General Manager's Evaluation
Chugach Electric Association
Eugene N. Bjornstad
December 1996
Joint Draft 3

Adopted by Chugach Electric Association Board of Directors on 2/20/97 
(YES - Kreig, Jasper, Birch, Granger; NO - Kennedy, Weeks; ABSTAIN - Minder). 

Introduction
On April 23, 1996 a committee was appointed to evaluate the General Manager. That committee reported to the Board Operations Committee on December 5, 1996. Ray Kreig, Board President, also made a report to the Operations Committee.

Board and staff goals are summarized first to give a perspective to the evaluation in terms of the goals agreed to by the Board and the GM prior to the evaluation.

Board - Staff Goals (July 1995)
The Board of Directors and staff agreed to the following guiding principles for Chugach Electric at the July 1995 Girdwood retreat:

Vision: To be an industry leader in economic efficiency while providing reliability, value and service to our customers.

Mission: Is to maximize the value its customers receive by safely providing competitively priced, reliable energy and services through innovation, leadership, and prudent management.

At that time, specific requirements were also adopted, including:

At the November 1, 1995 follow-up retreat, the board suggested that being in the top 1% in economic efficiency was over-ambitious and this target was reduced to 10%. In addition, the staff and board agreed on a five-year time frame to achieve this goal.

These goals were adopted by the Board of Directors to guide the cooperative and General Manager.

Summary of Conclusions

The GM was evaluated in nine key performance areas based on the board member's submitted evaluations (Attachment A). The GM was found to exceed normal requirements, with few exceptions, in the area of (E) Service Leadership.

The GM was found to have met or exceeded minimum requirements in the areas of (A) Wholesale Power Supply; (B) Financial Condition; (F) Productivity; (G) Staff Performance and Development; and (H) Public and Government Relations. In the areas of (C) Market Standing and (D) Member Relations and Communications there was a wide range of opinion from "Fails to meet minimum requirements" to "Does outstanding job in this area". Only in the area of (I) Advising and Assisting the Board was the GM predominantly found to have failed to meet minimum requirements although even then there were two board members who felt that the GM did an outstanding job or met requirements with few exceptions. For each of the nine areas evaluated specific information was required to justify, verify, or support the grading evaluation and all comments received are detailed in the following pages.

I. Wholesale Power Supply
CEA is The power supplier for most of Southcentral Alaska's Co-ops and the GM's mandate is to provide and generate power dependably, a task which the evaluators described as being performed "very well" and "effectively." No comments were received to suggest that the power generation ability of CPA is in jeopardy or at risk. With regard to future load growth, the GM appears to be doing adequate planning for the future with current plans in progress to upgrade distribution facilities particularly on the west and north side of Anchorage so that all areas have the same level of substation dependability.

CEA's substation and distribution facilities appear adequate to handle anticipated load growth and comments were made that the GM has given consideration to alternate sources of power supply in the event that CEA's sources are interrupted. The GM had initiated a daily auction system for the purchase and sale of generated power with ML&P, the area's only other large power generator, and also had emergency generation back-up sources arranged with GVEA.

II. Financial Condition
The financial condition of the cooperative must be sound from a business point of view and the evaluators felt that The GM's estimates were correct in that average revenues would increase slowly for the next five years unless significant projects like the Midrex Plant or the Alyeska Alloys Plant were developed or if a natural gas pipeline were built. The TIER was expected to increase slowly over the next few years. Margins were expected to remain relatively stable. Expenses were ramping up because of gas price increases under the current contracts, many of which run through the year 2014. The GM had made a concerted effort to control expenses making some significant staffing cuts so that base rates could be held for the wholesale and retail consumers to partially buffer the effects of a rapidly escalating fuel surcharge.

The final committee process on the five year Strategic Plan is in process. A new equity management plan is under development and should be reaching final approval stage shortly.

