PrivatizationContract
Management Project Synopsis
Employees Equal Employment Opportunity/Equal Business Opportunity Operations Maintenance Management Production Facilities and Fleet Maintenance Contract
Management Project Synopsis
Prior to 1999, the City of Atlanta Bureau of Water
operated and maintained the drinking water plants and water mains
that deliver the water to customers. The Bureau of Water was
also responsible for issuing bills for water and sewer service,
collecting payments, and providing a Customer Service Department.
Payments for water
and sewer service provide the funds to pay for staff, operate
the treatment plants, and finance needed upgrades to the system.
In the 90’s, the City evaluated its operating the system
and concluded that a private company could offer financial advantages,
which would reduce the overall cost of operation of the system.
Based on this evaluation, the City approved a plan to hire a private
company to operate and maintain the water system in a more cost-effective
way. Bids were requested and evaluated from a number of private
firms. In 1998, the City
of Atlanta signed a contract with United Water Services Atlanta
to operate and maintain the water system for the years 1999 through
2018. The City continues to own all the system’s assets,
buildings, equipment, and pipes, while United Water operates and
maintains them. For this, United Water receives a flat monthly
fee and the City pays for all upgrades to the system. The City established
an Oversight Team to manage the privatization process. The Oversight
team is comprised of appointed City officials, former Bureau of Water
Employees, and occasionally consultants. The Oversight Team is
located at City Hall, at Hemphill Settled Solids Plant, and in
Bureau of Water Offices in the Chattahoochee Water Treatment
Complex. United Water began
operation of the system on January 1, 1999. In order to operate
the system at the lower costs, United Water made changes to reduce
the amount of electricity, natural gas and chemicals used every
year, and reduced staffing levels with early retirement programs
that included a benefit package. Operating costs have also been
reduced by upgrading parts of the water system in order to make
them more efficient. Since United Water
assumed the operation of water system, they have continued the
City’s practice of supplying high quality water to the City’s
customers. All federal and state drinking water standards have
been met or exceeded. This is assured by continuous monitoring
and testing of water for coliform bacteria, lead and other contaminants.
Link to www.Unitedwater.com Brown and Caldwell
conducted a second review of the City Atlanta’s Operation
and Maintenance (O & M) contract with United Water Services
Atlanta, L.L.C. (USWSA). The time period reviewed was January
1, 2000 through May 31, 2001, although some data for June-August
2001 has been included for reporting purposes. The items that
were reviewed included: verifying payments made, verifying the
financial capability of UWSA, assessing the implementation of
both the Customer Star II and Maximo systems, and the performance
of the various groups that are responsible for the operation and
maintenance of the Water System. Overall, UWSA has
continued to provide increasingly better customer service and
good water quality to their customers.
Collection efforts and system revenue are a concern and
steps are currently being implemented to provide improvement.
As expected, there has been a continuing decrease in staffing
levels, which should be monitored. Onsite employees are supported
by resources from other projects, UWSA corporate headquarters,
local partners, and subcontractors. Another area of concern is
the growing backlogs for maintenance of the production equipment,
facilities and distribution system components. An increase in
maintenance workload occurred due to system growth, system aging,
and ongoing drought conditions. City Oversight Team access to
information systems and reports should be enhanced. Fees paid to UWSA
include the monthly O & M fee, pass through costs, additional
service authorizations (ASAs), material capital repair and replacement
(MSRRs), and adjustments based on performance standards. The monthly
O & M fee was paid for all months during this review and escalated
annually for inflation. No incentive/reduction payment to the
O & M fee were applied during the review period. Electricity pass through
costs have decreased from $93.50 per million gallons (mg) in 1999
to $91.33 for 2000, and increased to $92.91 per mg through April
2001. However, with the completion of the repairs to the Chattahoochee
Raw Water Pumping Station, it is expected that UWSA will be able
to cut consumption of electrical power by actively participating
in the real time pricing plan offered through Georgia Power. Natural
gas costs have decreased from $116.97 per mg in 1999, $72.00 in
2000, to $115.94 per mg in 2001. A dramatic increase in the price
of natural gas was felt throughout Georgia in 2001. A contract
between the City of Atlanta and Georgia Natural Gas has been secured. ASA and MCRR authorization
totaled $37,649,560 for the period of January1, 1999-May 31, 2001.
