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Welcome to the “Introducing the Balanced Performance Scorecard” Web Conference.

December 8, 2009

How to Submit your Question

Step 2: Click on the Send button. Step 1: Type in your question here.

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

Polling Question

Does your cooperative use one?

• A. Yes
• B. No

Polling Question

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

• f Balanced Scorecard.

8

The Goal: Realize Our Mission

• Consequently, due to lack of measures, tools, and

benchmarks, electric cooperatives may underperform

• n one or more of their critical performance areas.
• Even if systems want to improve, without measures,

tools, and benchmarks, they often do not know where

• r how to begin.
• Underperformance prohibits electric cooperatives

from fully achieving their mission.

• By bringing measures, tools, and benchmarks to

electric cooperatives, the situation can be improved…and we can better realize our mission.

9

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.

10

Proposed Metrics – Balanced View

Cooperative Mission Cooperative Mission All Injury Incident Rate Days Away Incident Rate Severity Incident Rate (OSHA reporting standards) Safety American Customer Satisfaction Index (ACSI) Member Satisfaction Cost per KWH Sold Percent Change Total Investment per Mile of Line Percent Change Total Controllable Expenses Per Consumer Cost System Average Interruption Duration Index (SAIDI) * System Average Interruption Frequency Index (SAIFI) Customer Average Interruption Duration Index (CAIDI) * With and without major event days and power supply interruptions Reliability

11

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.

16 36 57 66 71 86 11 10 20 30 40 50 60 70 80 90 74 and below 75-78 79-81 82-83 84-85 86-89 90 and Over

Number of Cooperatives

Touchstone Energy Cooperatives - Distribution of ACSI Scores, Year 2008

Descriptives:

N = 343 High = 91 Low = 53 Mean = 82.72

• St. Dev. =

4.68

Balanced Scorecard: Next Steps

• Vision: significantly expand the amount of

benchmark information available.

• Create a more interactive website in 2010.
• Would allow users to customize their

information and compare more closely with peers.

• Share success stories.

Henry Cano

• Sr. Principal Strategic Practice

NRECA

Page 21

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)

Reliability:

• Data collection and reporting applies RUS Bulletin 1730A-119 and

IEEE Guideline: “Collecting, Categorizing, and Utilization of Information to Electric Power Distribution Interruption Events”

Applies a statistical methodology to determine major event days Applies a consistent means for reporting and comparing reliability performance results (RUS Form 7 – SAIDI)

• Initial performance results are based on NRECA’s T&D recently formed

a Cooperative Reliability Benchmarking Group

Reliability benchmarking is emerging as a vitally 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 Page 23

Reliability Benchmark Results:

Improving Reliability Results – Key Points:

• Seek resources to understand best practices
• Analyze reliability performance
• Focus on worst performing distribution feeders
• Develop an outage response member communication plan
• Engage employees throughout the process
• Create a strategic reliability improvement plan

Page 24

Critical Performing Area: Safety “Studies show there is a direct correlation between safety performance and

• rganizational 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

Measuring Safety Performance

• For comparison purposes, the 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 conditions occurring within the same time period. The rates can be viewed as an injury risk factor for employees

• Focus on performance trends rather than reacting to short-

term results

Page 25 Page 26

Safety

All Injury Incident Rate Days Away Incident Rate Severity Rate

Safety Benchmark Results (based on Rural Electric Safety Accreditation Program) Improving Safety Performance – Key Points Organization leaders own the culture that drives safety performance. Organization leaders take ownership for safety outcomes and the system, conditions, and processes that create those results. Sustainable safety improvement is achieved by engaging and motivating employees to actively participate in safety systems. Safety systems focus on reducing exposure to injuries by increasing safe behaviors and reducing unsafe acts. Safety must be a core value within the organization.

Page 27

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

Measuring Cost Performance

• Bring attention on the total cost of delivering electricity

balanced sound cost control business practice and investments to achieve strategic objectives

• Strong organization discipline and effective leadership are

required to effective manage cost and investments to achieve overall value for the membership

• Measures emphasize monitoring the average percent

change for trends, performance comparisons, and related analysis for improvement

Page 28 Page 29

Benchmarking Cost Performance (based on CFC KRTA data):

Improving Cost Performance – Key Points: Analyze the underlying factors impacting cost performance Establish process study teams to identify ways to improve resource efficiencies and minimize waste (non-value added activities) throughout the

• rganization

Seek an optimization approach: balance cost control objectives while meeting service and operating performance goals.

• Building Your

Performance Scorecard

Page 30

Page 31

Six-Step Process for Improving Performance Results Summary

• The Balance Performance Scorecard is a tool available for all

cooperatives with primary emphasis on measuring, understanding and improving the critical performance areas of our mission.

• Consider building and customizing your own Cooperative Scorecard

with related strategic initiatives

• Be careful on using the scorecard for incentives. Consider:

Incentives may drive behaviors in one area at the expense of another. Incentives require careful alignment to provide any meaningful improvement. The Balanced Scorecard should be used to challenge and motivate teams to improve performance for sake of all stakeholders.

• Communicate and share performance results. Be candid regarding

your current performance.

Meaningful improvement begins by having intimate knowledge of current performance.

Page 32

CEO and President Blue Ridge EMC Doug Johnson

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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. 9.0 130 min. 9.1 120 min. 9.2 15.4 min. 9.0 70.4 min. 9.0 FINANCIAL PERFORMANCE Total Operating Expenses Cash Flow Cents per kWh Cash Flow % of Investment 15.0% 10.0% 4.03¢ 75% 3.99¢ 80% 3.95¢ 85% 4.54¢ 52% 4.23¢ 96% INTERNAL PROCESSES Safety Safety Index 20.0% 4.6 3.6 2.6 1.2 2.6 INNOVATION AND LEARNING Member Value 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¢ $4,244 13.3% 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.

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Southside Electric Cooperative

Applying Performance Scorecard for Improvements

Jeff Edwards

Background

• Headquartered: Crewe, VA

– SEC is the largest rural electric cooperative in Virginia geographically – 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

Past Performance & Culture

• Our performance as recently as two years ago

showed gaps in the critical performing areas:

– Customer Services – Safety – Reliability – Cost control

• 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

Past Performance & Culture (continued)

• 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

• Accepting our safety performance as part of doing work in a

high risk industry

– 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

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

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

How to Submit your Question

Step 2: Click on the Send button. Step 1: Type in your question here.