Total 80,276 132.483 1.65 7.3 47,286
Source: Response to Data Requests MM- i 6, MM-20
To further demonstrate the excessive inventory levels at UWPA, the Audit Staff
compared total materials and supplies as a percent of net utilty plant against a panel of
companies as shown in Exhibit V -6. The Audit Staff compared five years from 1997 to
2001 and found UWP A higher than the panel average each year, except for 1998 when
the ratio was the same. In 2001, the percent in the comparative panel averaged 0.3%
29
while UWPA averaged 0.4% or 33.3% higher. At a minimum, UWPA's materials and
supplies as a percent of net utilty plant should be more closely aligned with the panel
average. By achieving this level, the Company inventory levels would fall to
approximately $276,000, an estimated one-time savings of$145,000. This would
improve overall inventory turnover levels to 1.7 or 7.1 MOS. It should be noted these
savings have been calculated without excluding safety stock as the Company does not
have designated safety stock levels for its inventory.
Exhibit V-6
United Water Pennsylvania
Materials & Supplies as a Percent of Net Plant
1997-2001
Compound
M&S as % of Net Plant 1997 1998 1999 2000 2001 Growth
P A Companies
Pennsylvania American 0.22%0.22%0.21%0.20%0.22%-0.0%
Pennsylvana Suburban 0.35%0.31%0.26%0.26%0.27%-6.3%
York Water 0.41%0.42%0.43%0.42%0.44%.1.8%
Non-PA Companies
Aresian Water 0.64%.0.56%0.58%0.54%0.40%-11.1%
Connecticut Water 0.39%.0.40%0.41%0.40%0.43%2.5%
Iowa American 0.30%,0.22%0.35%0.36%0.32%1.6%
Middlesex Water 0.79%0.60%0.55%0.55%0.56%-8.2%
New York Water 0.92%1.02%1.31%1.17%1.03%2.9%
Virginia American 0.41%0.40%0.43%0.64%0.59%9.5%
Panel Average 0.33%0.31%0.30%0.30%0.30%-2.4%
United Water
Pennsylvania 0.47%0.31%0.31%0.49%0.40%-4.0%
Source: NA we Financial and Operating Annual Reports
Increased efforts in the inventory management area could sharply increase
turnover levels and reduce the months of supply on-hand for many items. Since the bulk
of inventory can be ordered and received within two to four weeks, the Audit Staff feels
an average of four months supply on-hand is a reasonable target level for UWP A to
maintain after accounting for appropriate safety stock levels. A reduction of the
Company's 2002 average months of supply of 14.46 months to four months (or an
inventory turnover of 4.0) would have reduced its average inventory to $ 116,815 for all
business units. A one-time inventory reduction (savings) of$325,500 would have
occurred, resulting in additional annual dirring cost savings (based on a i 5% inventory
caring cost) of$48,800.
30
3. UWP A does not fully track its inventory with automated perpetual
inventory systems.
The inventory transactions (issues, retus, and receipts) for Mechanicsburg and
Dallas are manually prepared and sent to an Accountant in the Harrisburg Office. The
Accountat updates inventory transactions for these business units manually on perpetual
inventory cards instead of entering them on an available, automated inventory module. A
clerk in Bloomsburg updates the cards for Bloomsburg before sending them to the
Accountant. Periodically, the Accountat groups multiple inventory transactions into a
single journal entr on the UWR accounting module.
The Harisburg business unit uses a PeopleSoft inventory module that
automatically interfaces with the UWR accounting module. The module is capable of
producing a list of items, on-hand balances, issue history, and other information related to
inventory. Inventory transaction entries into the inventory module interface with the
accounting records so fewer entries are needed and more inventory reports and controls
are automatically available to management. The entries automatically update the
perpetual inventory records at Harrisburg so inventory cards are not necessary. In
addition, UWR has electronic access to Harisburg's perpetual inventory records that the
corporate office could use to monitor and manage inventory and plan inventory reduction
programs.
To improve inventory management and allow for paperless processing, the
automated inventory system could be extended to the other three business units. When
UWR rolled out the inventory module to Pennsylvania, it was intended for all business
units, but UWP A management thought inventory in all business units would have to be
aggregated into a single account code thereby precluding their abilty to separately
account for inventory at each business unit. However, according to corporate officials,
each business unit inventory could be sub-coded to allow identification of inventory by
business unit. Additionally, UWP A believes there would not be a sufficient number of
transactions to justify the costs of extending the PeopleSoft inventory module to the other
three business units. However, UWP A has performed no cost!enefit study to
substantiate this claim. At this time, UWR would have to approve the expansion of the
PeopleSoft inventory module to the other three business units. Neither UWR nor UWP A
has plans to expand it.
With full implementation of the inventory module across all business units, the
Company would be able to effectively manage its total inventory and simplify business
processes outside of the Harrisburg business unit. Material handlers at remote locations
could utilze terminals to enter paperless transactions that would save time and reduce
errors. UWP A could track and reduce inventory levels by not re-ordering items that have
adequate stock on hand.
,"
31
4. UWP A either expenses or exempts a substantial number of items from
inventory.
UWP A uses two approaches to determine inventory value, namely, the perpetual
inventory method and the periodic inventory method. UWP A refers to perpetual
inventory as non-exempt and periodic inventory as exempt. The Accounting Department
records, non-exempt, perpetual inventory in a separate account from exempt, periodic
inventory.
High value items, such as pipes, hydrants, tapping sleeves, etc. are tracked on
perpetual inventory cards or on the automated inventory module in Harrisburg. This
system requires the recording of each receipt, issue, and return as well as unit cost
records for in-stock items. UWP A conducts physical inventory cycle counts once a year
and records any inventory adjustments necessar to reflect the physical count in the
perpetual inventory account.
The exempt or periodic method is used for small value and small-sized items such
as small fittings and tapping sleeves. For these items, UWPA maintains no records on
inventory cards or within the automated inventory module. The exempt inventory
accounts remain at the same level throughout the year until the Company conducts its
physical counts to adjust the inventory levels.
In 2002, over 25% ofUWPA's inventory value was exempt from perpetual
inventory records (see Exhibit V - 7). According to wrtten procedures, only fittings two
inches in diameter or less are exempt from inventory. This includes clamps, couplings,
and any brass or galvanized fittings less than 2" in diameter.
Exhibit V-7
United Water Pennsylvania
Average Periodic Inventory by Business Unit
2001- 2002
Year Category Harisburg Mech.Bloomsburg Dallas Total
2001 Periodic Inventory $62,629 $14,433 $7,014 $12,716 $96,792
Total Inventory $304,717 $34,597 $75,595 $29,627 $444,536
Periodic % of Total 20.6%41.7%9.3%42.9%21.8%
2002 Periodic Inventory $75,608 $11,708 $12,325 $13,477 $1.3,118
Total Inventory $306,694 $39,330 $42,398 $33,863 $422,285
Periodic % of Tota 24.7%29.8%29.1%39.8%26.8%
Source: Response to Data Requests MM-12, MM-13
32
Although many of these items have small unit values, many may be used
frequently; therefore, usage value may be significant. UWP A should identify additional
high usage and high value items for inclusion into its perpetual inventory records.
UWP A should attempt to reduce periodic inventory values to about i 0% of total
inventory.
UWPA's Inventory Procedures for Materials Handlers defines inventory items
sized 2" or less as those not required to be included in perpetual inventory even though
some of these items may be used frequently. Without appropriate inventory records,
these exempted items could not be controlled should UWP A and UWR institute an
effective inventory management program (see Finding and Conclusion No.1).
