INTRODUCTION AND ACKNOWLEDGEMENT · Web viewIntroduction 1. Chapter II – Executive Management, External Relations, and Human Resources 3. Chapter III – Financial Management

PENNSYLVANIA-AMERICAN WATER COMPANY

IMPLEMENTATION PLANin Response to the

2007- 08 STRATIFIED MANAGEMENT

AND OPERATIONS AUDIT

September 2008

Table of Contents

Introduction..................................................................................................................................... 1

Chapter II – Executive Management, External Relations, and Human Resources.........................3

Chapter III – Financial Management.............................................................................................24

Chapter IV – Support Services......................................................................................................30

Chapter V – Water Operations......................................................................................................88

Chapter VI – Corporate Governance............................................................................................94

Chapter VII – Corporate Culture, Management Structure, and Staffing Levels...........................103

Chapter VIII – Affiliate Interests..................................................................................................109

Chapter IX – Diversity and EEO..................................................................................................118

Chapter X – Customer Service...................................................................................................127

Chapter XI – Operational Performance.......................................................................................142

Chapter XII – Phase III Water Operations – Distribution Business Systems...............................156

Chapter XIII – Phase III Human Resources................................................................................177

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Pennsylvania-American Water CompanyImplementation Plan

September 2008

INTRODUCTION AND ACKNOWLEDGEMENT

The Pennsylvania Public Utility Commission (“PaPUC” or “the Commission”) engaged the services of Schumaker & Company to conduct a Stratified Management and Operations Audit of Pennsylvania-American Water Company (“PAWC” or “the Company”). The audit was conducted pursuant to Section 516 of the Pennsylvania Public Utility Code requiring that the Commission periodically examine the management effectiveness and operating efficiency of certain jurisdictional utilities.

In response to the Stratified Management and Operations Audit Final Report, issued August 2008, Pennsylvania-American Water Company is pleased to submit its Implementation Plan.

The Implementation Plan is organized to address each recommendation contained in the Final Report, and states whether the recommendation is accepted, accepted in part, or rejected. For each recommendation accepted or accepted in part by Pennsylvania-American Water Company, the Implementation Plan describes the actions to be taken, the individuals responsible, and the expected completion dates. For each recommendation that is rejected, the Implementation Plan contains a complete explanation as to why the recommendation is not accepted.

It is important to note that the actual field work for Phase I and Phase II began July 13, 2007 and continued through December 31, 2007; and the actual field work for Phase III began February 4, 2008 and continued through April 30, 2008. Accordingly, many of the findings relate to the Company’s management and operations prior to December 31, 2007, and do not reflect the current state of the Company’s operations. Significant changes have been made since that time, including the initial public offering of Pennsylvania-American Water Company’s parent company, American Water Works Company, Inc. on April 23, 2008.

Pennsylvania-American Water Company further notes that throughout the Final Report, Schumaker & Company identifies what it describes as various opportunities to achieve quantifiable cost savings. These are summarized as estimated one-time savings and annual savings, and are characterized as benefits. In order to avoid confusion, however, it is also important to note that

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September 2008

Schumaker & Company did not estimate the expense impact of implementing the audit recommendations, although it acknowledged that the short term cost impact “could be considerable.” By contrast, Pennsylvania-American Water Company necessarily considers the expense of implementing the recommendations, both short term and long term, in addition to quantifiable benefits. In many instances, there are significant expenses associated with implementing recommendations which have the potential to fully or partially offset any cost savings. Therefore, both cost benefit and expense must be considered in the Company’s responses.

Pennsylvania-American Water Company notes that some aspects of the recommendations pertain to American Water Works Company, Inc., American Water Works Service Company, Inc., or other American Water entities over which the Commission does not have jurisdiction. The boards of directors and managements of these entities have legal obligations, fiduciary duties and responsibilities separate from and different than Pennsylvania-American Water Company. The Company believes that the recommendations pertaining to these entities are outside the appropriate scope of the management audit. Responses to the recommendations affecting those entities have been considered in that context.

Finally, Pennsylvania-American Water Company expresses its appreciation to the Commission, the Commission’s Bureau of Audits, and Schumaker & Company for their efforts in conducting this Stratified Management and Operations Audit. The Company has accepted in full 106 recommendations, accepted in part 7 recommendations, and rejected 1 recommendation. We are confident that the Implementation Plan demonstrates our commitment to take appropriate actions resulting from this important effort.

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September 2008

Chapter II

Executive Management, External Relations, and Human Resources

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September 2008

Chapter IIExecutive Management, External Relations and Human Resources

Executive Management

Recommendation II-1 Develop a systematic organizational-planning and development process.

PAWC Response The Company accepts this recommendation.

Priority High

Discussion

In concert with the continued refinement of the strategic planning process discussed in the implementation plan for Recommendation II-2, the Company will review the organizational planning process. Appropriate enhancements will be made to ensure that all aspects of the organization are aligned with the strategic plan, that the organization is appropriately defined, that triggers are established for organizational reviews, and that all discussions and decisions regarding organizational planning are appropriately documented.

Milestones / Full Implementation Date

Milestone DateComplete review of current organizational planning process March 2009 (E)Finalize enhancement recommendations July 2009 (E)Full implementation December 2009 (E)

Personnel Responsible

Sean G. Burke, Senior Vice President, Human Resources, AWWSCCarole Dascani, Regional Director, Human Resources, AWWSCKathy L. Pape, President, Pennsylvania-American Water Company

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September 2008


Executive Management

Recommendation II-2 Develop a formal and integrated strategic-planning process.


Priority High

Discussion

During 2008, in preparing the 2009-2013 Strategic Business Plan, an enhanced, formal, and integrated strategic planning process was implemented. The process incorporates subsidiary company operating needs assessment and strategic/key initiatives. A formal review process has been established to help ensure alignment between American Water and subsidiary company initiatives. Key performance indicators have been identified. The process more fully integrates and aligns strategies and initiatives. Refinement and enhancement of the strategic planning process, which continues to incorporate performance indicators and initiatives into the planning process, will be ongoing.


Milestone DateFull implementation August 2008 (A)


John L. Settelen, Vice President, Planning & Reporting, AWWSCRochelle Kowalski, Vice-President, Finance, AWWSCKathy L. Pape, President, Pennsylvania-American Water Company

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September 2008


External Relations

Recommendation II-3 Develop a regional/state operational external communications plan.


Priority Medium

Discussion

Implementation of this recommendation is in progress. Since completion of audit fieldwork, American Water’s Corporate Communications and External Affairs Department has developed detailed and integrated communications plans for each state within the American Water system, including Pennsylvania. These plans provide for a monthly summary of communications activities that address external affairs as well as customer communications, internal communication, government affairs and other related areas.

The plan for Pennsylvania-American Water Company (PAWC) details the project names, a description of the activity, month it is to begin, the project due date, who is responsible, what approvals are necessary and anticipated costs for each project. The plan and supporting action items are detailed by month and address customer bill inserts; newsletters; customer letters; direct mail; customer communications materials, such as a brochure; community events; plant tours; web site updates; media-related activities to educate customers on the value of water as well as important infrastructure investments PAWC is making in the community; relationship development meetings with key community leaders; and general community meetings.

The Company also implemented a staffing structure that effectively and efficiently supports this plan. Staff resources are dedicated to PAWC to specifically support the external affairs activities across the entire state. Additionally, the American Water Works Service Company (AWWSC) leverages one internal communication

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September 2008

Recommendation II-3

manager and one customer communication manager that support the specific needs of the state in these respective areas. This is a very efficient and cost-effective structure in that these two AWWSC positions also support the states of New Jersey and New York, with their respective costs properly allocated across the three states.


Milestone Date

Develop / begin implementing integrated communications plan for PAWC

August 2008 (A)

Continue implementing integrated communications plan December 2008 (E)Update integrated communications plan for 2009 Q4 ‘08 - Q1 ‘09 (E)Implement 2009 integrated communications plan Jan - Dec 2009 (E)


Laura L. Monica, Senior Vice President, Corporate Communications and External Affairs, American WaterTerry M. Maenza, Manager, External Affairs, PAWCKathy L. Pape, President, Pennsylvania-American Water Company

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September 2008


Human Resources

Recommendation II-4 Strengthen HR accountability to the PAWC President.


Priority High

Discussion

Human Resources (HR) accountability will be strengthened in multiple ways. PAWC’s president will have input into the performance evaluations of American Water Works Service Company’s (AWWSC) regional HR director serving PAWC as well as PAWC’s HR manager, who reports to the regional HR director. Additionally, the regional HR director will meet regularly (at least once per month) with PAWC’s president.

The Company will also consider appointing an HR director for PAWC.


Milestone DateMonthly meetings with PAWC president occur September 2008 (E)Annual input into performance appraisals February - March


Carole Dascani, Regional Director, Human Resources, AWWSCKathy L. Pape, President, Pennsylvania-American Water Company

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September 2008


Human Resources

Recommendation II-5 Assess PAWC’s HR needs and staff accordingly.


Priority High

Discussion

Together, American Water Works Service Company and Pennsylvania-American Water Company (PAWC) will assess whether additional HR staff is required to meet the HR needs of PAWC and/or implement HR-related audit recommendations.

Where the Company determines that gaps exist, additional resources will be provided to the function taking into consideration the timing and magnitude of expenditures.


Milestone DateAssess PAWC’s HR needs Sep - Dec 2008 (E)



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September 2008


Human Resources

Recommendation II-6 Develop an HR service level agreement with AWWSC.


Priority High

Discussion

Service level metrics between American Water Works Service Company’s HR Department and PAWC, containing relevant qualitative and quantitative measures, will be developed. Performance reporting will occur via the new balanced scorecard which is being developed in response to Recommendation II-7, as well as by developing other appropriate measures.


Milestone DateDevelop HR service level metrics June 2009 (E)Report service level performance to PAWC September 2009 (E)



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September 2008


Human Resources

Recommendation II-7 Develop a Pennsylvania-specific HR scorecard.


Priority High

Discussion

This recommendation is complete. The scorecard was developed during the Phase III work of this audit.


Milestone DateDevelop scorecard April 2008 (A)



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September 2008


Human Resources

Recommendation II-8 Align HR services to the strategic priorities of PAWC.


Priority High

Discussion

Human Resources will participate in PAWC’s strategic planning process to ensure that the HR function is aligned with the Company’s strategic priorities. Detailed plans with timelines will be developed to specify HR support.


Milestone DateDevelop detailed plan December 2009 (E)



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September 2008


Human Resources

Recommendation II-9 Consider outsourcing technical training.


Priority Medium

Discussion

Human Resources will work with operations personnel to evaluate the outsourcing options and support required for future technical/operational courses to determine whether outsourcing is appropriate. Operational training courses that are unique to American Water system companies may require instructional design expertise and/or train-the-trainer design and delivery.


Milestone DateComplete outsourcing option analysis June 2009 (E)


Carole Dascani, Regional Director, Human Resources, AWWSCWilliam C. Kelvington, Vice-President, Operations, PAWCKathy L. Pape, President, Pennsylvania-American Water Company

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September 2008


Human Resources

Recommendation II-10 Implement a learning management system.

PAWC Acceptance The Company accepts this recommendation.

Priority Medium

Discussion

Implementation of this recommendation is in progress. American Water’s (AW) ITS Department recently filled the newly defined role of manager, training and analysis. This role defines a training and development strategy that encompasses technologies, tools, blended learning solutions and instructional materials.

American Water is considering the options available for implementing a learning management system (LMS). These options include leveraging existing technologies in the AW environment, including the LMS components as part of an ERP replacement that encompasses end-to-end HR needs; or acquiring an LMS application that would integrate with our existing tools and a future application that supports HR. The manager, training and analysis, will partner with other AW training managers to evaluate the current landscape and potential LMS solutions that would support all types of training in the AW business, i.e., application training, safety training, operations training. AW’s intent is to have an LMS solution that will have the ability to manage enrollment, content delivery, progress, testing, employee development plans and training completion tracking across a broad range of delivery methods.

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September 2008

Recommendation II-10


Milestone DateAnalyze current state environment October 2008 (E)Determine training strategy October 2008 (E)Evaluate LMS options December 2008 (E)Selection of learning solution March 2009 (E)Standardize training content and approach June 2009 (E)Full implementation of new learning management solution (depending on alternative selected)

December 2009 (E) (earliest) December 2011 (E) (if ERP/HRIS dependent)


Emily Ashworth, VP and CIO, American Water Works Service CompanyCarole Dascani, Regional Director, Human Resources, AWWSCKathy L. Pape, President, Pennsylvania-American Water Company

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September 2008


Human Resources

Recommendation II-11 Conduct comprehensive workforce planning for all levels of the organization and provide necessary resources for implementation.


Priority High

Discussion

Implementation of this recommendation includes several components. Establishing leadership competencies and succession planning will be accomplished as outlined in the Company’s implementation plan for Recommendation II-12.

Establishing competencies for non-management workforce, incorporating diversity and taking action regarding future retirements will be accomplished via the workforce planning and replenishment model developed during audit Phase III work (refer to the Company’s implementation plan for Recommendation XIII-1).

PAWC anticipates that implementation of the recommendation will require significant additional financial and / or human resources. Although the Company accepts the recommendation, the timing of the implementation will be dependent on the magnitude of the expense that will be incurred.


Milestone DateComplete leadership capability review (see II-12) December 2009 (E)Implement workforce planning / replenishment (see XIII-1) June 2010 (E)



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September 2008


Human Resources

Recommendation II-12 Complete the organizational capability review for all levels of PAWC management.


Priority Medium

Discussion

A leadership capability review for senior executives will be completed in late 2008 / early 2009. Plans will then be developed to conduct a similar review process for all PAWC management levels in alignment with the process used at the executive level.


Milestone DateComplete executive capability review December 2008 (E)Plan PAWC management capability review June 2009 (E)Complete PAWC management capability review December 2009 (E)



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September 2008


Human Resources

Recommendation II-13 Implement a leadership-development program and provide sufficient resources to sustain.


Priority Medium

Discussion

In coordination with corporate Human Resources, plans will be developed to conduct a leadership development program subsequent to the executive-level leadership capability review. Resources will be identified, whether human, material, technology or consulting, to initiate and sustain this effort.


Milestone DateAssess leadership development needs March 2009 (E)Identify and obtain needed resources. June 2009 (E)Design program March 2010 (E)Pilot program June 2010 (E)



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September 2008


Human Resources

Recommendation II-14 Implement position control.


Priority High

Discussion

Human resource management, including position control, is included within the scope of the Company’s implementation plan in response to Recommendation III-1, research and develop plans for an enterprise resources planning (ERP) system replacement or upgrade. The Company expects that American Water will either upgrade or replace the current ERP. This new software solution would include support of the entire set of HR processes including core HR, benefits, payroll, compensation, performance management and reviews, time and attendance, and succession planning. This implementation would provide the needed tools to support position control, title administration, compensation administration, job description management, tracking of employee counts, employee organizational assignments, actual positions versus budgeted position management, employment law compliance and workforce planning.

Prior to implementation of the ERP solution, the HR organization will examine all positions and begin the analysis process to standardize, rationalize and normalize positions, titles and associated job descriptions. The next step will be to map employees to the normalized positions before data conversion and software implementation. The HR organization will also establish the process by which positions may be added, budgeted, modified and tracked in the organization and identify who has the responsibility to manage the administration of positions.