The GM had taken some steps to unbundle rates so that the maximum flexibility would be allowed in the face of escalating competitive forces. The simplified rate filing process which had worked well for many years was being reconsidered and revamped to accommodate future competition and to minimize future litigation expenses. Assuming no further loss of submarine cables, the existing retail rate schedules appeared to be adequate and the GM planned to keep rates level for the foreseeable future.

The annual workplan and budget appeared to be on target with the five year plan.

The cooperative's policy on financial management was current and current spending complied with the Business Plan and/or exceeded expectations in a positive manner.
The GM had just instituted new changes in the monthly financial reports provided to the board and had streamlined the FARP process and provided more benchmarks to assess progress points from year to year.

There were some comments that the financial planning documents now being provided to the board were often too complex to be fully understood and needed some additional streamlining, a process which was initiated already.

CEA's financial standing/posture is sound/excellent. However, some commentators urged a need to continue to "streamline" and become faster and smarter to be even more competitive. They urge the GM to move ahead more rapidly on this issue.

III. Market Standing
The GM's responsibility and market standing is to keep up-to-date on trends and developments and to recommend programs that will permit the cooperative to obtain a greater share of the electric energy potential in the area. An awareness of economic trends, what the market for electric energy is, what the technology is including that of our competition, is very important. The outlook for CEA's future market appeared to be extremely stable and CEA's GM was planning for some potential lost load in Girdwood once Enstar Gas is available in Girdwood. The acquisition of CVEA could provide additional customers. The development of fuel cell technologies in which CEA is participating adds further hope on the technology development horizon. CEA's GM continued to be actively involved in providing information for developers who are discussing a new steel treatment plant in the Cook Inlet area and other developers still contemplating the development of a new gas pipeline. New markets were developing as a result of the Anchorage Mayor's marketing of the "City of Lights" program. Further, new markets were possible with the development of new rates and with a renewed attention to our key customers.

The GM has initiated a key customer initiative.

The GM appears to be actively preparing for the likelihood of retail wheeling and had carefully kept alert to both state and federal legislation on retail wheeling and/or the granting of exclusive areas for co-op electric distribution rights.

The GM's efforts to secure new military electrical loads (hospital) have been less than satisfactory. Board ""prodding"" was required also to get some action going on the EDF Power Plant Acquisition. Staff input regarding the Copper Valley Intertie was disappointing and the first time the board of directors learned of the Municipality of Anchorage's proposed purchase of the gas field was in the newspaper.

IV. Member Relations and Communication
The GM felt that the newsletter ("The outlet") mailed with customers' bills monthly was his most appropriate form for communicating with the membership and that his general approach was that management should remain neutral in the politics of CEA elections and/or in the development of CEA bylaws. He viewed management as someone whose role it is to support board policies as those policies are defined by the board itself.

Recent surveys, which were initiated at the board's request, have suggested that employee/member relations appear to be good.

The GM has improved the public relations department and obtained much more effective press releases and more effective newsletter material including an incentive game in "The Outlet" newsletter. The incentive game was suggested by the board and some board members feel the initiative should have come from the GM. Most other changes in the Outlet were suggested by the board of directors. Under the direction and initiative of the GM the CEA staff has developed a Web Site to allow quicker access to member information. Although the web site still needed to be supported by more extensive information supplied by the members so that the members could access confidential information via use of their social security number or date of birth which is information CEA does not now have on file for all members.

The consensus was that CEA needed an improved public relations program.

V. Service Leadership
The GM is responsible for recommending and carrying out programs which assist the members in making maximum utilization of their electric service. He must also keep aware of requests for additional services that are requested or required by the members. The GM must constantly be aware of the trend in continuity and quality of the cooperative's electrical service. Despite recent outages of some serious duration, the GM has initiated new progressive programs like the new SCADA System and an expanded right-of-way clearing program to prevent future outages.

The GM has also initiated additional hot lines to neighboring co-ops, wholesale customers, and competing utilities (like ML&P) to improve communications during temporary power interruptions.

