“The MCR team was very professional and very driven. I really appreciate their direct approach to engage executives and managers. Through the course of the project, I quickly came to trust their knowledge and conclusions of our business.”
—Chief Operating Officer
A large municipal electric utility in the Southwest was challenged by the City Council to operate under affordability goals requiring them to limit electric rate increases to two percent per year while keeping customer’s electric bills in the bottom 50 percent of all electric utilities in their state. To achieve these goals, the utility needed to explore new ways to manage its spending in the most effective and efficient manner possible.
Historically, the utility’s business units developed budgets based on the previous year while adjusting for expected differences in the upcoming year. They examined operating expenses in the aggregate without the level of detail necessary for effective budget analysis. This approach limited management’s ability to drive significant, achievable and lasting benefits.
As the company entered their annual budget cycle, the Chief Operating Officer wanted more transparency and rigor in the budgeting process in order to identify areas for significant cost reduction. With significant O&M cost reduction as the goal, the Chief Operating Officer approached MCR for help.
MCR used its proven Risk Informed Budgeting (RIB) process to help our client reach its spending goals. At its core, Risk Informed Budgeting requires budget owners to justify all budget requests from a baseline of zero. In a sense, it is the antithesis of the more traditional incremental budgeting process, which embeds a continuation of the past without rigorous spending scrutiny.
We worked directly with our client’s management team and budget analysts, guiding them through our RIB process steps:
In team meetings, every line manager was asked to challenge their own paradigms of what spending was truly required to operate and maintain their organization. Nothing was taken for granted in the review and all spending was challenged. The approach ensured each line manager’s budget submission was prepared with detailed documentation and recognized facts to substantiate all proposed spending.
MCR and the management team identified opportunities to save $15 million in O&M expenses (nearly 10% of the reviewed budgets). This reduction puts our client on a path to achieve its rate targets and meet the City Council’s affordability goals. In addition to the expense reductions identified by the RIB process, MCR also identified opportunities for operational improvements, including:
Electric Service Delivery