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September 2008



Milestone DateIdentify available alternatives for current ERP May 2008 (A)Commence process definition for HR area October 2008 (E)Define requirements for each HR process area December 2008 (E)Evaluate ERP alternatives against requirements February 2009 (E)Select ERP upgrade or replacement option March 2009 (E)Select implementation integrator April 2009 (E)Commence position rationalization, normalization work June 2009 (E)Map employees to positions October 2009 (E)HR software solution configuration design June 2009 (E)Configuration and interface development December 2009 (E)Implement ERP replacement or upgrade to include HR process areas

2010 – 2011 (E)


Emily A. Ashworth, VP and CIO, American Water Works Service CompanyCarole Dascani, Regional Director, Human Resources, AWWSCKathy L. Pape, President, Pennsylvania-American Water Company

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September 2008


Human Resources

Recommendation II-15 Evaluate the costs and benefits associated with a more sophisticated time and attendance system.


Priority Medium

Discussion

Human resource management, including time and attendance, is included within the scope of Recommendation III-1, research and develop plans for an enterprise resources planning (ERP) system replacement or upgrade. The Company expects that American Water will either upgrade or replace the current ERP. This new software solution would include support of the entire set of HR processes including core HR, benefits, payroll, compensation, performance management and reviews, time and attendance and succession planning. This implementation would provide the needed tools to support time recordation, time tracking for projects, leave administration, and more automated integration to payroll.

Prior to implementation of the HR solution, American Water will examine items such as time and attendance codes and pay types and begin the analysis process to standardize, rationalize and normalize these time and attendance data elements. American Water will also establish more streamlined processes for time and attendance capture, management and reporting that will be enabled by the new solution.

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September 2008



Milestone DateIdentify available alternatives for current ERP May 2008 (A)Commence process definition for HR area October 2008 (E)Define requirements for each HR process area December 2008 (E)Evaluate ERP alternatives against requirements February 2009 (E)Select ERP upgrade or replacement option March 2009 (E)Select implementation integrator April 2009 (E)Commence rationalization, normalization work of codes June 2009 (E)HR software solution configuration design June 2009 (E)Configuration and interface development December 2009 (E)Implement ERP replacement or upgrade to include time and attendance process

2010 – 2011


Emily A. Ashworth, VP and CIO, American Water Works Service CompanyDoneen S. Hobbs, Vice-President, Shared Services, AWWSCKathy L. Pape, President, Pennsylvania-American Water Company

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September 2008


Human Resources

Recommendation II-16 Analyze the recruitment and selection process, implement process improvements, measure performance and provide additional resources, if necessary.


Priority Low

Discussion

Due to reporting capability limitations in the applicant tracking system used by Pennsylvania-American Water Company, the Company is unable to determine the length of time required for specific stages of the recruitment process. The Company will initially conduct a manual sampling to attempt to identify recruiting stages that take the greatest length of time. When additional reporting capability from the applicant tracking system is available, a more thorough analysis will be conducted.


Milestone DateManual sample and report December 2008 (E)Full implementation (from applicant tracking system) December 2009 (E)



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September 2008

Chapter III

Financial Management

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September 2008

Chapter IIIFinancial Management

Recommendation III-1 Research and develop plans for upgrading or replacing the current ERP system.


Priority Medium

Discussion

American Water has begun the process of evaluating alternatives for upgrading or replacing the current enterprise resources planning (ERP) system, JDE World 7.3. The current ERP supports core finance, HR and purchasing processes. Through the first half of 2008 two alternatives were identified. They include upgrading the current version of JDE to the JDE Enterprise One product and the second option is to replace the ERP entirely with one of the leading ERP solutions.

The approach for determining an upgrade or replacement path will commence with defining best practices for finance, HR and purchasing processes in the utility industry. For each process set a comprehensive set of requirements will be established. Available ERP alternatives will be evaluated against the ability of the alternative to comprehensively meet the requirement set.

Following the selection of the alternative that best meets American Water’s requirement set, a selection process for a systems integrator and implementer will commence to lead the upgrade or replacement effort.

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September 2008

Recommendation III-1


Milestone DateIdentify available alternatives for current ERP May 2008 (A)Commence process definition for finance, HR and purchasing

October 2008 (E)

Define requirements in each process area December 2008 (E)Evaluate ERP alternatives against requirements February 2009 (E)Select ERP upgrade or replacement option March 2009 (E)


Emily A. Ashworth, VP and CIO, American Water Works Service CompanyRochelle Kowalski, Vice-President, Finance, AWWSCKathy L. Pape, President, Pennsylvania-American Water Company


September 2008


Recommendation III-2 Investigate why key PAWC financial statistics have been deteriorating; develop and implement a plan for improving PAWC’s financial health, as appropriate.


Priority High

Discussion

The financial statistics referenced are from 2002 through June 2007. Company management understands the deteriorating trend over the historical period. As noted in the audit report, prior to the Company’s filing for rate relief in April 2007 there had not been a filing since April 2003.

Formal processes have been implemented and are in place to monitor business and financial performance including determining, as applicable, corrective actions. Corrective actions may be multi-faceted, including activities necessary to help ensure an appropriate return on investments and cost recovery in addition to expense containment/reduction initiatives.


Milestone DateEstablish business and financial metrics and a formal review process, including quarterly and monthly reviews.

September 2008 (A)


Rochelle Kowalski, Vice-President, Finance, AWWSCKathy L. Pape, President, Pennsylvania-American Water Company


September 2008


Recommendation III-3 Assess the need for internal audits of American Water regulated utility operations and develop and implement plans to meet the internal audit requirements.


Priority Medium

Discussion

Internal Audit uses the Committee of Sponsoring Organizations’ (COSO) control model as a framework to evaluate risks and controls throughout the American Water (AW) enterprise. This framework addresses accurate financial reporting, operational effectiveness & efficiency, compliance with laws & regulation, and safeguarding assets. The development of the annual audit plan is based on this framework and prioritizes audits based on perceived risk. Inputs gathered and incorporated into the annual plan development process are past audits, changes in the organization, past or existing Company-related events (internal and external), financial materiality of operations, effectiveness of SOX controls, external auditor management comments, future company initiatives, etc. Information regarding these areas is collected through a number of channels throughout the year with more intense focus in September and October – i.e. Board member and executive interviews, financial statements, business performance reviews, management strategy sessions, past audits, SOX status reports, etc.

For 2008, the internal audit plan defined 27 audits to be performed as 60% of its overall plan. The remaining 40% of the plan is broken down into 20% for SOX control testing and 20% for special management requests (i.e. investigations, status reviews of significant projects, etc.). The plan consists of 1,590 workdays for 8 auditors, which results in 198 workdays per auditor.


September 2008

Recommendation III-3

Emphasis is also placed on not duplicating efforts of the external auditors, but relying on their efforts regarding the accuracy of the business units and consolidated financial statements per GAAP, regulatory, and SEC guidelines. Internal Audit focuses on financial accuracy, but with more detailed focus on the processes, performance measures, management practices, and organizational accountability supporting the AW business model. This also includes Internal Audit reviewing AW Service company allocations to the business units or states.


Milestone DateCompleted August 2008 (A)


Andrew S. Twadelle, Vice-President, Internal Audit, AWWSCKathy L. Pape, President, Pennsylvania-American Water Company


September 2008

Chapter IV

Support Services


September 2008

Chapter IVSupport Services

Information Technology and Systems

Recommendation IV-1 Expedite efforts to develop a long-range IT plan, and subsequently perform yearly review and update activities.


Priority High

Discussion

Work on a strategy for ITS and associated long-range plan commenced in 2008, after the management audit field work was completed. The strategy covers a five-year time horizon and includes improving and replacing elements of the core infrastructure, business applications, the integration of software and technologies that have been independently deployed across American Water’s state operations, a fully-integrated data strategy and the implementation of ITIL and CMMi processes within ITS.

The plan is aligned in a way that balances the business needs across back office functions, customer service and field operations so that work can simultaneously occur to benefit diverse areas of the business without consuming too many business or ITS resources in any one area. This alignment increases the opportunity for greater project success.

The plan begins with the elements of architecture, infrastructure and data to ensure that the right foundation is in place before adding new applications and infrastructure components into the environment.


September 2008

Recommendation IV-1


Milestone DateIdentify broad business need areas that require technology solutions and support

May 2008 (A)

Develop a plan for building out the appropriate application and infrastructure architecture including standards, design templates, and tools

June 2008 (A)

Align business needs into projects to deliver solutions July 2008 (A)Identify infrastructure requirements to support business application projects

October 2008 (E)

Develop strategy for timing of solution development and deployment and identify dependencies

October 2008 (E)

Develop financial plan to deliver on ITS strategy December 2008 (E)


Emily A. Ashworth, VP and CIO, American Water Works Service CompanyKathy L. Pape, President, Pennsylvania-American Water Company


September 2008



Recommendation IV-2 Update ITS documentation as part of an ongoing program to include all aspects of a well-managed technology organization including, but not limited to, operational, governance, and project management / QA functions.


Priority Medium

Discussion

The ITS Project Management Office (PMO) will review the ITS project delivery methodology and make revisions as appropriate. The methodology will include traditional development lifecycle elements, including initiate, plan, design, execute and implement; and will include specifics for each element with overarching governance.

Supporting corporate policies and practices will be updated as appropriate. When the project delivery methodology is finalized, the PMO will undertake an initiative to create or update the template library necessary to support the methodology.

Initial training will be offered to the entire ITS organization through a number of on-site sessions as well as a series of Web-hosted presentations. The project delivery methodology will be shared with the business through inclusion in a series of planned “roadshows”.

Continuing training and reinforcement will be accomplished through mentoring and coaching of both business and ITS project team members on a project-by-project basis.


September 2008Post-completion, the methodology and templates will be reviewed annually for effectiveness and revised as warranted.

Recommendation IV-2


Milestone DatePMO methodology reviewed / updated November 2008 (E)Templates reviewed and updated December 2008 (E)Corporate policies and practices updated January 2009 (E)Training sessions (on-site and web-hosted) complete February 2009 (E)Roadshows complete April 2009 (E)




September 2008



Recommendation IV-3 Address organizational issues involving vacancy of director positions, the appropriateness of staffing size of the various ITS groups, and the reporting location of the information systems’ security function within American Water’s organization structure.


Priority High

Discussion

Two open positions, director of Project Management Office (PMO) and director of Strategy and Architecture, were filled shortly after completion of audit field work. Both positions were filled by candidates with extensive experience in their respective area.

American Water began reviewing benchmarks of IT organizations in the utility industry and planning for adjustments in resources in specific areas. Initial areas of review include server support, data base administration and training. The ITS organization made certain structural changes in the areas of Business Application Development and Infrastructure and Operations. The changes helped streamline and better allocate work and enable the identification of areas requiring resource augmentation.

The reporting relationship of the IT Security group will be revised in the Fall of 2008 and the group will be integrated into the ITS organization. The two directors within the group will report directly to the CIO.


September 2008


September 2008

Recommendation IV-3


Milestone DateFill the Director of PMO February 2008 (A) Fill the Director of Strategy and Architecture March 2008 (A)Review Benchmarks January 2008 (A)Initial identification of areas requiring staffing modifications

March 2008 (A)

Restructure organization in two phases (Phase I) June 2008 (A) (Phase II) October 2008 (E)

Plan and budget for needed resources September 2008 (E)Add resources February 2009 (E) Modify reporting structure of IT Security October 2008 (E)




September 2008



Recommendation IV-4 Expand American Water’s commitment to project-management principles by requiring all ITS employees who are actively involved in project work to achieve PMP certification and by closely monitoring related activities to ensure that timely progress is made.


Priority High

Discussion

American Water’s PMO is fully committed to strong project management principles and will be 100% staffed with PMP-certified personnel by mid-year 2009. Currently, 5 of 10 PMO staff members, including the director, are PMP-certified. The remainder of the staff is anticipated to be certified by mid-2009. For future hires, PMP certification upon hire, or within 6 months of hire, will be required.


Milestone Date3 career project managers achieve PMP certification November 2008 (E)Vacancy filled by PMP-certified or equivalent experience applicant

September 2008 (E)

Master Project Manager obtains PMP certification June 2009 (E)Full implementation June 2009 (E)




September 2008



Recommendation IV-5 Enhance the American Water network to enable electronic deployment of software updates to PAWC employees.

PAWC Acceptance The Company accepts, in part, this recommendation.

Priority High

Discussion

PAWC agrees with the recommendation, but not the associated projected savings. American Water currently employs 5 full-time ITS support specialists who are located at Pennsylvania-American Water Company offices and .25 FTE located in NJ providing SE PA support. PAWC requires a complex support model to support the 80+ physical locations which are in many case over 4 hours round trip to visit. These 5 employees perform a variety of functions such as hardware and software support for network, telephony, desktops, laptops, servers and mobile devices. This team also holds the responsibility for the local office and state level project management and financial planning for IT related investments.

A very small portion of the support specialist’s time is actually spent performing software installations as the majority of computers ship from the Company’s hardware vendor pre-loaded with an American Water image. There may be specific role-based software applications installed on these computers as a result of specific user needs. The impact of remote software and image deployment would yield a potential of 10%-20% reduction in time on an annual basis for this team.

American Water’s WAN is not currently optimized for a true remotely managed or virtual solution. Although network improvements are currently underway and are planned through the end of 2009, a significant investment would be required on an annual basis to cover the increased operational expense of the improved WAN infrastructure.


September 2008

Recommendation IV-5

Remote software and image deployment will be standardized across American Water using Microsoft’s Service Center Configuration Manager (SCCM). A project is currently in place to deploy SCCM in the American Water environment. This project will allow improved management of images, patches, updates and packaged application deployments to PCs at locations that have networks robust enough to support the traffic.


Milestone DateSCCM Infrastructure & Network Design August 2008 (A)Application packaging August 2008 (E)SCCM Design Testing September 2008 (E)SCCM implementation to AW domain September 2008 (E)Application Deployment Testing for PAW March 2009 (E)Ability to deliver full packaged desktop software September 2009 (E)PA American WAN Upgrades complete on existing facilities

December 2009 (E)




September 2008



Recommendation IV-6 Improve training and development efforts for ITS employees.


Priority Medium

Discussion

With the introduction of new management within the ITS organization, employee training has a renewed focus. In 2008, training and development plans for each employee tailored to each employee’s current skills and the technologies they support have been identified. A variety of training has been utilized through the year making use of a global supplier, American Water’s vendors and partners, conferences and seminars and professional organizations. Additionally, all employees at the level of manager and above have completed the ITIL Foundations course giving the leadership team a common language and basis for process improvements in service delivery.

Training and development plans are now reviewed twice a year as part of the interim and year-end employee review processes.


Milestone DateIdentify employee training and development needs, identify specific training classes and create training and development plans for each employee

April 2008 (A)

Review status (past and future needs) at interim and annual reviews

July and January




September 2008



Recommendation IV-7 Develop a plan to regularly conduct ITS client-satisfaction surveys and implement the first survey in a timely manner.


Priority Medium

Discussion

The first step in implementing this recommendation is to revamp the automated survey embedded in the e-mail communication sent to customers when a request for service is fulfilled. This survey will be redesigned to focus on customer satisfaction as it relates to speed of resolution, first contact resolution, and satisfaction with the service provided.

Additionally, on a semi-annual basis, a broader customer survey will be conducted that includes a review of all types of ITS services and support. Examples of the survey topics will include project performance, incident resolution, outage communications, customer interaction and business support. This will allow us to target areas of improvement as indicated by our internal customers and focus on any weakness that the survey may uncover. Survey results will be shared with the ITS organization. Quarterly review sessions will be instituted with ITS leadership to formulate plans to address any deficiencies.


Milestone DateRe-design current service call survey September 2008 (E)Institute quarterly ITS review sessions December 2008 (E)Design bi-annual customer satisfaction survey February 2008 (E)Implement bi-annual customer satisfaction survey March 2008 (E)


September 2008

Recommendation IV-7


Emily A. Ashworth, VP & CIO, American Water Works Service CompanyKathy L. Pape, President, Pennsylvania-American Water Company


September 2008



Recommendation IV-8 Establish ITS service-level agreements with major client groups.