As of May 31,2001, $15,915,833 for ASA and MCRR costs was paid.
However, $21,733,727 for authorized ASA and MCRR work has not
been paid to USWA due to incomplete documentation, work not complete,
or work not yet started. UWSA has performed well in ensuring that
the City receives O & M invoices in timely manner. The Company
has also provided information in both invoice and management report
from that addresses pass through costs.
Pass through costs relating to sewer charges have not been
resolved and completed invoices for all ASA and MCRR work have
not been received by the City. The Company continues to respond
to the critical elements of the agreement pertaining to Article
5, and submittal of proper documentation by the Company will allow
the City to process invoices, ASA’s and MCSS’s. There
are financial responsibilities required of UWSA that are outlined
in the contract. These include submittal of various financial
statements to the City, maintaining equity requirements, maintaining
appropriate insurance. Seven of the fourteen financial statements
required to the City were not available to the review team in
files of the City Bureau of Water at the time of the review.
UWSA supplied cover letters for each of these submittals. According
to those letters, UWSA appears to be in compliance with all of
the financial statement submittal requirements of the contract
for the period under review. For the first quarter 2001 the financial
statements of the Company indicate that the current ratio is still
in compliance with the Agreement, but that the debt to equity
ratio, minimum equity requirement, and equity greater than 2 times
the monthly service fee are not in compliance. The insurance coverage
and terms are in compliance with the Agreement, with the exception
that the Excess Liability coverage limit for 2000 was $5,000,000
not the $10,000,000 required in Schedule 7 (as was the case for
1999). In 2001, however, the limit was increased to $10,000,000.
The face amount of the Letter of Credit was in an amount not in
compliance with the Agreement. The same holds true for the ensuing
years of 2000 and 2001, for which the 1999 face amount of the
Letter of Credit was escalated. UWSA
has not fully satisfied each element of the agreement on financial
capabilities. However, the company has the capability to provide
proper capitalization, ensure a stable debt equity ratio and allow
for insurance and letter of credit terms and amounts designated
in the agreement to be fulfilled. In summary, our financial review
indicates that the company continues to be financially capable
in excess of the requirement of the Agreement. Customer
Service was an important part of this review. Customer Service
handles most issues that are in the public eye, including water
main breaks, meter installations and repairs, hydrant issues,
and billing and collections. Many of these concerns and questions
are initiated by consumer phone calls to the One Call Center and
tracked through the Customer Star II (CStar II) customer information
system. The
average monthly volume of calls to the One Call Center decreased
from 17,017 in 1999 to 13,845 in 2000 and has increased slightly
to 14,521 in 2001. Calls managed by a Customer Service Representative
have decreased from approximately 95% in January 2000 to approximately
80% in May 2001, showing more use of the automated phone system
by customers. General trends from January 2000 through May 2001
(refer to Figures3.3-3.7) show a surge in payment arrangement
calls around June 2000 and a significant drop in meter repair
requests and water quality calls. Generally, all call types have
been declining in the last 12 months. Billings
and collections are the responsibility of UWAS through the Customer
Service Department and Star II. The collection rate was estimated
to be 94.16% from May 1, 2000 through May 31, 2001. This is lower
than the 98.5% required by the contract.