VI. Productivity
To function properly, CEA must have available sufficient physical, financial, and human resources. But nothing is accomplished until these resources are put to work. What is accomplished as a result of applying these resources is productivity. The GM's responsibility in this area involves getting the maximum effective use out of the resources provided by the board. The comments were that the GM utilizes CEA's human resources in a good to excellent manner. He utilizes the financial resources through an excellent financial management program. CEA headquarters and facilities were thought to be adequate. Inventory controls and inventory levels were still problem areas which the GM had addressed significantly over the last year.

The GM appeared to be doing an adequate job in terms of line loss, load factor, and general utilization of the system's capacity.

VII. Staff Performance and Development
The GM appeared to function well with his staff and to be satisfied with the quality of their performance. The GM's decision to bring all levels of employees and staff into the strategic planning process appeared to be a major movement forward in healing some troubled areas of staff/employee/board relationships historically. Interdepartmental coordination and cooperation appeared to have improved over the last year.

In general the staff and management at CEA appeared to work cooperatively with each other and to take pride in their work product.

The staff and GM appear to have extensive and excellent in-house training and to participate in numerous NRECA seminars and training programs. The GM makes a concerted effort to deal uniformly with the staff by adopting a detailed NRECA Compensate Program which compares CEA's salaries to comparable jobs in the area and nationwide. The wage levels under the NRECA Compensate Program may today still appear artificially high due to the pipeline wage residuals which are actively being eliminated by comparable firms like ARCO and BP.

Staff turnover is extremely low and the GM is effective at assuring qualified replacements for his staff. Staff reductions have been handled well by the GM.

VIII. Public and Government Relations
Public and government relations must be satisfactory and a planned and organized program for improving them is the best assurance of achieving this goal. The GM is responsible for initiating many of the public and government relationships. He must be able to actively express CEA's philosophy and objectives in understandable terms and gain acceptance of the cooperative's needs. He must have the ability not only to counteract false or prejudiced statements about CEA but also interpret CEA's position in terms of its effect on the public, federal, and state agencies with which it must work.

The GM promotes CEA's public image well in the national bond market and particularly before our customers. Much of the historical disagreement with wholesale customers' boards of directors appears attributable to older history which the GM attempted to compensate for by placing new faces in the relationship roles where older faces were problematic. The GM also made a concerted effort to involve the wholesale customers in the strategic planning process.

Community, civic, and economic development are done primarily through volunteer efforts of employees and many CEA employees are to be commended for the work they do. Numerous awards have been received for outstanding civic achievement by CEA employees just in the last year including the esteemed Gold Pan awarded to Joseph Griffith.

Given that there is little in the budget for lobbying and there is no employee dedicated to maintaining relationships with government officials, the GM appears to be functioning adequately under the current budget constraints.

There appeared to be some sentiment or concern raised in the questions posed to the GM suggesting that he should intervene when candidate electioneering spreads certain falsehoods, especially when CEA's financial stability, or lack thereof, was the focus of the attack. Some evaluators viewed that as a bad idea because it would tend to make it less likely that the GM could work with new members who might be elected to the Board of Directors.

IX. Advising and Assisting the Beard
The Board depends upon the GM for detailed information and advise concerning CEA's key performance areas. The GM is responsible for keeping the board adequately informed. The information must be meaningful, concise, and should enable the board to make sound decisions. The plans he submits should be clear, understandable, and accompanied by recommendations. Policies should be recommended in important areas which provide the basis for consistent action in repetitive situations. Some board members believe that the information being provided to the board has been thorough though perhaps in the extreme. Sometimes the information provided was so voluminous as to be difficult to absorb and sometimes confusing. Other board members believe that requested information is slow to be given and not thorough or accompanied by a recommendation.

Many board members agreed that too many "new ideas," like benchmarking and labor negotiations training, have come directly from the board of directors and that the GM is neglecting creative strategic planning for the future and is preoccupied with day-to-day operations or with battle-damage-control. The next year and a half will be a challenging and dynamic period. The board of directors vitally needs management-generated ideas and follow through by the GM.

