Washington Electric gets a glowing assessment from a tainted study | Eastern North Carolina Now

    Publisher's Note: We very much appreciate this in-depth report on the City of Washington's electric utility system from the Beaufort Observer, and in some small way, it explains the why of the high electric utility bills in and around Washington, North Carolina.

    The Washington City Council, meeting in the Committee of the Whole on Monday, (3-28-11) heard a report on its electrical utility system done by Hometown Connections. Click here to read the report on the City's website. It is handy to have the report open while you watch the videos below.

    The first video begins with Washington Electric Utilities Director Keith Hardt explaining how the study came to be done. He then turns the presentation over to Tim Blodgett, the President and CEO of Hometown Connections. You can see on Page 62 of the Report some information on Hometown Connections.



    The second video is simply a continuation of the first. It contains the conclusion of the presentation, several questions from council members and a brief presentation from Ken Raber of Electricities who paid $4000 of the $15,521 study. Interestingly, he appears to be setting the stage for Washington to recommend this group to do studies in other cities.



    If you are not inclined to watch all of the videos you can read an Executive Summary in the Report beginning on page 3, including a summative rating system using four stars. The essence of the report is summarized in the box on page 3 where the text in the box is missing in the .pdf version. What it says is:

    "The electric division of Washington Utilities is well run and uniformly strong across all aspects of utility operations, including technical, financial and customer facing services. The community is well served by the utility."

    Mike Voss, of the Washington Daily News does his usual excellent job of reporting on Council meetings and his report of this presentation can be reviewed here.

    Analysis and Commentary

    We're going to have to differ with Mayor Jennings (last video). We found the report very deficient at best and perhaps even bogus. Here's why:

    1. The methodology leaves much to be desired in the form of an organizational audit. It is based on a day and a half of group interviews, for the most part. While "focus groups" or the group interview process serves a limited purpose, most valid and reliable studies would include much more data collection and assessment than this report depicts. And sound methodology would have included a number of individual, private, confidential interviews with multiple categories of stakeholders. The fact that most of the staff input was not confidential raises both validity and reliability issues. In plain language, employees tend to be more candid in their assessments, and "whistleblowing" more effective, when they are guaranteed anonymity and confidentiality. We saw no such indication of such in this report. You don't learn much when you interview a group of employees when their bosses are sitting in the room.

    2. We have serious concerns about the expertise of the two Hometown Connections personnel who did the study. Neither has a technical background. Both are essentially trained and experienced more in marketing (selling) than in electrical engineering and neither has ever run an electric utility such as Washington's. We think there should have been at least: an electrical engineer, an experienced field technician and a member experienced in managing a local electric utility and ideally an exemplary one. We say that not to say that these two individuals are incompetent in their field, but only that they have a very limited background for this type of study. Both are salesmen, not trained technicians.

    3. We found the methodology used to be very superficial. The star rating system is overly subjective and the report does not show clearly how the ratings were derived, particularly what data is behind the rating determination. Thus, the ratings lack content reliability (i.e., other experts would have come to the same conclusion based on the same data). Without knowing such information we are highly skeptical of such things as the conclusions that, for example, customer service is rated 3 out of 4 stars, and "rates" are given a 3.

    4. With regard to rates, it is here that we found the study most uninformative. While a chart comparing the Residential Rev/kWh of 7 other municipalities in Eastern N. C. to Progress Energy and Tideland is presented, there is not sufficient data to show how those rates impact the financial or operating conditions of the depicted utilities. That is like a consumer saying: "my light bill is higher than it was last month..." without taking into account the weather.

    While Washington's 13.1 was the third highest among those reported, the study concludes that: "Overall, Washington gets good marks for rates." We suspect there are many customers who would disagree with that conclusion.

    While most of the concern by the public in recent months as been focused on rates, this study does very little to give the council or the public a hardnosed look at rates compared to other cities' utility operations. For example, it does not depict any comparative data on the fund transfers out of the Electric Fund to other funds and how different utilities compute such transfers. The report says that the City should have a systematic process for such computations, but offers little data or methodology for doing so.

    Moreover, there is a dearth of data and solid information correlating the residential rate structure to the commercial rate structure and particularly rates within the commercial structure. We would have liked to know the essential differences in the rate schedules for the sample of cities studied. But we are sure most people in the WEU service area would like to know what the justification is for WEU's residential rate (13.1) being significantly higher than Progress Energy's 9.6 or even Tideland's 12.5. Furthermore, the chart on page 38 is not properly formatted if the intent was to depict the relative relationship in rates among the sample. And finally, there is very little data-based discussion of the impact of commercial rates on economic development.

    In short, we find this Report's treatment of the important issue of rates to be rather flimsy; to wit, can you read this report, and without accepting the conclusion offered but using the data presented, answer this question: Are WEU rates appropriate compared to other cities? The trick in that question is this: If you use only the data presented you have to conclude WEU's rates are too high (third highest of the lot) and thus making an argument for outsourcing the operation of WEU to Tideland since Tideland's are 4.5% lower than WEU's. (We are not suggesting that, but only pointing out the inadequacy of the study's comparison of rates.)

    5. The Report gives Washington the top rating in "Administration, Accounting and Finance" and does a thorough job in explaining Washington's situation but offers very little by way of comparison to other operations. This leaves the Council and management with very little way of assessing whether what is extant is "better than, worse than or about the same" as the way other cities operate. In other words, it appears to us that the Report does not tell Washington anything it did not already know about this area.

    6. The Report awards three stars in Human Resources. But it contains no comparative data of staffing patterns. We find this a major deficiency in any such study and find the response to a question about this to be unconvincing. Much more could be said about this, but based on this report we cannot determine whether WEU is overstaffed, understaffed or staff inappropriately within specific functions. We think that is inexcusable for a valid or reliable "Organization Check Up" that cost $15,000.