There is a current initiative being conducted by UWSA to
terminate water service to past due accounts. The initiative includes
cutting off high dollar overdue account first and then working
to cut smaller and more recent overdue accounts. This initiative
should help to increase the collection rate. There
is difference of opinion between UWSA and the City Oversight Team
on the most appropriate collection rate calculation methodology. Specifically, UWSA’s asserts that governmental accounts other
than City of Atlanta accounts (e.g., state and local government,
schools, housing authorities, and correctional facilities) are
a significant portion of delinquent accounts and present sensitive
collection concerns. Brown and Caldwell recommends that because
of the magnitude of these accounts and critical nature of enterprise
fund revenue collections, that governmental account remain part
of the overall collection rate calculation and a mutually acceptable
collection policy for these account be established by the City
and UWSA. Average
revenue was calculated for the month of May 2000 through May 2001.
There was an adjustment of approximately $12 million in January
2000 to correct a data entry error that occurred in November 1999.
Revenue in dollars/million gallons of water produced was $4,575.57
per million gallons for May 1, 2000 through May 31, 2001, which
calculates to be $4.58 per thousand gallons. The
CStar II system provides a critical lifeline of information and
revenue to the City of Atlanta. This system is currently located,
operated and maintained at the Atlanta office of United Water.
If service in the system is interrupted, the result could potentially
cause millions of dollars in lost revenue within days, if not
hours. Brown and Caldwell recommends that additional redundancy,
or backups, be provided for disaster or unforeseen downtime that
could occur at the single location where the system operates. In
summary, customers seem to be calling less about meters and water
quality and calling more about payment arrangements. This implies
that UWSA is improving their level of service and becoming more
aggressive about collections. However, the collection rates and
revenue are low. There needs to improvement in collections to
meet the contractually required rate of 98.5%. A higher collection
rate will cause the revenue to increase. Also, serious consideration
should be given to developing a contingency plan for the CStar
II system. The
City Oversight Team has concern about current UWSA staffing levels
and potential relationship to the maintenance backlogs. UWSA staff is supplemented by resources from other projects, UWSA
corporate headquarters, local partners, and subcontractors. Data
(Figure 5.1) in this review shows that staffing has dropped from
378 total UWSA employees in January 2000 to 330 total UWSA employees
in May 2001 (48 employees less). The Sanitary Survey conducted
in February 2001 by the Georgia Environmental Protection Division,
indicates that the number of plant operators is adequate based
on the size and complexity of the treatment processes. UWSA
disputes the connection between staffing and maintenance backlog
and clams that the current staffing level is adequate to meet
the contractual obligations. Clearly, this review has identified
some areas where UWSA performance does not meet the City’s
expectations, nor our interpretation of the contract requirements. Employees
received approximately 50 hours each of training in 1999. In 2000,
employees averaged approximately 25 hours each of training. As
of may 2001, 255 employees received training and averaged approximately
13.6 hours of training each. The operations staff appears to have
benefited the most from the training with one employee receiving
as many as 184 hours of training. This could be due to an EPD
deadline, which states that all treatment plant supervisors must
advance to Class I license by December 30, 2001. However, overall
training hours are significantly lower than 60 hours per year
employee average required by the contract. Equal
Employment Opportunity/Equal Business Opportunity UWSA
is participating, as required, in the equal business opportunity
(EBO) and equal employment opportunity (EEO) programs. UWSA’s
EBO participation for subcontractors was 82.8% for 2000. This
exceeded their goal of 79.9% and far exceeded the City’s
goal of 38.0%. From January – May 2001, UWSA’s participation
for subcontractors was 64.0%, which does not meet their goal,
but exceeds the City’s goal. (UWSA’s Best and Final
Proposal guarantees a minimum of 50% of commodities opportunities
to minority vendors). UWSA’s EBO participation for suppliers
was 26.6% for 2000. This is under their goal of 42.3%, but exceeded the City’s
goal of 20.0%. From January through May of 2001, UWSA’s participation
for suppliers was 33.5%, which does not meet their goal, but exceeds
the City’s goal. Overall, UWSA is performing acceptably in
the EBO and First Source Job programs. EEO goals are not being
tracked by the City or UWSA, so performance cannot be determined. UWSA
performance in water production operations was good for 2000.
