Good morning. I'd like to call the Public Utility Board meeting of Monday, February 24th, 2020 to order.
It is 9 o'clock and we have a quorum. I'd like to start out by deferring to Mario. He's got clarifications to make about the agenda.
Yes. Good morning, board members. If you'll notice on your agenda, it looks a little different as far as the sequencing.
What we're trying to do is we're working with our staff to try to make staff's time more efficient, more effective.
So the reason why you see it the way you do is, as you noticed in the past, when we have work sessions, sometimes if we have individual consideration items or consent items,
some of the staff that's left in either side of the room, they're having to watch the work sessions that don't pertain to them.
And so what we're trying to do is get them through consent items, individual consideration items. Once they're done, they'll clear out.
And that way they can just take the people who need to stay here for the remainder of the meeting will stay.
We're still working on tweaking those agenda items. So be patient if you don't mind.
So we want to create we're a little crazy, not too crazy. It was intended to be this way for today's meeting.
It's very good. Thank you. Go ahead. Start the regular meeting up with the consent agenda.
Are there any members that would like to pull any of these items? I'd like to pull one B.
If there are no other, then we'll move to is there a move to approve consent agenda items? A, C, D, E and E.
Move approval. I second motion and second. All those in favor, please say aye. Aye. Those opposed say the same passes.
OK, Adams for individual consideration. I think I thought I heard Charlie making a comment on something in the minutes earlier. Is that correct?
I had a minor typo correction. Yeah, the one that he oh, we do. I'm sorry. I'm sorry. Yeah, let's back back up.
OK, what did you want to pull agenda item B?
Can you give us just a quick walk through of what happens with the electronics and what the UER does?
Brian Burner, Director of Solid Waste with the City of Denton. As part of our services to the City of Denton residents, we do take electronics for proper disposal.
Once we receive them on site, we palletize them, you know, monitors TVs, you know, do some some very rough sorting from there.
The company picks them up, takes them back to their facility. And at that point, one of several things may happen.
They'll check the piece of equipment to determine if it's operational. If it is, they'll wipe it, reboot it, refurb it, and they may sell it as a new product.
Again, they'll take apart components that are working like motherboards, chips, things of that nature.
They'll repurpose those anything that is intended for ultimate disposal. At that point, they'll send materials for ultimate recycling.
So trying to reuse and recover as much as possible and any fluff that's left over then that will go into an ultimate disposal option.
And it is certified and none of it all stays in the states. It does not go to third world countries to be disposed of things of that nature.
I just my concern is that we're paying $400 per ton to get rid of stuff and we allow people to dump at $40 a ton.
And that tenfold factor yet to recycle if we have the ability to reuse it or recycle it anywhere near profitably.
But it looks like it's just a vacuum where costs go from this contract. Is it just pretty much all downside there?
That would be correct. I mean, there are costs. You know, every time a person touches this, there is cost that's applied to it.
Because again, the profits made in the sale, the repurpose, but at the end of the day, it is a net cost to the city of Denton to dispose of this material.
Ten times the amount of what we could dump it for. In terms of the hazards that are in there, I mean, I think this kind of shows that the opportunities are pretty limited for making money or using this responsibly.
I guess the other side would be, are the hazards really that great from electronics that we can't stand to have them in the landfill?
Once you remove the batteries, I mean, ultimately you could dispose of that material directly into the fill site.
However, there are other options that are available to residents. We're sort of the recycler of last resorts. You can take it back where you bought it.
I know there are several retail agencies within the city of Denton and across the nation that will take that material.
And if you go onto the TCEQ's website and just type in TCEQ computer recycling or TV recycling, you'll get a list of 100 more manufacturers that will take their material back either at no or low cost.
So again, we're just one option in the mix. We would like people to take advantage of these other options.
But at the end of the day, if they bring it to us, we need to be able to manage that in an environmentally sound manner.
Thank you.
You're welcome.
So I just had a quick question. Who handled it before this contract? Same people?
No, it was a different company. And the name slips my mind right now.
And they just didn't bid on this one?
No, they did. But they were higher than what this company is right here.
I went on the company's website and I was initially concerned because, as you mentioned, there have been situations where U.S. recyclers saying they're doing the sorting and everything in country are actually sending it overseas with terrible environmental consequences.
But this outfit's really good and they have what they call a zero landfill capacity, which I think is a really good direction to take.
So I was very pleased to see that this company has been hired by the city.
Thank you.
That being said, I'm going to entertain a motion for item B of the consent agenda.
I move.
Motion.
Second.
Motion and a second. All those in favor, please say aye.
Aye.
Any opposed?
I'll go down opposed.
You'll go down opposed. Okay.
Passes.
Thank you.
Now we'll move on to items for individual consideration.
Consider the approval of minutes of February 10th, 2020.
I'll move approval with one typographical.
You pass that on to Miss Makin, right?
Okay.
Motion.
I'll move.
We have a motion.
What are we on now?
Minutes.
Oh, okay.
A second.
Motion and a second.
All those in favor, please say aye.
Aye.
Any opposed?
Say the same.
Okay.
Passes.
All right.
Item of individual consideration B. Consider recommending adoption of an ordinance in the
City of Denton, a Texas home rule.
Do I have to read the whole thing?
Do I need to read the whole thing?
No.
Okay.
Item B. Any questions?
Comments?
You're going to make a presentation, right?
Okay.
I'll do so.
Okay.
This is the right item.
I have a couple of items this morning.
Chairman, members of the board, Terry Kader, Fleet Superintendent.
This item is for the purchase of aerial bucket trucks on a source well contract for the electric
department and traffic department specifically.
So just a little background.
Currently with the fleet includes about 32 aerial trucks split between DME and parks
and traffic.
Parks only has one unit right now.
The majority of those, of course, are in DME.
And the contract is for specifically the bucket truck series, ATM and TA series of trucks
that ALTEC provides.
Fleet purchases these trucks whenever they're available and fit the specific needs of the
department when they get ready to replace or add a vehicle into the fleet.
And the reason we like ALTEC is they use factory trained technicians that will come out in
the field and service these units in the field so we don't have to down them and take them
to the facility to be repaired.
They do on-site diagnostics and repair as well as warranty work.
And they will also do the required annual inspections for us.
Our fleet technicians currently don't work on aerial equipment.
It's basically due to the risk factor involved, the liability.
So this contract is a $3 million contract that we have currently a need for six trucks.
Five of those are the AT40M, 48M series trucks.
And those are for the operations department of DME.
And the other truck is a TA60 model.
That's a 60-foot telescopic articulating unit.
And that's for the distribution department for electric.
We anticipate the need for up to seven more units on this contract over the life of the
contract.
And you'll notice this is only a two-year contract.
And that's basically because that's the length of the source wheel agreement with ALTEC.
And there's a very good chance that they'll renew that agreement at the end of the two
years.
They typically do.
But we just made this contract coincide with that.
So it's good through 2021.
These units for 2021, these are just estimated replacements and possible fleet additions.
And so we're just asking for the spending authority.
Of course, none of these trucks have been approved yet.
They will all be approved through the board before they're purchased.
Some of the benefits, the contract provides turnkey.
They'll give us the freight liner and the Dodge chassis.
They'll actually work with us on the chassis to our specification.
The reason we like to do that is because these trucks are typically one year out.
And so we use their stock chassis.
That way we don't have a chassis being built and sitting on the ground up there waiting
for a year for it to have the body put on it.
And they do accept letters of intent for us.
So these six trucks, we've issued a letter of intent.
They're already in the build cycle.
It kind of reduces that one year build period.
So we don't have to wait.
If we're pretty sure that these trucks are going to be approved, we'll give them a letter of intent.
It's nonbinding.
So if something happens and they're not approved, we're not liable or required to purchase them.
Again, they have factory trained onsite technicians for the maintenance and repair of these trucks.
And the big benefit is the department confidence in the units.
Denton Municipal Electric as well as the traffic department have expressed confidence in these units.
And in the past, the city's operated various types of aerial equipment in terms of bucket trucks.
But these are by far the most reliable.
And the technicians provided do a really good job and turn around these trucks for us.
The other thing about Alltech is that they sell direct to the customer.
They don't have distributors across the country, so we buy directly from Alltech.
And they're out of St. Joseph, Missouri.
So, of course, our recommendation is to award a two-year contract to Alltech for the $3 million.
We have a need currently of $1,113,000.
That's for those six trucks that we currently want to order from them.
And that concludes my presentation.
Yeah, I have a question.
Six trucks this year and seven next year, right?
Possibly seven trucks.
And that includes some planned replacements as well as any possible additions.
I think, like I said, none of those seven trucks are approved at this point.
How many of those on there would be additions beyond the fleet level you have now?
Probably two at the most.
Do you make any replacement decisions looking at the run hours on a piece of equipment?
We do.
We look at the -- there are a lot of factors that goes into that equation as to when we determine replacements.