5. UWP A does not keep a record of its chemical inventory.
UWP A expenses all chemicals when purchased. As with the items exempted from
perpetual inventory, UWP A maintains no records on the amount of chemicals on-hand.
Furthermore, the Company does not take a periodic inventory of its chemicals so it does
not know how much is on-hand. Despite the lack of records, the Company contends that
it keeps less than a month of supply of chemicals on-hand and, therefore, does not need to
inventory these items. However, UWP A purchases large amounts of chemicals and its
management should have an idea of how much supply is on-hand so it can properly
manage its chemical supply.
The Audit Staff estimated that monthly chemical usage totals $30,000 to $35,000.
If the chemical inventory turns over at least monthly, its value would be no more than
$35,000 at anyone time. Most of the expensed chemicals have significant usage value,
which warrants inclusion into the perpetual inventory records. Further, other water
utilties in Pennsylvania, because of their high usage value, inventory chemicals.
Recommendations
1. Establish inventory management processes and procedures, and utilze the
automated inventory management system for all statewide inventories.
2. Increase inventory turover levels by establishing tuover goals and reducing
excess inventory.
3. Evaluate and document the cost/enefits of utilzing Harrisburg's automated
inventory module for other UWP A business units.
4. Reduce the value of exempt inventory by including higher usage/value items in
perpetual inventory records.
33
5. Perform annual periodic inventories of the chemical supply and transfer those with
high value into the perpetual inventory.
34
VI. CUSTOMER SERVICE
Background
The Customer Service Deparment, located in Harisburg, handles all customer
inquiries and complaints in UWP A's service territory. The Deparment includes nine
customer service representatives (CSRs) and a Customer Service Manager. The
Customer Service Manager reports to the UWPA's Assistant Manager (see Exhibit II-3).
However, at the time of the field audit, due to the Assistant Manager position's vacancy,
the Customer Service Manager was reporting directly to the General Manager. Five
Harisburg Field Representatives and five Harrisburg meter readers also report to the
Customer Service Manager. Meter Readers and Field Representatives in the Dallas,
Bloomsburg, and Mechanicsburg business units report to their respective operation
managers.
The CSRs review meter readings, open and maintain customer accounts, generate
service orders, generate customer bils, and answer customer service, billng, collection
inquiries and complaints. One CSR spends most of his time on collections. This CSR
maintains bad debt and outside collection records and prepares termination notices in
accordance with Public Utilty Commission regulations. UWPA uses collection agents
only after a customer has terminated service and a final bil has been rendered.
The corporate offce installed a WINS 2 UBS (Utilty Biling System) in the
Harisburg customer service center during 2002. The UBS system includes the biling
fuction with a meter reading interface, service order system, meter management, on-line
customer history, collection function, and accounting interface. The CSRs utilze: an on-
line customer service manual for guidance. The transition from the old billng system to
the new system was accomplished without any major problems.
'; f 1'"
In 2003, customer service personnel moved to the new Operations Center
Building. The office representatives work at the same location as the field
representatives, meter readers and transmission & distribution personneL. A new phone
system was installed in the new building that provides enhanced customer service
features.
Meter readers use Itron hand-held units to read encoder meters monthly (quarerly
until 1998) throughout all the service territories except for two radio-read pilot projects
within the Bloomsburg service area. The pilot program and other applications wil be
researched and studied to determine their application to the other Pennsylvania service
territories.
35
Customers pay their bils either by mail or via direct pay from their bank accounts.
A credit card payment option was expected to be available by the end of 2003.
Customers may place their payment in a drop box at each business unit's main office or
take it to a designated payment agent. However, the Company does not take payments
over the counter at any company facilty.
Findings and Conclusions
Our examination of the Customer Services fuction included a review of the
Company's policies and procedures, staffing levels, management and reporting systems,
performance levels, productivity analysis tools, call center statistics, etc. Our review
included the following specific topics: make-up bil procedures, computer generated
termination notices, due dates of customer bils, definition of dispute, and the
effectiveness of the new biling and payment processing system. Based on our review,
the Company should initiate or devote additional efforts to improving the efficiency
and/or effectiveness of its customer services by addressing the following:
1. UWP A bas not conducted any type of formal customer satisfaction
surveys for Pennsylvania customers.
Although UWR has conducted periodic formal customer satisfaction surveys for
some of its operating subsidiaries, it has not conducted any for Pennsylvania customers.
UWR was planning another survey for 2003, but at the time ofthe audit, could not say if
Pennsylvania customers would be included. Likewise, UWPA itself has not conducted
any formal customer satisfaction surveys except for follow-ups on service calls. Until
about two years prior to the commencement ofthis audit, UWP A sent postcards to
customers after service calls to determine the quality of the call. Currently, the Public
Affairs Manager is responsible for the determination of general customer satisfaction and
would work with the corporate office or a consulting firm to develop a P A survey. The
Customer Service Department would be responsible for follow-up surveys specific to
satisfaction regarding customer calls and service calls such as the ones conducted:two
years ago. However, neither the Customer Service Manager nor the Public Affairs
Manager has plans to initiate a survey in the near future.
UWP A should periodically determine if its customers are satisfied with its service.
UWP A contends it does not have the resources to conduct a general customer satisfaction
survey; nonetheless the Company could utilze a consultant or corporate resources to
conduct such a survey. However, because UWR considers UWP A to be a small
operating subsidiar, it has not focused any customer satisfaction surveys on
Pennsylvania operations.
36
UWP A does have plans to establish a new Customer Service Advisory Committee
made up of community residents from the Harrisburg and Mechanicsburg service
territories and another Committee of community residents from Bloomsburg. The
purpose of these groups is to provide a dialog between UWPA and its customers.. The
Committees may develop customer satisfaction surveys for their local service terrtories.
However, until a broad measurement of customer satisfaction via surveys, advisory
committees, opinion polls, or a combination thereof are conducted in-house, though the
corporate offce, or with an outside firm; UWP A wil not be able to effectively assess its
customers' needs and focus its efforts accordingly.
2. UWP A significantly reduced utilzation of its customer service system
quality of service metrics and eliminated its automated customer complaint tracking
system.
The previous customer information system had 17 metrics or benchmarks that
UWR designed to measure quality of service and performance in the customer service
function (e.g., meter reading, field service, customer calls, etc.). However, when UWR
rolled out the new Wins 2 Utilty Billng System (UBS) in 2002 it discontinued several
corporate designed metrics. The new UBS presently has six built in customer call
metrics that are used to measure average hold time, average talk time, number of
abandoned calls, etc. The new system is capable of generating the quality of service
measurements used in the previous system. The corporate offce plans to work with
UWP A in order to put their desired measurements in place; however, neither UWP A nor
UWR could give a firm project completion estimate.
In addition, the previous customer information system had an automated customer
complaint tracking system. However, in 2002, when the new UBS was placed in service,
the Company eliminated the customer complaint tracking system. Presently, customer
complaints are manually logged and tracked. As with the metrics above, the corporate
office plans to work with UWP A in order to put a customer complaint tracking system in
place according to their specifications. Once again, neither UWP A nor UWR could give
a firm project completion estimate.
UWP A should utilze performance benchmarks to evaluate and trend perforance
for all types of customer service activities (field service, call center, meter reading). An
effective customer complaint tracking system would automatically compile statistics and
generate reports for management to utilze as tools for evaluating the types of complaints,
frequency of complaints, and trends relating to customer complaints and response times.
Without effective quality of service and performance measurements, management is
unable to determine the quality of customer service and its appropriate distribution of
resources.
37
3. The Company suspended collection efforts from November 2002
through most of January 2003.