Priority Medium

Discussion

American Water’s ITS organization is actively working to create valued service level metrics with the operations across American Water, including both state operations and other shared services organizations. These metrics will encompass categories such as application performance, network operations, financial performance and work order productivity; and be based on the services the business needs and the expected performance of each service.

Once targeted metrics are identified, ITS will collect data required to measure and report on the metrics. Ideally, the collection of the data will be fully automated. ITS will baseline the metrics for an initial quarter and then measure performance every month afterwards. Monthly review meetings will be held to review the performance against the metrics and identify areas for improvement.


Milestone DateDiscuss what metrics the business expects May 2008 (A)Identify categories and candidate metrics September 2008 (E)Determine of the candidate metrics what can be measured given the tools and technologies

October 2008 (E)

Design data collection mechanisms December 2008 (E)Review new metrics with the business constituents December 2008 (E)Implement new metrics March 2009 (E)


September 2008

Recommendation IV-8




September 2008



Recommendation IV-9 Implement a relevant ITS scorecard.


Priority High

Discussion

As a first step toward fulfilling this recommendation, the ITS organization established an enterprise set of goals for 2008. ITS’ goals were aligned with the enterprise goals set forth by the American Water executive management team. The goals are aligned around customer, finance, process, and employee. Each director and employee then had key performance indicators tied to these overall goals. Creating this cascading goal structure provided focus and clarity on the focus areas for ITS for 2008. ITS has monitored progress against these goals quarterly.

The next step is to redefine the performance metrics scorecard to reflect performance and progress against the ITS goals. The ITS scorecard needs to reflect progress toward the goals, but also provide information that indicates performance trends over time. In addition to tracking progress against the ITS goals, the intention of the redefined scorecard is to track the performance of ITS work that supports efforts to run and maintain the environment, enhance our existing applications and environment and, lastly, deliver innovation (new projects, applications and systems).


September 2008

Recommendation IV-9


Milestone DateDefine the ITS enterprise goals February 2008 (A)Establish director and employee KPIs March 2008 (A)Establish quarterly review process June 2008 (A)Redefine ITS scorecard October 2008 (E)Establish scorecard data collection processes December 2008 (E)Publish revised scorecard March 2009 (E)




September 2008



Recommendation IV-10 Begin routinely reviewing and testing disaster-recovery plans and documenting results.


Priority High

Discussion

In preparation for reviewing and testing disaster recovery plans, American Water performed a formal business impact analysis (BIA) on its top tier business applications. Using information gathered from the BIA and other input from the line-of-business owners, recovery time objectives (RTO) and recovery point objectives (RPO) were established and documented. Using RTO and RPO information, technical designs for Disaster Recovery (DR) were established. Disaster recovery designs include server and network infrastructure and associated software required to perform a recovery of American Water’s top five applications.

A first phase disaster recovery test is planned for the first quarter of 2009 for two top-tier applications. Another disaster recovery test is scheduled for the third quarter of 2009 for the remainder of the top-tier business applications. Results of the disaster recovery tests will be documented by American Water’s Quality Assurance (QA) team.

After disaster recovery plans are documented and appropriate DR infrastructure established, American Water plans to review its disaster recovery plans quarterly and perform annual disaster recovery tests. The results of those tests will also be documented.


September 2008

Recommendation IV-10


Milestone DateConduct BIA March 2008 (A)Complete installation of phase one infrastructure December 2008 (E)Conduct phase one DR test March 2009 (E)Complete installation of phase two infrastructure September 2009 (E)Conduct phase two DR test September 2009 (E)




September 2008



Recommendation IV-11 Perform a server consolidation study and implement study recommendations.

PAWC Acceptance The Company accepts, in part, this recommendation.

Priority High

Discussion

American Water agrees with the recommendation, but not the associated projected savings. While virtualization is an important priority to American Water, it is important to understand the infrastructure environment currently in place. While many organizations are pursuing virtualization due to server sprawl, American Water has not had the same level of server sprawl due to the AS400 equipment supporting the primary applications (current ERP, customer information system and e-mail). Before American Water experiences further introduction of servers into the environment the goal is to virtualize to minimize the future space requirements as additional applications and storage are added.

American Water’s Information Technology Services (ITS) staff members are preparing to engage a leading virtualization vendor to perform a server consolidation assessment study. The virtualization assessment study will provide ITS with a clear view of server consolidation opportunities within American Water’s existing physical server infrastructure. The virtualization assessment study will determine potential cost savings and better prepare ITS to deploy a virtualized infrastructure. American Water plans to start the consolidation study in the third quarter of 2008 with an estimated completion time frame being the fourth quarter.

ITS will review the results and recommendations of the virtualization assessment report. Based on the results of the report, a lab environment will be built in early 2009 to test and validate the recommendations.


September 2008


After lab testing is successfully completed, a pilot of the virtualization infrastructure will be deployed in American Water’s production environment. Low-risk server workloads, that have minimal business impact, will be selected for the first virtualized deployment. These low-risk workloads will be migrated from the physical environment to the new virtual infrastructure. Depending on the results of the lab testing, American Water plans to start the pilot deployment in the third quarter of 2009.

When the virtualized infrastructure is deployed and stable, all new server workloads required by the business will be placed in the new virtualized environment if it is deemed these workloads are good virtualization candidates. In order to provide a server consolidation for those workloads that are not good virtualization candidates, those workloads will be consolidated onto blade servers in blade center chassis.

American Water believes that the underlying assumptions used in the calculation of the savings potential of this recommendation were not validated with actual American Water expense, and did not appropriately consider the costs to virtualize when calculating the benefits. American Water believes that the primary benefit of virtualization given the current infrastructure and server environment is cost avoidance in reducing the need to further expand the data center, and not a significant annual operating savings.


Milestone DateSelect virtualization vendor Sep 2008 (A)Determine potential server inventory of virtualization candidates

Sep 2008 (A)

Perform virtualization assessment Dec 2008 (E)Build test and validation lab March 2009 (E)Begin pilot rollout Sept 2009 (E)Transition other servers Dec 2009 (E)All existing potential virtualization servers converted March 2010 (E)




September 2008


Transportation and Fleet Management

Recommendation IV-12 Initiate a formal procedure requiring an annual review of the requirements for each employee to have an assigned vehicle based on his or her current job assignment.


Priority Medium

Discussion

Initially, a formal review of the job requirements for all employees having an assigned vehicle will occur. Following the initial review, subsequent reviews will occur annually. The basis for the subsequent annual reviews will be a listing of management employees who changed jobs during the year.


Milestone DateComplete initial review of vehicle requirements December 2008 (E)Subsequent annual reviews of vehicle requirements January (E)


Louis P. Tschachler, Performance Manager, PAWCKathy L. Pape, President, Pennsylvania-American Water Company


September 2008



Recommendation IV-13 Develop a formal procedure that details a requirement for the performance of a regularly scheduled annual physical inventory of the vehicles leased from ARI.


Priority Medium

Discussion

PAWC will recommend that American Water add to its Fleet Policy a formal requirement that its operating subsidiaries, including PAWC, conduct an annual physical inventory.

PAWC will conduct its annual physical inventory in the March/April/May timeframe. This timeframe permits the Company to verify its fleet status after vehicles ordered the previous summer or early fall arrive and old vehicles are disposed; and before the current year’s replacements are identified.

PAWC’s performance manager will reconcile Automotive Resources International (ARI)-assigned vehicle numbers and vehicle VINs collected in the field, by field personnel, with similar information obtained from ARI’s active vehicles database.


Milestone DateField personnel collect ARI vehicle numbers and VINs Mar to mid-Apr (E)Performance manager matches field info to ARI database Mid-Apr to May (E)Adjustments made and physical inventory completed June (E)




September 2008



Recommendation IV-14 Develop an exception report that would clearly identify excessive fuel usage by specific vehicles or employees on a weekly or monthly basis.


Priority Medium

Discussion

Beginning in September 2008 PAWC’s fleet management company, Automotive Resources International (ARI), will provide PAWC with a monthly report that details, by vehicle in each general vehicle class, total fuel purchases for the preceding month. Average purchases for each general vehicle class will also be provided.

PAWC’s performance manager will determine the most efficient and effective manner to analyze the data. Initially, the highest 5 – 10% of vehicles in each general class will be reviewed. Alternatively, vehicles that exceed the average purchases by a determined percentage, i.e., 25% or 50%, may be investigated.

PAWC will work with ARI to potentially factor miles driven in a particular month, not currently available, into ARI’s monthly report to refine the exception parameters.


Milestone DateARI provides fuel purchases report to PAWC September 2008 (A)PAWC analyzes current and potential future parameters Sept 08 - Jun 09 (E)Recommendation implemented using most efficient and effective parameter

December 2009 (E)




September 2008



Recommendation IV-15 Perform an internal audit of the ARI contract and the resultant invoices using the AWWSC internal auditing group.


Priority Medium

Discussion

AWWSC’s Internal Audit Department will include an audit of the Automotive Resources International (ARI) contract and resultant invoices on the proposed 2009 audit schedule, which must be approved by the Audit Committee of American Water Company. The Audit Department will seek 2009 audit schedule approval at the February 2009 Audit Committee meeting, which is the normal annual scheduled meeting for the review and approval of Internal Audit’s planned audits for the year.

The scope of the audit will include a review of ARI’s contract, services provided to American Water, including Pennsylvania-American Water Company; and appropriateness of charges per the agreed contract terms.


Milestone DateReceive approval from Audit Committee to conduct audit February 2009 (E)Complete audit fieldwork, draft audit report Apr – June 2009 (E)Final audit report available for review August 2009 (E)


Andrew S. Twadelle, Vice-President, Internal Audit, AWWSCKathy L. Pape, President, PAWC


September 2008



Recommendation IV-16 Perform a cost/benefit analysis to determine whether the continued use of the two PAWC mechanics in the Pittsburgh District is cost-effective.


Priority Low

Discussion

A cost / benefit analysis to determine whether continued use of two mechanics in the Company’s Pittsburgh District is cost-effective will be completed.


Milestone DateComplete the cost / benefit analysis September 2009 (E)




September 2008



Recommendation IV-17 Perform a reassessment of the PAWC policy relating to the use of employer-provided vehicles that are used for personal purposes in order to be in compliance with IRS regulations.


Priority Medium

Discussion

Corporate fleet management personnel have presented a Draft Fleet Utilization document to AWWSC’s vice-president of operations services. The document is designed to create uniform guidelines across American Water and its subsidiaries, including PAWC, for use of employer-provided vehicles consistent with IRS regulations.

The document is intended to address all aspects of employer-provided vehicles.


Milestone DateDraft document presented to VP, Operations Services May 2008 (A)Present for review and comment December 2008 (E)Approval June 2009 (E)


Robert D. Allen, Fleet Manager – Operations Services, Supply Chain, AWWSCLouis P. Tschachler, Performance Manager, PAWCKathy L. Pape, President, Pennsylvania-American Water Company


September 2008



Recommendation IV-18 Develop a computerized tracking system that is capable of monitoring the completion of the annual state vehicle inspections for the individual vehicles in compliance with the established schedule.


Priority Medium

Discussion

This recommendation is fully implemented. Beginning in September 2008 for the 12-months ended August 31 PAWC’s fleet management company, Automotive Resources International (ARI), will provide to PAWC monthly, on a rolling 12-month basis, a report that lists all active vehicles for which a purchase order for the annual state inspection was not issued by ARI in the past twelve months.

To produce the report ARI will query, by American Trucking Association (ATA) code, its computerized tracking database. ARI’s database contains a programmed and unscheduled service history for every PAWC vehicle. All active vehicles not having an ATA code of 1G001009, state inspection, in the most recent 12 months will appear on the report and be investigated.


Milestone DateARI develops and tests the state inspection query August 2008 (A)ARI provides initial state inspection report to PAWC September 2008 (A)




September 2008


Facilities and Property Management

Recommendation IV-19 Establish a single point of responsibility for the facilities and properties management functionfacilities and properties management function at PAWC.


Priority High

Discussion

Responsibility for the facilities and properties management function has been assigned to PAWC’s performance manager. This individual will be involved in significant facility and property-related operations and maintenance (O&M) and capital projects. Day-to-day facilities management will be performed by local site managers with the support of the performance manager.


Milestone DateSingle point of responsibility identified May 2008 (A)Function structure, responsibilities identified and communicated

June 2009 (E)

Functional group fully operational December 2009 (E)




September 2008


Facilities and Property Management

Recommendation IV-20 Develop a set of formal policies and procedures to guide the performance of the facilities and properties facilities and properties management function at PAWC and American Water .management function at PAWC and American Water .


Priority High

Discussion

PAWC will survey and analyze property management policies and practices existing at other organizations, both inside and outside the utility industry, to preliminarily help identify the Company’s own strategies and practices needs. Existing American Water policies, strategies and practices will then be reviewed to determine if they address the identified needs and, if so, cross-referenced.

PAWC will then recommend the formation of an American Water working committee to develop common strategies and policies to address identified needs. PAWC will develop PAWC-specific strategies and practices if American Water determines not to form a working committee.


Milestone DateSurvey policies and practices, summarize PAWC needs March 2009 (E)Mobilize American Water working committee September 2009 (E)Approval of strategies and practices developed December 2010 (E)




September 2008


Procurement & Materials Management

Recommendation IV-21 Initiate a software identification, selection and evaluation process for a new integrated procurement / materials management application.


Priority High

Discussion

Purchasing and Supply Chain management is included within the scope of Recommendation III-1, “research and develop plans for an ERP replacement or upgrade.” The Company expects that American Water will either upgrade or replace the current ERP. This new software solution will include support of the entire set of purchasing and supply chain processes including procurement, inventory management, supply planning, receiving, supplier management, contract management, accounts payable, and sourcing. This implementation will provide the needed tools to support the purchasing and supply chain function in its entirety.

The purchasing and supply chain organization, as part of this process, will rationalize, normalize and standardize procurement processes, purchase orders, sku numbers, inventory stores, vendors, material types, catalogues, etc.


September 2008



Milestone DateIdentify available alternatives for current ERP May 2008 (A)Commence process definition for supply chain area October 2008 (E)Define requirements for each supply chain process area December 2008 (E)Evaluate ERP alternatives against requirements February 2009 (E)Select ERP upgrade or replacement option March 2009 (E)Select implementation integrator April 2009 (E)Commence materials, inventory, sku rationalization, normalization work

June 2009 (E)

Supply chain software solution configuration design June 2009 (E)Configuration and interface development December 2009 (E)Implement ERP replacement or upgrade to include supply chain and purchasing process areas

December 2011 (E)


Emily A. Ashworth, VP and CIO, American Water Works Service CompanyDeborah A. Emposimato, Director, Supply Chain, American Water Works Service Co.Kathy L. Pape, President, Pennsylvania-American Water Company


September 2008



Recommendation IV-22 Evaluate in detail the impacts of not mandating the use of national contracts with preferred vendors by the state-operating companies, especially in terms of the financial impacts, and determine whether mandating this practice would be beneficial to the operating companies.


Priority Medium

Discussion

An analysis of PAWC spend is completed monthly to determine if there are occurrences and/or trends in non-compliance in the use of preferred vendors. PAWC’s compliance rate with preferred vendors in 2007 was 93%. Through May 2008, the compliance rate improved to over 95%. Both rates are well above the industry average of 85% as reported by the Institute of Supply Management.

Supply Chain will analyze the financial impact of non-compliance, and determine whether mandating the use of national contracts would be beneficial. Beginning with June 2008 YTD data, Supply Chain will analyze Policy non-compliance biannually and communicate results to PAWC management.


