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12/19/1996 (2) " ..", '~",' , " ',",1 ", .~. ,..... \ ':1;/." , .,"... ',' I',. . , '. . ~," .">: ", '.. . .' ., ~ '", , ,'" '. '.' '. I " ': ~: ..' !. j ~ ; '., ' ~ ~ ~. ," 1 . ~ , ., , . j > P . . '" , .,'... II '\ j' , . . ' , , ' , '" . . ~, . I ,... . '.,- ,',:,> " :., ,,. <' ;' ' ~"::,: i',~~:'o; ':..:., ,'., .' . I"~ ,. .. , . .1 . . . , ',' .. . , .1 ...1:,... '.: ." ., '",' . ., . ,:" '<"',,:.,..'.II."W;.i.~.....:~~...~~...,,.<':. ::.:.~...;~,.~\'"'..".~.,'" ,,~" 't.."...,,: ,<,,:. '. ""}." .: ", ,.,. .':" ',- .<' . '. ....,. FRC , Fiscal Review Committee Minutes. " I' . . " ' , ' '-f' . Date'. ~'~r {q) IqC)~ tR&3 .. ........ . '. 'c" . J,' . .1 ' \ . \. <. . ....."r..._t~. ,..,;.-........." ~ . '. .....u___~_.__..,-'* _ ........ 1. ~~ .____.....~______..~." .,.~__..J+~,. , '. '. . . " '1 , .., .....,j.. '. ,:.' """ '. .. ...... ::'. I., '. ""'. ':" .....'".,'...:' . " .:' ."" ;....:. . -., ,',..",,'. .,: ,'", I .'..;.-,'" '.-.' : ,'-. " .- /, , .' .' \.' '. " :. f. .,.......... IJ.-I'. 1-~ \ ,'" " . ,'. .', ".,,':". ".:" '....o.: ::....:, ':'.,.:.:"...I.:.~_.:{.......:~~._~."."...'.I"~...... ":,'..+' .".': ....":'..',.. . .1' .........". .,.,.... .':,' ,'....' ":'. ,'.' ,',,"'. ,:,.: .",: " , 'C',. :d: ill 0 , , rJ FISCAL REVIEW COMMITTEE CITY OF CLEARWATER December 19, 1996 Present: John Rich Daniel Fleck Janet MacNutt Carol Warren Daniel Moran Chuck Warrington Jim Lewin Bob Bublitz Chris Thorn Tammi Jo Watson Tina Wilson Dan Katsiyiannis Brenda Moses Chair Member Member Member Member (departed 6:25 p.m.) CGS Managing Director and Executive Officer CGS Asst. Director/Gas Marketing & Planning CGS Controller CGS Builder Sales Representative eGS South Area Sales Representative Budget Director Internal Audit Director Board Reporter Chair John Rich called the meeting to order at 4:37 p.m. at the Municipal Services Building, Clearwater, Florida. In order to provide continuity for research, the items listed were not necessarily discussed in that order. 1. Approval of Minutes - November 14. 199(:l (~ Member Daniel Moran referred to paragraph 4, sentence 5 and requested it read "...a comprehensive market survey costing $43,900." Member Moran moved to approve the minutes of November 14, 1996 as amended. The motion was duly seconded and carried unanimously. 2. eGS (Clearwater Gas System} Overview CGS South Area Sales Representative, Tammi Jo Watson, gave members a brief overview of a presentation she makes to a homeowners association. She explains that CGS has 550 miles of natural gas mains throughout Pineltas County. If natural gas is not available in an area, and it is not feasible for CGS to install gas lines, propane is offered. CGS can provide gas heat only, or both gas heat and air conditioning, as well as indoor and outdoor gas lighting. She noted gas water heaters are the big energy and cost savers. CGS also offers appliances for gas cooking, cool heating, gas dryers, and fireplaces. Instruction booklets are distributed to explain the "do's and don'ts" of natural gas. In response to a question, Ms. Watson said prospective customers are given a cost comparison sheet listing savings of gas usage versus electric. She noted electric water heating costs are approximately $450 a year compared to $200 for natural gas, and $250 a year for propane. There is a 22-month payback period for the installation of natural gas, after which time the customer starts saving. When in an area where no gas mains are available and residents request it, the sales representative knocks on doors, distributes brochures, and gathers a list of names of prospective customers. Mailouts are sent to the area, and information is compiled to determine the viability of installing natural gas. 0" mFRC12.96 1 1 2/19/96 :::.".fl ".,'." ';'1, "":.: :'.,;;'., . "~"':: '., ~.~'.;~1.""'1:;'''. '+~',-',_.';"I':"'''':','::''', ':\.'.:.,.',..:.,.: ...., :... :./:I..:::.<::.:',':':,.,';....::...".:~'I.:.'.,.~:....,:".::.,~ :.'1:.'," .