One CSR at UWP A is responsible for collections. However, this collections
employee was off from early November 2002 to late January 2003 due to ilness and
UWP A has not cross-trained anyone to keep its collection process moving during a
temporar absence. Furthermore, UWP A does not use an outside vendor or contractor in
its collection process until the account is to written off. Additionally, during this CSR's
extended absence, UWP A did not seek assistance from the corporate office or an affiliate
regional operating company. Therefore, during this period, the Company's normál
collection procedures were totally suspended.
As indicated in Exhibit VI -1, bad debt expense and its percent of operating
revenues have been rising at UWP A. Despite this rising trend, UWP A allowed its
collection activities to be suspended from November 2002 through January 2003. It
appears that the three-month suspension has, at least in-par, contributed to increases in
bad debt expense for 2002.
Exhibit VI-I
United Water Pennsylvania
Percent of Bad Debt to Revenue
1998 - 2002
Annual
1998 1999 2000 2001 2002 Growth Rate
Expense $55,523 $67,949 $63,348 $75,684 $93,566 13.9%
Revenue $21,361,331 $22,149,361 $22,708,687 $23,254,950 $22,779,067 1.6%
% Revenue 0.26%0.31%0.33%0.33%0.41%12.1%
Source: PUC Annual Reports; Company data (2002).
It is a basic business practice that collection efforts need to continue uninterrpted
in order to keep delinquent accounts and bad debt expense from rising. Increases in
delinquent accounts and bad debts not only increase expenses and reduce company cash
flow, but they also result in operational inefficiencies as welL. Increases in the number of
customer delinquencies create more telephone contacts with customers, written
solicitations, negotiations, payment arangements, visits to residences or businesses to
post termination notices, and contacts with the Commission's Bureau of Consumer
Services.
38
Recommendations
i. Conduct formal customer satisfaction surveys and opinion polls to assess
quality of service.
2. Expedite the implementation of an automated customer complaint tracking
system and quality of service measurements by expanded use ofthe existing utilty
biling system.
3. Cross-train additional employees to perform collection functions and/or
contract with an outside vendor to assist in collection activities, as necessar, to avoid
interrptions in the customer collections process.
39
VII. DIVERSITY
Background
While the UWR President has the ultimate responsibilty for Equal Employment
Opportunity (EEO) and Affirmative Action, the Corporate Vice-President of Human
Resources is the designated Corporate Affirmative Action Officer. The Administrative
Assistant who reports to UWPA's General Manager administers diversity related
programs for Pennsylvania operations and compiles statistics for UWPA's annual
Affrmative Action Plans (AA). Since 2001, UWP A has had one AA for all
Pennsylvania operations. Prior to 2001, UWPA submitted a separate plan for the.
Bloomsburg and Dallas operations and another plan for the Harrisburg and
Mechanicsburg operations. There have been no compliance audits of the AAPs by the
Office of Federal Contract Compliance Programs (OFCCP), the section of the U.S.
Department of Labor responsible for monitoring compliance with federal Affirmative
Action regulations since UWR purchased the Pennsylvania operations in 1994.
On Februar 13, 1992, the Commission approved a motion (at FEB 92-C-3) to
make diversity an integral par of the management audit process and to direct utilties to
fie quarerly status reports. On March 16, 1992, a Secretarial letter was issued by the
Commission directing all jurisdictional utilties effected by Section 516 of the Public
Utilty Code (utilties whose plant-in-service exceeds $ 1 0,000,000) to fie certain
diversity information to the Commission quarterly. On May 18, 1994, the Commission
issued an order directing these utilties to fie diversity status reports on a semi-anual
rather than a quarerly basis, to submit EEO plans anually, and that they fie certain
diversity procurement data. Additionally, in Februar 1995, the Commission adopted a
"Policy Statement Regarding Diversity at Major Jurisdictional Utilty Companies"
(entered into the regulations at 52 Pa. Code §69.801-69-809), which encourages the
utilties to include diversity efforts as a component of their business strategy. Most
recently in March 1997, the Commission's Affirmative Action Officer issued diversity
fiing format clarifications and revisions, which most significantly included a change to
the filing requirements from semi-annual to annual and the inclusion of multi-year data.
Exhibit VII-l shows that, in 2002, females and minorities made up 27.5% (24. i %
white females and 3.4% minority females) and 8.0% (3.4% minority females and 4.6%
minority males) ofUWPA's employee work force, respectively. Minority and female
employment improved in the "Officials and Managers" job category. In 1999, UWPA
had no minorities or females in the EEO job group "Officials and Managers". However,
in 2002, the Company had one minority male, one minority female, and one non-minority
female in the "Offcials and Managers" category.
40
Exhibit VII-l
United Water Pennsylvania
Number of Employees by EEO Category, Gender, and Race
For the Years 1999-2002
TOTAL COMPANY % of 2002
Total Net % of change
EEO Job Categories 1999 2000 2001 2002 Company Change '99 vs. '02
Offcial & Managers 8 7 6 7 8.0%-1 -12.5%
Professionals 12 9 10 7 8.0%-5 -41.7%
Technicians 9 9 4 3 3.4%-6 -66.7%
Offce & Clerical 18 17 17 14 16.1%-4 -22.2%
Skiled Crafts 32 33 17 35 40.2%3 9.4%
Operatives 22 23 34 21 24.1%-1 -4.5%
Totals 101 98 88 87 100.0%-14 -13.9%
WHITE MALES % of 2002
Total Net % of change
EEO Job Categories 1999 2000 2001 2002 Company Change '99 vs. '02
Offcial & Managers 8 7 5 4 57.1%-4 -50.0%
Professionals 7 5 5 4 57.1%-3 -42.9%
Technicians 8 8 3 1 33.3%-7 -87.5%
Offce & Clerical 2 2 2 2 14.3%0 0.0%
Skiled Craft 30 31 17 32 91.4%2 6.7%
Operatives 17 18 28 16 76.2%- i -5.9%
Totals 72 71 60 59 67.8%-13 -18.1%
Totals as % of total Com an 71.%72.4%68.2%67.8%-3.5%
WHITE FEMALES % of 2002
Total Net % of change
EEO Job Categories 1999 2000 2001 2002 Company Change '99 vs. '02
Offcial & Managers 0 0 0 1 14.3%i nfa
Professionals 4 3 5 3 42.9%- 1 -25.0%
Technicians 1 1 1 2 66.7%i 100.0%
Offce & Clencal 13 13 13 10 71.4%-3 -23.1%
Skiled Crafts 2 2 0 3 8.6%1 50.9%
Operatives 1 1 3 2 9.5%1 100.0%
Totals 21 20 22 21 24.1%0 0.0%
Totals as % of total Com an 20.8%20.4%25.0%24.1%3.3%
41
Exhibit VII-l (Continued)
United Water Pennsylvania
Number of Employees by EEO Category, Gender, and Race
For the Years 1999-2002
MINORITY MALES % of 2002
Total Net % of change
EEO Job Categories 1999 2000 2001 2002 Company Change '99 vs. '02
Official & Managers 0 0 1 1 14.3%1 n/a
Professionals i 0 0 0 0.0%-1 -100.0%
Technicians 0 0 0 0 0.0%0 n/a
Office & Clerical 1 1 1 0 0.0%-i -100.0%
Skiled Crafts 0 0 0 0 0.0%0 n/a
Operatives 4 4 3 3 14.3%-i -25.0%
Totals 6 6 5 4 4.6%1 n/a
Totals as % of total Com an 5.9%5.1%5.7%4.6%-1.%
MINORITY FEMALES % of 2002
Total Net % of change
EEO Job Categories 1999 2000 2001 2002 Company Change '99 vs. '02
Offcial & Managers 0 0 0 i 14.3%1 n/a
Professionals 0 1 0 0 0.0%0 n/a
Technicians 0 0 0 0 0.0%0 n/a
Offce & Clerical 2 1 1 2 14.3%0 0.0%
Skiled Craft 0 0 0 0 0.0%0 n/a
Operatives 0 0 0 0 0.0%0 n/a
Totals 2 2 1 3 3.4%1 n/a
Totals as % of total Com an 2.0%2.0%1.%3.4%1.5%
Source: Affirmative Action Plans
UWP A hired three minorities and I 1 females among its 25 newly hired employees
between 1999 and 2002. The abilty to increase percentages of minorities and women
had been limited as the number of positions at UWP A steadily declined and turnover had
been low. As indicated in Exhibit VII-2, between 1999 and 2002, overall utilzation
improved for both minorities and females. In 2002, minority employment was below and
female employment was above labor market availabilty. In i 999, the OFCCP based
utilzation statistics on eight availabilty factors; however, in 2001 the agency reduced the
basis to two factors. UWPA weighed the availabilty factor in each EEO Job Category
according to the proportional effect it had on availabilty. The net overall effect on
availabilty percentages from this change was minimaL.