Milestone DateAnalyze non-compliance, communicate results to mgmt September 2008


Deborah A. Emposimato, Director, Supply Chain, American Water Works Service Co.Kathy L. Pape, President, Pennsylvania-American Water Company


September 2008



Recommendation IV-23 Initiate a study to determine how best to present the operational and performance data on a state company basis and to evaluate the potential benefits of such reporting changes.


Priority Medium

Discussion

This recommendation is fully implemented. While audit fieldwork was ongoing, the Company studied how best to present operational and performance data and determined that KPIs previously reported on a region basis would be reported on a state operating company basis.

Benefits of state operating company reporting include both a clearer and closer view of procurement compliance; identification of operating company-specific savings, as well as potential areas for further state-specific sourcing opportunities; and, state level Supply Chain return on investment.


Milestone DateProcurement operational and performance data reported on state operating company basis.

January 2008 (A)

Benefits of state operating company reporting evaluated January 2008 (A)


Deborah A. Emposimato, Director, Supply Chain, AWWSCKathy L. Pape, President, Pennsylvania-American Water Company


September 2008



Recommendation IV-24 Perform an internal audit of the inventory data that is produced and used by PAWC to determine the accuracy thereof.


Priority Medium

Discussion

AWWSC’s Internal Audit Department will include an audit of inventory data that is produced and used by PAWC to determine its accuracy. The audit will be incorporated into the 2008 PAWC audit, which is scheduled to be performed in the fourth quarter of 2008. Results of the review will be reported to PAWC senior management as part of the normal Internal Audit reporting process.


Milestone DateInternal Audit notification memo to PAWC senior management and kick-off meeting

November 2008 (E)

Complete audit fieldwork, draft audit report December 2008 – January 2009 (E)

Final audit report available for review January 2009 (E)




September 2008



Recommendation IV-25 Initiate an ERP materials management module evaluation and selection process with the intention of identifying a fully-integrated ERP application that would serve the needs of the PAWC materials management function.


Priority High

Discussion

Purchasing and Supply Chain management is included within the scope of Recommendation III-1, “research and develop plans for an ERP replacement or upgrade.” PAWC expects American Water to either upgrade or replace the current ERP. This new software solution will include support of the entire set of purchasing and supply chain processes including procurement, inventory management, supply planning, receiving, supplier management, contract management, accounts payable, and sourcing. This implementation will provide the needed tools to support the purchasing and supply chain function in its entirety.

The purchasing and supply chain organization, as part of this process, will rationalize, normalize and standardize procurement processes, purchase orders, sku numbers, inventory stores, vendors, material types, catalogues, etc.


September 2008



Milestone DateIdentify available alternatives for current ERP May 2008 (A)Commence process definition for supply chain area October 2008 (E)Define requirements for each supply chain process area December 2008 (E)Evaluate ERP alternatives against requirements February 2009 (E)Select ERP upgrade or replacement option March 2009 (E)Select implementation integrator April 2009 (E)Commence materials, inventory, sku rationalization, normalization work

June 2009 (E)

Supply chain software solution configuration design June 2009 (E)Configuration and interface development December 2009 (E)Implement ERP replacement or upgrade to include supply chain and purchasing process areas

December 2011 (E)


Emily A. Ashworth, VP and CIO, American Water Works Service CompanyWilliam C. Kelvington, Vice-President, Operations, PAWCKathy L. Pape, President, Pennsylvania-American Water Company


September 2008



Recommendation IV-26 Establish a central point of management and responsibility for the materials management function at both AWWSC and PAWC.

PAWC Response The Company accepts, in part, this recommendation.

Priority High

Discussion

PAWC recognizes the importance of consistent and accurate material management across its business. In 2007, an inventory management strategy was adopted by American Water and communicated to PAWC. As part of this adopted strategy, clear roles and accountability for inventory management are identified.

PAWC identified its managers of field operations as being responsible and accountable for implementing the inventory management strategy in their respective operating districts; as well as ensuring that all operating procedures, housekeeping, and physical security measures for inventory are adopted consistently. The managers report to two senior directors of field operations for PAWC. Ultimate responsibility for the materials management function falls to the Company’s vice-president of operations.

PAWC’s management team will ensure all adopted inventory operating procedures and strategies are in place and adhered to within each operating district. PAWC does not have the authority to establish a central point of materials management at AWWSC.


September 2008



Milestone DateInventory management strategy adopted November 2007 (A)Inventory management strategy review and training June 2009 (E)Full implementation September 2009 (E)


William C. Kelvington, VP Operations, Pennsylvania-American Water CompanyKathy L. Pape, President, Pennsylvania-American Water Company


September 2008



Recommendation IV-27 Develop a comprehensive and detailed materials management procedures manual that is specific to PAWC.


Priority Medium

Discussion

In 2007, an inventory management strategy was adopted by American Water and communicated to PAWC. The strategy defines inventory management business objectives, strategy statements and directives, and establishes clear roles and accountability for inventory management.

Currently, procedure guidelines are contained in several software modules and Word documents. They include, but are not limited to, an inventory scorecard users guide document, inventory management PowerPoint, inventory cycle count PowerPoint, and inventory scorecard spreadsheets. All of these documents were used in the training and distribution of the inventory management strategy.

PAWC will consolidate all supporting guidelines documents to form a comprehensive inventory procedures training manual and place in each warehouse/storeroom location.


Milestone DateInventory management strategy adopted November 2007 (A)Consolidate current documentation and material June 2009 (E)Full implementation August 2009 (E)


September 2008





September 2008



Recommendation IV-28 Establish a formalized training program at PAWC for the personnel who have been designated as being responsible for the materials management function at the various storerooms.


Priority Medium

Discussion

In 2007, an inventory management strategy was adopted by American Water and communicated to PAWC. The strategy defines inventory management business objectives, strategy statements and directives, and establishes clear roles and accountability for inventory management.

PAWC initially conducted training on the strategy following its adoption, but recognizes the need to continually reinforce this strategy at all levels of operations management. Field operations personnel will work with human resources’ training and development team to perform state-wide, in-depth training on inventory management.


Milestone DateInventory management strategy adopted November 2007 (A)Meet with training & development team to identify inventory training objectives and planning

May 2009 (E)

Full implementation December 2009 (E)




September 2008



Recommendation IV-29 Adopt and expeditiously implement at PAWC the standardized part-number format that is being developed by the Part Number Standardization Committee.


Priority Medium

Discussion

The AWWSC Part Number Standardization Committee continues to work on the standardized parts numbering plan. The Committee is working with AWWSC’s IT Department to provide consistency across American Water. PAWC’s standardized parts numbers list is targeted to be completed by the end of 2008. Upon completion, each warehouse will match its physical inventory to the standardized part numbers, and re-categorize as necessary. Parts cycle counts will be conducted to reconcile inventory against the new standardized part numbers.


Milestone DateGlobal IT standardized parts list to all warehouses December 2008 (E)PAWC warehouses verify physical inventory matches new part numbers

December 2009 (E)

Full implementation March 2010 (E)




September 2008



Recommendation IV-30 Design and implement a standardized inventory-grid location system at all PAWC storerooms.


Priority Medium

Discussion

PAWC will design, develop and implement a standardized inventory-grid system approach for each storeroom location. A team will be created to evaluate each storeroom location and identify its best and most efficient parts functionality, as well as identifying standardized efficiencies across PAWC’s storerooms. The grid system will include a schematic/grid of each storeroom identifying the location of parts. It will also identify the best storage methods for keeping parts separated, including separate bins, rows and storage compartments. Color-coding functionality, cross-referenced to the standardized grid system, will be considered.

Current parts lists will be maintained and used as part of the schematic key, or legend, for each storeroom.


Milestone DateIdentify PAWC team and conduct kick-off meeting December 2008 (E)Initial rollout and facilities review June 2009 (E)Design and cost preparation for capital investment August 2009 (E)Implementation June 2010 (E)




September 2008



Recommendation IV-31 Develop and implement a standardized procedure for performing cycle counting that is to be used at all storerooms.


Priority Medium

Discussion

This recommendation has been implemented. In November 2007, an inventory cycle count procedure was adopted by American Water, and subsequently implemented by PAWC. Training occurred early in 2008. The procedure clearly describes the inventory cycle count process to be followed.


Milestone DateInventory cycle count procedure adopted November 2007 (A)Cycle count roll-out and training March 2008 (A)




September 2008



Recommendation IV-32 Develop an inventory management plan that addresses how to identify and handle obsolete and excess material.


Priority Medium

Discussion

In November 2007, an inventory management strategy was adopted by American Water and communicated to PAWC. Included in the strategy are procedures to identify and dispose of obsolete and excess inventory (Financial Accounting Standard No. 151). The directors of field operations and engineering are responsible for implementation of this strategy.

PAWC will develop a detailed plan that is aligned with this strategy to fully implement the identification and handling of obsolete and excess material.


Milestone DateInventory Management Strategy adopted November 2007 (A)Planning process development and training August 2009 (E)Full Implementation January 2010 (E)




September 2008



Recommendation IV-33 Incorporate maintenance items into the current materials management application to gain better inventory control over these items.


Priority Medium

Discussion

American Water’s inventory management strategy references future evaluation of inventory control measures for maintenance items. As part of the ERP material management module, the new software solution will include the entire set of purchasing and supply chain processes, including inventory management. The implementation will provide the needed tools to support the purchasing and supply chain functions in their entirety. With the implementation of the ERP, a recommendation will be made to include non-inventory maintenance materials to efficiently and effectively determine on-hand balances of maintenance items.


Milestone DateInventory Management Strategy adopted November 2007 (A)Implement ERP replacement or upgrade to include supply chain and purchasing process areas

December 2011 (E)




September 2008



Recommendation IV-34 Establish a system of a few centralized storerooms that are to be used for strategic parts storage.


Priority Medium

Discussion

PAWC’s two largest warehouses have been identified as centralized strategic warehouses/storerooms for western and eastern Pennsylvania, respectively. The Company will not only use these locations for strategic parts, but also for identified non-strategic parts. Smaller districts’ warehouses/storerooms are not currently deemed as strategic and draw upon the larger two warehouses for strategic parts. The Company will routinely re-evaluate its operations and warehouses/storerooms to determine if additional strategic warehouses/storerooms and parts are warranted due to growth and operational effectiveness.


Milestone DateStrategic warehouse/storerooms identification January 2007 (A)Identify PAWC team and facilities review June 2009 (E)Full implementation December 2009 (E)




September 2008



Recommendation IV-35 Implement a program at PAWC to standardize the inventory maintenance and control procedures across the PAWC storerooms.


Priority Medium

Discussion

PAWC currently has an internal control program to manage warehouse inventory. An inventory scorecard is prepared monthly to assist storeroom supervisors manage inventory levels. Storeroom supervisors access warehouse inventory data through the JDE system.

PAWC developed and implemented SOX key control PTP-C16 for each warehouse receiving and receipting material. This state-wide control is used by all warehouse supervisors and monitored monthly for consistency.

In November 2007, an inventory management strategy was adopted by American Water and communicated to PAWC. As part of this strategy, standardized control procedures and practices were identified and implemented by PAWC.

PAWC will review its current practices for proper inventory control, ensure consistent storeroom security, and recommend that American Water adopt an automated system for tracking inventory items. Additionally, the Company will develop and implement proper training of all storekeepers to ensure procedures and methods are followed consistently.


September 2008



Milestone DateInventory management strategy adopted November 2007 (A)Planning process development and training August 2009 (E)Full implementation January 2010 (E)




September 2008



Recommendation IV-36 Install computer terminals in secure locations at all of the PAWC storerooms.


Priority Medium

Discussion

PAWC recognizes the importance of consistent and accurate data entry, knowledge and interpretation of inventory control. Most of the Company’s larger operating districts have computer terminals at, or very near, storeroom locations. Additionally, designated personnel are assigned and responsible for recording inventory receipts and issues.

In the smaller operating districts, supervisors have sole responsibility for inventory transactions and control, and have personal computers in their respective office. Quite often, offices are located in the same facility as, and very near, storerooms.

PAWC will evaluate each operation and identify both management best operating practice and advantages of having a designated computer at the specific storeroom location, evaluate the person(s) who is directly responsible for inventory control, and ensure that the processing of inventory occurs in a timely and accurate manner. Additionally, with the implementation of a new or updated ERP system, consistent, accurate transactions will reduce and ultimately eliminate any transcription or interpretation errors.


Milestone DateReview all PAWC storerooms and current practices June 2009 (E)Provide draft recommendation to management September 2009 (E)Full implementation of best operating practices December 2009 (E)


September 2008





September 2008



Recommendation IV-37 Develop and implement a procedural modification that stipulates that material is decremented from the inventory at the time of issue from the storeroom, and not at the time that it is used in the field.


Priority Medium

Discussion

PAWC’s current practice for issuing inventory from warehouses/storerooms consists of issuing and charging material directly to specific jobs or work orders. The practice also provides for rolling stock located on PAWC’s vehicles for use in the field. Once rolling stock is used in a job the item(s) are charged from stock, and not at the time of issuance from the warehouse/storerooms. Reconciliation of all inventories occurs annually for both warehouse/storerooms and rolling stock.

The Company recognizes that on-hand balances, at any time, are difficult to determine actual inventory count for reordering. Inventory counts are visually measured and compared against minimum reordering levels. PAWC acknowledges this manual method for real-time tracking of inventory is not an effective means and may lead to inaccuracies in inventory count.

PAWC will create a team to evaluate its current process and develop a better method of real-time tracking of inventory.


September 2008



Milestone DateCreate team and identify alternative processes June 2009 (E)Pilot new process September 2009 (E)Evaluate results and modify if necessary November 2009 (E)Full role-out and implementation December 2010 (E)




September 2008


Risk Management

Recommendation IV-38 Develop a formal implementation plan for changing the focus of the ERM process to include SEC/SOX compliance.


Priority Medium

Discussion

American Water is developing a formal implementation plan for changing the focus of the enterprise risk management (ERM) process to include SEC/SOX compliance. Pennsylvania-American Water Company will be integrated into American Water's ERM process, which will include identification of its operational, financial and regulatory risks; and actions to mitigate such risks. ERM will be reported and reviewed by American Water senior management with all of its subsidiary companies.


Milestone DateSchematic presented to American Water senior management

June 2008 (A)

Revisions considered and alternatives presented August 2008 (A)Implementation December 2010 (E)


Jim Li, Director, Financial Risk Management, AWWSCKathy L. Pape, President, Pennsylvania-American Water Company


September 2008


Legal

Recommendation IV-39 Establish a formal mechanism for developing a pre-qualified list of external legal firms by periodically reviewing proposals from potential candidates.


Priority Low

Discussion

Pennsylvania-American Water Company’s Law Department will develop an analysis of the Company’s legal needs and the basis on which those needs would best be met in the context of a pre-qualification procurement solicitation and approval process. It will then incorporate that needs assessment in its design of a formal process to solicit proposals and evaluate qualifications of law firms interested in providing external counsel services to the Company. A network of pre-qualified, preferred law firms will be developed and updated periodically as potential law firm providers are evaluated and selected.


Milestone DateComplete needs assessment and process design December 2008 (E)Solicit and evaluate RFQ’s Jan – May 2009 (E)Identify pre-qualified firms June 2009 (E)


Velma A. Redmond, Divisional General Counsel – Eastern Division, AWWSCKathy L. Pape, President, Pennsylvania-American Water Company


September 2008


Legal

Recommendation IV-40 Perform a formal cost / benefit analysis regarding standardization of legal management software throughout the American Water system.


