Report 2014-132 Recommendation 3 Responses

Report 2014-132: Apple Valley Area Water Rates: Differences in Costs Affect Water Utilities' Rates, and One Utility May Have Spent Millions of Ratepayer Funds Inappropriately (Release Date: April 2015)

Recommendation #3 To: Apple Valley Ranchos Water Company

To demonstrate to water customers how they are working to keep rates reasonable, the four water utilities should document their cost-saving efforts and quantify, to the extent possible, any specific cost savings achieved from their respective efforts.

1-Year Agency Response

As explained in previous responses AVR implemented a policy to send out reminder notices to staff asking for details on cost savings measure undertaken in the previous year. We received multiple responses and were able to quantify the following:

1. ESRI Software License agreement was consolidated to allow unlimited users at a lower rate.

2. Geo-Reference tools for "As built" images loads digital images in GIS system saving field and office staff time.

3. Service line job posting consolidation eliminates unnecessary detail from fixed asset system saving staff tracking and input time.

4. Electricity aggregation demand response agreement provides rebates if we submit to system down requests during peak demand events.

5. Employee benefits restructuring saved an average of $0.03 per $1.00 of wages in 2015.

In total these measures saved an estimated $93,340 in 2014 and $177,635 in 2015. The calculations are roughly detailed on the supporting worksheet submitted to the auditor in charge.

California State Auditor's Assessment of 1-Year Status: Fully Implemented

Apple Valley Ranchos provided a worksheet detailing the cost savings it describes above. For many of the cost savings, the amounts are estimates of time saved due to the changes identified. Apple Valley Ranchos previously provided its policy requiring staff to document cost saving efforts.

6-Month Agency Response

Apple Valley Ranchos Water Co. (Ranchos), in its April 14, 2015 comments on the redacted draft of the report, agreed that Ranchos should "document going forward cost-saving efforts and quantify, to the extent possible, any specific cost savings achieved... Ranchos agrees that it would be beneficial to inform customers of efforts to reduce costs and the results of those cost saving efforts and that providing such information to customers would be good practice for all utilities."

Many of Ranchos' costs are influenced by multiple factors, some of which are not under Ranchos' control or readily subject to cost-saving efforts. In addition, many cost-saving efforts are aimed at avoidance of cost-increase and may not result in reductions from prior costs. As a result, the dollar impacts of specific cost-saving efforts can be very difficult, or not reasonably or cost-effectively possible, to quantify with precision.

Ranchos provided copies of the State Audit Report to all senior management of the Company and its' parent company, Park Water Company (Park). Because Park's Corporate Division performs a number of centralized services for Ranchos, both companies are involved in cost-saving efforts that impact Ranchos. The recommendation was discussed at a meeting of senior management of both companies. A procedure was developed by Ranchos' Manager of Financial Services and Park's Chief Financial Officer. The procedure has been reviewed by both companies' senior management, and distributed to all relevant department heads.

California State Auditor's Assessment of 6-Month Status: Partially Implemented

Apple Valley Ranchos provided the procedure referenced in its response which requires its staff to document actions with a cost savings in excess of $10,000. However, Apple Valley Ranchos has yet to provide documented examples of cost saving measures showing that it is following its procedure.

60-Day Agency Response

Apple Valley Ranchos Water Co. (Ranchos), in its April 14, 2015 comments on the redacted draft of the report, agreed that Ranchos should "document going forward cost-saving efforts and quantify, to the extent possible, any specific cost savings achieved... Ranchos agrees that it would be beneficial to inform customers of efforts to reduce costs and the results of those cost saving efforts and that providing such information to customers would be good practice for all utilities."

Many of Ranchos' costs are influenced by multiple factors, some of which are not under Ranchos' control or readily subject to cost-saving efforts. In addition, many cost-saving efforts are aimed at avoidance of cost-increase and may not result in reductions from prior costs. As a result, the dollar impacts of specific cost-saving efforts can be very difficult, or not reasonably or cost-effectively possible, to quantify with precision.

Ranchos provided copies of the State Audit Report to all senior management of the Company and its' parent company, Park Water Company (Park). Because Park's Corporate Division performs a number of centralized services for Ranchos, both companies are involved in cost-saving efforts that impact Ranchos. The recommendation was discussed at a meeting of senior management of both companies. A procedure was developed by Ranchos' Manager of Financial Services and Park's Chief Financial Officer. The procedure has been reviewed by both companies' senior management, and distributed to all relevant department heads.

California State Auditor's Assessment of 60-Day Status: Partially Implemented

Apple Valley Ranchos provided the procedure referenced in its response which requires its staff to document actions with a cost savings in excess of $10,000. However, Apple Valley Ranchos has yet to provide documented examples of cost saving measures showing that it is following its procedure.

All Recommendations in 2014-132

Agency responses received are posted verbatim.