UWR's corporate office has a Diversity Council that sets diversity programs,
goals, and projects. There are no corporate goals directed specifically at UWP A nor are
there any locally set diversity goals. Goals, identified in UWR's AAP are focused
corporate-wide. The corporate recruiting focus is to place ads in minority-oriented
42
journals. The corporate office runs the training program for UWP A. All employees had
diversity awareness training and it wil be a part of the 2003 Leadership Training.
Findings and Conclusions
Our examination of the Diversity fuction included a review of the Affrmative
Action Plans, staffng trends, labor market comparsons, purchasing practices and trends,
latest PUC diversity filings, policies and procedures, communications methods,
management philosophy and accountabilty. Based on our review, the Company should
initiate or devote additional efforts to improving the efficiency and/or effectiveness of its
diversity and equal employment opportnities to addressing the following:
1. UWPA's employment of females and minorities remains below the
availabilty levels in some of the local labor markets from which the Company hires
its work force.
In general, from 1999 to 2002 UWPA's female utilzation improved in all EEO
job categories and its minority utilzation remained fairly stable. However, according to
UWPA's 2002 AA both minority and female employment remained below labor market
availabilty in three of six EEO job categories (see Exhibit VII-2). During 2002, minority
utilzation at UWP A was below labor market availabilty in the following EEO job
categories: Professionals, Technicians, and Skiled Labor. Further, females were below
labor market availabilty in the following EEO job categories: Offcials and Managers,
Professionals, and Semi-skiled labor.
UWP A's abilty to increase its percentage of minority and female utilzation had
been limited as the number of positions at UWP A steadily declined and employee
turnover had been low. UWPA had 14 fewer employees in 2002 than in 1999. By
gender, UWP A had 15 fewer males and 1 additional female. By minority/non-minority
classification, UWPA had one less minority and 13 less non-minorities.
UWP A should be striving to bring female and minority employment levels more
in line with the availabilty of those groups in its local labor markets. Furthermore, the
Commission has been encouraging public utilties to fie a diversity report that includes a
set of goals for the coming year and a review of goals for the previous year. However,
UWPA's recruiting initiatives do not specifically target females or minorities. In
addition, UWR's corporate goals and initiatives do not target specific subsidiar
companies.
43
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There are steps UWP A could take to increase the intensity of its diversity èfforts,
which should speed employment improvement in the under-utilzed job groups. The
Company could increase accountabilty though all levels of management. Projecting
future openings and developing more specific annual goals and objectives would assist in
focusing attention on the most opportne positions. Without local recruiting initiatives
and goals, plans and accountabilty specific to UWP A, the Company wil have a difficult
time improving its female and minority employment levels.
2. UWP A does not track and collect data on diversity vendor purchases.
A summary of the dollar amount of purchases from minority/womanpersons with
disabilties-owned business enterprises (MWBDE) is not available from UWP A or its
parent company. UWP A does not track the number and dollar purchases from these
vendors despite the small number of vendors used. UWP A claimed that UWR tracks this
data. The Commission encourages the tracking of this data and the reporting of diversity
vendor purchases annually. However, the Commission has not received this report from
UWPA since 1998.
UWP A has a local database of potential "diverse" vendors which was staed with
a list acquired from participation in the statewide Utilty Diversity Action Committee.
UWP A has fuher included a significant number of potential local MWDBE vendors in
its database. However, in 2002, the Company used only four of the vendors on the list.
The use of national contracts to purchase outside plant materials such as pipe, valves,
meters, and hydrants limits local decisions on the use of diversity vendors.
A diversity purchasing tracking and data collection mechanism could be put in
place and targets set to improve the percent of purchases from MWDBE vendors.
However, UWP A claims that they cannot track this information at the regional leveL.
UWP A claimed that UWR could provide the information but that it would probably not
be broken down by region. We requested the corporate information from UWP A; but did
not receive the requested information. In addition, UWP A claimed that the Commission
no longer requires this information. By tracking diverse vendor purchases, the Company
could establish realistic improvement targets to initiate actions to achieve the desired
results.
3. The Company has not filed an annual diversity report with the.Public
Utility Commission since 1999.
The Company has not fied an anual diversity report with the Public Utilty
Commission since submitting its 1999 report in early 2000. As stated in the background
section of this chapter, major jurisdictional utilties (utilties with plant-in-service of
A5
$10,000,000 or greater) have been required to fie periodic diversity reports since March
1992. Currently, these reports are to be fied annually in conformance with the
Commission's March 1997 filing format instructions and the Commission's Februar
1995 policy statement. The diversity filings are designed to enable the Commission to
monitor the Company's trends regarding its employment by gender and race,
procurement from MWDBE vendors, and its annual EEO planing.
Recommendations
1. Implement recruiting initiatives and set goals and timetables specific to
Pennsylvania operations to fuher increase female and minority utilzation rates. .
2. Review, revise, implement and re-evaluate a results oriented vendor diversity
program that wil promote a higher utilzation of services for these business owners.
3. Prepare and fie anual diversity reports with the Commission according to the
most recently issued instructions.
46
VIII. COST ALLOCATIONS
Background
This chapter presents the results of the Audit Staff s review of the nature and
extent of transactions between UWPA and its affliates. As discussed in Chapter II,
Background and shown on Exhibit II-I, UWPA is a subsidiary of United Waterworks
Inc. (UWW), a holding company for regulated utilties, who in tum is a subsidiary of
United Water Resources Inc. (UWR). An affliate, United Water Management &
Services (UWM&S) provides certain services to UWP A and other regulated and
unregulated UWR companies. UWM&S charges the operating companies, including
UWP A, for the cost of services it provides.
UWM&S's costs are assigned or allocated in accordance with the terms of
affliated interest agreements the service company has with UWR operating companies,
including UWP A. The agreements provide that costs, where possible, are to be directly
assigned to specific operating companies. Indirect costs are to be allocated by applying
predetermined formulas based on number of employees; number of customers; O&M
expenses; net utilty plant; volume of water; fuel, power and chemical costs; and total
capitalization. The agreements are on fie with the Commission.
The services provided by UWM&S to UWP A include administrative, engineering,
customer and public relations, employee relations, accounting, corporate secretarial,
treasury, purchasing, insurance, information technology, and rates. These professional
and technical services are provided on the premise that it is more economically feasible
than acquiring them from outside vendors.
