GROUP
ASSIGNMENT - A Comparative Analysis of Utility Rate Forecasting: The Cape Coral
Experience
1.0
Executive
Summary
The
City of Cape Coral, incorporated in 1970, is located on the southwest coast of
Florida, in Lee County. The city’s metropolitan market area grew seven times
faster than the national average in the 1980s. By 1995, the population had
risen to approximately 85,000. Today, it is the most populous Florida Gulf
Coast city south of Tampa. With approximately 30,000 of 135,000 building
parcels occupied, the city has tremendous room for future growth. The
tremendous growth of Cape Coral has presented city administrators with numerous
management challenges. Among them is that of maintaining city-owned reliable
water, wastewater and reuse (irrigation) systems that deliver a high-quality
product. At the same time, these systems must also be responsive to consumers,
protect the environment and ensure that the community remains self-sufficient.
Coupled with this mandate is the maintenance of financial viability of the
community by implementing an effective ad valorem tax structure, debt levels,
user fees and other revenue sources that are equitable and affordable to the
community (Raftelis Environmental Consulting Group, Inc., 1995).
2.0
Issue
Statement
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. Four issues contributed to the forecasting
model used in the study producing inaccurate projections:
1) The
city was installing 14 square miles of sewer system that was completed behind
schedule
2) The
city was installing an irrigation system to homes. These accounts were added at
a slower than anticipated pace
3) The
growth rate for the city was anticipated to continue at the 8% level
experienced in the 1980s. In fact, the rate dropped to approximately 3%
4) The
data provided by the city for water and sewer accounts were inaccurate.
The
combination of erroneous data, slower than expected growth rate, slower than
projected wastewater construction and delays in securing irrigation connections
created revenue flow problems for the city. Compounding the issue was the fact
that city planners budgeted with the projected figures. In 1994, the city of
Cape Coral budgeted almost U.S. $1.6 million more than actual revenues. The
1991 rate study, in its executive summary, indicated that, “from projections of
revenues and expenses at existing rates, the water system appears to be
self-sufficient only through Fiscal Year 1992 in terms of meeting its operating
revenue needs from the standpoint of debt coverage.” Several issues to consider when designing
a successful utility forecast are:
•
Understanding
management’s operational issues
•
Incorporate technology
•
Make
realistic promises
•
Know
how the forecast will be applied to decision-
making
•
Identify
operative variables
•
Use
a band of projections and scenarios
•
Monitor
the project and keep management informed
•
Work
with management to develop operational models and variables important to
organizational goals
•
Explain
validity and reliability issues to management
•
Acquire
management skills and perspectives
3.0
Analysis
Forecasts are estimates of future
consumption. There are numerous
acceptable forecasting models, but the goal is to be as accurate as
possible. This is extremely difficult
when measuring water and wastewater consumption due to the many variables that
must be considered. However, it is
critical that accuracy is achieved if a municipality is to provide adequate
funding for the system.
|
Strengths
|
Weaknesses
|
|
·
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 remind orderly,
controlled and balanced
|
- Cape
Coral’s forecasting model started producing inaccurate projections:
Ø Installation
of sewer systems were completed behind schedule
Ø Irrigation
systems to hone were added at slower than anticipated pace
Ø Growth
rate for the city drooped at 3% from an anticipated 8%
Ø Inaccurate
data for water and sewer accounts
|
|
Opportunities
|
Threats
|
|
•
Cape Coral has grown dramatically
since its incorporation.
•
The city’s metropolitan market area
grew seven times faster than the national average in the 1980s.
|
·
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
|
Table 1 : SWOT Analysis
4.0
Alternative
Identification
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. Other processes to have a smooth flow of data
and information for management and operational, customer use must be in place.
5.0
Recommendation
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 people or Re-organization
-
This may bring about change to better serve the public efficiently
and effectively, also can dismiss unproductive and lazy officials causing huge
budget deficit. New management means expense for selection and recruiting new
management people.
2)
Data collection system must be developed to support organizational
needs
-
Use of the existing computer system will be maximized to provide
information to management for decision making. Timely and accurate accounts
bill will be generated to prevent revenue lost. Additional people with
knowledge in database collection system must be hired to maintain the
department means additional cost.
3)
Ensure accurate forecasting
-
Accurate forecasting would have minimized budget deficits, audits,
criticism. False target results in
overspending by the city government and debate over utility rates resulted in
audit of the entire system.
6.0
Action
Plan and Conclusion
Successful forecasts result when
forecasters understand the culture and operational goals of the organization.
In retrospect, it seems apparent that this is the point at which things began
to go awry. 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.
Overall, pitfalls in
forecasting brought budget deficits, audits, citizen committees and criticism
from the City Council and the public. Along the way, resignations were tenured,
thousands of dollars were spent and trust in city staff was diminished.
Following good management principles in the forecasting of utility rates would
have precluded or minimized this problem.