    7. But if there is one aspect of this study that we were most disappointed in it would have to be in the "Power supply" section. Power supply is a euphemism for where WEU gets its power. And it is very obvious to us that this is one of the top, if not the top issue WEU faces. We believe an alternative for the existing power supply system run by Electricities is the single most important imperative facing Washington and other N. C. municipal utilities. That issue took a giant step toward becoming the dominant issue facing Washington when the Japanese nuclear plant blew up. The fallout (pardon the pun) from the Fukushima disaster will no doubt increase nuclear regulatory costs and this Report does not even acknowledge the issue, much less help prepare Washington to deal with it. Perhaps that is because Electricities paid for a third of the study. But we would suggest that finding alternatives to the status quo of how power is procured by Washington and other Electricities is something this report should have addressed in some depth, particularly with the impending merger between Duke and Progress Energy. But then again, it was paid for in part by Electricities.

    8. In the section of the Report labeled "Governance" we find yet another of the most egregious examples in invalidity when they recommend that the term of the city council be changed from two years to four years. They justify this recommendation by saying that four years would provide more time for council members to "understand the complexities of municipal government, including the electric utility." We find that an absurd statement. It is backed up with nothing more than an opinion, and apparently an uninformed opinion at that. It does not consider the interest of the people in popular sovereignty. The only usefulness of this recommendation, absent any valid documentation, we can see is for a high school civics class lesson.

    For example, they give no actual data to show that two year terms produce less "stability" than would four year terms. Some city councils that use four year terms have less turnover than those with two year terms. But some that have two year terms have less turnover than those with four year terms. Nor do they consider the impact of a five member council, as opposed to seven or nine and they completely ignore one of the major governance issues in Washington and that being that the utility service area is much larger than the municipality, thus leaving thousands of people unrepresented.

    Moreover, we found their analysis of what they try to paint as "governance challenges" on the current council as a perfect example of the lack of academic integrity of this Report. Indeed, one might play their same game by opining that the "challenge" Washington faces is not having enough council members to challenge a bureaucratic culture that would even present such a report to a City Council, much less spend money on it. We're talking analytic rigor here. And this assessment gets no stars from us on that count.

    This governance recommendation is laughable. It is one of the oldest bureaucratic scams in the book to tell elected representatives the subject is so esoteric they can't possibly question the bureaucrats because only someone with this "knowledge" is the only one who can really understand the situation. That is hogwash. br>
    But we would add that in our experience in covering this Council, this bureaucratic culture of arrogance and condescension is indeed one of Washington's afflictions. If you watch these videos you will see examples of such condescension.

    And the second scam we see in this report is the oldest bureaucratic scam going: "that information is not available"...or more to the point "the information is available but you can't see it." And the corollary is: "the public would not understand it..."

    After Mr. Blodgett's presentation we ask him if he would provide us with the rating tables (see page 3) of other comparable cities he has done studies for. He refused to supply that data, pleading confidentiality. We find that astounding. Once these reports are released to the public they are public information (at least under color of North Carolina law). He says they belong to the city. We find that disingenuous. All he has to do is have an agreement with any entity for whom he does such a study that the data is public information, as the law requires. It should, in fact, be posted on Hometown Connections' website. The value of such reports is often more in comparing one entity to other entities moreso than it is in what is contained within a single entity's report. That Mr. Blodgett refuses to do this severely taints the integrity of the process, in our judgment. So for the reasons that follow we would posit that they do hardly any studies that don't come out as glowing reports. They obviously don't want comparisons to be made.

    One example of what we're saying above is this: One of the best services an organizational check-up can offer a client is to identify the exemplary systems that use "best practices." Then Washington could study those systems and emulate them. All winning coaches know this. Most successful business people look for other organizations that do things right. Washington should also. But this study offers no assistance in that regard.

    Here's another major problem we have with this project. Hometown Connections sells products and services that it recommends in these reports. Go to its website at www.hometownconnections.com and see for yourself. They are the marketing representatives for a number of products and services that are even specifically mentioned as recommendations or commendations in this report. For example, see page 25 where they recommend "Survalent SCADA" and then Google that term. The third Google entry is: "Hometown Connections." Ditto "Reliability Tracker." Google that and you find Hometown Connections' owner (American Public Power Association). And it appears that much of what they recommend on pages 48-51 they have a connection with. We find that unethical, unless they fully and fairly disclosed this before they did the study. Then if they did, the City Council was grossly negligent in contracting with an assessor who might have a vested interest in how any report they produced might benefit them. That is completely unacceptable, in our opinion. We view this as foolish as the owner of a convenience store asking the Pepsi man to come in and study his soft-drink program and make recommendations to improve it. It is highly doubtful that Coke will stand much of a chance in that charade. It's rather like a school system we know who asked a janitorial supply company to develop the bid specs for the system's janitorial supplies purchases. You probably should not expect someone who wants to sell you something to give you a bad review.

    Having said that, we would also say that using vendors for recommendations to assess and improve operations can be a legitimate exercise. But it is not usually best achieved with single-bid contracts, such as this one was. Care must be taken, and above all, full and honest disclosure is absolutely essential.

    Now we should add that we do not yet know for a fact that Hometown Connections does business directly or indirectly with the City of Washington, and we are doing further research on Hometown Connections. We have requested additional information from the city and will let you know what we find out on that point. But we know it is already a problem in that we are having to do that research. That issue should have been put to rest before the contract was ever let.

    The really sad thing about this project is not the $15,000 that we think was more or less wasted, but the fact that Washington is still left without a sound analysis of its Electric Utility with which to make informed decisions going into what will undoubtedly be a challenging period in electric utility history. That will cost the customers of WEU much more than $15,000.