UWM&S incurs all of the expenses related to employees providing services to
affliates including salaries, benefits, taxes, etc. Electronic time reports prepared by
UWM&S employees are used to track hours devoted to a paricular affiliate. The hourly
rate biled out by UWM&S is comprised of employee compensation, including benefits,
plus an allocation of general overhead costs which are projected each year. The overhead
percentages are calculated on the basis of budgeted costs and are adjusted anually to
reflect actual costs. Included in overhead is rent, office supplies, travel expenses,
training, etc.
UWM&S also pays various non-direct expenditures on behalf of its affiliates.
These are allocated to each affiliate based on a particular variable. For example, group
health insurance is allocated based on the number of participants; worker's compensation
insurance is allocated based on forecasted payroll expense; propert insurance is
allocated based on net property, plant and equipment.
47
UWP A also has a shared services agreement with United Water Delaware Inc.
(UWDE) (see Chapter IV, Water Operations - Background) to provide certain
operational and management support to each other on an as needed basis. Areas with
shared responsibilties are engineering, water quality, safety, communications and
administration. Services are rendered attheir cost (actual time spent as reflected on the
daily time sheets). A general overhead charge is assessed to cover taxes, insurance,
pension, etc. Detailed monthly bilings are provided to the respective companies listing
the employee cost and overhead allocation.
Findings and Conclusions
Our examination of the Cost Allocation function focused primarily on a review of
the cost allocation methodology; compliance with existing cost allocation policies,
practices, and procedures; and intercompany billngs. Based on our review, the Company
should initiate or devote additional efforts to improving the efficiency and/or
effectiveness of its cost allocation by addressing the following:
1. UWM&S does not compare the costs of providing various services to
affliates, including UWP A, with current external market prices to assure services
are provided by the most cost effective means.
UWM&S provides administrative, information technology, engineering,
accounting, as well as other services to both regulated and unregulated United W iiter
affiliates. Services are rendered at cost. Charges related exclusively to an affliate are
direct charged and charges not exclusively related to an affiliate are allocated to the
companies receiving the service.
UWM&S feels it provides services to affiliates in the most cost effective method
and that it periodically reviews affiliated costs to ensure allocations are appropriate.
UWM&S indicated that it "looks" at every service provided. However, no formal studies,
either internal or by an independent third part, were ever conducted to document cost
effectiveness as compared to market rates.
By acquiring market rate information, a comparison of the cost of UWM&S
services to available alternatives could be made. The market data would provide
management with benchmarks by which to measure the cost competitiveness of support
services provided to all United Water affliates. If corporate service costs are above
market cost levels, management should determine whether other considerations justify
those costs, evaluate initiatives to reduce these costs, or consider whether the services or
portions thereof would be better provided in the open market.
48
UWM&S could evaluate its cost of providing services to market rates for those
services. By doing so it could ascertain that it is providing services at the overall least
cost; demonstrate the reasonableness of its transfer pricing; and assure that no cross-
subsidization is occuring between affiliates.
As discussed in Public Utilty Code Title 66, Chapter 21, Section 2101, public
utilties have the burden of proof to show that allocated amounts are not in excess of the
reasonable price for fuishing such services. Performing analyses comparing the costs
of affiliated transactions with market rates wil assure the Company and the Commission
that such costs are reasonable and service is provided on a least cost basis.
As a result of UWM&S not .comparing its costs to market prices, there is no
assurance that it is providing services at the lower of cost or market rates and thatUWP A
as well as other affiliates are getting the most cost effective services from UWM&S. As
a sound business practice, UWM&S should be striving to provide services to affliates,
including UWP A, at the least possible cost.
2. The Management and Services Company (UWM&S) allocates its non-
direct accounting and finance charges based on a factor that could create signifcant
cross-subsidization between regulated and non-regulated companies.
All UWM&S employees use activity codes on time sheets to direct charge the
hours spent performing various services for UWR subsidiary companies. The
employees' hours for each activity code are summarized monthly and multiplied by the
employees' hourly cost (wage, benefits, and service and supply costs). However,.
UWM&S employees do not always direct charge their time to a specific subsidiar.
Time not directly charged to a specific subsidiary is allocated based on the multiple
factors as shown on Exhibit VIII-I.
;1:
As shown in Exhibit VIII-I, UWM&S allocates its accounting and finance non-
direct service charges based on each subsidiary company's percent of total capitalization
(total common and preferred stock, retained earnings and long-term debt). This
allocation methodology is in accordance with the Management and Services agreement.
However, capitalization structures could be manipulated to severely alter the allocation of
non-direct service time.
Allocation methodologies should equitably distribute costs to the subsidiarìes
receiving the service. These methodologies should prevent cross-subsidization of one
subsidiary by another especially since some of the subsidiaries are not regulated or
regulated-in-part. Capitalization depends more on the amount of debt incurred, profits
made, and stock issued. Other companies utilze multi-factor allocation methods when it
is difficult to determine a reasonable allocation for services. Of course, direct charges
49
should be used whenever possible and debt service fees (if applicable) should be booked
at its actual cost.
Exhibit VIII-l
United Water Management & Services Company
Basis for Inter-unit Allocations of Management & Service Fees
to UWPA
Item Percent Allocation Item
General Management 33.33%# of Employees
33.33%# of Customers
33.33%Operations & Maintenance
Operations 40.00%Net Utilty Plant
40.00%Volume of Water
20.00%Fuel, Power, & Chemicals
Customer Service 100.00%# of Customers
Human Resources 100.00%# of Employees
Accounting/inance 100.00%Total Capitalization
Source: Management and Services Agreement
Capitalization percentages for the various subsidiaries could fluctuate substantially
from year to year. Therefore, the relationship between each subsidiary's capitalization
and the resources received may not correlate effectively. Furter, subsidiaries could be
cross-subsidized by the use of this allocation because the size of its capitalization may not
represent a fair allocation of management and service fees. Some subsidiares could even
experience "negative" capitalization; therefore receive no allocation or a negative
allocation. If UWR expands into other non-regulated water businesses, the likelihood of
negative capitalization increases.
Recommendations
1. Compare UWM&S costs for providing services to affiliates, including
UWP A, to market rates and measure the cost effectiveness of the services provided.
50
2. Develop a more equitable method of allocating non-direct accounting and
finance charges possibly using a multi-factor allocation that utilzes fixed assets (gross
plant), O&M expenses, payroll, number of customers, etc. or periodically perform an
analysis to support the use ofthe current methodology.
51
IX. FINANCIAL MANAGEMENT
Background
This chapter addresses the review of the Company's financial operations with
emphasis on the budgeting process and variance reporting, the utilzation of performance
indicators to assess various business activities, and audit functions.
An established process is utilzed to prepare the annual budgets, with the
Accounting Manager responsible for compilng the operating budget and the Engineering
Manager compilng the capital budget.
The operating budget process begins with requests to department heads for all
anticipated and proposed expense items in the upcoming year. Data is compiled and
entered on a budget template by the Accounting Manager. UWPA utilzes several
internally developed Excel worksheets to aid in ariving at the annual operating plan.
The Expense Plan History lists all cost centers as well as a three year history of expenses,
month by month expenses in the current year, and the anticipated expenses at the end of
the current year. The worksheet is used as an aid to project the budget numbers for the
upcoming year. The Expense Plan also details expenditures for each activity and cost
type for the plan year. A Revenue Plan is used to develop revenue estimates for the
various customer classifications (i.e. residential, commercial, etc.) for the plan year. The
process begins with a base (prior) year while adding estimated customer growth and
revenue rates into the curent year. Customer classifications are then recapped,
Distribution System Improvement Charge (DSIC) and State Tax Adjustment Surcharge
(ST AS) levies are calculated, and miscellaneous and unbiled revenues are considered in
order to arrive at monthly revenue projections. Corporate provides data regarding
insurance, worker's compensation, pension costs, etc. for inclusion in the operating plan.