And I'll actually be doing a presentation on fleet replacements in just a few minutes.
And I can answer all your questions then.
Good morning.
Terry Nalty, Assistant General Manager at DME.
We are, as you may be aware, we did do a little bit of a restructuring of our staff here in the last month.
And as a result of that, there is a need for some additional vehicles.
And while a couple of those are included in Terry's numbers,
we will be bringing a supplemental as part of the budget package to increase the number of line trucks.
Part of the reorganization, which we'll talk about, was an outgrowth of the new gen study.
We are actually redeploying our crews into smaller crew sizes.
And in order to do that, we need a few additional vehicles in order to make them more productive.
This all has to do with a high growth rate that we're seeing in line extensions on the distribution side
and some ongoing transmission work that we've got a substation work that we'll be hearing about as part of the budget cycle this year.
I have another question with regard to safety.
Have you had any accidents in the last five years that have been due to a failure of a bucket truck component or anything like that?
We have not, knock on wood.
You know, as Terry said, ALTEC comes out and does the service work.
These trucks are all dielectric protected vehicles.
And so that's one of the reasons why we want to maintain the warranty and limit our liability by doing that service work ourselves.
That's why we bring ALTEC in.
So follow up on Russ, you asked a lot of the same questions I was getting at.
We're asked to approve this, and then you're going to tell us why after.
It's kind of, I think, an issue.
And another agenda item.
Well, the other agenda item is basically just an informational item on the replacement process, not specifically geared at these purchases,
but overall, you know, how do we arrive at the replacement decisions we do?
And I noticed that, I mean, I would assume you don't put a lot of run hours.
These don't run all the time, correct?
They run, the hours add up on these trucks because they're typically, they drive to the job site and then they're used for that particular job.
So mileage, no, but hours, yes.
Hours, yes, okay.
I noticed you were replacing a 2015 model.
Yes.
So do you know how many hours?
I believe those trucks have somewhere between 7,000 and 8,000 hours on them.
And typically, because we remember we're a year out before the new trucks come in,
we kind of have to start the process just a little early so that we don't run into problems with those trucks
again this next year while we're waiting on the new ones to arrive.
And each one of these vehicles and buckets will be to each individual budget, correct?
That's correct.
Okay.
I'm assuming they're already in our budget?
They're budgeted for these.
These are planned replacements, I'm sorry.
In the presentation, I saw a reference, an example of a police department vehicle.
You're in charge of that as well, right?
Yes, sir.
Okay.
I'm asking because I don't know.
Do you handle all the mobile equipment for the City of Denton?
Is that true?
Everything, every fleet asset runs through the fleet services department for replacement, for maintenance and repair, and for disposal.
I think that'll be covered in that work session.
One of the things that Terry is covering is, I don't think he's going to go exhaustively, but he covers all fleet.
But he'll be able to kind of give you kind of a snapshot of the number of assets, the amount of just our overall financial picture when it comes to the assets of the fleet.
So I think that's coming here in the next few moments.
I'll move approval.
All those in favor, please say aye.
Aye.
Any opposed?
Say the sign.
It passes unanimously.
Okay.
We'll move on to the ACM update, item C.
Yes, good morning again.
As far as on the ACM update, we do have attached in the packet the Denton Energy Center 2019, excuse me, December 2019 dashboard.
I believe Nick Vincent was here.
Okay, well Terry Nalti is here.
He can present that.
The memo came from Nick.
So if you have any questions specific to that.
Also, I believe there had been a request made earlier at a previous PUB meeting on the various acronyms used for the Denton Energy Center.
That's included in the packet as well.
And so Mr. Nalti can explain those if you have any questions regarding that.
And I'm just running through these and then we can fall back if you have any specific questions on the previous things reported.
Future agendas, as we roll into the spring, you'll be seeing a number of budget items be presented to the Public Utilities Board or the various utilities.
So a number of conversations will be coming forward to you over the next number of weeks.
And then as far as also too on your report, it mentioned that you would be covering the water and wastewater study that I believe that was actually done earlier this month.
So ignore that.
I apologize on that on that miss.
And then as far as new business based on the presentation that Mr. Cater is presenting here in a few moments, I believe we're up to date on our matrix items.
I think there was a tour that was conducted of the facility, a recycling facility.
And then the last one was an overview of the decision making process for our fleet replacement process.
Outside of that, open it up for any questions of staff.
Thank you for the acronyms.
That's my last stand on the PB when we had paper for everything, you know, they just had a lip kept adding to the list of acronyms at the front.
All right. Well, I guess we're done with the items for individual consideration.
Move on to concluding items, which is our work session.
Number eight, see report, hold a discussion, provide direction regarding the electric water and wastewater management study performed by new gen strategies and solutions LLC.
Banks morning.
Morning, board members, Ken Banks, general manager of utilities.
I am here today to present to you the utilities management study.
This has been a long time coming.
Very extensive report and I'm excited to present it to you today.
It's a very large piece of work.
And so what we have tried to do is kind of get the highlights on it.
I'm going to be doing a tag team with Terry Nolte, who will handle the DME side.
So we'll be doing a little shuffling back and forth as we work through this presentation.
So a couple of things to talk about the management study is a charter requirement and I'll go over that specific language here in a bit.
And it is required to be done every 10 years.
It's not very descriptive in the charter about what actually has to be done other than it's supposed to be done by an independent and qualified outside entity.
And that the results are to be shared with the public once it's completed.
So we'll go through a little bit of the management study background, hit the highlights on the findings and recommendations.
I want to talk specifically about a follow up survey that we did and go over that a little bit.
And then go into our conclusions and talk a little bit about some of the actions that we have taken.
This has taken a little over about a year and a half total to get this completed.
And so you can imagine as we were starting to work through this and starting to identify things that needed to be looked at, we had already started work on some of those.
And we'll be bringing that to your attention at upcoming work sessions.
So it is a charter requirement, section 1208(f) of the city charter.
You can see the language here, but it does state an interval is not exceeding 10 years.
The council shall, at the expense of the utilities involved, cause a general management survey to be made of all utilities under jurisdiction of the board.
It's to be done by a competent management consulting or industrial engineering firm.
And the report and recommendations shall be made public.
So study elements, just a summary here.
It's meant to be a very comprehensive study.
So you can imagine there's a lot of different elements here, government, organizational structure, financial practices, development policies, an evaluation of the support services that the utility gets, franchise and payment in lieu of taxes, communications, public relations, et cetera, et cetera.
So again, the report itself is about 275 pages.
And I'll just try to hit the main points and the highlights here as we work through it.
So we did retain new GIN strategies to perform this management study of utilities, which involved electric water and wastewater.
The project's kickoff was on September the 17th of 2018.
And most of the data collection, including the information that was derived from staff interviews, occurred during the fall of 2018.
Now, I will say as a general rule, it's not optimal to try to do one of these studies when you are in a situation where there is a lot of organizational evaluation and change going on.
But that's where we were back in 2018.
And that's why the follow-up survey, I think, is such an important component of this particular study.
So basically, the general findings and recommendations, these studies have a tendency to have elements that are in common.
And then oftentimes, at least based on the prior two, they will have elements that are specific to a concern at the time.
So the 1998 report focused on the electric utility deregulation issue.
2008 really focused on cost of shared services.
And this particular one, we tried to make it as comprehensive as possible, but not try to focus on any one particular element.
And we discussed that at length with the public utility board and with the city council as we were bringing this forward for the approval of the contract.
One of the findings that NUGEN had was the 10-year timeframe may be too long.
Obviously, a lot of changes can occur in this timeframe.
And they were quick to acknowledge that each of the three utilities had experienced or were in the process of experiencing leadership changes.
So some of the recommendations just in a general sense were that future studies should align with a more holistic organizational approach as used in the study.
Like I said, we really chose to look comprehensively at the organization, but not try to focus on a particular topic.
And then basically they stated that we should consider either an internal or external management study at a timeframe that was less than 10 years.
They suggested an interim review every five years.
And as a part of that interim review, really tracking progress of the recommendations for the previous management study.
That had not typically been done or had not been done in the previous studies.
So I'll turn it over, with that background, I'll turn it over to Terry to talk a little bit about the electric component.
And then I'll pay back up with the water wastewater side.
Thanks, Kenny.
So I think it's important to put this in perspective.
Kenny mentioned that at the time this study was done,
it was a period of significant turmoil within DME.
You know, since this study was initiated, we've had at least three general managers at DME.
And so a lot of the responses from employees, I think there were over 50 employees that were interviewed by NUGEN during the process.
You have to take that into account as you look at the results.
So and here you see some of the -- we're going to go over some of the very high-level findings of the report as it relates to DME.
Good place to work.
They found that the people were very capable.
We have a very good apprenticeship program on the lineman side.
So our apprenticeship program to go from an entry-level lineman through the journeyman level is top notch.
