Using Co Op and Utility Key Performance Indicators

What Are KPIs?

Developing and implementing strategy initiatives includes setting goals, measuring progress, making mid-course adjustments, and evaluating success. Key Performance Indicators (KPIs) are measures used to set baseline performance and implement improved performance strategies on those baselines. The measurement ability makes KPIs a management tool for setting priorities and measuring progress in implementing strategy.

What Should Be Measured with KPIs?

KPIs fall into two general categories — financial and activity-based. In both categories, a KPI should meet the following parameters to be effective:

1. Meaningful — assists with managerial decision making
2. Material — concentrates on the most material issues to the organization, both financial and non-financial
3. Assists external assessment of the organization's strategic positioning in the industry
4. Aligned with the organization's strategic direction

Electric Utility Industry Applications for KPIs

A benefit of the electric utility industry is the wealth of measures available for comparison. This comes from the uniformity of the financial chart of accounts used by many electric utilities — based on the Federal Energy Regulatory Commission Uniform System of Accounts — the number of regulatory reports filed by utilities, and the availability of utility financial statements through utility websites, city publications for public power utilities, and SEC filings for investor-owned utilities.

While the first line of measurement and KPI baseline-setting should be your own utility's current levels, there are many sources for industry-wide benchmarks. These include industry associations and the financial statements of peer-sized utilities. In the electric industry, organizations such as the American Public Power Association and Edison Electric Institute have robust KPI databases available to members.

Common KPI Measures

KPIs are ideally suited to measure short- and long-term financial results, trends, and impacts — as well as activity-based measures. The following section discusses common measures across four key areas.

Current Operations — Financial Strength KPIs

Current operations cover the budget cycle or a maximum of three to five years of future operations. KPIs effective in measuring financial strength include:

Table 1 — Financial Strength KPIs

KPI MeasureFormula / DefinitionWhat It MeasuresIndustry BenchmarkDays Cash on HandUnrestricted Cash ÷ (O&M Exp ÷ 365)Unrestricted cash and investments divided by daily operating & maintenance expensesLiquidity — how many days the utility could operate using only its cash reserves≥ 150 days(Moody's "Aa")Debt Service Coverage Ratio (DSCR)(Net Income + Depreciation) ÷ Debt ServiceNet cash flow (operating income + depreciation) divided by annual principal and interest paymentsAbility to service debt obligations from operating cash flow≥ 1.25×(typical RUS minimum)Operating RatioO&M Expenses ÷ Operating RevenuesTotal operating expenses divided by total operating revenuesEfficiency of operations — lower is better; measures cost control relative to revenue< 85%Equity RatioTotal Equity ÷ Total AssetsMembership equity (or net position for municipal utilities) divided by total assetsFinancial strength and leverage — higher ratio means less reliance on debt≥ 25%Revenue per kWhTotal Revenues ÷ Total kWh SoldAverage revenue received per kilowatt-hour sold across all customer classesRate adequacy and revenue trend versus cost trendsCompare to peersCost per kWhTotal O&M Expenses ÷ Total kWh SoldTotal operating & maintenance cost per kilowatt-hour delivered to customersCost efficiency of electric delivery operationsCompare to peersCapital Expenditure RatioCapital Additions ÷ Depreciation ExpenseAnnual capital additions relative to annual depreciation expenseReinvestment rate — whether the utility is maintaining and growing its asset base≥ 1.0×

Customer Service and Operational Financial KPIs

KPIs effective in measuring customer service and operational financial performance include:

Table 2 — Customer Service & Operational Financial KPIs

KPI MeasureFormula / DefinitionWhat It MeasuresIndustry BenchmarkCustomer Cost per CustomerTotal Customer Expense ÷ Total CustomersTotal customer service and billing expenses divided by total number of customers servedCost efficiency of customer service operations per account$110–$150 (typical range)Revenue per CustomerTotal Revenues ÷ Total CustomersAverage annual revenue collected per customer accountRevenue adequacy relative to customer base sizeCompare to peersBad Debt as % of RevenueBad Debt Expense ÷ Total RevenuesUncollectible accounts as a percentage of total revenuesCollections effectiveness and credit risk in the customer base< 0.5%Accounts Receivable DaysAccounts Receivable ÷ (Revenue ÷ 365)Average number of days to collect outstanding customer receivablesCollections speed — lower is better for cash flow< 30 daysAverage kWh per CustomerTotal kWh Sold ÷ Total CustomersAverage annual energy usage per customer accountLoad trends — declining usage signals efficiency gains or DER adoptionTrack trend YoYCustomer Complaints per 1,000(Complaints ÷ Customers) × 1,000Number of formal customer complaints per 1,000 customer accountsCustomer satisfaction and service qualityCompare to peers

