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1 Welcome to the Introducing the Balanced Performance Scorecard Web Conference. December 8, 2009 How to Submit your Question Step 1: Type in your question here. Step 2: Click on the Send button.

2 Tim Sullivan Director, C&I Business Development, NRECA Today s Agenda Learn about the Balanced Performance Scorecard and how it can help. Review the new Balanced Performance Scorecard website on Cooperative.com. Hear from two cooperative CEOs who are using a Balanced Performance Scorecard. Take your comments and questions. Are you familiar with Balanced Performance Scorecards? A. Yes, very familiar B. Yes, vaguely familiar C. No, not familiar Does your cooperative use one? A. Yes B. No Polling Question

3 Are We Achieving Our Mission? A Situation Overview Based on mission statements, electric cooperatives exist to provide safe, reliable, affordable energy to the satisfaction of our members. Yet, most distribution systems do not systematically measure their performance in reliability, safety, cost control and member satisfaction. In general, systems do not have an easy means to compare/benchmark their performance against their goals, peers, competitors, or other industries. Survey research and field experience show that many best-in-class systems already use some form of Balanced Scorecard. 7 The Balanced Performance Scorecard Touchstone Energy has teamed with NRECA and CFC to develop: A standardized set of metrics to measure reliability, safety, cost control, and member satisfaction for electric cooperatives. A standardized Balanced Performance Dashboard, which will help system s compare performance against goals and peers. An on-line database where reliability, safety, cost control and member satisfaction information can be easily accessed and obtained. 8 Proposed Metrics Balanced View Cooperative Mission (* day-to-day performance)

They reviewed different drafts and made recommendations on individual metrics

4 Scorecard Dashboards Convened and collected feedback from a focus group of seven CEOs, including several current scorecard users. They reviewed different drafts and made recommendations on individual metrics and on Dashboard formats. Key suggestion: wanted the ability to compare by quartile, peer group, and trend.

and below 36 75-78 57 79-81 66 82-83 71 84-85 86-89 11 90 and Over

5 Touchstone Energy Cooperatives - Distribution of ACSI Scores, Year Number of Cooperatives and below and Over Descriptives: N = 343 High = 91 Low = 53 Mean = St. Dev. = 4.68

Balanced Scorecard: Next Steps Vision: significantly expand the amount of benchmark information

Would allow users to customize their information and compare more closely with peers.

Principal Strategic Practice NRECA National Consulting Group Critical Performing Area: Safety

Performance Measures: All Injury Incident Rate: total OSHA recordable injuries reported per 100

6 Balanced Scorecard: Next Steps Vision: significantly expand the amount of benchmark information available. Create a more interactive website in Would allow users to customize their information and compare more closely with peers. Share success stories. Henry Cano Sr. Principal Strategic Practice NRECA National Consulting Group Critical Performing Area: Safety Studies show there is a direct correlation between safety performance and organizational success Performance Measures: All Injury Incident Rate: total OSHA recordable injuries reported per 100 employees Days Away Incident Rate: total number of OSHA recordable injuries resulting in lost work days, transfers, or restrictive duty per 100 employees Severity Rate: average number of workdays lost per OSHA recordable injuries Page 18

Measuring Safety Performance All Injury Incident Rate and Days Away Incident Rate are computed by normalizing for 100 employees or 200,000 man-hours as follows: OSHA Recordable Injuries X

the number of unsafe behaviors and/or unsafe acts.

Safety Accreditation Program) All Injury Incident Rate Safety Days Away Incident Rate Severity Rate Improving Safety Performance Resources Page 20 Critical Performing Area: Reliability

7 Measuring Safety Performance All Injury Incident Rate and Days Away Incident Rate are computed by normalizing for 100 employees or 200,000 man-hours as follows: OSHA Recordable Injuries X 200,000 / Actual Man-Hours Worked Consider all three safety performance measures in order to understand total performance The incident rates are important because it statistically correlates to the number of unsafe behaviors and/or unsafe acts. The rates can be viewed as an injury risk factor for employees Focus on performance trends rather than reacting to shortterm results Page 19 Safety Benchmark Results (based on Rural Electric Safety Accreditation Program) All Injury Incident Rate Safety Days Away Incident Rate Severity Rate Improving Safety Performance Resources Page 20 Critical Performing Area: Reliability Distribution system reliability is among the top issues facing cooperatives today Performance Measures: Yearly day-to-day performance System Average Interruptible Duration Index (SAIDI) Yearly day-to-day performance System Average Interruptible Frequency Index (SAIFI) Yearly day-to-day performance Customer Average Interruptible Duration Index (CAIDI) Page 21

Reliability: Data collection and reporting applies the recently published RUS Bulletin 1730A-119 and is based on IEEE Standard 1366 Guide for Electric Power Distribution Reliability Indices and IEEE

statistical method to determine major event days (MED) Applies a consistent means for reporting and comparing reliability performance results (RUS Form 7 SAIDI) Initial performance results are based

