Public Utility Mergers and Acquisitions

1. Public Utility Mergers and Acquisitions A Guide to Successful Transitions Kim Adamson Portland State University Mark O. Hatfield School of Government EMPA Capstone Presentation 2012

2. Background In 2007 Cowlitz PUD and Beacon Hill Sewer District undertook a four year project to evaluate a potential transfer of the PUD’s water utility to Beacon Hill.

3. Background

4. Purpose The purpose of this study is to create an outline that can be used by public entities wishing to merge or acquire public utilities.

5. Literature Review Lee Bolman and Terrance Deal: Reframing Organizations: Artistry, Choice and Leadership The Four Frames Structural Human Resource Cultural/Symbolic Political

6. Research Method Interviews with office, field and administrative staff to evaluate successes and challenges experienced in six critical areas. • Legal Authority • Organizational Structure • Financial Impacts/Benefits • Employee Buy-in/Sabotage • Public Perception • Political Arena

7. Project Outcome Using input from staff interviews, successes and challenges in the six critical areas were analyzed using Bolman and Deal’s four frames. • Created Merger and Acquisition Outline for use by other entities evaluating mergers or acquisitions. • Provided Sample documents and legal opinions for use in the transfer process.

8. Product • Organizational Structure • Structural Considerations • What new operational duties will be required? • Will any current operational duties no longer be needed? • Review all job descriptions and make necessary modifications for new operations. • What are the appropriate staffing levels based on the modified job descriptions? • Does the entity have the appropriate tools and technology for the combined operation (i.e., rolling stock, materials inventory, physical space, software, etc.)? • Is additional training or certification needed on the part of the employees? • Financial Impacts/Benefits • Structural Considerations • Prepare joint operating budget. • Are rates and fees adequate to support the combined entity? • Does the combined entity provide advantages for bonding or financing? • Human Resource Considerations • Perform salary study based on new job descriptions. • Political Considerations • Develop a plan to explain the need for any rate/fee increases that doesn’t imply the transferring entity was mismanaged. • If a reduction in fees or rates is possible, convey it to the public.

9. Product • Employee Buy-in • Structural Considerations • Identify specific changes to individual employees’ job duties. • How will employees receive necessary training? • Human Resource Considerations • Weigh employee support for the change. • Keep employees informed from the beginning of the process. Regular status meetings are recommended. • Review historic performance reviews for red flags (i.e., resistance or trouble adapting to previous changes). • Cultural Considerations • Will employees be transferred from the original entity to the new joint entity? • Will transferred employees be able to adapt to changes in operational philosophy? • Public Perception • Structural Considerations • Will there be a trial operational period? • Identify new policies that will be required. • Identify existing policies that shall be modified. • Will any of the policy changes result in resistance from citizens? • Create a public outreach campaign through newsletters, bill stuffers, direct mailing etc., explaining the need for policy changes and requesting input. • Prepare a plan for public notification and involvement in the policy process. • Human Resource Considerations • Will jobs be created or lost? • Political Considerations • Identify stakeholders that will oppose the merger. • Develop a public outreach plan to defuse any political opposition. • Cultural Considerations • Determine whether a wholesale change in identity or maintaining current identity as much as possible is most advantageous. • Will the entities name change? • Is there a logo that requires modification?

10. Product • Legal Authority • Structural Considerations • Who will prepare the operations or transfer agreement? • Political Considerations • What legal methods are available for transferring ownership? • Will a legal opinion be of value (recommended if there may be a challenge)? • How will a value be set for any equipment or property changing hands? • Have the rate payers already purchased the property being transferred (if purchased with utility income citizens will be charged twice if the receiving entity pays fair market value). • Political Arena (other jurisdictions) • Structural Considerations • Identify existing Interlocal and Franchise Agreements and determine if they are assignable. • Human Resource Considerations • Political Considerations • Are there any local entities that are interested in taking over operations themselves? • Are other local entities in support of the change? • Will any service area or jurisdictional boundaries need to be changed?

11. Significance of Project Public agencies with strapped budgets are looking for more efficient ways to provide service. With proper planning combining the operations of two or more entities can result in cost savings. Merger and Acquisition Outline will be provided to other entities through the Washington Association of Water and Sewer Districts, Washington Public Utilities Association and Municipal Services Research Center.

12. Acknowledgements Mike, Kirsty and Stevie Adamson Staff and Students of 2012Cohort

13. Questions