Operational, Safety, and Reliability KPIs

KPIs that measure operational performance, safety, and system reliability include:

Table 3 — Operational, Safety & Reliability KPIs

KPI MeasureFormula / DefinitionWhat It MeasuresBenchmark / TargetSAIDISystem Average Interruption Duration IndexTotal customer minutes of interruption divided by total customers served (annual)Average duration of outages per customer — the primary reliability indicatorCompare to peers; track YoYSAIFISystem Average Interruption Frequency IndexTotal number of customer interruptions divided by total customers served (annual)Average number of outages per customer per yearCompare to peers; track YoYCAIDISAIDI ÷ SAIFICustomer Average Interruption Duration Index — average time to restore service once an outage occursRestoration speed and crew efficiencyCompare to peersLost Time Accident Rate(Lost Time Incidents × 200,000) ÷ Total Hours WorkedOSHA standard recordable incident rate per 100 full-time equivalent employeesWorkforce safety performance< Industry avgLine Loss %(kWh Purchased − kWh Sold) ÷ kWh PurchasedPercentage of electricity purchased or generated that is lost in transmission and distributionDistribution system efficiency; unusually high rates may signal theft or metering issues3–8%(typical range)O&M per Mile of LineDistribution O&M Expense ÷ Miles of LineTotal distribution operations and maintenance expense per mile of distribution lineCost of maintaining the distribution system relative to its geographic sizeCompare to peersCustomers per EmployeeTotal Customers ÷ Total FTEsNumber of customer accounts served per full-time equivalent employeeOverall workforce productivity and staffing efficiencyCompare to peers

Drilling Down — Materials Management KPIs

KPIs can also drill into specific functional areas for detailed performance measurement. In this example, materials management:

Table 4 — Materials Management KPIs

KPI MeasureFormula / DefinitionWhat It MeasuresTargetInventory TurnoverMaterials Used ÷ Average Inventory ValueTotal materials used in the period divided by average inventory balanceHow efficiently inventory is used; low turnover may indicate overstocking or obsolescenceTrack trend; compare to peersDays Inventory on HandAvg Inventory ÷ (Materials Used ÷ 365)Average number of days of material usage held in inventory at any given timeSupply chain efficiency and working capital tied up in storeroom30–90 days typicalInventory as % of PlantInventory Value ÷ Total Plant in ServiceStoreroom inventory balance as a percentage of total plant in service valueRelative size of materials holdings compared to asset baseCompare to peersMaterials Cost per Work OrderTotal Materials Cost ÷ Number of Work OrdersAverage material cost charged to work orders in the periodMaterial usage efficiency in construction and maintenance projectsTrack trend YoYObsolete / Excess Inventory %Obsolete Items Value ÷ Total Inventory ValuePercentage of total storeroom inventory classified as obsolete or excessStoreroom effectiveness and impact on working capital< 5%Purchase Order Cycle TimeAvg Days from Requisition to ReceiptAverage number of days from material requisition to receipt from vendorProcurement efficiency and vendor performanceTrack trend; set internal target

Tables 1–4 are a small sample of standard measures and possibilities. A practical approach to determining those meaningful for your utility is to assemble department heads, line managers, and employees in a group discussion focused on areas that should be measured, slated for improvements where KPIs can assist the process, and those that could be considered for impact on compensation plans.

Integrating KPIs into Business Planning — A Worked Example

The use of KPIs should be integrated into the business planning process. Here is an analysis using the "Customer Cost per Customer" KPI:

Situation

The Customer Cost per Customer KPI for the latest year is $100 per customer. Customer surveys indicate dissatisfaction with the current level of service.

Analysis

Analysis of the surveys reveals comments about incorrect meter readings and billing errors, long wait times for in-person customer service, and a lack of online options for customers. KPI analysis in trade association publications of peer-sized utilities shows a range in the Customer Cost per Customer KPI of $110–$150 per customer.

Business Planning Implications

Based on this analysis, the budget for the next fiscal year includes additional investment in:

• Hiring 3 additional customer service representatives
• Training for all billing personnel on billing software
• Initiation of an automated meter reading program
• Website enhancements for customer self-help and online payment options

The budget for Customer Cost per Customer for the upcoming year is $140 per customer. The year's activities will also include another customer survey to obtain feedback once these changes have been implemented — to assess the results of the initiatives.

KPIs Are a Strategy Tool — Not Just a Lookback

KPIs are more than just measures of past activities. Using KPIs as part of the business planning process makes them effective tools for making changes in operations to achieve desired improvements in the use of utility resources. The listing of KPIs in this article just scratches the surface — but if your utility does not currently utilize KPIs as measuring and planning tools, the tables above are a strong starting point.

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