cro update to prepa governing board - aee attachment b... · enterprise improvement . financial...

Enterprise Improvement Financial Advisory Information Management Turnaround & Restructuring

January 28, 2015

CRO Update to PREPA Governing Board

www.alixpartners.com

CONFIDENTIAL

DRAFT

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Discussion topics

4 www.alixpartners.com

‣ Business Plan Process

‣ Business Review

‣ A. Fuel

‣ B. Customer Service

‣ C. Indirect Procurement

‣ D. Safety

‣ Q&A

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Confidential and Preliminary

Subject to Substantial Revision 8


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Discussion topics



‣ Business Review

‣ A. Fuel


‣ C. Procurement, Fleet, Inventory

‣ D. Safety

‣ Q&A

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Customer Service Operational Improvement Plans

11 Confidential and Preliminary

Subject to Substantial Revision

• Each of the 9 projects presented to the Governing Board on December 9th have been launched and have teams assigned driving project activities

• Each project team has embraced the Action Plans and KPI Dashboards and they are now responsible for gathering, updating and reporting metrics

• Project teams are working hard, it is still early in the implementation to see significant progress in critical KPI’s

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Customer Service Operational Improvement Plans (cont.)



Project Status On-going activities

Improvements to Billing / Service to Primary Customers

• Workflow automation project completed. Training provided to Medicion field employees in the Regions on 1/20

• Training workshop provided to employees reading primary meters on 1/20. Gathered issues communicated by employees and working on addressing these

• Slow progress in dealing with backlog of field and administrative work with Wholesale customers. There is still confusion after moving the Medicion organization from ICEE to Customer Service

Improvements to Billing / Service to Secondary Customers

• There are still significant delays in account maintenance / editing activities, resulting in 70,000 estimated billings at the end of December, and 25,000 delays in service suspensions for late payment

• Employees are being reassigned to Regions with highest backlog delays • Performing detailed workload and task segmentation analysis to support the set-up of a

group of administrative employees to be trained to perform simpler account editing work: • Will require support from HR to identify internal candidates (40-50 employees) and

transfer from other units • Workflow automation project developed for primary accounts will be extended to secondary

accounts as roll-out to Medicion field employees is complete in the next 2-3 weeks

Implementation of Deterrents for non-payment

• Working on new process for disconnects / reconnects, including: • Changes to existing PREPA procedures, compliant with Law 57, to be submitted to

Energy commission • Customer communication campaign • Changes to CC&B • Training plan for employees and roll-out plan

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Increase collections with Government Customers

• December / January saw decreased Government payments across the board due to holidays Expectation is for catch up payments coming in February

• As of 12/31, Corporations A/R>60 days is at $167M, Agencies A/R>60 days is at $48M • Currently focused on collections from Agencies, specially Education ($31M)

• Meetings with OGP (Luis Cruz, Director) held on 11/21, 12/16, and 1/27 • OGP has provided actual budgets for payment of utilities approved by Hacienda by

Agency / Corporation. • Budgets approved are ~20% lower than the estimates provided by PREPA to OGP at

the start of the FY. • This is fresh information for PREPA and allows the team to project balances by the end

of the FY and start negotiating a payment plan based on actual projections • Initial analysis of billings / payments for Agencies for Jul-Dec 14 shows that, at the

current pace, Agencies’ balances will increase by $30M by the end of the FY To ~$80M • Next steps is to hold a meeting with Hacienda, OGP and PREPA / AlixPartners to

review billing / payments and projections for the FY and get commitments for catch-up payments above the approved budget for the reminder of the FY, and a comprehensive payment plan for the bulk of the balances for FY 2016

• Re. Corporations, conference calls with Governor chief of staff have not been productive • Started development of Individualized plans for each Top 10 Corporation in order to approach

each Corporation individually at the CFO or higher level • Re. Municipalities, team believes that Law 57 allows for collection of invoices from services

provided to :for profit municipal facilities”, although there is no consensus at PREPA in this • Looking for a definitive determination from PREPA Legal to proceed with serious collection

efforts, based on information already collected from CC&B

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Increase collections with General Customers

• General Customer collections have been stable during the past 4 weeks • Work focused on Law 33 pervasive disputes for Fuel and PP charges ($20M past dues, $0.5M

accumulating each month). On-going work: • Outside Legal review with PMA lawyer supporting PREPA Legal - Discovered that

PREPA may not be interpreting the law correctly and not using it to the full extent to protect itself from frivolous disputes

• For customers to take cases to administrative court, (“vista publica”), they need to post

the full amount disputed as a bond (“fianza”) • To date, few cases have made it to vista publica. Vast majority of disputed invoices have

been stuck in the internal administrative process for months / years. Process should take 60-90 days following law 57’s prescribed wait periods

• By accelerating the process and taking all disputed invoices to vista publica, PREPA will be able to claim full payment to be posted as a bond

• Also saw that law 57 does not prohibit PREPA from charging interest on late payments if PREPA prevails in court. These charges will be added to the disputed amounts to increase the leverage with customers to abandon the disputes

• Started reconciling and completing administrative files for Top 10 offenders to take to vista publica asap and claim payment of bond (PanAmerican Grain, $4.5M, etc.)