At the time, we had just entered the market as a QSE, a qualified scheduling entity around getting ready for the deck to start up and all the renewable contracts that were coming in place.
And so one of the findings was that we needed to work on this process to integrate with ERCOT settlements.
That's been done.
And we've been operating, obviously, since that time, very well.
Reliability is what we're after as an electric utility.
And NUGEN did look very closely at our reliability numbers.
We've experienced high growth but yet our reliability numbers have been very, very good.
To give you an example, and here we see some acronyms, again, SAFE and SATE. SAFE is the System Average Interruption Frequency Index, and that's a measure of the frequency of interruptions in electric service.
To give you an idea, we were rated at 34.3 is the index.
The regional index here in this region is 83.64, so we're less than half of the regional index.
And the national index is 242.
So on a frequency perspective, much fewer interruptions.
The other acronym here is the SATE, the System Average Interruption Duration Index, which as it indicates is the duration of those interruptions when they do happen.
Our rating is .74.
The regional rating is 1.17, so we're under the region.
Nationally, it's 1.57, so we're less than half of what the peer organizations would be on a national basis.
Very proud of the performance of the team there.
Terry, does that compare to all electric organizations?
That would be, it would be just public.
Just public, okay.
Yes, just public, which typically have better metrics than investor-owned utilities.
Yes, public utilities have a little more accountability.
That's correct.
Communication was one of the areas that they, again, remember what was happening at DME at the time.
So communication was an issue that was identified by the consultants as an area for focus.
And I think when you think about the way we're structured with support organizations, our, for example, tech services provides all of our IT support.
We rely on procurement to do all of our purchasing.
Customer service is a separate function.
Fleet is a separate function.
Real estate, engineering and planning for the city, all separate functions.
And as a result of that, better communications amongst those departments was identified as something to work on.
We have been working on that.
And one of the other recommendations we'll get to in a minute was that the consultants recommended that we go and do an FTE analysis of our organization, which has been completed.
And this reorganization was announced about two or three weeks ago.
We've added a new position, an executive manager of business services and performance management, and their focus will be to work on these lines of communications amongst departments in the city with DME to make sure that we're better coordinated, as well as tracking performance of both DME as an internally performance, as well as the performance of those support organizations in meeting our needs.
>> Question.
>> Yes, sir.
>> Do your electric engineer -- I see you're doing the field training program, which is fantastic.
I hope.
Should be real world applications of engineering.
Is your engineering staff -- does it fall under your budget or does it fall under the engineering budget and they build back?
>> Under ours.
>> It is under yours.
>> Now, so city engineering, like streets and all the other -- they're a separate department.
We work very closely with them, especially when we have electric lines to be relocated or new poles or lights to be put in.
We try to coordinate that as tightly as we can.
And those are some of the areas that we'll be focusing on trying to improve that efficiency.
>> Well, having a lot of experience in finding utilities before they need to be found, DME is the most responsive utility I've ever worked with on any road in any part of this country.
>> Okay.
The next couple, the silos needed for improved cooperation and issues between engineering and operation.
I'll just say that, you know, with new leadership, there's new performance expectations for these functions within our organization.
And we're working aggressively to try to improve that coordination and to break down those silos.
An example is in our engineering group within DME, we had structured a transmission engineering group and a distribution engineering group.
So large transmission projects and substation projects were handled by the transmission group.
And the distribution system, the line extensions, the meter services to homes was handled by distribution.
That's now all one organization so that we can better coordinate that and ensure that when we're building a substation that the distribution loading on that substation is integral to the development and engineering of that system.
One of the recommendations was that we go to a 10-year forecast.
We've traditionally done a five-year forecast, financial forecast.
That's what we present as part of our budget.
We are, in fact, moving to a 10-year forecast.
And you'll recall that a month or so ago, you approved a advanced forecasting model for the EMO.
That is part of the process here.
We have to be able to project revenues 10 years in the future.
And because revenues and costs, because so much of our costs are dictated by the market, we have to have a really good way to figure out what those market costs are going to be and to simulate or to project what our load growth and our load demand is going to be out 10 years.
That's a pretty complex process and involves both a lot of science and there's some art to it as well.
Debt service coverage ratio.
I'm not going to spend a lot of time on this one.
The Fitch rating or the Fitch debt service rating of 2.1 median, you have to understand that that median number would be for all utilities that are rated, so both water, electric, wastewater, and on a national basis.
Debt coverage ratios, for those of you, I know, Charlie, you're in the financial business.
Susan has been involved in finance for public utilities.
You know, when you are in the debt market, placing additional debt in the market, these metrics are critical.
And typically, most public utilities will use revenue bonds for issuing debt, and revenue bonds pledge the revenues of the utility to the bondholders.
We don't use that except for the DEC.
The DEC has revenue bonds against it.
We typically use GOs and COs, which don't pledge those revenues, and so these metrics are a little bit of apples and oranges.
That 2.1 metric is what I would call a revenue bond metric, not a GO-CO metric.
As I look at our five-year forecast, our typical projected debt coverage ratio is between 1.2 and 1.5.
The lowest year that we're projecting now is about 1.15 in 2023.
To the extent we need to go issue additional debt, we might want to look at that a little closer and try to get ready for issuing that debt, maybe get it up a little bit higher.
Working capital for enterprise funds, we're going through a process now as we do each year when we put our budgets together to look at our capital improvement projects and look at whether we've got adequate funding for those projects or not.
We'll be back before this board in the next three to four months with that capital spending plan and be making recommendations on how to fund it.
What is the acronym GFOA?
That's not on our list.
I can answer that. Government Finance Officers of America.
It's a national association for government finance officers, finance directors, CFOs of government entities.
We typically run, one of the metrics is days cash on hand. We typically run around 75 days cash on hand in the electric utility. I think the water and wastewater utilities are a little higher than that.
But that's what we try to manage on.
Morale, as I mentioned, you have to take into account the timing of when this study was done. Morale was low.
If you look at the recommendations,
So on the recommendations, the first one that utility leadership must help the organization continue to move to a better future by establishing clear goals and objectives.
Obviously, our reorganization is focused on that.
We've had significant movement in this area through that restructuring.
We've elevated and made sure that all employees in the organization understand that transparency is of paramount importance.
We don't have any secrets at DME with the exception of those things that are specifically allowed under the statutes. That would be disciplinary action and legal matters and then anything that's competitive in nature.
So we've moved quite a ways. Skip level management meetings have been ongoing.
Tony Quente now meets regularly with frontline employees on every quarter.
Just about every employee in DME has an opportunity to talk to Tony and myself on a quarterly basis one-on-one without their supervisors there to bring up any issues that they may not be confident in speaking about in front of their direct managers.
And we've identified some things that need work.
Part of the reorganization was focused on that. So we've been working hard on trying to increase that level of communication and to move that morale back to a more positive perspective.
Succession planning is an area where we need to continue to work on.
We have identified for our key leadership positions a succession plan, but we're moving that down into the organization.
It's important that people can leave to take other jobs, family issues can move them away from the job for several months at a time, and we have to be able to continue to operate.
And so succession planning is something that we are working hard to.
This is one of those things that's hard to balance because succession planning typically means you've got to have some bench strength, additional FTEs, and we're trying to control costs.
So we want to have things staffed at the right level, not overstaffed, but at the same time ensure that we have that succession in place.
So this last one, turnover, resource allocation and acquisition, at the time that the survey was done, there were a number of open positions.
Many of those were a result of what happened at DME at that time, and they weren't being filled.
Since this time, we've gone back and either eliminated a number of positions or shifted them into other organizations so that we are now -- we do have some open positions.
Through just turnover, the reorganization has created a couple of new positions that we are looking to.
One is safety.
We have a heightened focus on safety.
We're getting ready to hire a safety manager, and that will be somebody with qualifications from the outside with a certified professional safety manager because we don't have people internally that have that qualification.
So we've been working very diligently to try to make sure that our positions are either filled or eliminated if they're not being filled.
Procedures and technical specifications.
We are in the midst of revamping our electrical service standards and our joint use standards.
These are documents that have some age on them now.
We anticipate in this calendar year we'll finish both of those.
Joint use standards is things like 5G poles and poles that we share with other utilities.
Strategic planning.
We will be bringing forward in the next budget cycle an item to do a comprehensive strategic plan for DME.
That plan, as we currently envision it and we're scoping it, would involve a significant level of public input as well.
We need to figure out how to position DME for the next 10 years, next 15 years, and that's going to take some investment in things like electric vehicle charging stations, understanding how that's going to impact our system, the use of more and more automated controls on our distribution and transmission system, things like that.
With that, if you don't have any other questions, I'm going to turn it back over.
Regarding the strategic planning, are there any plans or do you feel it would be advantageous for -- and this also goes along with communication between departments.
Forecasts for the next 40 to 60 years in terms of changes in climate indicate that there are going to be a lot more hotter days.