Priority Medium

Discussion

As with any other software implementation, the first step in pursuing this recommendation is to define the legal process and associated requirements that a software solution would support. Defining the standardized processes is key to identifying benefits and opportunities for improvements and efficiency gains and quantifying what these benefits are likely to be. These benefits and the associated costs should, of necessity, take into account any needs and expectations of other American Water subsidiaries in the light of the expectations and requirements of the other regulatory authorities that have jurisdiction over them. Once a set of requirements is established then an evaluation of applicable solutions and respective costs can be conducted. Based on the initial benefit expectations and the costs of solutions that meet the identified requirements, an appropriate investment decision will be made that considers the return on investment and the priority of implementing a legal management system compared with other system implementations and priorities that may be happening simultaneously in other areas of the business.


September 2008



Milestone DateIdentify standard legal processes December 2009 (E)Identify benefits associated with improved processes, information flow and legal case management

December 2009 (E)

Identify requirements for a legal management system June 2010 (E)Identify potential legal management system candidates December 2010 (E)Evaluate candidates against requirements June 2011 (E)Determine estimated costs of purchasing and implementing software solution

June 2011 (E)

Business case analysis – cost/benefit analysis September 2011 (E)Determine merits of pursuing implementation based on cost/benefit analysis

December 2011 (E)


Emily A. Ashworth, VP and CIO, American Water Works Service CompanyGeorge W. Patrick, Senior VP, General Counsel & Secretary, AWWSCVelma A. Redmond, Divisional General Counsel – Eastern Division, AWWSCKathy L. Pape, President, Pennsylvania-American Water Company


September 2008

Chapter V

Water Operations


September 2008

Chapter VWater Operations

Recommendation V-1 Aggressively pursue the identification and implementation of technology-based best practices among the water districts.


Priority High

Discussion

ITS will work with American Water’s best operating practices (BOP) group to formulate standardized business processes and look for technologies to automate, monitor and manage those business processes. Over time, PAWC will integrate those BOPs with the rest of the Company’s processes. The Company will continue to strive for standard processes balanced with unique, differentiated processes that may be specific to a region or district.

The approach will be to first identify the BOP, apply a standard business process modeling approach, identify the differentiating factors and then look to technology to enhance the processes where needed.


Milestone DateCreate standard business process modeling approach June 2009 (E)Identify key business processes for standardization September 2009 (E)Begin to standardize in scope processes December 2009 (E)Begin rollout of possible automation of standard processes where applicable

March 2010 (E)


Emily A. Ashworth, VP and CIO, American Water Works Service CompanyWilliam C. Kelvington, Vice President, Operations, PAWCKathy L. Pape, President, Pennsylvania-American Water Company


September 2008


Recommendation V-2 Develop a business process for addressing aggressive identification of the most beneficial main segments for replacement based on an expectation of potential leak impact.


Priority High

Discussion

PAWC uses a performance-based management approach for the allocation of infrastructure investment. District-level leak history has been used as a key indicator of pipeline performance. As referenced in the Company’s implementation plan to Recommendation XII-8, the process will be enhanced to utilize pipe segment performance factors captured with the development of the operational productivity suite (OPS). The Company will continue to further develop its methodology to consider other performance and service factors associated with the main asset.


Milestone DateFull implementation June 2010 (E)


David Kaufman, Vice President, Engineering, PAWCEmily A. Ashworth, VP and CIO, American Water Works Service CompanyKathy L. Pape, President, Pennsylvania-American Water Company


September 2008


Recommendation V-3 Implement a computerized maintenance management system in conjunction with the proactive production equipment maintenance program.


Priority High

Discussion

PAWC is working with Maintenance Services and ITS on the plan, design, pilot and rollout of the computerized maintenance management system (CMMS). The Company is looking to broadly leverage this capability with its GIS capabilities to ultimately benefit customer service. Long-term plans include the integration of CMMS, GIS, workforce distribution, ERP and CRM systems. The rollout will require extensive planning and coordination of the various groups to truly realize the full benefit of a CMMS.


Milestone DatePlanning September 2008 (A)Initial rollout / Pilot December 2008 (E)Rollout prioritization December 2008 (E)Evaluation and next phase integration June 2009 (E)Rollout complete September 2011 (E)


Raymond J. Delo, Senior Director, Maintenance ServicesEmily A. Ashworth, VP and CIO, American Water Works Service CompanyWilliam C. Kelvington, Vice-President, Operations, PAWCKathy L. Pape, President, Pennsylvania-American Water Company


September 2008


Recommendation V-4 Continue to develop a risk-assessment-based approach for identifying main replacement projects.


Priority High

Discussion

PAWC has developed a quantitative approach for main replacement prioritization which incorporates a risk assessment-based approach for identifying projects. The process will become more automated with the development of the GIS and CMMS portions of the operational productivity suite (OPS) referenced in the Company’s implementation plan to Recommendation XII-8.


Milestone DateFull implementation June 2010 (E)


David Kaufman, Vice President, Engineering, PAWCKathy L. Pape, President, Pennsylvania-American Water Company


September 2008


Recommendation V-5 Continue to periodically perform CPS studies.


Priority Medium

Discussion

The Company recognizes the importance of planning studies in making informed investment decisions. It will continue to conduct these studies using a combination of Company planning engineers and outside engineering consultants. A screening tool will be developed to document the formal review process and assist in prioritizing the scheduling of planning study updates.


Milestone DateDevelopment and implementation of screening tool June 2009 (E)Conduct CPSs Ongoing


David Kaufman, Vice President, Engineering, PAWCKathy L. Pape, President, Pennsylvania-American Water Company


September 2008

Chapter VI

Corporate Governance


September 2008

Chapter VICorporate Governance

Recommendation VI-1 Require contractors, vendors, and others doing business with American Water to conduct themselves ethically when dealing with American Water entities.

PAWC Response The Company accepts in this recommendation.

Priority Low

Discussion

Copies of American Water’s Code of Ethics will be made available to the Company’s vendors and suppliers, either in hard copy or by referral to the Company’s website. Through American Water’s centralized procurement process, Pennsylvania-American Water Company will seek to inform its vendors that it expects that their business dealings with the Company will be conducted in accordance with the Code’s underlying principles (The Company notes that while the recommendation references action to be taken by American Water, Pennsylvania-American Water Company is the appropriate jurisdictional entity.)


Milestone DateFull implementation December 2008 (E)




September 2008


Recommendation VI-2 Expand the American Water Board in anticipation of going public and review Board compensation as soon as possible.


Priority Medium

Discussion

Expand the American Water Board

American Water Works Company, Inc. (AWK: NYSE) is the parent company of Pennsylvania-American Water Company. The former’s business and affairs are managed under the direction of its board of directors, which has a fiduciary duty to exercise its authority and judgment in the best interests of its shareholders. Its board of directors currently consists of nine members, five of whom, Martha Clark Goss, George MacKenzie, William J. Marrazzo, Julia L. Johnson and Richard R. Grigg, have been determined by that board of directors to be independent under currently applicable listing standards of the NYSE and applicable SEC rules.

The nominating/corporate governance committee of the American Water Board under its charter has responsibility for, among other things:

establishing criteria for the selection of new directors to serve on the American Water board of directors;

identifying qualified candidates to serve on the American Water board of directors and recommending their election to that board of directors;

making recommendations to the American Water board of directors as to whether members of the American Water board should stand for re-election; and

developing and recommending corporate governance guidelines to the American Water board of directors, assessing those guidelines annually and making recommendations to that board in light of such assessments as may be appropriate.


September 2008

Recommendation VI-2

In contemplation of expanding the American Water board, that board has engaged Russell Reynolds Associates, an executive search firm, to assist in the identification of potential board candidates. Several potential candidates have been identified, resulting in the recent appointments of Julia L. Johnson and Richard R. Grigg to the board of directors and members of the American Water board’s nominating/corporate governance committee with effect from August 1 and August 27, 2008, respectively.

Further, it is anticipated that within one year of listing on the NYSE, American Water’s board of directors will consist of 10 members, at least six of whom will be independent under applicable SEC rules and currently applicable listing standards of the NYSE.

Review Board Compensation

The Compensation Committee of the American Water Board under its charter has responsibility for, among other things, reviewing and recommending to the board of directors the form and amount of director compensation (including perquisites and other benefits), and any additional compensation to be paid for service on board committees or for service as a chairman of a committee.

In contemplation of evaluating and recommending the form and amount of directors compensation, the Compensation Committee of the American water board has, with the board’s approval, engaged DolmatConnell & Partners, a compensation consulting firm, to (i) develop appropriate Peer Group(s) for comparative purposes; (ii) prepare a board of directors compensation analysis; and (iii) recommend total compensation framework, covering all elements for pay including board retainer, meeting fees, committees fees and equity. The results of DolmattConnell’s report are expected by mid-September 2008.

American Water’s board of directors has undertaken these actions in the exercise of its fiduciary duty to its shareholders, and in fact had embarked on this course of action as part of its commitment to become a publicly held company well before the conclusion of the Pennsylvania-American management audit. American Water has permitted its subsidiary Pennsylvania-American to agree with this recommendation because it already coincided with the direction taken by American Water’s board of directors and should not be construed as an admission that American Water is subject to the regulatory jurisdiction of a public utility commission.


September 2008

Recommendation VI-2


Milestone DateExpansion of American Water board of directors On-goingComplete compensation study September 2008 (E)Full implementation April 2009 (E)

Personnel Responsible *

George Patrick, Senior Vice-President & General Counsel, American Water Works Company, Inc.Kathy L. Pape, President, Pennsylvania-American Water Company

* Personnel Responsible will monitor the implementation of this recommendation; however, implementation is solely within the authority of the Board of Directors of American Water Works Company, Inc.


September 2008


Recommendation VI-3 Implement a process to periodically perform cost comparisons for external audit services.


Priority Medium

Discussion

American Water’s controller will perform cost comparisons for external audit services in connection with the annual external audit fee negotiation and approval process. External audit fees are reviewed and approved annually by the Company’s Audit Committee.

The comparison will include audit fees of publicly-traded peer water companies and other utilities (electric, natural gas) of similar size and operating characteristics.

A formal competitive bidding process may be conducted on a periodic basis as deemed appropriate by management and the Audit Committee.


Milestone DateReceive external audit 2009 annual fee estimate May 2009 (E)Perform cost comparison June 2009 (E)Audit Committee review and approval July 2009 (E)


Mark N. Chesla, Vice-President and Controller, AWWSCKathy L. Pape, President, Pennsylvania-American Water Company


September 2008


Recommendation VI-4 Modify the Internal Audit Department reporting structure so that it no longer administratively reports to the American Water CFO.

PAWC Response The Company rejects this recommendation.

Priority Medium

Discussion

The Company carefully considered the recommendation concerning Internal Audit’s reporting relationship and respectfully declines to make any changes to the existing reporting relationship.

Internal Audit reports directly to the Chair of the Audit Committee as is defined in the Audit Committee and Internal Audit Department charters. The VP of Internal Audit has a direct reporting relationship with the Chair of the Audit Committee and a dotted-line relationship with the CEO and CFO of American Water. There are checks and balances in the VP of Internal Audit’s reporting relationships. For example, all department resource needs, budgeting, planning, performance, etc. are consistently reviewed with the CEO and Chair of the Audit Committee throughout the year during established meetings, thus creating transparency. Also, the VP of Internal Audit meets with the Chair of the Audit Committee each quarter in a one-on-one session two weeks before the quarterly Audit Committee meeting to openly discuss audits conducted, results, related management actions and any other items of significance. In addition, the annual Internal Audit Plan that is approved by the Audit Committee is developed based on the Committee of Sponsoring Organizations’ (COSO) control model framework and prioritizes audits to be performed based on perceived risk. Inputs gathered and incorporated into the annual plan development process are past audits, changes in the organization, past or existing Company-related events (internal and external), financial materiality of


September 2008

Recommendation VI-4

operations, effectiveness of SOX controls, external auditor management comments, future company initiatives, etc. Information regarding these areas is collected through a number of channels throughout the year with more intense focus in September and October – i.e. Board member and executive interviews, financial statements, business performance.

The role the CFO has in its interaction with Internal Audit is more of a formal administrator to ensure various internal company requirements are signed off and included in the company’s formal processes (i.e. budget approval, performance review sign-off and filing, etc.). Also, per the Audit Committee Charter, the Audit Committee:

Reviews annually the budget, staffing, structure and performance of the Internal Audit function to identify opportunities to strengthen or improve the function.

Reviews and approves the Internal Audit annual audit plan at an established Audit Committee meeting

Meets with the VP of Internal Audit at least once a quarter to review Internal Audit staffing, activities, findings and management actions, as well as the status or progress against the approved audit plan. Also, during these meetings, the Audit Committee meets privately with the VP of Internal Audit during executive sessions.

Lastly, the VP of Internal reports each quarter to the Pennsylvania-American Water Company Audit Committee, which is made-up of independent outside PAWC Board members. The VP of Internal Audit reviews internal audit activities, results, and management actions that either directly or indirectly impact PAWC.

It is the Company’s position that all the above activities ensure enough transparency to mitigate any potential concerns regarding undue pressures from financial management to alter Internal Audit resources and/or efforts.


September 2008

Recommendation VI-4

Also, the current practice of having the VP of Internal Audit report directly to the Audit Committee along with the above mentioned activities, ensures Internal Audit’s independence and objectivity. Such a practice maintains compliance with the Institute of Internal Auditors (IIA) standards, the governing body for the Internal Audit profession.

As discussed above, Internal Audit’s reporting structure, activities and transparency ensure independence and objectivity, and mitigates any potential undue influence.


Milestone DateNot applicable


Andrew S. Twadelle, Vice President, Internal Audit, AWWSCKathy L. Pape, President, Pennsylvania-American Water Company


September 2008

Chapter VII

Corporate Culture, management Structure, and Staffing Levels


September 2008

Chapter VIICorporate Culture, Management Structure, & Staffing Levels

Recommendation VII-1 Expedite efforts to define and support a high-performing organizational culture.


Priority Medium

Discussion

PAWC’s senior management team, including HR, will work together to further clarify the values, strategies and leadership practices that support the Company’s efforts to serve its customers and key stakeholders. Plans will then be developed to communicate and reinforce those values, strategies and leadership practices.Operations will encourage the implementation of best operating practices throughout PAWC.


Milestone DateClarification of values, strategies & leadership practices March 2009 (E)Communication and reinforcement plans developed and implemented September 2009 (E)Implementation of best operating practices Ongoing


Carole Dascani, Regional Director, Human Resources, AWWSCWilliam Kelvington, VP Operations, Pennsylvania-American Water CompanyKathy L. Pape, President, Pennsylvania-American Water Company


September 2008


Recommendation VII-2 Implement an employee survey process with appropriate feedback and action – planning components.


Priority High

Discussion

American Water will conduct an employee engagement survey for all employees, including PAWC employees, prior to the end of 2008. Feedback and action-planning in response to the survey will commence in 2009.


Milestone DatePlan employee engagement survey September 2008 (E)Conduct survey December 2008 (E)Feedback and action planning March 2009 (E)




September 2008


Recommendation VII-3 Implement a formal management development process.


Priority Medium

Discussion

American Water’s corporate Human Resources Department will lead a system-wide initiative to implement a management development program subsequent to the executive-level leadership capability review, as set forth in the implementation plan for Recommendation II-13.

Resources will be identified, whether human, material, technology or consulting, to initiate and sustain this effort.


Milestone DateAssess management development needs March 2009 (E)Identify and obtain needed resources. June 2009 (E)Design program September 2009 (E)Pilot program December 2009 (E)




September 2008


Recommendation VII-4 Fill open organization development (OD) positions in American Water and assess the need for additional change management resources for PAWC.


Priority High

Discussion

American Water Water Works Service Company intends to conduct a search for a director of organization development (OD) in 2009. PAWC will continue to assess the need for additional change management resources.