• Puerto Rico Telephone ($30+M): Reconciling all debt from 2002-2012; identified $24M of misplaced payments; recalculating $3M of LPC’s and setting-up to negotiate $5.3M in bills disputed using Law 33 from as far back as 2008

• Aerostar: Transferred $12M from Ports to Aerostar, opened negotiations in December • Evaluation / selection of collection agencies for inactive accounts still on-going. A decision and

execution green flag needs to made in the short term

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Improve Service in Commercial Offices

• Focus is on improving account maintenance and editing activities (Project #4) to avoid customers crowding commercial offices for invoice

• Most experienced personnel for account maintenance is now diverted to customer interaction in the offices

• Finishing vendor contracts to roll-out payment kiosks and payments in small businesses

Stabilize, Fix and Improve CC&B

• Replacement of network backbone to Commercial Offices on-going, resolving issues in shared installations with PREPANET

• Documentation of user requirements from Customer Service organization is complete • Reviewing proposal from Oracle to address CC&B modifications, including compliance with

Law 57

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Discussion topics



‣ Business Review

‣ A. Fuel


‣ C. Indirect Procurement

‣ D. Safety

‣ Q&A

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Opportunities within indirect procurement which have been quantified to date total

$10M – 15M/year + one time savings of $20-40M. Initial review of fleet and network

indicates significant additional opportunities are achievable


Area Activities Benefits Estimated

annual value2

One time

saving

Est. timing

Procurement

• Execute on security guard phase I & II • Develop and execute sourcing of fleet parts • Develop and execute sounding of MDE/MRO parts • Increase share of purchases of ‘catalogue items • Improve procurement processes and limit

decentralization of activities

• Improved cost base • Increased use of

standardized, catalogued items will reduce complexity and drive SG&A efficiencies

$10 - 15M Q2 2015

Inventory

• Review footprint and consolidate warehouse operations (in coordination with fleet consolidation)

• Identify and dispose of obsolete and slow moving SKU’s

• Reset safety stock levels to reduce overall inventory • Tighten requisition procedures to limit excess

inventory being held outside warehouses

• Reduced labor and network costs (fewer locations with increased velocity)

• Limit write-downs

TBD $20-40M Q3/4 2015

Shops

• Review footprint and consolidate shops (in coordination with fleet consolidation

• Develop shop SWAT team to target shops (weekly basis) with high out of service %

• Rollout improved metrics to drive higher accountability • Develop “rental car return” process to identify and

address excess wear and tear

• Improved vehicle availability • Reduce T&D non-

productive labor time (“patio

entries”

TBD TBD Q3/4 2015

Fleet

• Review network and consolidate fleet location to increase utilization

• Expand usage of GPS across fleet to increase visibility to and drive improvement within utilization

• Consolidate overall accountability of fleet (availability, utilization, cost) within transportation

• Develop fleet renewal program by vehicle class

• Reduced investment required to renew fleet

• Improved tracking and centralized accountability will enable more efficient rebalancing of fleet

TBD TBD Q3/4 2015

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2

3

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19

Work plans and KPI’s have been established for each initiative to

track implementation progress Example: Procurement (work stream #1) work plan:

Procurement Last Update: 27-Jan

Secure buy-in from PREPA management on savings plan on-time 19-Dec 19-Dec

Roll-out wave I plan Delayed 16-Jan 9-Feb

Prepare analysis for wave II savings on-time 30-Jan

Secure buy-in from PREPA management on wave II plan on-time 19-Mar

Roll-out wave II plan on-time 16-May

Develop list of parts and develop 'catalogue' on-time 30-Jan

Identify long list of potential vendors on-time 30-Jan

Issue RFP on-time 12-Feb

Announce RFP winners on-time 26-Feb

Complete transition to new vendors on-time 19-Mar

Meet to discuss Fleet parts procurement process on-time 13-Nov 13-Nov

Assign resources for regional purchasing supervisors on-time 27-Feb

Create procedure on-time 13-Mar

Training for regional purchasing supervisors on-time 23-Mar

Implementation on-time 31-Mar

Review and Update list of sourceable spend EDE/MRO on-time 16-Jan 16-Jan

Supplier Notification & Pre-Qualification on-time 2-Feb

RFP Issue and Response Evaluation on-time 2-Mar

Supplier Negotiations and Selection on-time 3-Mar

Implementation Roll Out on-time 8-Apr

Complete change management plan on-time 6-May

Review and update list of sourceable spend MRO parts on-time 22-Dec 22-Dec

Negotiation of Sourcing Contracts with International on-time 23-Feb

Negotiation of Sourcing Contracts with Altec on-time 23-Feb

Towing Services Sourcing Contracts RFP (Start) on-time 31-Mar

Fleet MRO Sourcing Contract RFP on-time 20-Apr

9 YFleet MRO Sourcing

Contracts

Operations &

Infraestructure

(Procurement

Department)