The quality of water produced by the treatment plants continues
to be comparable to or better than historical water quality and
most of the performance targets established for UWSA. However,
throughout 2000 there have been continuous problems at the Hemphill
plant with meeting the performance targets for pH, turbidity and
phosphate. The pH and turbidity problems seem to be related to
a line to the lime feed point at the post mix being plugged. As
a result, lime was being fed at the combined filter application
point, which was not considered to be the optimum point of application.
The following explanation of this issue was provided by UWSA in
the 2000 Water Quality Report: “The EPA requires turbidity level of less than 0.5 NTU
in 95% of the samples analyzed during a given month. During the
months of September and November, the percentage of samples meeting
this requirement was 93.6% and 94.3% respectively.
The higher turbidity levels were due to the application
point of lime into the effluent of the water system that monitors
the turbidity levels. The interference at the sample collection
site resulted in samples not representative of the low turbidity
achieved at our treatment facility. This sample site collection
problem has been corrected.
Turbidity has no health effects. However, it can interfere
with disinfection and provide a medium for microbial growth. It
may also indicate the presence of disease-causing organisms, including
bacteria, viruses, and parasites that can cause symptoms such
as nausea, cramps, diarrhea and associated headaches. The Georgia
E.P.D has not made a claim at this time, but informed UWSA that
the information is under review by the Bureau.” As
stated previously, customer calls about water quality have also
decreased over this time period.
Accomplishments for operation for 2000-2001 include: increased
solids production at the Chattahoochee Treatment plant, belt press
pilot project, and the UV Pilot Project. UWSA is performing well
in providing quality and safe water to their consumers. UWSA
has implemented Maximo™ as the Computerized Maintenance System
(CMMS) for tracking work orders and inventory associated with
the water treatment plant equipment, buildings, grounds and the
distribution system equipment and infrastructure. The
primary function of Maximo is to provide accurate tracking of
equipment, spare parts and work orders.
During this review, it was determined that completed work
orders are not being assigned the correct status in a timely fashion.
A sampling of preventative maintenance (PM) schedules indicates
that some are not in compliance with the contract requirements.
Accessibility of Maximo system by the City Oversight Team is a
contract requirement. Currently, the Oversight Team does not have
access to the Inventory Module and therefore cannot verify spare
parts availability. Another
concern is that there is no Mirror Application/Database Server
for the Maximo CMMS in the event of a catastrophic damage (e.g.,
Fire) at the building where the servers are located. Consideration
should be given to the installation of Mirror Application/Database
Server at a location different from where the existing Servers
are located. Maximo
is not currently being used in an effective manner. Work orders
are not being assigned the correct status, which results in inaccuracies
in report backlogs. The Oversight Team is concerned about preventative
maintenance schedules and PMs being done as required in the contract
and by the manufacturers. There is also a question as to the accuracy
of the distribution system equipment (e.g., fire hydrants) listed
in the database. Main
break work order records in Maximo were analyzed and their results
are presented herein. However, UWSA’s opinion is that Maximo
records are not the best source of information on main breaks.
Our review and City Oversight Team input tends to support this
observation. Specifically, the abnormally large (222 as of July
2001) number of “Main break” work order backlog in Maximo
we suspect is inflated with work orders for service line leaks
and minor joint leaks. UWSA indicates that Main Break Reports
(paper files) are the primary main break work order tracking system.
Analysis of Main Break Reports is being completed as follow
up activity. UWSA indicates that they plan to transition the Main
Break Reports to Maximo in 2002. Qualitative feedback from the
City Oversight Team is that UWSA response to major main breaks
has been prompt. Analysis has not been completed to verify or
refute UWSA’s claim that all water main breaks are responded
to within 1-hour and completed (water restored) within 4 to 16
hours depending on the size of the line and severity of the break. Production Facilities and Fleet Maintenance Maintenance for the different facilities was reviewed based
on monthly reports, documentation, and information found in the
Maximo system. The increasing
backlog for maintenance work orders are of concern to the City.