And what I'm asking, I guess, is there a communication between DME and, say, people in the sustainability and energy conservation areas to hash out what would be a strategic plan, not for three to five years, but just a forecast of looking out and seeing what's coming down the pike.
Say within a 40-year, 35 to 40-year framework and how that would affect everything.
Yeah, I guess it's a hard question to answer except to say that we don't plan 40 years in the future.
Our planning horizon is more like 10 years because we have to be cognizant of the practicality of technical advancements.
You know, I read an article this weekend about a new fusion technology that's -- you know, that could potentially be commercial in 50 years.
Do we plan on that?
Not likely.
We're not going to plan on that today.
With regard to hotter temperatures, our advanced forecasting models will, in fact, be stress tested to look at those types of situations to see if we do see three, five-degree temperature on average increases over the next decade, what does that do to our power supply needs and our demand that we're going to have to meet.
So we are actively taking those types of parameters into account.
You said you were going to pass this on?
Yes.
To Dr. Banks, I guess.
Thanks, Terry.
Okay, with regards to water and wastewater, very similar format as you just saw with DME, so we'll work through this here pretty rapidly.
Findings were good places -- good place to work, loyal staff, people enjoy working here.
At the time, the project management office was a fairly new concept and was being developed, and it's much more sophisticated now than it was.
But one of the findings that we had was really about concern over capital delivery and not obligating funds for capital projects years in advance of when the project actually got completed.
And so the intention of the comment and then part of the intention of the project management office is to try to close that gap so that we are basically either obligating funds out of our operating fund or incurring debt when the project is needed and not keeping those funds around for a long period of time with projects that either were delayed or the timing wasn't exactly right on them.
So more data-driven focus was another part of that.
On infrastructure, they noted that we had an award-winning drinking water quality.
We had just, if you all recall, had one -- or placed in the best tasting water in Texas, and so that was kind of big on everybody's list.
And then the number of wastewater spills compared to where we were prior to the administrative order was substantially lower.
So a couple of common threads here.
The first one is improved communication to external stakeholders.
And basically the idea was to implement a formal stakeholder engagement process that is ongoing and comprehensive.
And then to really figure out how we could interact most effectively with our elected and appointed officials.
In terms of communication, communication with other city departments was noted and certainly something that we knew at the time needed to be improved.
And so their recommendation was to have initial monthly meetings with each city department, with the utility interface.
We have since put those meetings together.
We are meeting with other departments on a very regular basis, particularly in areas where we know there are -- there's a significant workload,
a very high degree of importance to the organization, and a need for us to continue to improve communication.
So, for example, development services is one that we have really been reaching out lately to not only improve the basic communication
and make sure we're coordinating efficiently, but also to help everyone learn more about what the other group does.
So there's a greater, more comprehensive understanding of how those two groups operate.
In terms of public relations, this is another issue that I think is very important for us.
The utilities on the water and wastewater side have had a tendency to kind of, for lack of a better word,
put their head down, get the job done, and not be out and actively promoting.
But at the -- one of the things that was pointed out was that we, I think, have kind of -- I think in today's age,
we need to have a lot more information out so that people have an understanding of what those utilities really do
and how comprehensive those utilities are, how many miles of pipe we have, how extensive our water and wastewater resources are.
And admittedly, we have not done a great job in getting that information out.
And so we've been working actively with the Public Communication Office, and y'all may have seen
and will continue to see an attempt to try to continue to get that message out.
So our citizen updates, our city limits, all of those types of avenues we're looking at,
to just get a greater media footprint and really tell our story better.
So capital project education is a part of that.
It's really important for us to be able to convey why we need our capital projects at the time that we need them.
Utilities are very, very expensive.
We need to not only time our obligation of debt or application of revenues appropriately.
We also really need to tell everybody why we're doing this and why it's needed so that folks understand
that these projects have been well planned, they've been well thought out.
One of the key issues that we've been working on on this and we continue to build out is our asset management program for water.
We did not have a very good asset management program at the time this survey was done.
We had a better program on the wastewater side, but we were not using it to its full potential.
And we have devoted significant resources towards getting an asset management program for water
and really bolstering up our asset management program for wastewater.
And that's twofold.
One, it helps us make better decisions, but also it helps us make sure that we are managing towards the remaining useful life of these assets.
So we don't replace something too soon.
And at the same time, we are keeping the network replaced at a degree that the asset management program is telling us to,
so our reliability doesn't suffer.
So execution of capital planning, I've talked about a little bit already.
Basically, we have wholesale revamped our way in which we do capital planning and interactions,
especially with the streets department and some of our upcoming bond programs.
That communication and that coordination has been greatly improved compared to where it was when this survey was done.
Utilities rate group, one of their recommendations was to form a utilities rate group comprised of utilities and finance staff.
We've done that.
And then there was a need to do long-term rate plans that included multiple scenarios.
And then basically do ten-year financial forecasts at a minimum.
We have been doing that since in the time between when this information was collected and when the report was finalized.
This is a particularly important issue for us because we've got a plant expansion on the horizon,
and it's going to be a very large capital program for the water department to undertake.
The next one, improving the timeliness of capital spending, we've talked about already.
Basically, the idea there is just to make sure that we have the right projects at the right time
and that we're not obligating funds that are just going to sit somewhere in an account.
And then the debt service coverage ratio for Fitch, Cherry talked about that quite a bit,
and I just want to point out that what they're referring to there is an ordinance that was put in place in 2002
that said the minimum debt service coverage ratio for the funds would not be below 1.25.
Traditionally, on our water and wastewater funds, we are going to be in excess of the 2.1 that's recommended for Fitch.
And when you go through the budget process, you'll actually see on the five-year proformas that we provide every year,
we actually include that calculation down at the bottom for both the water and wastewater funds.
So you can see exactly where we are at with regards to our debt service coverage ratio.
Long-term forecasting, we do a long-term forecast in terms of volume consumption.
And in turn, that helps us to plan for plant capacity and also for our ability to -- our need, rather, for water rights.
And so we do that on a more than 20-year forecast cycle,
but we typically don't put financials into anything that's more than about a 10-year.
And their recommendation was to look at doing a 20-year with financials.
I think it's not a bad recommendation from a planning perspective,
but you can imagine that it's pretty hard to predict the future, and going out 20 years is pretty difficult to do with accuracy.
So I think it's a good planning tool. I just think it needs to be considered within its context.
The service delivery backlog relates to the capital projects that I was referring to.
We are making significant headway on those capital projects and looking forward,
really taking efforts to make sure, again, that we don't obligate funds before those funds are needed.
And then the working capital target for the enterprise funds.
Basically, we have an 8% working capital requirement,
and then we have a reserve requirement of 120 to 180 days of operating expense on the water side and 100 to 140 on the wastewater side.
So those were derived by looking at our worst-performing years of the last 20 years,
and basically doing some simulation models to simulate what it would look like if we happened to get those years back-to-back-to-back,
and basically planning for effectively being able to weather at least two,
and depending on severity, closer to three of our worst-performing years back-to-back before we would fall below our working capital thresholds.
So we are continuing to work on that and refine it.
Succession planning is something that we've just now started working on with human resources.
I will say that getting down to the training program for utility operations and management at the bottom,
we have significantly increased our training activities and really taken a look at training needs.
And one of the things that we really tried to work on is making sure that we have a large number of our workforce
that have operator licenses on either the water or wastewater side or both through TCEQ.
So that's one thing that we've really been trying to work on with field personnel all the way up through the upper management.
There were definitely, at the time, silos existing between water and wastewater,
both between the two major funds and then internally within each of the utilities.
We've undertaken a couple of reorganizations to deal with or try to improve those issues.
We're doing a large amount of training of the management group.
One of the fundamental things that we've really focused on is the idea of not having a --
keeping the budgetary aspects of the funds separate, but the management of those funds is no longer all management on water
and all management on wastewater. It's combined together.
So we have now Frank, who is director of water and wastewater and focusing on plant operations.
And then we have Becky Devaney, who is the deputy director of strategic operations and capital delivery for water and wastewater.
So it's just a fundamental shift in the way that the organization is run.
So resource allocation, we have done FTE analyses ourselves.
And one of the things that we did in this last budget cycle, which gets back to some of the capital programs,
is we did get a number of FTEs in the current budget cycle approved that are dedicated towards capital projects.
And then the resistance to change, like I said, it's probably not optimal to do a once every 10-year management study
in the midst of some fairly significant organizational changes.
There were some struggles that were going on, and there are still a few struggles that are there.
But I believe we've made a lot of headway in dealing with these struggles and helping to work through them.
I think the reorganization was a key issue in dealing with that.
And I also think that the training that we're undertaking as a management group with all of the managers at the table
is really important to making sure that our organization is quick and basically can change on a dime as we need.
And not involved in this idea of resisting the change that's occurring.
So strategic planning, we do need to go through a formal strategic planning.
We have a lot of informal strategic planning that goes on, but we really need to formalize that.
And that's something that we will be looking at.