Milestone DateFill AW director of organizational development position December 2009 (E)Assess additional change management resources needs in PAWC

ongoing through December 2009 (E)


Sean G. Burke, Senior Vice-President, Human Resources, AWWSCCarole Dascani, Regional Director, Human Resources, AWWSCKathy L. Pape, President, Pennsylvania-American Water Company


September 2008


Recommendation VII-5 Implement workforce management processes at PAWC.


Priority High

Discussion

PAWC agrees to implement workforce management processes, as outlined in the Company’s implementation plans for Recommendations II-12 and II-13.


Milestone DateComplete PAWC management capability review December 2009 (E)Pilot program June 2010 (E)Implement workforce planning / replenishment (see XIII-1) June 2010 (E)


Carole Dascani, Regional Director, Human ResourcesEmily A. Ashworth, VP and CIO, American Water Works Service CompanyKathy L. Pape, President, Pennsylvania-American Water Company


September 2008

Chapter VIII

Affiliate Interests


September 2008

Chapter VIIIAffiliate Interests

Recommendation VIII-1 Develop formal, comprehensive documentation for affiliate relationships and cost allocation, and assign the responsibility for affiliate transactions to the appropriate manager.


Priority High

Discussion

The Company will develop formal documentation for affiliate cost allocations. An inter-company team will be formed to review existing documentation for affiliate cost allocations and update existing documentation, as necessary. A final draft document will be presented to executive management for approval.

The Company believes that the assignment of a single person with responsibility to manage affiliate relationships is not feasible. These relationships include a number of different aspects, such as compliance with individual state reporting or other requirements associated with affiliated entities, state approval proceedings regarding affiliate transactions, relationships among affiliated non-regulated entities and others. The broad term “affiliate relationships/transactions” encompasses a number of functional areas with cross functional implications.


Milestone DateForm an inter-company team to update its existing documentation for cost allocations

December 2008 (E)

Inter-company team prepares the documentation of cost allocations

September 2009 (E)

Approval of final cost allocations documentation December 2009 E


September 2008

Recommendation VIII-1


John L. Settelen, Vice President, Planning & Reporting, AWWSCRochelle Kowalski, Vice-President, Finance, AWWSCKathy L. Pape, President, Pennsylvania-American Water Company


September 2008


Recommendation VIII-2 Perform a detailed analysis to verify that the use of the number of customers for allocating AWWSC costs among regulated utilities is reasonable and reasonably approximates the use of cost-causative factors; subsequently make modifications, as appropriate.


Priority Medium

Discussion

The Company will perform a detailed analysis to verify that using number of customers is reasonable in allocating costs among regulated utilities. The study will be led by the Corporate Financial Planning & Analysis Department. It will address the use of number of customers as an approximation (considering cost-benefit) to the use of other/multiple cost-causative factors.


Milestone DateDetermine approach and structure of study March 2009 (E)Complete study and determine whether modifications are appropriate.

June 2010 (E)

Timing of full implementation is dependent on the study Undetermined


John Settelen, Vice-President, Planning & Reporting, AWWSCRochelle Kowalski, Vice-President, Finance, AWWSCKathy L. Pape, President, Pennsylvania-American Water Company


September 2008


Recommendation VIII-3 Regularly evaluate the cost of services provided to PAWC by its affiliates so as to verify that PAWC ratepayers are not being harmed by charging these services at cost rather than market.


Priority Medium

Discussion

An evaluation of cost-to-market price for services provided to PAWC by AWWSC will be periodically conducted.


Milestones/Full Implementation DateComplete an evaluation of cost-to-market for services provided to PAWC by AWWSC

December 2009 (E)


Rochelle Kowalski, Vice-President, Finance, AWWSCKathy L. Pape, President, Pennsylvania-American Water Company


September 2008


Recommendation VIII-4 Update the AWWSC / PAWC affiliate agreement, as necessary, and submit it to the PA PUC for review and approval.


Priority High

Discussion

PAWC will submit to the PaPUC an informal information update regarding the AWWSC/PAWC affiliate agreement. Specifically, PAWC will provide a list of existing major services and current nomenclature. PAWC does not believe that a re-approval of the existing agreement or a wavier from filing a revised affiliate interest agreement for formal review and approval is necessary. AWWSC is providing essentially the same substantive services today that were contemplated when the services agreement was signed in 1989. The fact that tier 1 allocations are utilized for non-regulated companies does not render the existing agreement out of date. To the contrary, the existing agreement contemplates that the AWWSC can provide services to entities other than regulated water companies, and the tier 1 allocation ensures that a fair share of AWWSC costs are apportioned to the non-regulated entities.

The existing affiliate agreement was drafted to have the flexibility to accommodate reorganizations, changes in phraseology or nomenclature and technologies that occur routinely and in the normal course of business, and to accommodate the provision of services by AWWSC to entities other than regulated water companies. Rather than rendering the existing contract outdated, the flexibility inherent in the service agreement is a major strength of the contract. Nevertheless, it is appropriate to periodically update the description of services in a separate explanatory document, and PAWC will do so as necessary.


September 2008

Recommendation VIII-4


Milestone DateSubmit initial information update to the PUC February 2009 (E)Provide periodic updates As needed




September 2008


Recommendation VIII-5 Provide ongoing training updates to AWWSC employees on proper use of billing numbers for charging affiliates when reporting time.


Priority Low

Discussion

AWWSC is currently enhancing the training program. Once completed, it will be integrated into the orientation for new AWWSC employees and offered to existing AWWSC employees periodically as refresher training.


Milestone DateAWWSC completes training program enhancement March 2009 (E)AWWSC offers training to new and existing employees September 2009 (E)


John Settelen, Vice-President, Planning & Reporting, AWWSCKathy L. Pape, President, Pennsylvania-American Water Company


September 2008


Recommendation VIII-6 Regularly conduct internal audits of affiliate transactions and associated cost allocations.


Priority Medium

Discussion

AWWSC’s Internal Audit Department has incorporated into its annual audit plan a review of affiliate transactions and their allocations. A sample of the type and actual transactions will be reviewed for appropriateness based on the company’s policy and practices for capturing and allocating affiliate costs. The sample will be based on materiality and volume of transactions. The 2008 audit in this area is underway and results will be reported to American Water Works senior management with a copy to PAWC senior management as part of the normal Internal Audit reporting process.


Milestone DateNotification to AWWC management of Internal Audit’s review of affiliate allocation process

August 2008 (A)

Complete audit fieldwork, draft audit report September 2008 (E)Final audit report October 2008 (E)




September 2008

Chapter IX

Diversity and EEO


September 2008

Chapter IXDiversity and EEO

Recommendation IX-1 Update the diversity action plan, provide resources, and implement the plan in a timely manner and give consideration to a Pennsylvania-specific initiative.


Priority High

Discussion

PAWC will request that American Water update its Diversity Action Plan and seek executive support to identify and acquire the necessary resources to implement the plan. Depending on the outcome, PAWC will consider undertaking a Pennsylvania-specific initiative.


Milestone DateUpdate the American Water diversity action plan December 2008 (E)Determine resources March 2009 (E)Consider and plan a PA-specific initiative June 2009 (E)




September 2008


Recommendation IX-2 Complete efforts to assure data integrity in the JD Edwards human resources information system.


Priority High

Discussion

In order to enhance the integrity of data used to create EEO-1 Reports and Affirmative Action Plans, PAWC is taking the following actions.

The Company established a weekly change report to track changes, modifications and deletions to employee records in JDE. The report is reviewed by PAWC’s HR group, approved via signature by the director, human resources, and tracked by date.

Work to update locality and physical location codes within Edwards is complete. HR is currently in the process of obtaining updated contact information, including location, from all system users.

Employees will be surveyed to capture current, relevant information regarding race, veteran’s status and disability. Participation is strictly voluntary in accordance with applicable laws and regulations.


September 2008

Recommendation IX-2


Milestone DateReview changes made in JDE weekly to assure accuracy of additions, modifications or deletions

August 2008 (A)

Establish a control to assure JDE changes are tracked. Weekly report regarding missing or late change verification reports

August 2008 (A)

Update primary contact information and location October 2008 (E)Complete survey of employees regarding EEO and veteran data; load data into JD Edwards

March 2009 (E)


Carole Dascani, Regional Director, Human Resources, AWWSCEmily A. Ashworth, VP and CIO, American Water Works Service CompanyKathy L. Pape, President, Pennsylvania-American Water Company


September 2008


Recommendation IX-3 Develop and implement a standard data-verification process for EEO-1 reporting.


Priority High

Discussion

The HR group will develop and document a standard data verification process. PAWC’s HR manager will ensure this process is followed at all Company locations.


Milestone DateDevelop verification process December 2008 (E)Process used for 2009 EEO-1 reporting August 2009 (E)




September 2008


Recommendation IX-4 Require the AWWSC Human Resources Vice President to review and approve EEO-1 reports prior to submission.


Priority High

Discussion

EEO-1 Reports will be reviewed and approved by American Water’s senior vice- president, human resources, prior to submission to the EEOC.


Milestone DateAnnual SVP HR review and approval of EEO-1 reports September 2008 (E)


Sean Burke, Senior Vice-President, Human Resources, AWWSCCarole Dascani, Regional Director, Human Resources, AWWSCKathy L. Pape, President, Pennsylvania-American Water Company


September 2008


Recommendation IX-5 Define, document and implement more aggressive hiring plans for women and minorities.


Priority High

Discussion

PAWC will review its current outreach efforts to women and minorities. The Company will identify additional sources and methods that will provide more aggressive outreach and develop a plan to utilize those sources and methods. The Plan will include specific goals for outreach efforts; and results will be reported against those goals.


Milestone DateDevelop plan for additional outreach December 2008 (E)Implement plan Jan – Dec 2009 (E)Report results January 2010 (E)




September 2008


Recommendation IX-6 Formalize the supplier diversity program and explore the use of spend targets in the Supply Chain performance objectives.


Priority Medium

Discussion

American Water’s current supplier diversity policy statement will be updated and enhanced to formal policy status. Also, a practice will be developed to guide Company personnel involved with diverse suppliers in the procurement process, and to ensure compliance with the policy.

The Company rejects the use of spend targets as performance measures for Supply Chain’s strategic sourcing group. The Company explored spend targets in the past and found that a participative process works to increase the Company’s spend with diverse suppliers. Managing to spend targets could result in inappropriate contract awards, which should be based solely on the competitiveness and merits of the bids.


Milestone DateCreate supplier diversity policy and practice Jul – Sep 2008 (E)Policy and practice receive AWWSC Board approval September 2008 (E)Communicate and implement approved policy and practice

Oct – Nov 2008 (E)


Deborah A. Emposimato, Director, Supply Chain, American Water Works Service Co.Kathy L. Pape, President, Pennsylvania-American Water Company


September 2008


Recommendation IX-7 Submit comprehensive diversity reports to the PaPUC annually.


Priority High

Discussion

PAWC, like other major PaPUC jurisdictional utility companies, is encouraged to file annual reports to the Commission detailing diversity program activity pursuant to 52 Pa. Code § 69.809. It is the intent of the Company, which filed reports for the years 2006 and 2007, to continue to file comprehensive reports detailing both employee and procurement activities in accordance with filing guidelines.


Milestone DateComplete comprehensive diversity report annually Jan – MarFile comprehensive diversity report with the PaPUC annually

March


Carole Dascani, Regional Director, Human Resources, AWWSCo.Deborah A. Emposimato, Director, Supply Chain, American Water Works Service Co.Kathy L. Pape, President, Pennsylvania-American Water Company


September 2008

Chapter X

Customer Service


September 2008

Chapter XCustomer Service

Recommendation X-1 Invest in new customer interfacing technology, including IVR, electronic billing, and web self-service capabilities.


Priority Medium

Discussion

The Customer Service group is working with ITS and other groups to implement multiple parallel technology initiatives to address technology systems related to customer service. The approach is to tactically bring current technology components up to date while at the same time invest in new enabling strategic systems specifically around web self-service.

The first project is to address the call center system and surrounding related technologies. This will also enhance the IVR system. American Water is also conducting a planning effort to enable web self-service for our customers. Initial web self-service capabilities will provide web enablement for 80% of the call types the call center receives. These include online bill payment, account maintenance, turn on and turn off requests and account balance inquiry. In subsequent phases, electronic bill presentment, service requests and other online capability will be added.


Milestone DateComplete core call center system upgrades December 2008 (E)Core call center network infrastructure upgraded March 2009 (E)Web self-service planning and design September 2008 (A)Web self-service Phase 1 implementation September 2009 (E)Web self-service Phase 2 implementation March 2010 (E)


September 2008

Recommendation X-1


Emily A. Ashworth, VP and CIO, American Water Works Service CompanyMeg Neafsey, Interim Lead, Customer Service, AWWSCKathy L. Pape, President, Pennsylvania-American Water Company


September 2008


Recommendation X-2 Analyze employee turnover at the Pensacola Call Center and develop strategies to reduce turnover.


Priority High

Discussion

Effective immediately, exit surveys will be conducted to obtain real data on why employees are choosing to leave the Pensacola Call Center. To be effective in combating turnover, information is needed that is accurate and that explains the root cause(s) of why employees leave, not what they tell their supervisors or HR to avoid "burning bridges." This data will help the organization target development programs and develop the people that will have the most impact on turnover and retention. Once data analysis is complete, the American Water will develop strategies to reduce turnover.


Milestone DateComplete exit interviews for employees who have left within the past 18 months

December 2008 (E)

Analyze data and develop strategies March 2009 (E)Implementation of strategies June 2009 (E)


Kimberlee S. Legg, Director, Human Resources, Customer Service Centers, AWWSCMeg Neafsey, Interim Lead, Customer Service, AWWSCKathy L. Pape, President, Pennsylvania-American Water Company


September 2008


Recommendation X-3 Strengthen recruitment, selection, and training practices to improve the quality of new CSR hires.


Priority Medium

Discussion

The Human Resources and Training & Educational Development functions are undertaking a critical initiative in 2008 to produce significant increases in employee performance and retention and deliver the highest return on investment through improved hiring practices. Goals of the initiative include reducing interview time, turnover rate, absenteeism and job-related errors while increasing employee satisfaction and customer service ratings. To that end, the Company wants to ensure it is utilizing the appropriate pre-employment screening tests and employee assessment solutions that will assist the customer call center (CSC) in connecting hiring decisions with business results. The goal is to adequately predict on-the-job performance and support fair hiring practices through cognitive and job fit assessments.

The Human Resources Department within the CSC will be evaluating a minimum of four (4) vendors. A summary report with recommendations will be presented to the director of Human Resources. The summary report, at a minimum, will include the pros/cons of each vendor, scope of work to implement, cost of execution and references/results from companies who have utilized the assessment tools. Vendor tools to be utilized for new hires, as well as assessing the necessary competencies to advance to billing, collections and supervisor positions, will be analyzed.


September 2008

Recommendation X-3


Milestone DateEvaluation of vendors November 2008 (E)Presentation of summary report December 2008 (E)Decision regarding ‘path forward’ December 2008 (E)Implementation January 2009 (E)


Kimberlee S. Legg, Director, Human Resources, Customer Service Centers, AWWSCMeg Neafsey, Interim Lead, Customer Service, AWWSCKathy L. Pape, President, Pennsylvania-American Water Company


September 2008


Recommendation X-4 Develop a Pennsylvania-specific customer service scorecard and regularly report associated metrics to the PAWC President.


Priority High

Discussion

The Company agrees that PAWC-specific metrics and reporting should be provided. The ability to capture and report such data is being considered as part of American Water’s overall information technology plan. The implementation time frame for this recommendation will be aligned with the implementation time frame for the overall technology plan to assure alignment of functionality and related components.