8 YEDE/MRO Sourcing

Contracts

Operations &

Infraestructure

(Procurement

Department)

CommentsTarget Date

to Complete

Actual Date

Complete

Activity

Status#

Customer Service

ProgramOwners

Overall

StatusKey Activities

Rep.

Rec.

2 Security Guards

Operations &

Infraestructure

(Contract

Management

Office)

Wave one plan drafted. Awaiting Executive

Director signatureY

3

Fleet parts

procurement

(sourcing)

Operations &

Infraestructure

(Procurement

Department)

Y

Y4

Fleet parts

procurement

(process)

Operations &

Infraestructure

(Procurement

Department),

Human Resources

Directorade

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Sourcing initiatives will be executed in two waves. Wave one will include a number of categories with high potential savings

www.alixpartners.com 20

Foundation: Improve visibility to category spend

Wave 1: Already identified categories

Wave 2: Remaining categories and

implementation of controls

• Make vendor category mandatory input field when opening new vendor

• Review and update category assignment on existing vendors (target larger vendors first and work down)

• Several categories have been identified so far

• Security guards (approx. $24mm/year spend – key levers; rate, usage)

• Parts for fleet (approx. $11mm/year spend – key levers; vendor consolidation, SKU standardization

• EDE/MRO (approx. $29mm/year spend key levers; vendor consolidation, SKU standardization

• Target additional categories based on spend and vendor concentration

• Implement stricter controls on significant amount of ‘cash

disbursements’ (~$30MM+

estimate) • Review and improve core

procurement processes • Review Capex vendors and

assess rebate/discount opportunities

In Progress In Progress (targeting $10-15mm million annual savings) Not yet started (target TBD)

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Book value of current PREPA inventory is ~$215MM


PREPA is currently carrying ~48K individual SKU. Inventory turns are low – ranging from one turn per year within T&D to one turn per every 7.8 years within generation

115.1 30.1

24.0

22.0

16.0 5.8 1.5 0.5

PREPA Inventory (USS MM, Book Value) Note: Engineering inventory is not in asset suite and is an estimate only

Generation

Engineering

Central Warehouse

Regional

Satellite

Technical

Other

Fleet

0

30,000,000

60,000,000

90,000,000

120,000,000

150,000,000

180,000,000

210,000,000

240,000,000

0

1

10

100

1,000

10,000

100,000

1,000,000

10,000,000

1 7501 1500122501300013750145001

Valu

e (U

S$, C

umul

ativ

e)

Valu

e (U

S$, b

y SK

U)

PREPA Inventory SKU and Value

Value Cumulative

2

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Inventory / Warehouse opportunity summary


Implementation of tighter inventory controls and liquidation of excess inventory is expected to generate a $20-40MM improvement in working capital as well as result

in reduced ongoing warehouse operating costs

Step 1: inventory levels

• Analyze inventory flows to develop more appropriate safety stock levels at SKU level • Implement procurement freeze on all items until inventory is drawn down to acceptable levels • Tighten inventory requisition processes • Work with Engineering Dept to develop more accurate picture of inventory on hand

Step 2: network analysis

• Review network to determine opportunities to consolidate warehouse locations • Identify slow moving/obsolete SKU’s and liquidate excess inventory across all directorates • Develop implementation roadmap to consolidate facilities

Step: future state

• Execute warehouse consolidation plan, including renegotiation and rightsizing of facilities based on new inventory targets

• Review opportunities to increase vendor managed inventory and/or increase control of inbound shipments to reduce landed costs

2

In progress

In progress

TBD

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PREPA’s current fleet includes in excess of 3,800 pieces of equipment (about

2,800 vehicles) – almost 20% of the fleet is out of service


• Availability of the fleet is a major issue driven by a number of factors • The fleet is old – according to PREPA’s transportation dept. ~75% of the fleet is past it expected useful life • PREPA has a high number of unfilled mechanics positions (UTIER)

• Current shortfall of approx. 50 mechanics per fleet management • Mechanic is not a desired job (hard work, low pay) • PREPA management has consistently cut budget

• Some union/local resistance to external repair shops – even when PREPA personnel is not available • Category 5 and 6 vehicles are specialized pieces of equipment and there is limited local expertise available • Many of PREPA’s shops are small and do not have expertise or sufficient man power to deal with complex repairs

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Current improvement initiatives being pursued