Technology could play a larger role, and we are taking a look at that.
We've done a significant amount of work on our SCADA system since this was done.
We are taking a look at and plan to do some heavier evaluation on the automated meter reading component to see what that might look like.
And then automation of the meter shop is something that we have on our list to take a look at.
Our GIS and asset management group has been reconfigured with this reorganization, and so we're actively working on building that group up.
So basically, one of the things that I wanted to talk about is the follow-up survey,
because we really felt when we were putting this together that we needed to have a sense --
we had a pretty good sense of where the organization was when the data was collected in the fall of 2018.
We really wanted to see what employee perspectives were like after the changes had occurred.
And so in late fall of last year, we actually put a survey out to the same group of 50 participants
that the management study -- or management group, NUGEN, had interviewed during the process of putting this study together.
There were only three of those individuals out of the 50 that had left the organization in the time frame.
And so it was still, in my opinion, a sizable group, not enough to swing the needle one way or the other.
And so in fall of 2019, the survey was put out there.
And part of the reason it's taken us a little bit longer to do this one was that was not a part of the original scope.
But we felt it was important, and we had enough capacity to be able to do it.
And so I don't want to speak for electric, so I'll look over at Terry if he wants to weigh in on this.
But essentially, we had a 1 to 5 scale.
And basically, the participants were asked to think back to the responses that they gave during their interview process back in the fall of 2018
and just basically give an indication of whether they thought things were the same, worse, much worse, somewhat better, or better.
And you can see that overall, there is a pretty significant amount of green and blue on all of the graphs,
indicating that staff believes that things are somewhat better to better compared to where they were a year prior when this information was collected.
So overall average, most scores were ranked right around 4, which would indicate somewhat better.
Yes. What does infrastructure represent?
Basically, yes, I probably need to clarify on a few of these things.
Infrastructure just represents whether or not the staff believes that the infrastructure in the field,
the planning that we're doing, and the way that we're managing our infrastructure is better, worse, or hasn't changed compared to where we were a year ago.
So it's a combination of what's actually in the SAS perspective of what's in the field, as well as how we're managing those assets.
So hopefully, does that make sense?
Are you talking about physical assets?
I am, yes.
For water and wastewater, it would be pipes, plants.
For DME, it would be transmission assets, substations, et cetera.
So I do also want to point out that --
Not the PUB leadership.
Yeah. I thought I -- yeah.
But keep in mind, just before anybody gets too excited about that, our PUB has changed.
So yeah, that doesn't mean that it -- yeah, it doesn't mean that it's bad.
So anyway --
There's no red there anyway.
That's right.
So going over to water and wastewater, pretty much the same story.
A little bit higher in terms of the overall averages, so you see a little bit more blue and green.
But overall, quite a large improvement in just the expanse of approximately one year.
So shared services is basically reflective of all of those types of things that we use in the organization.
So information technology, human resources, our legal department, procurement department.
And basically looking at how -- the question was basically asked, how do you view the shared services with regards to these elements that are over here on the left?
Person that was interviewed the last time.
And so basically response to change has improved, communications improved, the financial components of it improved, et cetera, et cetera.
So I just wanted to point that out because it's a little bit of a strange graph if you don't understand what the shared services is actually representing.
So if no one has any questions on that, we've got a couple of results from the benchmarking that the consultant felt were important and key issues to point out.
So I can turn it over to Terry to do the electric side of this and then I'll come back for the water and wastewater.
Okay. On the rate side, there was benchmarking done to look at our rates.
And we also benchmark our rates against competitive suppliers in the ERCOT market.
And the last results that we've seen were right in the middle of the pack.
Our rates are just right about at the 50th percentile of all competitive offerings in the competitive retail market surrounding Denton.
So we feel pretty good about where our rates are today.
Yes, ma'am.
In the past, we have seen a graph showing where we rate.
Will we get some of that in the future?
Yes, ma'am.
That's part of our budget presentation each year.
We usually produce that for both comparing our rates to other municipally owned systems as well as to competitive retailers and be glad to supply them.
We do them -- we produce them quarterly.
And if PB would like them, we can certainly provide that information to you.
You know, I'd say overall, our rates are average.
Our rates are really broken into two components, base rates, which is the recovery of fixed costs, and then the ECA, the energy cost adjustment rate.
And again, we will be bringing that information as part of the overall budget.
We've got some work to do to kind of realign some of those.
We are currently over collecting on the base rate side, and we're under collecting on the ECA side.
The ECA is the one that is the riskiest of them all because it really is our cost to procure the energy from the market.
And that can vary significantly from year to year.
It's envisioned as an adjuster, like a fuel adjustment provision, where it could move month to month as our expenses for purchase power move month to month.
However, traditionally, we've not done that at DME. This board and the City Council have tried to keep those rates as stable as possible.
A couple of the things that they bring up is ensure adequate fixed cost recovery, given the nationwide trend in the growth of customer-cited distribution energy resources.
In plain English, that means rooftop solar. As rooftop solar becomes more and more prolific and penetrates our markets,
the rate structure that we pay to owners of those facilities that are producing extra energy and putting it back into our system can create problems for us in terms of adequate cost of recovery.
If you think about it, if you have a rooftop solar facility, when the sun's not shining, we still have a fiduciary obligation to provide power.
And on a hot day that the sun is cloudy, but it's hot, humid, I still have to maintain the same poles, wires, transformers, capacitors as I would for any other resident with or without solar energy.
So as that becomes more and more of an issue in markets, we've seen that there could be an under recovery of those fixed costs.
And we have plans later this year to bring some revisions to our rate book to try to address that issue.
Expenses, you know, they state that expenses are higher costs and ratios, especially on a per mile of distribution basis.
We're looking into that, suspect that much of that is a result of the shared services structure where DME pays for legal purchasing information technology to other departments.
And as we look at how efficient that might be compared to self-providing that and from that type of service, that could be one of the reasons why our GNA function costs are a little higher.
Liquidity, as I mentioned, days cash on hand, typically 60 to 75 days cash on hand, that's considered sufficient in our industry. Obviously, we'd like to have more, but that's a rate issue.
You have to fund that reserve account from rates, from rate revenue, and so we're trying to balance the low rates with the need to have additional liquidity.
On collectibles, at the time that this particular study was done, it showed a decline in collections. You may recall, I think in the last several months, you've been talked to about the prepay program.
And as part of that, collectibles have actually gone up last year.
We're hoping they're headed down now as a result of that prepayment program.
And in load growth trends, we are still what I would consider seeing high load growth relative to the rest of the country.
We, in our projections, we project between 1.75 and about 2.25% load growth per year. The rest of the country outside of Texas is really load growth of zero. And that's really driven by higher efficiency appliances, lighting.
We have LED lights now that use 1/20 of the power that a traditional light bulb would use.
So the rest of the country's experience of load stabilization, we are continuing to experience load growth as a result of the development here in Denton.
I think that's all I have, unless you have any questions.
It says, if DME instituted a new policy to reduce bad debt in 2017, it appears to be working.
Did DME institute a new policy to reduce bad debt in 2017?
I don't know the answer to that question. I apologize. I would have to have someone from customer service here to answer that question.
That's not a reference to the prepay? No, it's not. The prepay came into effect earlier this year, late last year.
We did revise the bad debt policy. I can get you a little bit further information about that, exactly how it affected DME.
Okay. Just a few key issues here on the benchmarking.
In terms of the effective rate, basically it was pointed out that we should just continue to work towards attaining a balance between reasonable rates and then basically financial sustainability.
That is something that we look at as a part of every budget process, and you'll see our rates compared to others, as mentioned, as part of the budget process.
One of the things that I do want to point out is that this information was collected and the recommendation was made prior to us taking a real hard look at both water and wastewater.
With wastewater, we implemented a 5% rate reduction that occurred starting this FY19, and then basically the water fund has remained at a zero rate increase for the last couple of years, which essentially, if you look at a CPI adjuster, is somewhere between a 2 to 2.5% rate decrease effective in terms of your buying power.
So we'll show the board as a part of the budget process where we stack up against our competitors in the Metroplex, and you can see exactly where we're at.
In terms of liquidity, we've talked about the reserves, and they felt that we had operated our reserves in a manner that would be able to ensure that we could pay our short- and long-term obligations.
As I'd mentioned, we have a fund target of 100 to 140 days on the wastewater side and 120 to 180 days of operating expense on the water side.
The reason that water is higher is simply more variable, and so we needed a little bit more of a cushion in there to meet our target goals.
Productivity, they did note that the efficiency measures that we have in general indicate a little bit less than average productivity.
So one of the components on that is the shared services, as has already been mentioned, but one of the key factors in this that we've done, customer service used to be a part of the water department, and we have since moved that out of its own budget.
We have actually about 40 full-time equivalents, so you started looking at metrics like the number of employees per million gallon produced and take out that level of full-time equivalents, and we start to pull much more in line with average to above average.