Expense and revenue data is then keyed into the budget template that is subsequently
uploaded to corporate.
The Engineering Manager with the aid of Senior Engineers is responsible for
identifying, prioritizing, budgeting, and managing capital projects. The capital budget,
which serves as a five-year planning guide for both short and long-term capital
expenditures and cash planning, includes proposed expenditures for new and replacement
utilty plant assets. Furthermore, the capital budget classifies proposed expenditures by
source of supply, water treatment, pumping, transmission & distribution, distribution
storage, customer service lines, customer meters, information technology, and general
plant.
Both the operating and capital budgets are reviewed and approved by the Vice
President & General Manager ofUWPA before being sent to corporate for review.
52
Revisions can be made at the corporate level before being sent to Suez for review andfinal approvaL. .
Variance reporting and analysis is done on a monthly basis as par of the operating
budget process. The variance report is system-generated and includes a comparison of
budget to actual results and explanations of variances for operating income and expense
categories. There is no predetermined dollar amount or percentage that triggers a
variance explanation. The UWP A Accounting Manager analyzes income and expense
variances and meets with respective deparment heads to discuss applicable variances.
The variance reports are then forwarded to corporate for review. A written explanation
may be required for a significant variance.
Monthly forecast reports are utilzed to monitor the overall capital budget and
individual projects for timeliness of completion. Each month the Engineering Manager
reviews the status of current or pending projects with the assigned engineers in order to
update the forecast with respect to project costs and timelines. Budget variances greater
than $10,000 or 10% require variance explanations in the month in which the variance
occurs.
UWP A utilzes performance indicators and benchmarks to gauge the efficiency
and effectiveness of major business activities. Existing indicators are continuously
evaluated to determine if modifications are needed with new indicators developed on an
ongoing basis. Among the performance indicators being utilzed are call center response
time, percent of bils based on actual meter readings, meter reads per meter reader,
percentage of outstanding receivables over 60 days, percentage of scheduled service
appointments kept on time, percentage of abandoned calls, inisreads per meter reader,
costs per distribution valve maintained, costs per utilty locate, costs per leak found,
chemical treatment costs per MG produced, etc. Some performance indicators are
benchmarked against industr standards and others are evaluated on trends and internal
standards. Among the industry standards utilzed are customers per employee, revenue
per employee, O&M costs per customer, and retu on net plant.
The Corporate Internal Audit Department is responsible for performing
operational audits of the United Water operating companies. The external auditor
performs audits of the financial statements.
Findings and Conclusions
Our examination ofthe Financial Management function focused on a review of the
budget process, variance reporting, the utilzation of performance indicators, internal and
external audits, etc. Based on our review, the Company should initiate or devote
additional efforts to improving the effciency and/or effectiveness of its financial
management by addressing the following:
53
1. UWP A is deriving liiited benefit from the Corporate Internal Audit
Department.
As noted previously, the Internal Audit Department performs operational audits
which furnish management with analyses, appraisals, and recommendations concerning
the activities reviewed. The audits provide management with specific information about
the adequacy and effectiveness of the organization's system of internal controls and
quality of performance.
It could not be ascertained when the last internal audit was focused on UWP A.
Audits are prioritized based on a score derived from Internal Audit's anual risk
assessment of the audit universe. The Internal Audit Department did perform several
audits over the last three years that would have some impact on UWP A (human
resources, corporate procurement/accounts payable, UBS biling conversion); however,
these were global in nature. Operational audits were tentatively planned for UWP A in
2002 but were reportedly delayed to 2003 due to a lack of resources. A review of the
staffing levels for the Internal Audit deparment during the September 2000 to March
2003 time period revealed only two auditors on average. Consequently, future plans to
periodically commence audits directly related to UWP A could be very limited.
Recommendation
1. Modify the Corporate Internal Audit plan to include periodic operational
reviews at the operating company leveL.
54
x. ACKNOWLEDGEMENTS
We wish to express our appreciation for the cooperation and assistance given to us
during the course of this Focused Management Audit by the offcers and staff of United
Water of Pennsylvania.
This audit was conducted by the staff of the Bureau of Audits. Participants in the
audit process were John Clista, John Zinn, and Michael Palewicz.
55
XI. APPENDIX
Item Appendix Number
United Water Pennsylvania
. Income Statement
. Balance Sheet Data
. Utilty Plant Data
. Customer Related Data by classification
I
II
III
IV
Comparison Panel Data
. Income Statement Data
. Balance Sheet Data
. Comparative Operating Data and Ratios
V
VI
VII
56
Request No. 110 Attchment 6 PA 04 followup
Page 1 of 18
United Water Pennsylvania
Affliate Company Charges Market Cost Comparison
For The Year Ended September 30,2004
Baryenbruch & Company, lLC ....
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United Water Pennsylvania
Affliate Company Charges Market Cost Comparison
Table of Contents
Page1- Introduction 1
Study Purpose
Study Results And ConclusionII - Background 2
Overview Of United Water
Overview Of UWM&S Services..
UWM&S Billng of Affliate Companies
UWM&S Charges To UWPA
II - Market Cost Comparison 6
Methodology
UWM&S Houny Rates
Outside Service Provider Hourly Rates
Services Company Versus Outside Provider Cost
Comparison
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I -Introduction
Study Purpose
United Water Management and Services Company (UWM&S) provides United Water
Pennsylvania (UWPA) with management, professional and technical services. This
study was undertaken to measure the cost effectiveness of the services by comparison
with external market prices.
This study was recommended by the Pennsylvania Public Utility Commission (PPUC)
staff as a result of its Focused Management and Operations Audit of UWPA. In its
report dated March 18, 2003, the staff made the following finding:
UWM&S does not compare the costs of providing various service$, to .
affliates, including UWPA, with currnt external market prices to assure
services are provided at the most cost effective means.
The staff went on to make the following recmmendation:
Compare UWM&S costs for providing services to affliates, including
UWPA, to market rates and measure the cost effectiveness of the
services provided.
Study Results And Conclusion
This study found UWM&S services provided to UWPA during the twelve months end
September 30,2004 cost almost 15% less on average than outside service providers.
These services are provided at cost with no markup or profit. wlf UWPA would have
used these outside providers rather than UWM&S, it would have incurred an additional
$311,000 in expenses during the twelve months ended September 30, 2004. Based
on this study's results, the services UWPA received from UWM&S are clearly. cost
effecive.
Besides the direct economic benefits of using UWM&S, there are qualitative reasons for
UWPA to maintain the current service relationship with UWM&S. It would be difcult for
UWPA to find local service providers with the same specialized water industry and
regulatory expertise as' that possessed by the Service Company staff. UWM&S
personnel spend substantially all their time servng operating water companies. This
degree of specialization brings wih it a unique knowledge of water utilit operations and
regulation that is most likely unavailable from local service providers. Also, outside
service providers often serve multiple clients at the same time. Thus, they may not be
able to give one client the same undivided attention that UWM&S provides to UWPA.
Baryenbruch & company, LLC ...
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II - Background
Overview Of United Water
United Water's corporate structure is shown below.
United Water
Operations
United Properties
Group
..W'r...'~'""t'4i¡~#fji!¡il",;¡~~r.~.~~~:~;l~'t~af.i1~i!: Regulated:'im:r~:- :i~¡'~'W.'!11~~I~~'tt:!t..'l
UWPA provides water service to approximately 50,000 customers in 36 boroughs or
townships throughout seven counties in Pennsylvania. UWPA is headquartered in
Harrisburg and is divided into four operating areas-Harrisburg, Mechanicsburg,
Bloomsberg and Dallas.