In the meantime, the Company expects to implement an interim PAWC-specific scorecard that will capture and report some meaningful customer service metrics. The metrics will measure the performance of all aspects of customer service, from the call center to field operations.


Milestone Date Design interim scorecard criteria December 2008 (E)Test and begin interim tracking of PA scorecard metrics June 2009 (E)


Meg Neafsey, Interim Vice President Customer Service, AWWSCTraci A. Follmer, Regional Director, Customer Relations, AWWSCKathy L. Pape, President, Pennsylvania-American Water Company


September 2008


Recommendation X-5 Perform an analysis of the increase in complaint trends that PAWC is currently experiencing.


Priority Medium

Discussion

PAWC will perform an analysis of the increase in complaint trends as described, below.

The first activity is to extract and categorize complaints utilizing a database indicating the types of complaints received. Each account will be further analyzed to determine the root cause contributing to the complaint. This will be accomplished by reviewing Company reports and information captured in the electronic customer information system (ORCOM).

The second step will be to develop, evaluate and implement the most effective solutions to mitigate the increased trend in complaints. Solutions will be developed to address each category, accordingly, and will require involvement from PAWC operations personnel, customer relations, customer service representatives at the call center, and other key stakeholders.

The timeframe to implement solutions will vary based upon the category and solution chosen.


September 2008

Recommendation X-5


Milestone DateExtract and categorize complaints December 2008 (E)Develop and evaluate solutions September 2009 (E)


Traci A. Follmer, Regional Director, Customer Relations, AWWSCMeg Neafsey, Interim Lead, Customer Service, AWWSCKathy L. Pape, President, Pennsylvania-American Water Company


September 2008


Recommendation X-6 Perform an analysis of the growth in PAWC disputes.


Priority Medium

Discussion

The Company will perform an analysis of disputes as recommended and institute measures to improve the handling of disputes by Pennsylvania customers.

To improve the handling of disputes by PAWC’s customers, five new positions have been added at the call center. The positions were filled by individuals who are former customer service representatives with Pennsylvania-specific experience. The group is called the Pennsylvania Escalations Group, and now performs the following functions:

Outbound calling to customers who have unanswered questions about billing charges, fees, etc.

Waiving late charges, service activation fees, and issuing courtesy adjustments, when appropriate. The group conducts outbound calling to these customers, informing them of the decision and assessing customer satisfaction with the actions taken.

Outbound calling to customers who have been given billing adjustments to determine if the customers are satisfied with the billing department decision.

Outbound calling to customers who have been given adjustments by the collections department, such as transfer of funds, to determine if customers are satisfied with the action.


September 2008

Recommendation X-6

Expediting resolution of field issues, such as restorations, to ensure that customer concerns are addressed.

Issuing Utility Reports to customers when actions taken by PAWC are not satisfactory to the customer even though the Company took all reasonable and appropriate actions to satisfy the customers’ concerns.


Milestone DateGather available data on disputes from 2002 to present October 2008 (E)Review data and identify processes and practices that contribute to customer disputes

November 2008 (E)

Review identified processes and potential changes that could reduce disputes

December 2008 (E)

Full Implementation March 2009 (E)Explore potential practice and process improvements to reduce customer disputes

Ongoing

Continue to track disputes and contributing issues, and compare historical results to results following implementation of Pennsylvania Escalations Group

Ongoing

Continue to review dispute issues for potential change and improvement

Ongoing


Meg Neafsey, Interim Lead, Customer Service, AWWSCKathy L. Pape, President, Pennsylvania-American Water Company


September 2008


Recommendation X-7 Initiate actions to lower the number of over-estimates in meter reading.


Priority High

Discussion

The strategy to initiate actions to lower the number of over-estimates in meter reading is to partition the effort into three components. The objective of the first component will be to complete investigative discussions and root cause analysis of the elements contributing to the over-estimates (system estimating routines, unit of measure discrepancies, frequency of meter reading, etc.).

The second component will be to develop, evaluate and determine potential solution alternatives and to select the most effective option to lower the number of over-estimates in meter reading (modify current estimating routine, implement a new estimating routine, implement AMI, etc.).

The final component will be to implement a solution to remediate issues surrounding the high number of over-estimates in meter reading. This solution will be delivered using a phased project lifecycle approach of Initiation, Planning, Analysis/Design, Build/Configure, Test, Deploy, and Close.

All three components of this effort require involvement and feedback from the user community including Field Service representatives in operations, Customer Relations, and the CSC – Billing Service team. The implementation timeframe will vary based upon the solution chosen.


September 2008

Recommendation X-7


Milestone DateInvestigative discussions complete October 2008 (E)Problem root cause analysis complete December 2008 (E)Solution alternative analysis complete January 2009 (E)Development of alternative estimates complete February 2009 (E)Solution selection complete March 2009 (E)Implementation planning complete April 2009 (E)Full implementation Will vary based on

final solution decision


Emily A. Ashworth, VP and CIO, American Water Works Service CompanyTraci A. Follmer, Regional Director, Customer Relations, AWWSCKathy L. Pape, President, Pennsylvania-American Water Company


September 2008


Recommendation X-8 Complete the upgrade project for Advantex.


Priority High

Discussion

The strategy for completing the Ventyx (formerly Advantex) upgrade requires partitioning the project into two components. The objective of the first component will be to complete an analysis of the ITS operating environment/infrastructure requirements to support the Ventyx Service Suite R8.x upgrade and then address identified deficiencies and gaps. The operating environment/infrastructure analysis will include, but is not limited to, hardware, software, operating systems, storage, network, high availability and security refinement.

The second component will be to implement the Ventyx Service Suite R8.x upgrade to include both feature/functionality enhancements contained within the application as well as additional functional requirements stated in the business requirements. The initial work will require extensive involvement and feedback from the user community including field service representatives in operations, Field Resource Coordination Center (FRCC) personnel, and customer service representatives at the call centers.

The Ventyx upgrade project will be delivered using a phased project lifecycle approach of Initiation, Planning, Analysis/Design, Build/Configure, Test, Deploy, and Close.

It must be noted that most of the planning and analysis activities for both components of the project can occur in parallel through coordination of activities and cross-flow of information. However, the build/configure and subsequent lifecycle phases for the implementation of the feature/functionality enhancements of the Ventyx Service Suite R8.x upgrade cannot be delivered until the operating environment/infrastructure environments are in place.


September 2008

Recommendation X-8


Milestone DateBusiness Case complete October 2008 (E)Funding approval October 2008 (E)Planning complete December 2008 (E)Design complete February 2009 (E)Development complete April 2009 (E)Testing complete May 2009 (E)Training complete July 2009 (E)Pilot complete August 2009 (E)Full implementation December 2009 (E)


Emily A. Ashworth, VP and CIO, American Water Works Service CompanyTraci A. Follmer, Regional Director, Customer Relations, AWWSCKathy L. Pape, President, Pennsylvania-American Water Company


September 2008

Chapter XI

Operational Performance


September 2008

Chapter XIOperational Performance

Recommendation XI-1 Develop a comprehensive damage prevention program.


Priority Medium

Discussion

Pennsylvania-American Water Company (PAWC) will develop and implement a comprehensive damage prevention program to specifically address damages to subsurface facilities. Damage encompassed by the program will include third-party damage to Company-owned facilities and damage to third-party facilities that is a result of PAWC’s activities.

PAWC will review, build upon and improve its current Buried Facility Damage Report procedure. Development and implementation of the business process will consider and address the following items.

Development of a procedure and system to measure and track the volume of utility locations performed by the company on a district basis. The procedure shall also measure the volume of locates where damage has occurred to measure the effectiveness of the program. It is expected that this procedure will incorporate statistics from the Pennsylvania One Call system and internal measures to determine the overall effectiveness.

Development of a Buried Facility Damage Report to document and track damage to the facilities. Refinement of the report will specifically address the applicable items outlined in Finding XI-2. These items include:

o Responsible party for initiating the reporto System utilized and the responsible party for tracking the reporto Procedure utilized and the responsible party for tracking restitution for

damages resulting from the incident


September 2008

Recommendation XI-1

o Consideration of the coding types identifiedo Implementation of the procedure in each PAWC districto Utilization of the program on a statewide and/or company level

It is anticipated that the implementation plan will result in a business process that will utilize a Buried Facility Damage Report to document the incident. The process shall then track the status of the incident and restitution utilizing a database to efficiently manage the process. During the development of the business process, alternative options will be explored and considered to enhance and improve efficiencies of the company’s plan.


Milestone DateDevelopment of a detailed Implementation plan for the business process

March 2009 (E)

Rollout of the process throughout each PAWC district June 2009 (E)Full implementation of the program September 2009 (E)


William C. Kelvington, Vice-President, Operations, PAWCKathy L. Pape, President, Pennsylvania-American Water Company


September 2008


Recommendation XI-2 Improve business-continuity planning.


Priority Medium

Discussion

PAWC will continue to make improvements to business continuity planning. The Company maintains plans to ensure disruption to water service is minimized. Contractor lists, extra materials, staffing plans, use of portable water facilities, media communications, etc. are all part of the plans.

Operation and maintenance (O&M) manuals and emergency response plans are tested annually. Business continuity processes are contained within these manuals. PAWC’s annual tabletop exercises specifically discuss the above as part of the Company’s emergency response and business continuity efforts.

PAWC will review potential deficiencies in business continuity processes via the annual tabletop exercises. The Company will ensure that any deficiencies identified are discussed and addressed as needed in subsequent annual tabletop exercises.


Milestone DateComplete annual tabletop exercises. November 2008Review tabletop exercise report with recommendations. March/April 2009Include scenarios to address deficiencies. August/September

2009


John C. Ihli, Regional Director, Operational Risk Management, AWWSCKathy L. Pape, President, Pennsylvania-American Water Company


September 2008


Recommendation XI-3 Perform a review and incorporate better technologies for preparing, distributing, and updating the emergency and the operations and maintenance manuals, including the intranet site.


Priority Medium

Discussion

Pennsylvania-American Water Company (PAWC) is confident that its Emergency Response Plans (ERPs) and Operations and Maintenance Manuals (O&M Manuals) meet the regulatory requirements of the Pennsylvania Department of Environmental Protection (DEP). However, there may be opportunities to improve the consistency and accessibility of these documents within the Company.

PAWC will perform an initial review of the ERPs and O&M Manuals to evaluate the consistency of content and format. Opportunities to improve the consistency of these documents will be identified, including standardized table of contents and table of exhibits. The evaluation and any subsequent revisions to the documents will be made concurrently with the scheduled annual updates required by DEP, which are done in the first quarter of the calendar year.

PAWC will also investigate potential document-management systems for maintaining the information. The investigation will include an evaluation of commercial, off-the-shelf (COTS) software, and the Company’s Quickplace intranet site where some of the standard documents are presently stored.

Depending on the results of the above evaluation, the Company will implement a new document management system or enhance the use of the current Quickplace site. The desired outcome will be to provide electronic sharing of the plans and manuals for easy, quick access across the state operations.


September 2008

Recommendation XI-3


Milestone DatePerform initial review of document consistency March 2009 (E)Evaluate document-management systems March 2009 (E)Revise documents to incorporate standardization recommendations

March 2010 (E)

Implement document-management system or other means for electronic sharing of documents

March 2010 (E)


William C. Kelvington, Vice-President, OperationsEmily A. Ashworth, VP and CIO, American Water Works Service CompanyKathy L. Pape, President, Pennsylvania-American Water Company


September 2008


Recommendation XI-4 Continue to strengthen the unaccounted-for water program.


Priority High

Discussion

PAWC agrees that additional work is required to reduce non-revenue water (NRW) and, accordingly, unaccounted-for-water across the Company. In the most recent capital expenditure budgeting process (for 2009), and moving forward in the Five-Year Plan, the Company has emphasized the replacement of leaking waterlines within districts having high break levels and/or high levels of NRW.

One way this is being accomplished is through an increase in staffing levels. In 2008, authorization was given to add additional staff in the Pittsburgh District to facilitate increased waterline replacement activities.

As additional leak/break data history becomes available it will be incorporated into the capital expenditure program. The Company agrees that a robust database is needed to replace the linked spreadsheets and various databases currently in use throughout the state that are repositories for most of the NRW data. A better database will provide consistency to the data being generated and allow for better comparisons across various parameters.

Having this information in a common database repository will assist management in comparing and contrasting districts across the state. While it is clear that certain districts have significantly higher numbers of leaks/breaks, there are also various reasons why this is true. Factors such as age of pipe, pipe material, system pressures, aggressive soil conditions, etc., can all have a major impact on the number of leaks and breaks. A central data base will allow for the collection of more raw data to assist in the evaluation process.


September 2008

Recommendation XI-4

The creation of reduced pressure zones, as well as district meter areas (or zoned metering areas), have proven to assist in successfully reducing NRW.


Milestone DateNRW database development March 2009 (E)NRW database full implementation across PAWC December 2009 (E)Analyze leak\break history by district to assist in budgeting decisions OngoingAnalyze operational staffing relative to NRW Progress Annual/Yearly


William C. Kelvington, Vice-President, OperationsKathy L. Pape, President, Pennsylvania-American Water Company


September 2008


Recommendation XI-5 Incorporate the methodologies in the currently evolving UFW spreadsheets into a more appropriate technology; specifically, a backend database with a client server or web interface.


Priority High

Discussion

As PAWC continues to develop the spreadsheets and enhances the business process, ITS will continue to build the technology foundation. ITS is in the process of establishing technology standards and capabilities that will facilitate the transition from a spreadsheet-based prototype to a database-driven ITS managed application service. American Water looks to begin this transition in 2009.


Milestone DateFinalized spreadsheet prototype March 2009 (E)Establish applicable ITS standards and capabilities June 2009 (E)Begin transition from prototype to ITS managed services September 2009 (E)Begin GIS & CMMMS Integration March 2010 (E)




September 2008


Recommendation XI-6 Refine the reporting of unaccounted-for water to the PaPUC.


Priority Medium

Discussion

The recommendation appears to not agree with the concept of unavoidable annual real losses (UARL) within the Company’s non-revenue water (NRW) and unaccounted-for water (UFW) calculations as reported annually to the Commission. The Company rejects this portion of the recommendation for several reasons. The UARL concept is an accepted practice world-wide in the water business. The American Water Works Association, which is the water industry trade organization, has embraced the UARL concept as well. The AWWA Research Foundation (AWWARF) is preparing to release its final draft of No. 4109, Water Accountability & Loss Control Report, which includes the UARL concept.

Given the parameters of water flowing through a pipeline with the connections and types of materials involved, it is unavoidable that some losses will occur even if there are no other NRW factors involved. The overall tolerances do not allow for a completely “tight” water distribution system. The UARL, therefore, makes allowances for these unavoidable real losses through a calculation that factors in miles of waterline, number of connections, average service connections length, and average system pressure.

Additionally, Schedule 500 contained in the PUC’s annual report, titled “Water Delivered Into System During Year,” agrees with this concept in that it allows for a UARL calculation to be included in the reporting of water system delivery. Therefore, the Company believes its methodology for calculating Commission-defined UFW has been applied correctly.


September 2008The Company agrees that further investigation needs to occur with respect to the average system pressure and average service line length calculations. In addition,

Recommendation XI-6

UARL should also be calculated on a district basis as well as a state-wide basis. The Company has used an average pressure of 100 psi as a reasonable approximation state-wide of system pressures. This number should be confirmed by a more in-depth analysis. Calculating a district-specific UARL will allow more meaningful comparisons within the Company to focus on systems with problematic NRW issues.