We also have two plants, which is pretty unusual for an operation our size, and some fairly significant distances to travel for our transmission assets from Ray Roberts and from Lewisville.
So just some things to think about in terms of those metrics, and there's much, much more detail on that in the report itself.
On the effective rate, is wastewater still the rates figured at the same way they used to be, where you take those four months during the winter, I believe?
Yes, that's absolutely correct, and that's why there's more stability in the fund, because of that approach.
I should say stability in income.
So I'll go ahead and cover the conclusions. Terry, if he wants to dispute that NUGEN believe that DME is operationally run very well, I'm certainly welcome to do that.
They didn't find any red flags requiring immediate attention. They did have a number of recommendations.
Water and wastewater, they believe the water and wastewater utilities are operationally sound and didn't find any red flags requiring immediate attention, and basically finding recommendations will help us to improve.
And the survey did indicate that substantial progress has been made since the study commenced in 2018.
So we've talked about some of the actions that we've taken at staff level as this survey or management study was being completed.
There were a number of things that we knew we needed to work on, and we didn't want to wait until the management study was completed to start that.
I put a listing here of those items just for your own knowledge, and one of the things that we had thought about doing is perhaps on some of the larger ones actually bring those back as a future work session to kind of explain what we're doing as the plan is finalized and we start working on these elements.
A lot of things, as I've said, we've already started on, and I'd be glad to bring a couple of them to you, especially some of our reorganizations, to really show you what we're trying to do by taking those actions.
So that is pretty much all we have. It's a very comprehensive study, and I appreciate the board's indulgence on the time that it took not only to complete the study, but to actually go over this material.
And so if you have any further questions, I'd be glad to address those.
I'll start it out. When you started the presentation, you alluded to the report that you're talking about, and it's 264 pages, I think you said.
Yeah, yeah.
Is that a report available to us, or is it soon to be available to us?
Yes, it's in draft form right now. We need to, what we wanted to do is present this information to Council, and then finalize the report, and then that report will be available.
Thank you.
That's a lot of information.
Yes, it's a very large amount of information.
Another question, clarification. Maybe everybody here knows what silos mean. I think I know what it means. I want to clarify that, organizationally.
Having spent a career in organizations like that, in the private sector, I recognize the validity of the tension that exists between departments, and some departments, depending on how, depending on the personality of the one running it, can be its own separate kingdom, so to speak.
Correct.
And if you don't put your hand in that department, unless it gets slapped, if you intrude on that.
Right.
What I've seen that has helped blur those lines of distinction, and there was reference made to writing procedures and policies.
Right.
And you're not completed in that effort yet.
Correct.
You're not done with that.
Correct.
But to get that done, it has been beneficial, from what I've seen, to periodically have internal audits done by one department, viewing the procedure or policy of another department, and the internal auditors being composed of people from different departments.
And there's built-in tension there when that starts.
Right.
But the result can be good for the organization, because it gives people from one department a little bit better perspective on what the other guys do, what the people do.
Right.
And when they attach their name to it, and it's published internally, then they take some ownership in that.
And that kind of process has helped in the past.
Right.
So that would be a suggestion I would make on that.
I appreciate that.
That's a great suggestion.
Anyone else?
Comments, questions?
Well, thank you.
Thank you.
Mr. Melty, Mr. Banks, and friends.
Okay.
Well, if there's no more questions, then we'll move on to Work Session Item Number B, Fleet Services.
You're back up, buddy.
I am.
Thank you very much.
So again, this presentation is just designed as an informational item to give board members an idea of the process that we go through for equipment replacement and additions, how we go about making those decisions.
Just a quick overview of our department, we do have approximately 1,200 city assets that we maintain with an acquired value that actually numbers about $106 million as of last week.
So we do cradle to grave asset management.
That means that we are involved in the procurement process, the specifications, getting the quotes, purchasing the equipment.
We maintain it throughout its lifetime, whether that's preventative maintenance or repairing the equipment.
We also do disposal at the end of the assets lifetime.
So the procurement is replacements.
We do additions.
We do leasing of equipment.
Sometimes it's long-term leasing.
And then we do short-term rentals to fill in for departments when we don't have the appropriate piece of equipment that they might need at that particular time.
Our department is fairly small in terms of city departments.
We operate with a staff of 26, and that's 19 technicians and office staff, as well as myself.
We have two maintenance shops operating now, but the second shop went into operation approximately a year ago, January.
And like I said, we do the disposals there via online auction.
We just finished an auction on February 5th, and there was a considerable amount of equipment in that auction.
That was an approved contract with a new auction provider.
I think we netted about $2.3 million from that auction on assets.
Our internal budget is about $10.8 million, and that does not include vehicle replacements except for our internal fleet vehicles.
What it does include is fuel for the city, which is approximately $3 million.
The majority of that, rest of that, is for personal services and for parts, for vehicle parts and equipment.
So on a replacement strategy, we use the best practices provided by American Public Works Association, and we are members of that group.
I have a professional certification from that group.
We also network with a lot of good fleet managers, not only here in the state of Texas, but across the nation.
We have quite a network of accomplished fleet managers that we deal with and communicate with.
Some of the criteria that we use to replace vehicles, and this is just the short list, and I'll try to get into some of the other factors that we use as well,
is age of the equipment, the meter, or that would be miles or hours, and then the maintenance cost or downtime.
So we also use operating conditions as a factor when determining how long we think a piece of equipment has a useful life cycle.
We have to put that in our system at the very beginning, and that depends on the operating conditions for each department, it varies.
We're fortunate in that we can kind of custom tailor replacement cycles for each individual piece of equipment.
And because we deal with such a variety of equipment, it's not just sedans and pickups, that would be fairly simple and straightforward.
But because we do deal with fire apparatus and we deal with construction equipment and solid waste and refuse equipment and trash compacting,
there's mowers, there's bucket trucks, there's about everything that you can think of that goes into our fleet.
And so to have each one of those have a separate and individual life cycle based on operating parameters for each department,
I think we're fortunate to be able to do that and try to maximize the life cycle of all of our equipment that way.
Of these factors here, age is not really important to me. I don't really care how old something is as long as we can still purchase parts to repair it.
Meter is also secondary. Depending on the department that's operating a piece of equipment, you can have a piece of equipment worn out in, you know,
5,000 hours or you might have another department that runs something for 10,000 hours or 100,000 miles or 150,000 miles.
It's just that's all over the place. What does concern me is the maintenance cost and the downtime.
Downtime is a factor that most departments will have an issue with when downtime becomes excessive and the equipment is no longer reliable.
And so one of the hardest things for fleet to do is determine the actual replacement point of that piece of equipment.
We try to do that so that the new piece of equipment is in service before the old asset fails and incurs a lot of downtime and cost.
So to me, that's the most important factor. And I'll be honest, we don't hit that mark every time.
I wish I could say that every time we get a new piece of equipment, the old one goes out of service.
We get the maximum value for it in return, but that's certainly not the case.
We have some pieces that fail two weeks before the new piece hits the lot and goes into service.
But those things happen. There's a lot of gray areas in the replacement cycle.
So how do we determine that? We have help from our fleet maintenance software system.
And it uses a 15-point system based on those three criteria I mentioned earlier.
And what this system does is it tracks age, it tracks meter, and it tracks maintenance cost for us.
It does not track condition, overall condition of the vehicle.
That's something we physically have to inspect and look at to determine if that's going to be a factor.
But it flags us as a starting point to say this piece of equipment is starting to cost you some money or it's getting old.
You might not be able to get parts for it or it's getting a lot of miles.
The reliability might not quite be there. So it's time to take a look at it.
So it assigns five points to each one of those areas when it's hit that particular life cycle that we set.
For instance, on a pickup truck, it's a 10-year life cycle.
Once it hits that, it gives the asset five points.
We may say it goes 100,000 miles. And then at that point, it assigns five points to that criteria.
Maintenance cost is something that calculates internally.
And once it reaches 50% of the asset's purchase cost, it assigns five points to that criteria.
And the way we know that that's the most important criteria is that when it gets to age or meter, it stops at five.
You've reached the max life. You can continue running that piece of equipment.
But when it gets to maintenance cost, it continues.
So it could go five, six, seven, 10, 15, depending on how long you're willing to push that asset.
But when it gets to 15-point total or greater than five points on maintenance,
that's the value that I typically look at more importantly than the 15 overall.
That flags us to start taking a look at the replacement of that asset.
Now, unlike us and our personal vehicles, when we get ready to replace that asset,
we go to the dealer and we pick one out and we're good unless you want to order one and wait a couple of months.
But typically for most of the fleet equipment, even sedans and trucks have to be ordered.
And there is a build time for each one of these assets that can vary from one month to over a year in the case of the bucket trucks, fire apparatus.
Refuse trucks we're getting better at because we're starting to preorder those now and reduce that turnaround time on those assets.
So basically we take the flagging of the unit.