Initiatives are in early phases and while savings estimates are TBD , they are expected to be relatively modest (if any). Primary objective is to drive significant improvement in fleet

availability at little or no incremental cost

• Consolidation of smaller shops into larger locations to enable greater flexibility to manage labor • Development of shops focused on specific types of equipment – creating centers of excellence and

deeper bench of skilled labor

• Weekly program targeting specific locations with high out of service percentage • Shop will be surveyed and supplies made available during week – repairs will be performed on

Saturdays • Results will be reviewed the following week and approach tweaked as required • Program kicked-off week starting 1/26

• A handful of external fleet management companies exist on Puerto Rico • Meetings are being arranged with these providers to explore potential benefits outsourcing fleet

management • Any potential benefits will need to be weighted against what is expected to be significant union

pushback

Shop consoli-dation

Shop SWAT teams

Outsour-cing

3

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Management of PREPA’s fleet is decentralized and there are no real

utilization management measurements in place


Existing Situation • There is currently no central management of the fleet, each directorate has its own fleet of vehicles and they

control usage • There is no comprehensive tracking of fleet utilization – general view seems to be the fleet is slightly larger than

required, but high share of out-of-service vehicles and low reliability makes it challenging to reduce fleet • PREPA is currently using a provider called Skytech to monitor the fleet – annual cost of the contract is

approximately $800K • GPS units are currently installed in 743 vehicles (~26% of fleet) • No consolidated reporting have been provided by Skytech historically and PREPA only uses technology on ad-

hoc basis • In addition, a number of GPS units were procured from PREPA Net. These units have never been installed

Takeaways from analysis of 2014 calendar year Skytech data (covering ~26% of total fleet) • Utilization of PREPA’s fleet is low. Peak utilization during 2014 was 62% (average utilization was 36%) • Data indicates an opportunity may exist to reduce overall fleet by 20-40% without deteriorating service • Maximizing savings will require ‘pooling’ of vehicle into fewer, larger dispatch centers (will drive incremental

savings within shops and warehousing/inventory) • Savings will need to be quantified but could exceed $20 million (warehouse, shops, T&D non-productive labor

time) per year as well as significantly reduce future investments in new vehicles required to renew the fleet

Next Steps • Form joint project team with in infrastructure & administration and T&D to review opportunities to reduce

network complexity and right-size fleet

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Discussion Topics



‣ Business Review

‣ A. Fuel



‣ D. Safety

‣ Q&A

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• Phase I of the safety assessment has been completed • Included site visits at each generating plant and several T&D sites • Action items from have been shared with Plant Managers • Included Leadership workshop and training for Safety professionals which have been completed • Results of the assessment have been reviewed with Leadership and Union members

• Next steps currently being worked on include

• Execute personal protective equipment initiatives (status; in progress) • Re-establish Central Safety Committee members and update meeting schedule for 2015 (status: working

with UTIER on 2015 meeting schedule) • Conduct thorough risk assessment and process hazard analysis at the generating plants, T&D

Construction, T&D OEM Center addressing critical risk (status: Dupont proposal to be submitted week of 2/16/15)

• Determine next steps for transforming culture, implementing management systems and providing coaching to Leadership (Dupont proposal to be submitted week of 2/16/2015)

• Next PREPA and union safety meeting follow-up has been scheduled for February 17th • Additional activities being worked on in collaboration with PREPA’s safety group include

• Identifying capital projects necessary to manage critical risk • Creating proactive safety goals that will result in reduction in total recordable incident rate • Touring generating plants, T&D sites coaching Safety Officers • Supporting Safety Departments revision of Vision, Mission statement and Cardinal Safety rules – these

have been completed, waiting for Feb 5th meeting to review with Leadership and Union

Planning for and executing on recommendations from the safety assessment is in progress

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• DuPont conducted skills workshop on January 14th and 15th for all PREPA Safety Officers with a focus on: • Role of a Safety Professional • Accident investigation • Effective safety committees

• Phase I SOW • Identification, documentation and prioritization of critical operational hazards through safety observation

and hazard analysis • Assistance with the design of vital administrative controls on top critical hazards for temporary applications

(does not include longer term critical controls that require engineering work) • PREPA leadership development in the area of safety observations

• Phase II SOW • Safety Leadership Skills Coaching and Development • Risk-Based PSM System Design and Development • Develop an Effective Governance Structure and Standards • Implementation of PSM System Elements (planning, resourcing, communications, etc.) • Build and Develop Functional Capabilities utilizing several methods and approaches • Scope designed and approved to get to Governing Board

• Phase III SOW • Safety Culture Transformation

• Next Steps • Obtain approval from Board for Phase I SOW • DuPont begin site visits mid February

DuPont update

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Discussion Topics



‣ Business Review

‣ A. Fuel



‣ D. Safety

‣ Q&A

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