Milestone DateVerify average system pressure statewide March 2009 (E)Calculate UARL by district September 2009 (E)


William C. Kelvington, Vice-President, Operations, PAWCKathy L. Pape, President, Pennsylvania-American Water Company


September 2008


Recommendation XI-7 Investigate the reasons for the increase in overtime that has occurred in the Production Department.


Priority Medium

Discussion

PAWC will investigate the apparent increase in overtime that occurred in the Production Department; specifically, in the districts in the eastern part of the state. The Company will analyze overtime hours for the last five years in each of the eastern districts. If the analysis confirms the apparent increase, reasons for the increases will be determined and potential solutions developed. To the extent that the increased overtime is caused by factors that could be addressed by increasing staffing levels in individual districts, plans for additional hiring will be developed and implemented.


Milestone DateEvaluate overtime hours December 2008 (E)Determine cause and develop potential solutions, if necessary

March 2009 (E)

Develop additional hiring plans, if necessary June 2009 (E)Implement additional hiring plans, if necessary September 2009 (E)


Daniel J. Hufton, Senior Director, Production, PAWCWilliam C. Kelvington, Vice-President, Operations, PAWC


September 2008Kathy L. Pape, President, Pennsylvania-American Water Company


Recommendation XI-8 Implement standard systems for monitoring and reporting key statistical information in network operations.


Priority High

Discussion

This effort will entail three key initiatives over the next 2-4 years. The first key initiative is CMMS, which will be rolled out over the next 3-4 years. The second initiative is replacement of the Company’s operational parameters database (OPD). The third initiative is the integration of GIS. The replacement of OPD will have multiple phases and address operational reporting needs, enterprise reporting needs as well as business intelligence and information analysis needs. ITS is establishing an operational reporting standard and set of enabling technologies.


Milestone DateCMMS planning September 2008 (A)CMMS rollout prioritization December 2008 (E)CMMS initial rollout / pilot September 2008 (E)CMMS rollout complete September 2011 (E)Operational reporting standards March 2009 (E)Operational reporting capability September 2010 (E)GIS planning March 2009 (E)GIS rollout prioritization September 2009 (E)GIS Initial rollout / pilot September 2009OPD data migration March 2011GIS rollout complete September 2011


September 2008

Recommendation XI-8


Emily Ashworth, VP and CIO, American Water Works Service Company William C. Kelvington, Vice-President, Operations, PAWCKathy L. Pape, President, Pennsylvania-American Water Company


September 2008

Chapter XII

Phase III Water Operations – Distribution Business Systems


September 2008

Chapter XIIPhase III Water Operations – Distribution Business Systems

Recommendation XII-1 Structure the design of business applications for the distribution operations function as shown in Exhibit XII-5.


Priority High

Discussion

The fundamental components of Exhibit XII-5 are in alignment with the Company’s business process model. American Water will assess the gaps between Exhibit XII-5 and its business process model.

ITS is planning an application portfolio review (APR) to determine the gaps between the Company’s current applications and its potential process model. While this is performed, a parallel initiative to establish application integration standards and capabilities as well as operational reporting standards and capabilities will be conducted. The APR assessment, along with the other ITS efforts, will be combined with the current GIS, CMMS, asset management and workforce distribution efforts. This combined program is identified as the operational productivity suite (OPS). In a separate phase, OPS will ultimately be integrated with the ERP and CRM systems.


September 2008

Recommendation XII-1


Milestone DateHigh-level business process model March 2009 (E)APR March 2009 (E)Application integration capability June 2009 (E)Start GIS rollout March 2009 (E)Start CMMS rollout December 2008 (E)Conclude GIS rollout March 2012 (E)Conclude CMMS rollout December 2012 (E)Leak tracking database (Phase I) December 2009 (E)Reporting March 2010 (E)OPS December 2010 (E)




September 2008


Recommendation XII-2 Develop the leak tracking and reporting database as a part of a larger, long-term effort to integrate with other supporting performance reporting business processes such as NRW, permits, pavement cuts tracking, and hit facilities.


Priority High

Discussion

Leak tracking will be addressed as part of ITS’ Operational Productivity Suite (OPS), as well as part of the operational reporting capability being developed by ITS. The Company will conduct a planning, design, development and implementation effort to move from its many leak tracking systems to a leveraged Managed Services built upon ITS standard technologies and capabilities. Design and implementation of this system will be based on American Water technology standards and integrated with the enterprise architecture plan.


Milestone DateInitiate planning effort March 2009 (E)Initiate design effort June 2009 (E) Initiate development effort September 2009 (E) Initiate rollout effort December 2009 (E)




September 2008


Recommendation XII-3 Adopt the multi-organizational reporting structure (upon which CMMS is being implemented) across both the workforce management business process and supporting performance business processes.


Priority High

Discussion

The fundamental components of Exhibit XII-5 are in alignment with the Company’s business process model. ITS is planning an application portfolio review (APR) to determine the gaps between the Company’s current applications and its potential process model. While this is performed, a parallel initiative to establish application integration standards and capabilities as well as operational reporting standards and capabilities will be conducted. The APR assessment, along with the other ITS efforts, will be combined with the current GIS, CMMS, asset management and workforce distribution efforts. This combined program is identified as the operational productivity suite (OPS). In a separate phase, OPS will ultimately be integrated with the ERP and CRM systems.

In addition to these efforts, ITS designed and maintains an Org Unit data model describing the organizational units within American Water. This Org Unit data model is being used for CMMS and is leveraged across other efforts as well. This model will continue to be developed as part of the master data management strategy to address workers and employees and the ultimate integration with an ERP and HRIS solutions.


September 2008



Milestone DateHigh-level business process model March 2009 (E)APR March 2009 (E)Application integration capability June 2009 (E)Start GIS rollout March 2009 (E)Start CMMS rollout December 2008 (E)Conclude GIS rollout March 2012 (E)Conclude CMMS rollout December 2011 (E)Leak tracking December 2009 (E)




September 2008


Recommendation XII-4 Engage AWWSC ITS to assist in the development of the supporting performance reporting process systems identified in Exhibit XII-5.


Priority High

Discussion

ITS is engaged in discussions at all levels of management regarding the operational productivity suite (OPS). ITS hired new resources and will add staff to engage in this effort as well as other strategic efforts.

ITS is setting American Water enterprise reporting standards and creating an enterprise reporting capability. This capability will be built based on ITS reporting standard technologies, approaches and tools. The reporting capability will utilize separate operational data stores to bring information together from different sources. This capability will enable a system to be built to support performance reporting.


Milestone DateHire director of enterprise architecture March 2008 (A)ITS assigned data architect to effort September 2008 (A)Hire enterprise application solution architect December 2008 (E)Enterprise reporting tools selected March 2009 (E)Reporting requirement analysis December 2009 (E)Enterprise reporting capability December 2010 (E)


September 2008





September 2008


Recommendation XII-5 Address the deficiencies in the current plans regarding the incorporation of leak tracking and reporting into the design of CMMS.


Priority High

Discussion



Application analysis results will determine how best to pursue the ultimate leak tracking reporting design and migration of data from existing systems. The Company will determine what solution is required and appropriate for leak tracking and which will be appropriate for leak reporting.


September 2008



Milestone DateHigh-level business process model March 2009 (E)APR March 2009 (E)Application integration capability June 2009 (E)Start GIS rollout March 2009 (E)Start CMMS rollout December 2008 (E)Conclude GIS rollout March 2012 (E)Conclude CMMS rollout December 2011 (E)Leak tracking (Phase I) December 2009 (E)


Raymond J. Delo, Senior Director, Maintenance Services, AWWSCWilliam C. Kelvington, Vice-President, Operations, PAWCEmily A. Ashworth, VP and CIO, American Water Works Service CompanyKathy L. Pape, President, Pennsylvania-American Water Company


September 2008


Recommendation XII-6 Consider integration of leak tracking and reporting with the eventual GIS system versus integration with CMMS.


Priority Medium

Discussion



Application analysis results will determine how best to pursue the ultimate leak tracking reporting design and migration of data from existing systems. This will combine the GIS and CMMS efforts with the leak tracking efforts.


September 2008



Milestone DateHigh-level business process model March 2009 (E)APR March 2009 (E)Application integration capability June 2009 (E)Start GIS rollout March 2009 (E)Start CMMS rollout December 2008 (E)Conclude GIS rollout December 2012 (E)Conclude CMMS rollout December 2012 (E)Leak tracking database (Phase I) December 2009 (E)Reporting March 2010 (E)OPS December 2010 (E)


Raymond J. Delo, Senior Director, Maintenance Services, AWWSCWilliam C. Kelvington, Vice-President, Operations, PAWCEmily A. Ashworth, VP and CIO, American Water Works Service CompanyKathy L. Pape, President, Pennsylvania-American Water Company


September 2008


Recommendation XII-7 Ensure that the leak history is migrated into the eventual leak tracking and reporting database from all existing databases with good data.


Priority High

Discussion

The fundamental components of Exhibit XII-5 are in alignment with the Company’s business process model. American Water will assess the gaps between Exhibit XI-5 and its business process model.


Leak tracking will be addressed as part of ITS’ OPS, as well as part of the operational reporting capability being developed by ITS. The Company will conduct a planning, design, development and implementation effort to move from its many leak tracking systems to a leveraged Managed Services built upon ITS standard technologies and capabilities. The design and implementation of this system will be based on American Water technology standards and integrated with the enterprise architecture plan.

Application analysis results will determine how best to pursue the ultimate leak tracking reporting design and migration of data from existing systems. Leak tracking history data will be loaded into a historical data repository to allow for historical summary-level reports.


September 2008



Milestone DateHigh-level business process model December 2008 (E)APR March 2009 (E)Application integration capability June 2009 (E)Start GIS rollout March 2009 (E)Start CMMS rollout December 2008 (E)Conclude GIS rollout March 2012 (E)Conclude CMMS rollout December 2011 (E)Load leak history into data repository December 2009 (E)Leak history reporting March 2010 (E)OPS December 2010 (E)




September 2008


Recommendation XII-8 Electronically connect leak and other records to the main prioritization model.


Priority Medium

Discussion

The fundamental components of Exhibit XII-5 are in alignment with the Company’s business process model. American Water will assess the gaps between Exhibit XI-5 and its business process model.


Leak tracking is a key component of OPS. Leak tracking and history will be combined with the reporting and analytics of mains failure history. Failure history reporting and analytics will be built on the standard reporting framework defined by ITS.


September 2008



Milestone DateHigh-level business process model December 2008 (E)APR March 2009 (E)Application integration capability June 2009 (E)Start GIS rollout March 2009 (E) Start CMMS rollout December 2008 (E)Conclude GIS rollout March 2012 (E) Conclude CMMS rollout December 2011 (E) Load leak history into data repository December 2009 (E)Leak history reporting March 2010 (E)Failure history reporting June 2010 (E)OPS December 2010 (E)


Emily A. Ashworth, VP and CIO, American Water Works Service CompanyDavid R. Kaufman, Vice-President, Engineering, PAWCKathy L. Pape, President, Pennsylvania-American Water Company


September 2008


Recommendation XII-9 Allocate infrastructure improvement budgets on a state-wide basis, and not just district-by-district.


Priority High

Discussion

The Company’s performance-based approach to asset management is based on numerous factors, such as current and future service needs, physical condition assessment, economic and risk factors, performance characteristics, and regulatory compliance. A statewide prioritization of main replacement projects will occur and consider these factors and other issues, such as coordination with municipalities and other utilities in joint improvement projects, when PAWC makes determinations of funding allocations for infrastructure investment.


Milestone DateFull implementation January 2009 (E)


David R. Kaufman, Vice-President, Engineering, PAWCKathy L. Pape, President, Pennsylvania-American Water Company


September 2008


Recommendation XII-10 Consider the eventual implementation of the parts and inventory component of CMMS.


Priority Medium

Discussion



As the OPS and ERP efforts evolve in their design and planning phase, the integrated solution regarding inventory management will be established.


September 2008



Milestone DateHigh-level business process model March 2009 (E)APR March 2009 (E)Application integration capability June 2009 (E)Start GIS rollout March 2009 (E)Start CMMS rollout December 2008 (E)Conclude GIS rollout March 2012 (E)Conclude CMMS rollout December 2012 (E)Leak tracking database (Phase I) December 2009 (E)Reporting March 2010 (E)OPS December 2010 (E)


Emily A. Ashworth, VP and CIO, American Water Works Service CompanyWilliam C. Kelvington, Vice-President, Operations, PAWCRaymond J. Delo, Senior Director, Maintenance Services, AWWSCKathy L. Pape, President, Pennsylvania-American Water Company


September 2008


Recommendation XII-11 Recognize that a more robust distribution workforce management application may eventually be required to support future business processes.


Priority Low

Discussion

The combined efforts regarding GIS, CMMS, asset management and workforce distribution is part of ITS’ operational productivity suite (OPS) and is managed as one large effort. As the Company determines solutions to the needs of each area it will look to determine the appropriate implementation for workforce distribution. As described, workforce distribution may be part of CMMS, but the Company may look to alternatives as it establishes master data around employees. The Company will look to leverage the ERP and ultimate HRIS solution as well.


September 2008



Milestone DateHigh-level business process model March 2009 (E)APR March 2009 (E)Application integration capability June 2009 (E)Start GIS rollout March 2009 (E) Start CMMS rollout December 2008 (E)Conclude GIS rollout March 2012 (E) Workforce management requirements December 2009 (E)Alternative analysis December 2009 (E)Conclude CMMS rollout December 2012 (E) Reporting March 2010 (E)OPS December 2010 (E)Start ERP planning March 2009 (E)


Emily A. Ashworth, VP and CIO, American Water Works Service CompanyCarole Dascani, Regional Director, Human Resources, AWWSCWilliam C. Kelvington, Vice-President, Operations, PAWCKathy L. Pape, President, Pennsylvania-American Water Company


September 2008

Chapter XIII

Phase III Human Resources


September 2008

Chapter XIIIPhase III Human Resources

Recommendation XIII-1 Provide resources and perform timely implementation of the six deliverables developed as part of the Phase III project.


Priority Medium

Discussion

Although the recommendation references six deliverables, they can be consolidated into three tasks requiring implementation. Task areas include a human capital scorecard, workforce planning and replenishment, and strategic alignment. A plan summary for each task follows.

Human Capital Scorecard Individual measures on this scorecard were identified in Phase III work and will be implemented at various times.

Workforce Planning and Replenishment Start of the project is contingent upon obtaining necessary human and financial resources. Resources are anticipated to be approved in the fourth quarter of 2008, at which time the detailed project plan will be updated. Phase I of this project is estimated to take a total of fifteen months.

Strategic Alignment The strategy matrix that was delivered as part of the Phase III work incorporates other recommendations, including workforce planning and replenishment and leadership competencies. The matrix includes a list of other Human Resources objectives tied to the strategic focus of PAWC. Human Resources will work with PAWC senior management to develop a detailed plan to achieve those objectives not covered under other recommendations contained in the audit.

PAWC anticipates that implementation of this recommendation will require significant additional financial and/or human resources. As noted in Finding XIII-2, PAWC Human Resources does not have the resources necessary to implement all


September 2008

Recommendation XIII-1

of the projects defined in the Phase III HR effort. Although the Company accepts this recommendation, the timing of implementation will be dependent on the magnitude of the expense that will be incurred. Task implementation dates are estimated contingent upon obtaining the necessary resources.


Milestone DateImplement human capital scorecard December 2009 (E)Implement workforce planning and replenishment June 2010 (E)Develop detailed strategic alignment plan March 2009 (E)Implement detailed strategic alignment plan (excludes workforce planning and replenishment) September 2009 (E)



Documents

INTRODUCTION AND ACKNOWLEDGEMENT · Web viewIntroduction 1. Chapter II – Executive Management, External Relations, and Human Resources 3. Chapter III – Financial Management