Summary
The GM's role is particularly difficult because he must keep all facets of the organization functioning at their highest possible level while some of his players are lethargic or disinclined to change. Old battles are entrenched in old history and that creates a challenge of its own. The board itself is a fluid institution whose new policies must be accommodated quickly after some elections.

The GM frequently has to manage fractured boards of directors and adapt to a board that has dramatically changed in its composition in a relatively short period of time. The GM's focus must always be on insuring the continued stability of Chugach Electric Association and the production of electric power at the lowest possible rates despite these forces. The GM has made an effort to do that by including all constituencies in the strategic planning process. He also has quarterly labor/management meetings where he is open to staff suggestions and he answers their questioning about his role and staff's role at CEA.

In the nine key areas where the board of directors evaluated the general manager his performance appeared to be meeting minimum requirements in most areas and exceeding normal requirements in others, with some board members evaluating the manager as failing to meet minimum requirements in several areas (see attached summary sheet).

December 22, 1996 Manager's Contract Notice - Background
In considering whether to extend the GM's contract the board must focus primarily on the future, and secondarily, on the GM's performance in the past. In order to meet the joint board/staff goals within the time frame agreed, the future pace of change at Chugach will necessarily be even greater and more dramatic. As an example, CEA's distribution adder is about 4.2. Reducing it to near the 1 reported by NRECA for investor-owned utilities will be quite a challenge.

Although our joint goals were adopted about a year and a half ago, we still do not have numeric targets adjusted for our climate and system specifics. The Board needs to have and agree to the GM's specific plan elements before a contract extension of any significant length is made. Clearly, goals are much less likely to be attained if they are not measurable and at this point the Board has not received measurable goals from the GM.

December 22, 1996 Manager's Contract Notice - Recommendation
The GM is requested to prepare a plan with sufficient detail to demonstrate the events necessary for CEA to achieve its five year goal. As an example of goal setting for the distribution adder, see Attachment B, Display Example of Plan for Achieving CEA Goal to be in the Top 10% in Economic Efficiency. Similar approaches should be prepared for Transmission and Generation adders (or equivalents).

As can be seen, the job that lies ahead will be much more difficult than that accomplished in the past. During the next four months an outside management review may be very helpful in assisting the GM's preparation and the Board's evaluation of the plan.

Areas of Concern
There are several areas of concern with the GM's performance. The pace and scope of change necessary to meet our goals will accelerate. The board needs a GM that is a strong, innovative leader. However, in the past year and a half, most of the major initiatives to become competitive have not come from CEA Management. Benchmarking; negotiating rather than just extending the next IBEW contract; repeal of the MOU; and the three reform by-law changes were all board- or member-initiated. Such heavy Board involvement should not be necessary with a strong GM who is absolutely committed to the success of our Board - Staff goals. We need high quality, leadership-generated ideas from staff to continue and speed up the necessary progress of change. The GM must lead the way in implementing necessary changes and not be distracted by day to day brush fires. He has the ability to accomplish these goals by bringing in his own staff and consultants as needed.

Cost Benefit Analysis
Of great concern is evidence that many decisions at CEA have not been made on the basis of rational economic cost-benefit analysis and that all viable alternatives have not being adequately considered. Under repeated board questioning this is changing, but it is puzzling that something so fundamental to good business decision-making would need any such pressure from the board. Examples:

A) Northern Intertie Background Information - When this project was first presented to the Board in 1990 (by a prior GM), apparently the only analysis provided to the Board was a cost-benefit approach that lumped the entire Railbelt together. A net positive benefit was demonstrated and the 1990 CEA Board approved participation without ever seeing the benefit calculation from the prospective of the Chugach ratepayer. In addition, the Board signed the MOU with IBEW without being provided any information on the extra cost to the rate payers. Intertie presentations were again given to the Board by the current GM in 1994 and on August 30, 1995 that again lumped together the cost-benefits of the Northern Intertie for entire Railbelt.