Overview Of UWM&S Services
UWPA is provided with the following services by its affliate, UWM&S under a service
agreement on file with the PPUC:
. Accounting
. Administrative
. Corporate Secretanal
. Customer Relations
. Engineenng
. Human Resources
. Information Technology
. Insurance
. Legal
. Management
. Treasury
. Procurement
. Public Relations
. Purchasing
. Rates:
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In 2004, UWM&S was reorganized into the following units:
. Corporate (69 employees)
. Regulated (77 employees)
. Non-Regulated (26 employees)
UWM&S' expenses are assigned in accordance with the terms of service agreements
that UWM&S maintains with UWR operating companies, including UWPA. These
agreements provide that UWM&S expenses be direcly assigned to specific operating
companies where possible. Expenses that cannot be directly assigned, are alloèated
using one of several formulas based on number of operating company employees,
number of customers, O&M expenses, net utilty plant, volume of water, fuel , power
and chemical expenses, and total capitalization.
UWPA also has a shared services agreement with United Water of Delaware (UWD)
where the two regulated operating companies support each other with the following
services:
. Administration
. Engineering
. Water Quality
. Safety
. Communications
UWM&S Biling of Affliate Companies
After the annual budget has been finalized, an hourly biling rate is developed for each
UWM&S employee (with the exception of administrative personnel whose sa~~lfies
become part of departmental overheads). Employees are grouped into diferent
functional areas (e.g., Finance, Information Technology, Administration) and separated
into different strata according to salary ranges (CEO, Executive, Director, Manager,
Staff 1 and Staff 2). Biling rates are comprised of the salaries in each stratum along
with a proportional share of the remaining functional area overheads (all of which are
non-salary expenses). Hourly rates are then applied to actual hours charged (direct or
allocated) during the year to determine the dollar amounts to bil affliate companies
supported by UWM&S. Employees charge business units directly on their time report if
they provide support to only that business unit, or they charge an allocation level when
they have provided support to a group of companies. Throughout the year, the total
amount biled by UWM&S is compared to total actual expenses incurred to monitor that
the two are in balance. When an imbalance (over- or under-biled) develops that seems
to be permanent, one of two actions is taken. Either the hourly rates are adjusted or a
charge/credit is recorded to true-up the amounts billed with actual expenses incurred.
Starting in October 2004, UWM&S changed its expense assignment methodology.
Budgeted hourly rates are no longer used to assign UWM&S expenses. Instead, actual
UWM&S departmental expenses.. for. a month are assigned to affliate companies
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supported during that month based on hours charged by each employee. Salaries and
prorated expenses follow each employee's time.
The example below ilustrates the new methodology. In this instance, salaries are
tabulated for the Tax Department's and each hypothetical employee's percent of total
payroll is calculated. Next, non-salary expenses are allocated to each employee based
on their percent of total payrolL. Finally, salaries and non-salary expenses are totaled
by employee. So, for example, the total expenses for the manager are $10,721 for the
month: This is the amount that wil be assigned to companies to which the manager
charged time.
UWM&S - Tax Department
Tabulation of Expenses By Employee (Example)
Alloction of Non-Salarv Exoenses Total
Non-Prod Other Expenses
Salaries Frinae Time Expenses By
Emplovee Month % Total $9,000 $5,000 $10,000 Employee
Vice President $11,000 36.1%$3,246 $1,803 $3,607 $19,656
Director $8,500 27.9%$2,508 $1,393 $2,787 $15,189
Manager $6,000 19.7%$1,770 $984 $1,967 $10,721
Staf $5.000 16.4%$1,475 $820 $1,639 $8,934
Total $30,500 100.0%;$9,00 $6,000 $10,000 $54,500
The assignment of the Tax Department manager expenses is shown below. First, the
percent of the managets time each company was charged during the month is
calculated. In this case, the manager charged time (direct or allocted) to UWPA, UW
New York and UW New Jersey. Based on the percent of hours, the manager's total
expenses of $10,721 are allocated to the three operating companies.
UWM&S - Tax Department
Assignment of Expenses - Tax Manager (Example)
Direct Charged
Allocated
Total Hours
% Total
Hours Billed Durina Month Bv Tax Manager
United Water Operating Comoanv
Pa NY NJ Total
15 30 40 85
10 25 40 75
25 55 80 160
16%34%50%100%
Expenses
Total For Month
% of Hours
Assignment
Pa NY NJ
$10,721 $10,721 $10,721
.16%34%50%Total I
$.1675 $3,685 $5,361 $10,721 I
This approach avoids the carryover of over(under)-biled UWM&S charges from one
month to the next.
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Employees charge their time to one of the following:
. Directly to an operating company benefiting from the work
. An allocation level appropriate ,to multiple companies receiving benefits
. Capital project
. Work order which is charged to' a deferred charge account.
UWM&S Charges To UWPA
During the twelve months ended September 30,2004, UWM&S charged UWPA over
$1.6 milion, as summarized in the table below.
UWM&S
Charges
Account Descriotion (10/1/03-9/30/04)
923010 Coroorate-M&S Fees $1,156,370
923011 ReQional-M&S Fees $162,755
923012 M&S Fees Business Development $352
923013 ReQulated-UW M&S Fees $282,703
923014 Non Reaulated-UW M&S Fees $13,237
923015 Corporate-M&S Fees-Wastewater $1,426
923018 Regulated-UW M&S Fees-WW $1,067
Other $59,152
Total $1,677,063
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II - Market Cost Comparison
Methodology
UWM&S charges to UWPA for the twelve months ended September 30, 2004 were
market tested by comparing the cost per hour for UWM&S services to those of outside
service providers to whom these duties could be outsourced.
The first step was to determine which types of outside providers could assume Service
Company services. Based on the nature of these services it was determined that the
following outside service providers could perform the categories of services indicated.
. Attorneys - corporate secretarial and legal services
. Certified Public Accountants - accounting, finance, information systems and
rates and regulatory
. Management Consultants - executive and administrative management, risk
management services, human resources and communications services
. Professional Engineers - engineering and operations servces.
The next step was to calculate UWM&S' hourly rate for each of the four outside service
provider categories, based on the dollars and hours charged to UWPA during the 12-
months ended September 30,2004.
Hourly billng rates for outside service providers were next determined using information
from pertinent surveys.
Finally, the UWM&S' average cost per hour was compared to the average cost per hourfor outside providers. ., ,.
UWM&S Hourly Rates
UWM&S charges to UWPA were first assigned to the four outside service provider cost
pools-certified public accountant, attorney, management consultant and professional
engineer. Charges associated with UWM&S executives (vice president and above)
were assigned to the management consultant category. The remaining UWM&S
charges were assigned to outside provider categories based upon the functions to
which they were charged. For instance, charges for the financial planning function were
assigned to certified public accuntant and for the technical services function to
professional engineer. Exhibit 1 shows the results of this cost assignment process.
On the same basis, hours of UWM&S personnel charged to, UWPA were assigned to
outside provider categories, as shown in Exhibit 2. '
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Based on the assignment of expenses and hours to outside provider categories,
UWM&S cost per hour for the twelve months ended September 3D, 2004 was
calculated, as shown below.
UWt\î&S Hourly Rates
Certitied
Public bîanagement Profess,onal
Accountant '""ttorney Consultant ::ngineer Total
¡:rotai UWM&S Ch~!!!~_$ 84,548 $~~$ 588,009 $ 184.511 $ 1,677,063
---"-"9;286 ,--------- ---- ¡,._---,-
Hour Pool 535 3.745 1,827 15.3931..---'.-----------$$$$iAwrage Hourly Rate 91 110 157 101
Baryenbruch & Company, LLC Ild 7
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Request No. 110 Attchment 6 PA 04 followup
Page 12 of 18
Outside Service Provider Hourly Rates
The next step in the cost comparison was to calculate the average biling rates for each
of the four outside service providers. The source of this information and the
determination of the average rates are described in the paragraphs that follow.
