A Comparative Analysis of Utility Rate Forecasting:

The Cape Coral ExperienceA Case Study

Submitted to:Prof. Ismael C. Pangilinan

Submitted by:Jeniefer C. Espino

Maria Munna S.GravadorRonald B. Nebres

Geinah R. Quiñones

December 20, 2012

I. Statement of the Problem/Key Strategic Issue

Cape Coral is described as the largest and most successful master-planned community in Lee County, Florida. The city designs were carefully planned and the emphasis was always on assuring that commercial and residential growth remained orderly, controlled and balanced. From no population in 1960, the population had risen to approximately 85,000 by 1995.

The tremendous growth of Cape Coral has presented city administrators with numerous management challenges. They were faced at maintaining city-owned reliable water, wastewater and irrigation systems that deliver a high-quality product that is at the same time, must also be responsive to consumers, protect the environment and ensure that the community remains self-sufficient.

The problem started when the city has conducted a yearly utility rate update for the city water and wastewater utility system. The rate study showed that the actual revenues appeared to be shorter than the predicted revenues when actual accounts appeared to exceed the predicted accounts. The problem worsened year after year. How can Cape Coral improve their forecasting system for utility rates to avoid erroneous data, slower-than-expected growth rate, slower-than-projected wastewater construction and delays in securing irrigation connections?

II. Statement of the Objectives To determine how Cape Coral can maintain city-owned reliable water, wastewater and

irrigation systems To analyze why the actual accounts in water and wastewater appearedto exceed the

predicted accounts To determine the pros and cons of converting from their old to new integration system

III. Relevant Case Facts/Findings

Cape Coral: Background Located in Lee County, Florida, United States Founded in 1957 Also known as “Waterfront Wonderland” Most populous city in Florida Gulf Coast with a population of 154,305 Utility Rate Forecast for 1992:

o Predicted water account: 28, 979o Predicted wastewater account: 23,088o Predicted revenue: $15, 470, 594o Actual water account: 37, 098o Actual wastewater account: 23,705o Actual revenue: $15, 406, 209o Revenue difference: $64, 385

UtilityRateForecast for 1993:o Predicted water account: 35, 327o Predicted wastewater account: 25,009o Predicted revenue: $19, 147, 161o Actual water account: 38, 315o Actual wastewater account: 23, 342

o Actual revenue: $15, 406, 209o Revenue difference: $3, 740, 952

UtilityRateForecast for 1994:o Predicted water account: 28, 891o Predicted wastewater account: 17, 344o Predicted revenue: $24, 288, 719o Actual water account: 28, 152o Actual wastewater account: 16, 203o Actual revenue: $14, 523, 876o Revenue difference: almost $10M

Cape Coral strengths: Largest and most successful master-planned community in the country City designers carefully planned the location of streets, canals, parks, public areas,

transportation routes, commercial zones and industrial parks Cape Coral always gives emphasis on assuring that commercial and residential growth remined

orderly, controlled and balanced

Cape Coral weaknesses: Cape Coral’s forecasting model started producing inaccurate projections

o Installation of sewer systems were completed behind scheduleo Irrigation systems to hone were added at slower than anticipated paceo Growth rate for the city drooped at 3% from an anticipated 8%o Inaccurate data for water and sewer accounts

Cape Coral threats: Inaccurate data and inability to explain deficiencies led to mistrust of government staff and

voting down of rate studies Citizens might think that the government is corrupt Inaccurate forecasting of utility rates might lead to overspending by the government

IV. Alternative Course of Action

1. Data Collection System must be develop to support organizational needs Pros: Use of the existing computer system will be maximized to provide information to management for decision making.

Timely and accurate accounts bill will be generate to prevent revenue lost. Cons: Additional people with knowledge in database collection system must be hired to maintain the department means additional cost.

2. Ensure accurate forecastingPros: Accurate forecasting would have minimized budget deficits, audits, criticism Cons: False target results in overspending by the city government

Debate over utility rates resulted in audit of the entire system

3. Management Executive Re-organization or ChangePros: This may bring about change to better serve the public efficiently and effectively

To dismiss unproductive and lazy officials causing huge budget deficitCons: New management means expense for selection and recruiting new management people

IV. Recommendation and Implementation

We recommend using and implementing all alternatives mentioned above to be able to have a clean start and to have enough efficient management, as well as, staff support to maintain the operational system that the management needs to move the city towards smooth operation in the future. To enumerate the alternative courses of actions here are the step by step actions:

1. Change management people2. Data collection system must be develop3. Ensure accurate forecasting

Implementation Process:

Initial action would be a total change of management people to lead the city. Hire new efficient and productive people to manage the operation and support department. These management people are responsible for the development of a new system or processes that is suitable to the needs of the business operation. Various reports must not be simply filed and stored but must be utilized to analyze for planning purposes.

Next step is to develop a data collection system that is suitable to the company business operation. The data collection and integration system previously used, Wang, is replaced by a proactive system, IBM AS400 and HTE, but the implementation process was delayed. Timeframe for the development and implementation processes must be strictly followed. Discrepancies discovered should be analyzed to prevent “garbage in, garbage out” situation. New system is dependent on the data provided by the City and the previous system, thus, analysis of data and processes must be done first before feeding it in the new system. History of unreliable data, records, information which resulted in unreliable forecast should be resolved by development of flowcharted processes from collection, processing, storage and data analysis. The following incidents must consider in the flowchart or process:

1. The processes of transfer of data from county to city’s database must be developed to prevent deterioration of data stored in the city.

2. There was no accounts receivable database available for the water assessment resulting to unbilled accounts. Furthermore, still in water assessment department, the absence of database resulted in several residents with no outstanding accounts remained unconnected as legally required by the city ordinance.

3. Other processes to have a smooth flow of data and information for management and operational, customer use must be in place

Compounding issues will be addressed by the development of systematic data collection system and processes that will be mapped and developed by the new management. Progress and development translates into new process and structures that must support the change.

Lastly, ensure accurate forecasting as basis for decision making. With new system and processes for data collection, reliable historical data would be available for forecasting. Forecasters must understand the operational goals and missions of the organization. Vital questions and information must be shared with the forecaster to produce accurate forecast. Use forecasting models and techniques to test forecast. These steps will prevent inaccurate data and inability to explain discrepancies actual vs forecast which usually led to public mistrust and criticism. Good management principles in forecasting would preclude budget deficits, audits, and criticism from public.