~ (W;~~\ "...rtl o CGS Builder Sales Representative, Chris Thorn, said new construction almost tripled the builder program in the East lake area. Plans are to switch propane customers to natural gas in the next few years as gas mains are installed. CGS has been pursuing the Pasco area for the last 6 months, and is in competition with 7 other companies. Many leads are generated from responding to calls on one single appliance. All the necessary gas piping installation is done at the time the customer receives service so they can easily add other gas appliances in the future. It was noted water heaters are the least expensive appliance for a builder to install, offers the greatest return for the homeowner, and for CGS. CGS has no information system to maintain a database on existing customers that would allow them to identify customer needs and offer more effective sales and service. Currently, a full time CGS employee randomly sends direct mailings to residents that already have an existing gas main. Due to memory problems, old files are being deleted to make room for new files. CGS would like to hire a consultant to identify system needs and those City systems that can be integrated into CGS systems. Estimates for a new overall utility billing system would be difficult to estimate at this time. Mr. Bublitz estimated hardware costs for the new information system at $150,000 to $200,000, and software at $300,000 to $400,000. The system would be funded with bond money. It was suggested CGS make attempts to pay for the requested computer system without asking for funds from the City. CGS noted they have experienced a tremendous increase in their LP business. They feel a scheduling system is needed for inventory management. CGS is attempting to convince existing customers to add more appliances, targeting those residences that only require a service line, and informing residents that the gas mains are already in place. Feasibility determines expansion of gas service. If enough propane customers are secured to justify the payback on installation of gas mains, natural gas can be offered. This limits CGS from establishing specific expansion plans. CGS tracks lost commercial customers and continuously strives to recapture them. It was noted the monthly customer charge for small commercial businesses increased from $5 to $15 in October of 1995. Some businesses using minimal natural gas service are paying more for the monthly customer charge than they pay for usage. CGS made a concerted effort to sell those customers water heaters and had almost no success. Discussion ensued regarding CGS appliance sales. A remark was made that retail stores carry the same type of appliances CGS carries for less. It was suggested bidding products out to these retailers, and allowing them to place models of their products in CGS' appliance showroom. CGS is reviewing the entire marketing process, which includes a possible retail partnership. CGS currently offers higher end appliances with different warranties than those offered in retail stores. Appliance models are displayed in the CGS showroom and ordered from a catalog. CGS does not stock large inventories. A remark was made that retailers generally refer customers to electric appliances because of the ease of plugging into an outlet as opposed to connecting a gas appliance in their retail showrooms. A question was asked regarding deregulation. Mr. Warrington felt that the process will move slOWly in Florida and begin with the larger customers. He said CGS is a distribution company and does not foresee other companies choosing to put their pipes on mFRC12.96 2 1 2/1 9/96 . .... ...' f ., I .0,1. , t. ~ . ',.". >~ .~ '. .~ '" " ;'j '." . .:,.; or" c ~..;Jt~~lkW~,' ." \ :, : :':',.' ._.' ::,' ,'.'.', .' , .' ':- . ." "". ',:', ,,;'..,':,,:' I ,I,.: '~:' ,'.,~", :,).,',:', ,".' ',':"', ",.. '::'..., "',",,'': ,;,,<'.:' ,,:' . ... ~f' . .'. '. , '. . , . \ . ~. , . .'~ f, " '. , . , ' . . . I . .' , . I ,; .. ' , " , ' , . ". I -' C' ... ' , ' " ,.: '~'" ' , ' ,,' ,"., ~'" \ ' \ ' . " , ' .. 'I ,..." , ". "" '. ' ." . 'L','"." ' .'