8 Reliability: Data collection and reporting applies the recently published RUS Bulletin 1730A-119 and is based on IEEE Standard 1366 Guide for Electric Power Distribution Reliability Indices and IEEE Guideline Collecting, Categorizing, and Utilization of Information to Electric Power Distribution Interruption Events Replaces existing Major Storm from RUS Form 7 Part G and applies the IEEE 1366 statistical method to determine major event days (MED) Applies a consistent means for reporting and comparing reliability performance results (RUS Form 7 SAIDI) Initial performance results are based on recently formed NRECA s T&DEC Power Quality Subcommittee s Cooperative Reliability Benchmarking Group Reliability benchmarking is emerging as an important tool to capture and communicate the competitiveness of cooperatives. For more information on participating on NRECA s Reliability Benchmarking Group, contact: Alvin Razon (alvin.razon@nreca.coop) Page 22 Reliability Benchmark Results: Improving Reliability Results Resources Measuring reliability day-to-day performance (RUS Bulletin 1730a 119) IEEE Reliability Benchmarking Analysis Resources on improving reliability performance Page 23 Critical Performing Area: Cost Today s cost pressures require cooperatives to examine all aspects of their cost structure in order to maximize efficiency and effectiveness Performance Measures: Total Cost of Electric Service per kwh Sold: measures the average effective rate Average Percent Change in Total Controllable Cost per Consumer: measures the rate of change in controllable cost Average Percent Change in Total Utility Plant Investment per Mile of Line: measures the rate of change in the investment in plant Page 24

Measuring Cost Performance Bring attention on the total cost of delivering electricity

the membership Requires effective leadership and strong organization discipline Measures

related analysis to identify improvements Page 25 Benchmarking Cost Performance (source:

impacting cost performance benchmarking cost performance Seek an optimization approach:

9 Measuring Cost Performance Bring attention on the total cost of delivering electricity balanced with effective cost control and investment practices to achieve overall value for the membership Requires effective leadership and strong organization discipline Measures emphasize monitoring the average percent change for trends, performance comparisons, and related analysis to identify improvements Page 25 Benchmarking Cost Performance (source: CFC KRTA data): Improving Cost Performance Resources: Analyze the underlying factors impacting cost performance benchmarking cost performance Seek an optimization approach: balance cost control objectives while meeting service and operating performance goals. Page 26 Benchmark Data Page 27

Building Your Performance Scorecard Page 28 Summary Consider building and customizing your own Cooperative Scorecard Communicate and share performance results.

The Balance Performance Scorecard is a first-phase tool available for all cooperatives with primary emphasis on measuring, understanding and improving the critical performance

29 Special Thanks to Cooperative Balance Scorecard Team!

Distribution) Bob Saint (NRECA Energy Policy, Transmission & Distribution) Tim Sullivan (Touchstone Energy Cooperatives) Johnny Vaughn (National Rural Utilities Cooperative Finance

10 Building Your Performance Scorecard Page 28 Summary Consider building and customizing your own Cooperative Scorecard Communicate and share performance results. Be candid regarding your current performance. Meaningful improvement begins by having intimate knowledge of current performance. The Balance Performance Scorecard is a first-phase tool available for all cooperatives with primary emphasis on measuring, understanding and improving the critical performance areas of our mission Additional interactive features and enhancements are planned We welcome your feedback (send us your feedback link) on ways to improve the web-based tool Page 29 Special Thanks to Cooperative Balance Scorecard Team! Henry Cano (NRECA National Consulting Group) Dave Olivier (NRECA Strategic Analysis) Maurice Owens (NRECA Information Systems) Alvin Razon (NRECA Energy Policy, Transmission & Distribution) Bob Saint (NRECA Energy Policy, Transmission & Distribution) Tim Sullivan (Touchstone Energy Cooperatives) Johnny Vaughn (National Rural Utilities Cooperative Finance Corporation) Special Thanks to CEO Focus Group! Ray Beavers, CEO, United Cooperative Services (TX) Jeff Edwards, CEO Southside Electric Cooperative (VA) Doug Johnson, CEO Blue Ridge EMC (NC) Mark Pendergast, CEO, St. Croix Electric Co-op (WI) William Prather, CEO Farmers RECC (KY) Kevin Sump, CEO, South Central REMC (IN) Mark Vogt, CEO, Wright-Hennepin Cooperative Electric (MN) Page 30

11 Doug Johnson CEO and President Blue Ridge EMC Blue Ridge EMC Balanced Performance Scorecard About Blue Ridge Electric 74,000 members 2,040 sq. miles of service territory in Northwest North Carolina 178 employees 4 district offices

Balanced Performance Scorecard Began in 1995 for CEO and executive staff All employees in 1998 Continuous improvement Optimal performance Engaged employees Informed board Balanced Performance