According to a June 28, 2001 memo from UWSA, facility backlog
level at the time were 773 for corrective maintenance (CMs) and
1038 for PMs, with approximately 50% of the backlog in Fleet Services.
According to the Maximo system, as of August 9, 2001 (Figure 7.8),
the backlog of CMs for facilities maintenance is approximately
1,590. In summary, UWSA is having problems completing all maintenance
activities for the production equipment, facilities and fleet.
However, maintenance staff is taking steps to improve. Improvement
is needed scheduling and ensuring that required tasks for preventive
maintenance (PMs) are performed on equipment at appropriate intervals.
Additional effort is required to ensure that all job steps for
PMs are performed and that adequate maintenance staff is available
to reduce the maintenance backlog. All work orders for PMs and
CMs must also be closed out as soon as possible to minimize the
errors associated with mounting backlog work orders. Distribution System maintenance, including water main breaks,
water meter installations, and leak repairs, and hydrant maintenance,
is of utmost importance because most of this work is initiated
by consumers and can be witnessed by the public. Analysis of date
in Maximo database shows that the cumulative total of meter installation
backlog has grown to 707 in May 2001 and the meter leak backlog
has grown 1015. However, the number of meter requests will vary
seasonally depending on developer activity, which tends to peak
in the spring and summer. This will cause the meter installation
backlog to vary seasonally. Average time for meter installation was 19 days in the first
quarter of 2000, up to a high of 64 days in the last quarter of
2000. The time has been decreasing steadily down to 28 days as
of the second quarter 2001. This is still higher than the contract
required 15 days. The average time for repairing water meter
leaks was 38 days during the first quarter of 2000 and 15 days
during February 2001. UWSA has not been meeting the contractually obligated
response times for meter leaks. However, as shown by February
2001 data, the response times are improving.
UWSA has been experiencing a higher than expected workload
due to growth of the system. There
has been significant controversy and confusion regarding repair
work. Controversy has arisen due to media reports alleging inadequate
hydrant repair practices. Confusion exists over the actual number
of hydrants in the distribution system and the number that are
out of service at any given point in time, as both these numbers
change over time. Finally, since both the Atlanta and Fulton County
Fire Departments conduct semi-annual fire hydrant inspections,
there are multiple sources of information that must be considered
in order to assess hydrant repair performance. The total number
of hydrants in the system is estimated to be approximately 20,600,
based on the numbers reported in the Spring 2001 Fire Hydrant
Inspection Summary by the Atlanta and Fulton County Fire Departments.
The number of hydrants should be known and accurately reported
in the Maximo system. Brown
and Caldwell performed a spot check of hydrant repair status on
July 20, 2001. At the time, there were 1,043 approved hydrant
work orders that the review team judged to be indicative of hydrants
not being available for service. Based on the best available information
at the time of this review, the percentage of functional hydrants
in the system is approximately 95%. Record keeping around the inventory of hydrants
and their condition needs to be improved to reduce the uncertainty
around this critical maintenance performance measure. In
summary, UWSA is having problems completing all maintenance activities
for the distribution system. There has been a higher than anticipated
workload due to system growth, system aging, and continuing drought
conditions. However, maintenance staff is taking steps
to improve. The average
response time for completed work orders for meter installation,
meter leaks and main breaks should be included in UWSA’s
monthly report. Water main break work orders should be limited
to mains used for hydrants and should not include service lines
and joint leaks. The monthly reports should also include all backlog
work orders for meter installation, meter leaks, and hydrants
in addition to the number of work orders generated and completed. To view or download the Executive Summary of Annual Performance Audit of the United Water Services Atlanta Contract, contact: Brown
& Caldwell Phone
(770) 394-2997 |