~ " ':'-"l' . _~',' :,: I.' .:,',.'", ,'~ ') ~ ; .,...o:c) \:; the same streets as CGS. The competition will be in gas sales. CGS provides gas at cost, and the profit margin comes from the distribution costs or non*fuel energy. A remark was made that TECD (Tampa Electric Company) purchased People's Gas and may be able to offer the best of gas and electric service to large commercial users. CGS staff explained the process of "balancing". Transportation service is already available. A transportation fee is imposed on gas transported through CGS' infrastructure. Should a customer buy gas from another source, CGS would bill a transportation charge on the customer's bill which is shown as "non-fuel energy". That customer would receive a separate bill from their gas company for the "fuel charge". Space is reserved on the transportation line in Texas to transport gas to Florida. The process of "balancing" was explained. Utilities pre-determine gas usage and order it accordingly. One day a utility may use all therms of gas ordered, and the next only use 50 % of it. The overage or underage of gas must be tracked and balanced. Surcharges are charged to the utility or marketer for "out of balances", which are passed on to the customer. Should other companies be permitted to inject their gas into CGS' lines in the future, how effectively CGS can track it will be important. CGS is anticipating ways to deal with this issue. Mr. Mike Metzler of Black and Veatch and Mr. Jim Awol of Barakat & Chamberlin, Inc. presented the results of their findings from a survey completed on CGS. Black and Veatch found that CGS' strategic and marketing plans are well thought out and aimed at increasing long term revenues and profits. The plans are comprehensive and provide a sound foundation for the future. Net income for fiscal year 1996 greatly improved over 1995, and CGS is in financially sound condition. CGS staff and marketing efforts appear effective. CGS is well run and uses well trained staff. Some recommendations were suggested to improve CGS' operation and increase sales. Due to probable changes regarding competition in the gas business, CGS should think, act, and run its operation as a competitive business with a long range view toward increasing and maximizing profits and income. Continued efforts are recommended to improve customer satisfaction, particularly in regard to new customer connections. An improved database system is recommended for improvement of efficiency and productivity of CGS staff and pre-sales. Continued operation of the CGS appliance showroom is recommended. CGS provides gas installation services at a lower cost than local plumbers, and it is recommended this service be continued, using plumbers on an as-needed basis. Mr. Awol stated both Black & Veatch and Barakat & Chamberlin, Inc. were impressed with the depth, breadth and general direction of the CGS strategic and marketing plans. It was suggested there be an explicit recognition of the looming competition in both the electric and gas industries. There was some mention of it in the business strategic plan but very little in the marketing plan. CGS must put strategies in place to deal with the competition for retention of current customers and gaining new ones. It is a lot more expensive to obtain new customers than to retain existing ones. Additional market research is suggested. An analysis of the advertising and promotion budget should be done and was missing from the CGS marketing report. Approaches to marketing promotions and why CGS chooses to implement a particular approach should be explained. The reassignment of account representatives done a year ago is a positive step in the right direction. The incentive levels in terms of rebates, and allowances for promotions warrants additional analysis. Tracking reasons why customers leave CGS and implementing strategies to recapture them is recommended. mFRC 1 2.96 3 12/19/96 '} ,:; ~) It was noted that CGS received a 22 % dissatisfaction response on the "new customer" survey. Most of it was attributed to timing of initial internal house piping or installation. CGS is working on operational efficiency and productivity gains. The permitting process of individual municipalities greatly impacts the timing of new installations. Although this is explained to the customer up front; as the process moves forward; they tend to become anxious. In response to a question, Mr. Warrington said the Black & Veatch survey was a confirmation of issues already known to CGS, but still provided some good feedback. It was noted the document distributed to FRC members was