Components of our Balanced Scorecard Goals Results Performance Category Critical Success Factors Key Indicators KPI Weight Base (2%) Target (3%) Stretch (5%) Current Quarter Year to Date MEMBER

12 Balanced Performance Scorecard Began in 1995 for CEO and executive staff All employees in 1998 Continuous improvement Optimal performance Engaged employees Informed board Balanced Performance Scorecard Plan is also the driver of annual performance awards for all employees All employees have the same goals Senior executives and staff managers also have management effectiveness rating Key Components of our Balanced Scorecard Goals Results Performance Category Critical Success Factors Key Indicators KPI Weight Base (2%) Target (3%) Stretch (5%) Current Quarter Year to Date MEMBER SERVICE Reliability Customer Satisfaction SAIDI (minutes) Quarterly Index Survey 20.0% 20.0% 140 min min min min min Total Operating FINANCIAL Expenses PERFORMANCE Cash Flow Cents per kwh Cash Flow % of Investment 15.0% 10.0% % % % % % INTERNAL PROCESSES Safety Safety Index 20.0% Member Value INNOVATION AND LEARNING Efficiency and Effectiveness Electric Revenue per kwh sold Total Margins / # of Employees 10.0% 5.0% Budget $34,400-10% state median $37,200-13% state median $40,000 higher than adj. budget by.10 $4, % below state median $18,844 Sum of Weights Assigned to KPIs 100.0% Notes: EMC must achieve a 1.25 operating TIER for performance awards to be paid. Goals are for EMC results, exclusive of the LLC.

Balanced Performance Scorecard Process for establishing annual Key Performance Indicators (KPI s) Review prior year results Review CFC KRTA s and industry benchmarks Seek input from senior staff and

13 Balanced Performance Scorecard Process for establishing annual Key Performance Indicators (KPI s) Review prior year results Review CFC KRTA s and industry benchmarks Seek input from senior staff and key management staff Establish KPI s and criteria support materials Present to Board Compensation Committee in early February Balanced Performance Scorecard Communication and leadership with employees All employee meetings in late February New KPI s for current year, performance award for prior year Quarterly review with board, leadership team, and all employees District KPI s Celebration of milestone events or significant results (safety, ACSI score, completion of major project) Balanced Performance Scorecard Tom Peters once said, What gets measured, gets done! If you want to create an atmosphere of continuous improvement and optimal performance, I highly recommend the balanced scorecard approach. Every employee can see how they are helping the cooperative to succeed by meeting or exceeding our members expectations.

Applying Performance Scorecard for Improvements Jeff Edwards CEO

rural electric cooperative in Virginia 53,227 active meters in

South Central Virginia 170 Employees Performance Scorecard (2006) Our

14 Applying Performance Scorecard for Improvements Jeff Edwards CEO Background Headquartered: Crewe, VA SEC is the largest geographic rural electric cooperative in Virginia 53,227 active meters in portions of 18 counties, 6 towns and one city 8,200 miles of line in South Central Virginia 170 Employees Performance Scorecard (2006) Our performance as recently as two years ago showed gaps in the critical performing areas:

15 Past Performance & Culture Our culture tended to perceive all was good Board and staff did not have a candid view of the true state of performance We rationalize our low ASCI score because of our high rates We were not engaging our employees to address the underlying factors hindering performance Investing in technology that didn t achieve desired benefits Rising controllable spending Rationalizing our safety performance Not doing in-depth analysis to find ways to improve reliability performance Not providing the quality service for key member touch-points How the performance scorecard helped: Using the performance scorecard provided An opportunity to have candid discussion on our current performance As we compared our results with other Cooperatives, Staff accepted the challenge of improving performance Appealed to the competitiveness of our employees A means to engage the Board on our improvement plans A template to monitor, track, and report our progress to employees Elements of Improvement Plan Achieved staff leadership buy-in Engaged employees throughout the improvement process Focused on data and analysis to identify root causes and corrective actions for improvement Placed attention on the big and small stuff we do to improve efficiency and cost Communicated to employees and our members on how we are getting better

16 Results Strengthened our call center operations Improved IVR design Development of a comprehensive reliability plan integrated with construction work plan Improvements to ROW program Attention to high exposure areas to accidents and injuries Cost improvement strategies deployed, including reduction in vehicle fleet size Restructured technology plan and strategies Measurable Improvements Polling Question Based on what you ve heard today, do you think you might implement a Balanced Performance Scorecard at your cooperative? A. Yes, probably B. Maybe C. Probably not D. Unsure

17 How to Submit your Question Step 1: Type in your question here. Step 2: Click on the Send button.

Managing What You Measure

Managing What You Measure Lessons from the Balanced Performance Scorecard Tim Sullivan Touchstone Energy Tony Thomas NRECA Business and Technology Solutions Henry Cano NRECA Natl Consulting Group Feb.