OPA Analysis of IBEW MOU Proposal CF

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OPA Analysis of IBEW MOU Proposal CF13-1004 Frederick H. Pickel, Ph.D Office of Public Accountability / Ratepayer Advocate, City of Los Angeles opa@lacity.org tel. 213-482-6814 http://opa.lacity.org August 16, 2013

Summary Timeline of DWP reviews related to 2009 IEA Study 2012 Power Rate Review 2013 Report-Backs from Power Rate Review What is the status of the DWP / IBEW MOU? Ratepayer Advocate is not involved in the negotiation or decision process Estimates of savings are based on analysis prepared by DWP Evaluation Wages Pension and benefits What s missing? Performance and benchmarking Conclusions 1

Path to Greater Transparency -- DWP Reviews Since 2009: IEA Study Industrial, Economic, and Administrative Survey of DWP (IEA Study) in 2009: Over the years, the Department has met and overcome many challenges; however, the Department is now at an unprecedented point in its history, in which it must simultaneously confront a number of major challenges demanding urgent attention within an extremely short period of time to continue to conduct its day-to-day operations. These inter-related and complex challenges require urgent attention, prioritization and difficult decision-making. Prominent examples of key challenges include [in part]: Active management of various "human capital" challenges to build a more flexible and resilient workforce (including training, succession planning, and recruitment) Resolution of supply chain and procurement inefficiencies that directly affect the reliable delivery of low cost service to customers 2

Path to Greater Transparency -- DWP Reviews Since 2009: Conclusions from 2012 OPA Power Rate Review LADWP s FY12/13 and FY13/14 two year power rate proposal was approved in 2012. LADWP needed to continue its transformation process Cost reduction efforts begun in 2011 have exceeded targets This effort must continue and broaden to be fully transformational Key areas for continuing transformation* Business management / performance improvement Improve investment viability reviews and on-going investment management Performance measurement at business unit, functional, and individual levels, including enterprise risk management On-going benchmarking of key costs, including repowering, PRP, and cost components like total labor compensation Cost management Collaborative efforts between city, LADWP, and labor on contracting out and to bring salaries and benefits closer to market rates Process improvements across the organization Review fuel hedging strategies and processes Addressing mandates from a ratepayer perspective Cost-benefit discussions are appropriate even for established mandates Success on increased transparency, shorter rate increase period *The PA Consulting report at http://opa.lacity.org provides the supporting rate proposal analysis, cost review, and recommendation details. The CAO and CLA collaborated in this effort. 3-5

Path to Greater Transparency -- DWP Reviews Since 2009: 2013 Report-Back Items from 2012 OPA Power Rate Review # Cost Related Rate Impact Description 2a Yes To be determined Conduct negotiations with labor to find common ground that allows for greater flexibility to contract out effectively and bring salaries and benefits closer to other power utility providers. 2b No None / Revenue Neutral Reevaluate and consider replacing the surcharge-based restructuring approach with fully restructured permanent rates once legal considerations allow. 2c No None / Revenue Neutral Conduct a new formal cost of service study in order to prepare for future power rate restructuring. 2d Yes Minor/ Moderate Conduct a benchmarking assessment to review the cost per project for the repowering program and the Power Reliability Program to ensure cost reasonableness. 2e Yes Moderate Identify opportunities to contract out and explore the potential savings, including the benchmarking of staffing and outsourcing levels against utility peers. 2f Yes Minor Review overtime expenses allocation, as well as the Department's contractual requirements that have an impact on overtime. 2g Yes Minor / Moderate as Complete a rigorous review of the Department's hedging plan to lock in low fuel prices. to reducing rate volatility 2h Yes Minor Establish a plan for energy efficiency that maintains expenditure levels at an achievable and cost effective level. 2i Yes Moderate Seek greater Departmental efficiencies by pursuing process improvement efforts across a range of areas and practices. 2j Yes Status report only Submit a semi-annual report to the Mayor and Council regarding the status of the renewable portfolio Standards program and its impact on rates 6

Summary of Proposal COLA for Salaries Pension Tier 2 Contracting Out OT Premium Common Class Salaries Health Plan Contributions Active Health Plan Contributions Retiree Health Sick Time Dr. Certification No COLA for first three years, then COLA in 4th year of 2.0% or 2.9% in analysis, depending on inflation case. Savings based on Tier 2 plan as negotiated (assumes commencement in second year). 10% reduce to 5% for only limited classes. Savings reduced as only limited number of classes subject to additional steps. Not part of this Settlement. Not part of this Settlement. Implemented 8/1/2013 7

Assessing the Results The Ratepayer Advocate is not the negotiator, nor the decision-maker. Looking at dollars spent by year for the contract Most direct measure. Detail available for all of Water and Power Easier to compare across negotiating and assumption cases Looking a impact on rates, compared to Ratepayer Advocate/PA Scenarios in 2012 Derived Only available for Power rates for specific scenarios Long-term present value comparisons Require decades of assumptions on future labor contracts and economic cases 8

Assessment of Current Proposal and Conclusions Wages Pension Tier 2 Proposal Relative to Status Quo Trajectory Rate reduction about same or higher than RPA/PA 2012 power cost labor scenario, but still more expensive than benchmarks New employees similar to other public pensions Benchmarking Benchmarked vs. utilities (PA 2012) and City common classes (2013) Qualitative comparison only Healthcare Not part of this proposal Qualitative comparison only Process benchmarking, work practices, outsourcing Total Not addressed comprehensively, needs to be reserved for future action Power rate reduction with labor and pension savings about same RPA/PA scenario Joint system has draft study on benchmarking, no progress by power or water, study takes <1 yr. 9

Conclusions The current proposal s four year savings for the combined water and power roughly equals the savings estimated in salary and pension scenarios in the 2012 Power Rate Review based on the power sector comparison alone. The key power and water groups in DWP need to address business and operating process benchmarking and examination of improvements to these processes along with technology, outsourcing, and other alternatives. This analysis is far overdue. This proposed MOU should be structured so it does not inhibit addressing this benchmarking effort and the implementation of improvements. 10