a preliminary draft of the survey. Black & Veatch is to provide information regarding the estimated costs relative to the benefit of the issues in the survey. A remark was made that market research is fairly expensive. It was noted the City; s biU stuffing equipment cannot segregate gas customers from non-gas customers. There are 12 opportunities annually for all City departments to insert flyers with water bills and the waiting list is long. eGS plans to schedule focus groups with existing commercial customers; and a 300-customer telephone survey is planned; which is estimated to cost $20,000. Discussion ensued regarding CGS sales representatives being paid on a salaried basis instead of a commission structure. Ms. Watson said sales representatives spend approximately 60% of their time cold-calling. Sales representatives who handle both residential and commercial accounts make approximately 6 to 10 calls a day. Commercial sales representatives average more sales calls per customer. General consensus was that commissioned sales people perform better than salaried sales personnel. A question was asked if, and how; CGS is going to pursue the opportunity presented by York International's reduction of their air conditioning system in 1997. York International designates distributors as certified dealers to sell, install and service their product. CGS has a strong relationship with York certified dealers and plans to aggressively pursue this opportunity. Remarks were made by FRC members that the Black & Veatch survey clarified some of their previous questions. Mr. Warrington was asked to supply the FRC with a concise line item list of CGS goals and objectives; including projections, timelines and costs. A Board member noted that the City did not elect to use natural gas air conditioning at the Municipal Services Building or the new police building. In response to questions, Mr. Warrington estimated approximately 100;000 to 150,000 therms a year would have been realized, or additional revenue to CGS of roughly $10,000 to $15,000 annually. He also stated the City would have incurred $1.8 million for a central energy plan. There is gas usage in the buildings, but not for air conditioning purposes. A suggestion was offered that a Board of Directors consisting of knowledgeable business people be appointed to assist CGS to grow as an enterprise or private business within the City. The Board of Directors would report annually to the City Commission. Review of CGS requires more than 5 or 6 meetings a few hours a month to make appropriate business and operational recommendations. Member Carol Warren moved to recommend that the City Commission appoint a Board of Directors to the Clearwater Gas Company. The motion was duly seconded and carried unanimously. mFRC12.96 4 12/19/96 ''>''<'''- . . ., " '... ".'. C1 ,,' . .,.. . . ~ 'I ' .'. ..,. '~I'''' . ........ '. .. . ".,. , ", ' ., ':';~.' , ..... ~~.:' ..:~~"_' :,:r. ":.,:".: .~\.' .,>::.....'".~'.~.:'.,:~ 'la.IiI';t"::l,: i ,:,' I" ',~, ... '..' . . " " , ' " . . ~ I . .', ", '.",' ..', ; , .' . ~ ,', .J, ~. , ".., . ."., '. ",. " " ," ': . , :'. ' ': . .' " '. " f, ' ; , ,', :;' :!': ~:;',:";",\~.';,, ':';':;' ,:::: i,"::~;::;:';':) :::. ::!' tJ ':'''' Mr. Awol of Barakat & Chamberlin, Inc., Mr. Metzler of Black & Veatch, and CGS staff departed at 6:55 p.m. 3. Solid W~ste Roll Off Service Since the last FRC meeting, an opportunity arose to review the Solid Waste profit and loss statements. The FRC would like more time to review the proposal and make recommendations regarding the roll~off service as presented by the City's Solid Waste Department. Consensus was to invite Solid Waste staff to the next FRC meeting and discuss the roll off proposal in more depth. The meeting adjourned at 7:15 p.m. The next meeting of the FRC is scheduled for January 9, 1997 at 4:30 p.m. at the Municipal Services Building, Clearwater, Florida. ~ j7~d -k~-d.~ ir, Fiscal Review CommittUe () Attest: ~r~ o mFRC12.96 5 12/19/96 ..'c ~ ',.....r---:-__+..__..__n'~...-....~~ .............-.....'""'....; J) h~U,.,~.L~t...:}~.~\/:,~;;~:':.~I~ ,', J.' .;;.., I': '. r .,' '-: f ". ',:" .,I'..r~J'';.....r-... .,..> ,-' .. \ ';',. ',"'-->-" ,,:," " " \" "t,'" ,.;.J :C" U ,', ,..\..,