Certfied Public Accountants
The average hourly rate for Pennsylvania certified public accountants was developed
from a 2004 survey performed by the American Institute of Certified Public Accountants
(AICPA). Hourly rates in the AICPA survey are the average of firms in Pennsylvania.
The average hourly rate was calculated for a set of typical accountant positions, as
shown in Exhibit 3. Using an assumed percent of time on a typical assignment, a
weighted average hourly rate was calculated. Finally, the 2003 average rate was
escalated to March 31, 2004the midpoint for the year ended September 30, 2004
Attorneys
The Pennsylvania Bar Association does not survey its members as to their hourly billng
rates. Therefore, a Pennsylvania estimate was developed from a survey of Ohio
lawyers conducted annually by the Ohio Lawyers Weekly. As shown in Exhibit 4, the
average rate for each Ohio finn respondent was adjusted for the cost of living
differential between their location' and 'Harrisburg, Pennsylvania. The survey includes
rates that were in effect at Decemb~r 31, 2003. Thus, the 2003 average rate was
escalated to March 31, 2004-the midpoint for the year ended September 30, 2004
Professional Engineers
An average hourly rate for outside engineering firms was developed from the 2004 rate
sheets of four outside engineering companies. As shown in Exhibit 5, an average rate
was developed for each engineering position category. Then, using a normal
percentage mix by position category for a typical engineering project, a weighted
average cost per hour was calculated.
Management Consultants
The cost per hour for management consultants was developed from the 2004 annual
survey performed by the Association of Management Consulting Firms-an industry
trade organization. The first step in the calculation, presented in Exhibit 6, was to
determine an average rate by consultant position leveL. From these rates, a single
weighted average hourly rate was calculated based upon the percent of time that is
tyically applied to a consulting assignment by each consultant position leveL. This
survey includes rates that were in effect during 2003 for firms in the United States.
Consultants typically do not limit, their practice to anyone region and must travel to a
client's location. Thus, the U.S. national average is appropriate for comparison.
Finally, the 2003 average rate w~s esbalated to March 31, 2004-the midpoint for the
year ended September 30, 2004
Baryenbruch & Company, LLC ..d 10
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Request No. 110 Attchment 6 PA 04 followup
Page 17 of18
Service Company Versus Outside Provider Cost Comparison
The table below shows the hourly rate differences between UWM&S and outside
service providers.
CostfHour (12 months ended 9130/04)
Difference..
UWM&S
Outside G reate r(Less )
Service Provider UWM&S Providers Than Outside
Certified Public Accuntant $91 $96 $(1))
Attornev $110 $232 $(122)
Manaaement Consultant $157 $199 $(4i)
Professional Enaineer $101 $90 $11
UWM&S hourly rates were found to be lower than three of the four outside provider
categories. In the case of professional engineer, UWM&S' average hourly rate was $11
per higher. One factor contributing to this seeming higher rate is this study's
conservative approach in calculating UWM&S hourly rates. All UWM&S charges to
UWPA were included in the hourly rate calculation. However, an outside provider
would not recover some of these costs through their hourly rate for professional
services. Rather they would be charged separately at actual cost. As shown in the
table below, as much as 7% of UWM&S actual expenses during the twelve months
ended September 30,2004 would be recovered in this manner by outside providers.
UWM&S
Expenses',.,
, !
(10/1/03-9130/04)
Travel-Related Expenses
921200 Auto Expense $447,251
921210 Air Transporttion $399,402
921220 Rail, Taxi, Car Rental $75,706
921230 Lodging $115,977
921240 Other Travel $50,919
921250 Meals $115,108
Outside Servces Expenses
923000 Outside Services $523,023
923020 Outside Servics - Administrtion $402,246
923080 Outside Servs - Legal $3,530
Total Expenses Recverable Through Other $2,133,162
Means Than Hourlv Billna Rates
Total UWM&S Bilinas $29287,115
Expenses As Percent of UW&S Bilinas 7.3%
Thus, if these items were removed from the UWM&S hourly rate cost pool, the rate
differential with outside engineenng firms would be much smaller and the positive
overall cost savings even higher.
Baryenbrch & Company, LLC ....15
Request No. 110 Attchment 6 PA 04 followup
Page 18 of 18
Based on the cost per hour diferentials by provider category and the number of hours
that UWM&S biled UWPA during the twelve months ended September 30, 2004, the
services would cost over $226,000 more from outside providers, as calculated in the
table below. This is almost 15% higher ($248,932 I $1,677,063 = 14.8%) thanUWM&S' total charges to UWPA. .
Dollar Cost Difference
Hourly Rate
Diference-
UWM&S UWM&S
Greater(Less)Hours Dollar
Service Provider Than Outside Charaed Difference
Certified Public Accountant $(5 9,286 $(46,428)
Attornev $(122 535 $(65,312)
Management Consultant $(42 3.745 $(157,290)
Professional Enaineer $11 1,827 $20098
UWM&S Less Than Outside Providers $(248,932)
Higher hourly rates are not the only negative economic impact that would result from
contracting all Service Company services to outside providers. Managing outside firms
who would perform over 15,000 hours of work would add a considerable workload to
the existing UWPA management team. Thus, it would be necessary for UWPA to add
at least Y2 of a position whose responsibilw it would be to supervise the outside firms
and ensure they delivered quality services. The individual that would fill this position
would need suffcient experience to have a good understanding of each profession
being managed. This person must also have management expenence and the
authorit necessary to give them credibilit with the outide firms. As calculated in the
table below, this position would add an estimated $62,500 per year to UWPA personnel
expenses.
Cost of Adding Administrative! Position To Manage Outside Providers
New Position's Annual Salary . $ 100,000
Assume 50% Time Managing Outside Providers $ 50,000Benefits $ 12,500Total Cost of the New Position $ 62,500
Thus, the total effect on the ratepayers of UWPA of contracting all services now
provided by Service Company would be an increase in their expenses by at least
$311,432 ($248,932 + $62,500).
Baryenbruch & Company, LLC .-.16
UNITED WATER IDAHO INC.
CASE UWI-W-09-01
FOURTH PRODUCTION REQUEST OF THE COMMISSION STAFF
Preparer/Sponsoring Witness: Kevin Doherty
REQUEST NO. 111:
Please describe the process by which the M&S Company chages employee time to the varous
subsidiares. Please include within your response at a minimum the process by which the M&S
Company's Engineering Deparent determnes how to charge employee time to the varous
UWI capita projects and whether that time is directly charged to large projects, charged to
projects in an overhead rate, some combination of the two, or in another maner.
RESPONSE NO. 111:
Please refer to page 30 of the Assessment Cataog provided in response to Request No. 109.
With regard to Engineering (Techncal Services), the M&S Company Engineerig Deparent
provides regular assistace to UWI engineers in monitorig and adjusting the overal capita
budget for UWI as par of tracking the overall UW capita plan. The M&S Company
Engineerig Deparment also assists the UWI engineers in developing the anua capita plan for
UWI. Ths work is charged to a corprate capitaizd overhead account. M&S Company
engineers tyically do not work on specific UWI capital projects. Certn projects, such as water
treatment or other specialty work, like the Columbia Water Treatment Plant, have involved M&S
Company engineers, in which case the engineer(s) working on the project charge the UWI
capita project directly for the time they work on it.