We look at that by department.
And that's what we bring to the department meetings when we meet with them to discuss asset replacements.
We have our list. They may have their list, which might differ.
And then we go over those assets one by one and see, you know, what is their intended use?
How long do they really plan on keeping this? Can they keep it another year?
Can we push it a year? They don't use it a lot.
In the case of the larger bucket trucks, you're right, they don't get used as much.
The 40 foot bucket trucks, those get used every day.
And so they accumulate a lot of hours on the miles. That's why we're replacing 2015 models.
And also I'd like to say that our entire operation is currently being reviewed by an outside consultant.
So much like the presentation you just saw, it's likely that you will see the results from our current analysis once that's completed in the next couple of months.
And they'll look at everything that we do from management of assets, staffing, buildings, equipment.
This may be a premature question, but two things I'm just curious about.
How do you treat, like, damage repair from an accident that may or may not affect the life of the vehicle?
So in our system, we can flag those as we do it a couple of ways.
We flag accidents as accident repair. That's not a normal repair.
Anything that's outside of what Fleet would consider normal operating condition repair, we flag it differently.
And so we can go back and look at those costs and subtract that from the total.
Let's say we had to rebuild a piece of equipment and it cost $40,000 to do that.
We certainly don't want to say, oh, you need to replace that now because it's reached that threshold.
So we have a way to single that out.
The other thing that we do is we actually categorize the equipment abuse as another category.
And that's where something was operated on safely, damage happens mostly because it was operator-induced or, you know, those kind of things.
So we try to track that separately as well.
Do you flag for warranty when the warranties are coming up?
It does. So we load the warranties in the system, and when we pull up a work order, it says this unit is still under warranty for these things.
Usually I get to it after the week after the warranty is gone.
Exactly right. That's when we see the vehicle.
It's about a week after. And in some units, we try to get them in right at about the time the warranty is set to expire so we can do a complete inspection.
If there's anything we need to get to the vendor or have them come on site and look at before the warranty expires, we try to do that.
That's a kind of a hit or miss thing.
Great. Thank you.
So one of the factors, too, I wanted to bring this up.
We are subject to the Clean Fleet Ordinance, and this is ongoing.
The last one we signed was in 2015, and basically it kind of governs some of the activities that pertain to fleet maintenance and operation and asset replacement.
In particular, it encourages us to pursue the lowest emission vehicles available on the market at that time, and they also emphasize alternative fuels and technologies.
And of course, we like to look at all that stuff, although there are costs associated with that. So we're not required to purchase something that costs twice as much because it's fuel efficient and emissions friendly.
But we certainly need to look at that before we purchase.
Can I ask you a question?
Yes, sir.
I figured you would.
I was just curious, what percentage or how many vehicles in the fleet are either hybrid or all electric?
All electric.
Currently, it's a pretty low percentage.
We have four all-electric sedans in the fleet right now.
We do have several hybrid electric fleets.
Those are the Toyota Prius and the Ford Escapes.
We have a couple of pieces of large equipment in DME that are hybrids as well, a couple of bucket trucks.
But relatively low percentage.
We did have at one time some hybrid refuse trucks in the fleet.
And one thing that we found, you have to be really careful if you're getting on the very advanced edge of that technology, is that it can come back to bite you in terms of maintenance costs and downtime because some of this technology is not fully vetted.
It's available and it's out there, but I certainly don't want to be, with our small size, the one to test it out.
I'd rather the Fort Orris than the Los Angeles' of the world do that testing for us.
So when we do find technology that works, in the case of the electric vehicle, the Bolt and the Leaf, those are, so far, excellent vehicles.
And we're on board with purchasing as many of those as we can.
Would it be possible to get a copy of the latest version of the Clean Fleet Ordinance?
Yes, sir.
That is certainly available.
The other thing that the Ordinance does is it encourages us to maintain these vehicles so that they do stay in emission compliance, which we have to do by state law anyway.
But I'm pretty confident that we have a really good preventative maintenance program in place.
In fact, we have a lot of repeat customers for our auctions because of that, and they're confident that we repair the vehicles in a timely manner and keep them up to date.
And we've heard those comments many times from some of the return buyers from our auctions.
I have one other thing, and if it's not germane to the subject, tell me.
I know the city has an ordinance against idling.
Is this followed by the fleet?
Because, quite frankly, I've seen a lot of trucks, city trucks, somebody's out checking a meter and the engine's running.
Right.
And I don't know if that's because of keeping the computer running in the truck or whatever.
Well, there is a policy in place for idle reduction.
That's citywide for fleet, for city vehicles.
I know there's another ordinance outside of that for community vehicles.
There is not a department that's responsible for policing that policy, per se.
It's more of an educational type policy where we try to educate our customers on the proper use of the vehicle, and that includes reducing idle time.
Now, fleet is able to track idle time on the majority of our vehicles.
So we collect that data and then we bring that back to those departments and give them opportunities for improvement when they see poor performance and a lot of idling.
The other part about that policy is there are exclusions for weather, for environmental conditions, for the operators, and for emergency vehicles typically are exempt from that policy.
So it's not unusual to see a police or a fire truck idling.
And also if it needs to idle in order to do its work.
So I just wanted to give an example, and this is a fairly easy one to follow, on how the point system works and how it assigns criteria and value to this.
We have a 2013 police patrol Tahoe, and these were right out of our fleet system, so these are actual units.
But there are 84 month life expectancy each, one's a 2013, one's a 2011 model.
So one has 3.8 points for age, one has more than, well it's five, it stops at five for age because it's been in the fleet 102 months.
Like I said, we don't take that too much to heart.
It's a consideration if it becomes a problem with downtime.
So for meter, one has 69,000 miles, that's at about 2.7 points.
We've set 130,000 mile criteria for this particular group of vehicles that we run in the patrols because we moved from the Crown Vic platform to the Tahoe, which is a much more reliable vehicle.
It's on a truck chassis, we're pretty sure we used to have a five year life, we moved that up to seven.
And we used to have 100,000 mile life, which many of them didn't make, and we moved that to 130 with the Tahoe's.
So this 2013 has 3.8 points for maintenance, it's got $20,000 lifetime to date maintenance cost.
Capitalized cost was 54, that's for the chassis and all the equipment that goes in it.
So at 10 points, this unit's not flagged for replacement, it doesn't show up on fleet's radar screen for a couple more years yet.
Take the 2011, it's at over 15 points because we have 6.9 in maintenance points on it.
And that's a unit that's flagged for us to look at, and what we'll do is we pull that one and we put it in a list.
We'll actually look at the condition of the vehicle and then we'll talk to the operating department and say what are your intentions with this vehicle?
You continue to operate it eight hours a day, is it a reduced operation, can it be pushed another year without affecting the way that your department operates, or do we in fact need to go ahead and replace this unit?
That maintenance include tires, brakes, all those things?
It does, yes sir it does.
And your maintenance cost is cumulative, right?
Yes sir, so it's lifetime to date.
And is the life expectancy always the depreciable life for the equipment?
No, actually it can be much more than that.
So we may depreciate an asset over five years financially wise, but in our system it may be a ten year life cycle because we know that typically that's what that department can get out of its vehicle.
We basically fleet sets that.
So here's a list of published replacement criteria that we use just to kind of give you an example of the variety of equipment that we have and some of the assumed life cycles.
We look at this annually and compare it against our fleet and how are we doing?
Are we setting the right life cycles and the meter for these units or have we missed the mark on some things?
And if we do we adjust this replacement criteria, but this is published to our operating departments.
And when we meet with operating departments annually before the budget's done that we go over this list of criteria and their list of vehicles that are on our list and their list of vehicles that aren't not on our list and we come to a consensus as to what actually needs to be replaced now.
What can be moved out?
Maybe some things need to be replaced early.
Backhoe is pretty quick in five years.
Pardon?
I said that backhoe assumed life cycle in five years seems a little quick.
And we typically get a lot more than that. We're getting rid of backhoes now there are 2010 models.
They're coming up for replacement.
There are some departments that can put 75 hours on a backhoe in five years and there are other ones that take much longer than that.
So like I say the years in the meter isn't as critical as if we're putting $80,000 in maintenance in that unit then we can buy a new one for $115. We certainly don't want to keep maintaining that.
Do you keep any records, any data, any history on the consequences of equipment being down? The adverse consequences?
So our fleet system will track downtime and that's a critical factor when we go to look at replacement because many departments don't have the depth of equipment that will allow certain pieces of equipment to be down for very long.
So while we have data on downtime that's basically hours and we have maintenance costs, what we don't have is what does that cost that department each hour that that piece of equipment is down because that's going to vary from the class of equipment to the department.
And that's one key piece of information that now they'll relate that information to us but it's not tracked in our system. So I don't know that if an electric bucket truck is down it's costing DME $150 an hour or whatever that number might be. That's a piece that I don't have.