A board member requested an economic analysis of the Northern Intertie from the CEA ratepayer perspective, and a draft memo in response was prepared by staff dated March 20, 1996. It correctly assumed that CEA economy energy sales to GVEA required construction of the Northern Intertie and presented an economic analysis at two levels of usage for only two cases: No Intertie and Build Intertie. The Build intertie case assumed CEA participation in 30% of the costs and it was indicated to be preferable with a $404,000 annual benefit to CEA.

Another workshop on the interties took place on June 4, 1996, but the slides covering the two cases in the March 20, 1996 memo were not included in the presentation. A board member questioned whether CEA would lose GVEA economy energy sales if CEA dropped out of the Northern Intertie. GVEA has stated that they will build it themselves even if every other utility dropped out. CEA also has a five-year non-cancelable contract with GVEA for these sales. That exchange during the meeting resulted in the July 18,1996 memo from the GM where, for the first time, data was presented to the Board on the apparent best alternative scenario, one that maximizes the benefits to CEA (economy sales benefits w/o Northern Intertie ownership costs). But the GM made no recommendation to the board in the memo, he only presented data. Removing the benefits of economy energy sales from the Build Intertie alternative in the March 20,1996 memo turns the $404,000 claimed annual benefit to CEA into an estimated $600,000 loss to CEA.

Prompting and questioning by the Board was necessary to get data on the highest benefit Northern Intertie alternative to CEA. The former GM should have analyzed this project right from the beginning from the CEA perspective and the current GM should have, long before July 18,1996, given complete data to the board because many decisions on the Northern Intertie (such as approval of the Construction Management Agreement) could well have been different if we had had a more complete understanding of the financial effects on our ratepayers of this project.

B) Costs to ratepayers of restricted bidding - In January 1990 the CEA Board of Directors approved the Intertie Memo of Understanding with IBEW. At that time (before Mr. Bjornstad was GM) CEA staff apparently provided no information to the Board at that time on what extra cost to the ratepayers could result from restricting bid competition in the way contemplated in the MOU. Not until the Board request of November 1995 (after Mr. Bjornstad was GM) was any cost impact information provided by the GM. For the $40 million intertie, that memo identified only about $200,000 in additional costs due to the MOU restricted bidding versus results in the open market (but still subject to Little Davis Bacon). That staff memo was prepared under a very short time frame (less than a week). It came with no staff recommendation that further refinement or more detailed investigation might be warranted.

The Board asked for outside construction consultant advice and in January 1996 the Northrup report identified $1.5 million in additional costs due to the MOU restricted bidding versus results in the open market (but still subject to Little Davis Bacon). In addition, the Northrup report identified $5.2 million more in savings if the project is not covered by the Little Davis Bacon restrictions.

C) Automated Meter Readers - In 1994, Chugach acquired AMR for about 20% of its service area. At that time only two alternatives were presented to the Board, 1) continue with existing meter readers or 2) switch to AMR. Even after Board member questioning of other alternatives not analyzed, no GM recommendation was provided on the other alternatives (such as meter reading every other month or simply waiting a few years until the price of the meters dropped). Either of these alternates would have made much of the AMR purchase uneconomic. Now, only two years later, the price of the meters has dropped and we are now reading them every other month. This strongly infers that a large part of the AMR's purchased were not the lowest cost alternative. Furthermore, another alternative would have been to ask the IBEW if the meter readers would prefer to save their jobs by working for lower (but still very good) wages. In these examples, why were the other alternatives not presented to the Board with a GM recommendation?

Conclusion

We are now beginning to have knowledge of where we stand with respect to best practices in our industry. A clear plan should be presented to the Board by the GM as soon as possible but in any event no later than April 1, 1997. We feel it is up to the GM to provide the proper leadership.

The Board stands by ready to help.

Gene Bjornstad Evaluation