Do you have any records on the terms of accidents, lost time injuries or consequences like that due to an equipment failure?
So our risk management department is tracking that data and as far as equipment failures go I'm not aware of anything recently that's caused issues but the risk department does track accidents, the rate of accidents, they're looking at safety.
They're looking at things Fleet can do to make sure that the vehicles are safer and that may be some add-on things. For instance, we're putting backup cameras on everything now, whether it's an older backhoe or an older skid steer that didn't have one from the factory.
Everything we order now has a backup camera on it and that's basically a risk recommendation.
Good question.
One thing I do want to elaborate on is that we collaborate with all the operating departments.
We don't sit here at Fleet and say dictate you're going to replace this piece of equipment at this time and you're going to replace it with this because we know that operating parameters change, departments change, they change personnel, they change operating conditions and requirements.
They have new technology that they need to use and so we sit down with each department and we develop a base specification from the Fleet side, from what we feel that this equipment needs for you to operate properly.
Now they may tell us that they're going to do something else with this piece of equipment and they might need this, they might need a four wheel drive, they might need an extended backhoe, they might need to do different things than the standard spec would give them.
And so once that's been justified through them, then we add that to our specification and that could be, a lot of that has to do with how they're going to utilize it, the technology that they need on it and those types of things.
And of course safety is always a big one, like I mentioned, the backup cameras.
Any new piece of equipment that has an enhanced safety feature, if it's optional, we'll try to get that into that piece of equipment if it's not cost prohibitive.
We also have a committee that looks at the green side of the Fleet.
So we look at, you know, are there alternative applications, for instance, instead of replacing a small sedan, can we use an electric vehicle, all electric vehicle.
You know, if they run less than 200 miles a day, certainly that's, and it has enough space inside to do what they need, then they can certainly do that.
And we recently acquired a Chevy Bolt in the Fleet rental program, and so the other departments can use it.
Once you get behind the seat, it's more of a selling point.
So we're trying to get that vehicle out into the hands of other operating departments so they can see, hey, this is, this actually is a vehicle that we might be able to utilize and the electric department is one that's been on board with that.
The other thing we want to look at is life cycle costs.
It may be, it may cost you, I'll give you an example, as an electric mower that we're going to be purchasing or going to try to get approval to purchase.
So it's an all electric mower.
It is, it does have more upfront costs, but when you weigh out the anticipated maintenance costs and the return on the investment at the life, at the end of the life, and you compare it with our standard diesel or gasoline powered mowers, the life cycle costs are way lower on it.
So yeah, you're going to spend a little more upfront, but you're not going to be doing the maintenance on it.
And so that's something that you'll be seeing pretty soon where we look at, you know, not just the beginning cost of the thing, but what does it cost you throughout its life.
And then we come up with the final spec, you know, when the department and the fleet is in agreement, and then we go out to quote for that.
So there are different ways that we purchase.
Most of the things that we purchase are on a contract.
We try to standardize in the case of all tech and in the case of Peterbilt to certain models that they provide that we know is a good fit for our fleet and for our operating departments.
And, and then the other way is to get quotes or bids if it's something that certainly we don't have a contract in place for yet.
We're working on more contracts for heavy equipment.
But there are there are so many odd things in the fleet trailers and mowers and just there's a lot of different stuff.
You can't have a contract on everything.
All I wish we did.
And then the other thing is fleet additions.
And when fleet presents the budget here in a few months, we'll do the fleet replacements.
We'll bring that to you.
But fleet additions have to be vetted through the departments and they'll bring that that to you in their in their own budgets.
And then they collaborate with us on exactly what those additions should be.
If they're approved, we are doing some short term rentals for equipment that we don't have in the fleet or that we don't have enough of in the fleet.
We're also looking at putting more of that type of equipment in the motor pool.
So it can be used instead of going outside running.
They can come to the motor pool, pick it up, go use it for a day, bring it back.
And it's just taken some time to get certain pieces of construction equipment in there.
Right now we have a skid steer that is out a lot because the department has a skid steer down.
They drop it off.
We repair it.
Meanwhile, they're still they're still working using our equipment.
We've done some leasing municipal leases on that because at the end of the year we turn it back in and we get a brand new piece of equipment.
So your maintenance costs are really low.
You're going to pay for wear and tear items, which are going to do if you own the piece of equipment anyway.
It's under full warranty the whole time you own it.
So the idea is that downtime is less.
And certainly the cost of the municipal lease, at least through Bobcat, is very attractive.
We've done that on about three so far and it's worked out pretty well for us.
And just to give you an idea, some typical acquisition costs, because I know I go into sticker shock every time we go out and get quotes on equipment.
And it will typically increase from one to three percent per year.
But depending on what you're buying, I realize that construction equipment is just a big chunk of steel.
So steel prices play a lot into how much this equipment costs as well as technology.
Anytime there's a change over a year where you have to meet certain emission standards, that increases the price considerably.
But you get a much cleaner vehicle, not necessarily more reliable but cleaner.
And so this really concludes the presentation.
I'll be happy to try to answer any questions.
I'll leave this up so you can continue to go into shock.
Could we get the list of your point system that you assigned for different thresholds when they're met?
Yes. The slide that I had, yes.
Not just that slide, but the process you use to assign points to a piece of equipment for various parameters.
Sure.
And do you ever have a dialogue with the department that comes to you in the budgeting process and says we want to replace this?
Does the conversation ever happen where you say why don't you use it another year?
Certainly.
Or does that, does the conversation come to this group first and say we've got to approve this when you think in your mind that it can go another year easily with little risk to anyone?
Yeah. That's a conversation I do have with each department if we disagree on something like that.
They'll have to justify why they believe that it's imperative that that gets replaced now.
And most of the time it's not much of an argument.
We agree pretty readily on, yeah, this thing can be pushed out based on how we think we're going to operate it.
And I'll tell you the general fund departments, there's never any question with fleet recommendations.
They understand that they need to use their equipment as long as they possibly can.
It's funded from the general fund and there are some operating departments where we're looking at, you know, replacement cycles on them.
What can we do as fleet and what can you do as the customer to work together to extend those?
Because I realize the cost of this equipment is becoming pretty high over a short period of time.
So we're looking at programs where we actually help. We have quarterly customer service meetings, by the way, outside of these replacement meetings.
And that's just a dialogue between fleet and that particular customer.
We do it with all of our large customers and that's to say, you know, here are some things that are going on.
Here's what we see. Here's some things you can do to help us help you maintain your equipment and make it live longer.
You know, what are your issues with fleet? Is there anything that we can do better that we're not doing?
So to that end, we also have some agreements in place and we're working on more of those with departments so that they know what we know what their expectations are and they know what we can deliver.
And we're working with some customer service agreements basically is what those are.
So to summarize, what I think you just said was those conversations happen before an individual department comes to this group and wants approval for replacements. Is that right?
For replacements, yes. Now if it's a fleet addition, that's a conversation that fleet doesn't typically get involved in in the beginning of that.
Yes, sir. I assume that the biodiesel fuel program is that you folks were, was being used in the city 13, 14 years ago is no longer part of fleet services using biodiesel fuel for their various vehicles?
No, biodiesel in the city is alive and well. We just don't manufacture it on site and purchase from that particular supplier.
So our fuel supplier, which is Martin Eagle Oil, they supply B20 biodiesel to us. I think the B10 is the minimum diesel that we buy, unless it's for like a auxiliary generator or something like that where the fuel has to sit a long time before it gets used up.
So nearly 100% of our diesel equipment runs on biodiesel. Great, thanks.
Is there a threshold for the cumulative maintenance cost that you're looking at not crossing? In other words, you want to keep the cumulative maintenance cost below a certain percentage of a replacement cost or whatever it is?
Well, it flags it at 50% and we certainly don't want to see it go above about 60 to 70%. And there again, it depends on how much that piece of equipment is being operated and how much they rely on it and how much downtime they can stand.
So from my standpoint as a fleet manager, I would like to see it out of the fleet because at some point it's going to break and then it's going to cost you two ways. You're either going to have to fix it until your new piece gets here or you're going to lose money at auction.
You're going to lose the money on the backside.
Very impressive program, Mr. Kader.
Thank you.
Any questions on that?
Not on this, but I had a question that, with this new format, I completely missed the opportunity for a new citizen as your future agenda. So is it too late to ask a question?
I don't think so.
Go ahead.
It's on there.
From what I could find out that green purchasing has come up in a number of ways in our meeting today with the recycling company, electronic recycling and presentation we just had about biodiesel and building a greener fleet.
From what I could find, the city in 2007 passed an ordinance, an environmentally preferable purchasing policy, and I wondered if this ordinance had been looked at for updating since so much has happened in the intervening 13 years,
and I would be curious and like to know if there has been a revision of this policy.
Thank you.
Thank you, Mr. Sof.
Do we have a need for a closed session today?
I think so.
Well, if not, does anybody have any further comments?
[BLANK_AUDIO]