June 21st, 2010
Commentary: ‘I am not in the firing business’

GUEST COMMENTARY by JUAN GARZA
Former General Manager, PEC

EDITOR’S NOTE: Delivered at the Pedernales Electric Cooperative’s annual membership meeting in Johnson City on June 19.

First and foremost, this is truly a historic day for the Pedernales Electric Cooperative. It is a day which many in this room forced to happen. Today, we acknowledge that the Cooperative form of governance works when the members make it work. Today, with the expected passage of the Member Bill of Rights, we will have taken bold steps to protect this Cooperative from ever reverting to a day when members will not be in control.

Today is a day to celebrate that the PEC finally has a Board of Directors openly and democratically elected by its members.

Today is the day that members have successfully secured the governance of their Cooperative through this Bill of Rights. PEC is now recognized as a model for open government for all electric cooperatives.

I would like to ask you all to take a moment and congratulate all of the members who sought office. Also, please recognize yourselves as members for what has been achieved here today. You can applaud!

PEC is now fully in the hands of its membership. Frankly, this is the day I have been waiting for since I was hired in February of 2008.

My role here today is to provide a report on the state of your cooperative. I can say without any reservation that your Pedernales Electric Cooperative is sound both financially and operationally. The accomplishments I list here are not my accomplishments, but the accomplishments of the most dedicated and service oriented group of employees I have ever been associated with. Give them a goal and they will perform. We saw that in how they performed on the Key Performance Indicators last year.

This year we are providing fully audited financial statements that clearly state that we generated over $56 million in margins last year at a time when we reduced rates. This is the second largest margin in PEC’s history.

We have improved our owners’ equity ratio – that is the portion of the system that you own — from 17 percent to 24 percent and that has grown to 25 percent currently. In May, PEC announced that it had received a stable rating from Fitch, we were reducing rates, and we delayed borrowing $25 million dollars in debt that had been previously planned.

In that thorough and independent review of our financial position, Fitch rating service of New York upgraded our bond rating with the rest of our industry to an AA- rating. Fitch issued a press release stating, and I quote, “The Cooperative has added an internal auditing function, implemented more detailed accounting mechanisms, and developed more comprehensive budgeting and capital improvement planning systems. Each of these measures appears to be restoring member confidence.”

Over the past two and a half years, PEC has cut recurring costs amounting to more $20 million. We strengthened our debt service coverage last year, and as a result of all this hard work, PEC received two clean financial audits over the past 12 months.

By all measures this Cooperative has become a stronger, more robust company. We have remained focused on our core business and positioned ourselves to grow as more people come to the Central Texas communities we serve. We have developed the first Capital Improvement Process to strategically analyze where and how the investments in the system will have the most impact while cutting the cost of those investments by $30 million of what we spent last year.

This CIP process will allow us to continue to build on one of our major strengths — our reliability. The average SAIDI numbers (which is the measurement the industry uses for reliability) for the Cooperative industry nationwide is 2 and ½ hours. Last year, SAIDI numbers for PEC were 50 minutes. We are by far the leaders in the nation on reliability in the Co-op world. This is amazing when you consider that it sometimes takes a couple of hours just to get to the outage.

Our reliability was demonstrated in the recent windstorm. When I came to work the next morning, all PEC members’ power had been restored. San Antonio had over 250,000 customers without power and Austin had over 40,000 customers without power. This is a strong and well built system.

PEC restored its reputation for outstanding customer service and, at the end of 2009, we ranked among the top 5 percent according to a nationwide survey by JD Power and Associates. We are back in the top 25th percentile in customer satisfaction in the industry.

Besides reliability and service, the key to success as an electric cooperative is the lowest possible rates. PEC members saw their rates reduced not once, but three times in the past year.

Safety continues to be a top priority at PEC, and last year our record was one of the best in the nation among cooperatives. With the assistance of the National Rural Electric Cooperative Association, our staff has designed improvements to our safety program. Our Board has decided to highlight our safety performance at every meeting to indicate how important it is.

With all of these great accomplishments we still have challenges. I would simply mention four major areas where I believe the PEC should focus its attention in the next several months now that it has a democratically elected Board.

First, we need to continue to develop our financial accounting and management systems. We began our budgeting efforts this year and learned a great deal as an organization. Next years’ budget will be better and the year after that will be even better. We are working from a system that was designed not to understand and analyze costs, because in the previous administration there was the simple philosophy that costs did not matter at PEC. Of course, that is one of the major reforms we are continuing to work on.

Second, the work to convert from our foCIS system to the new SAP software for our financial accounting, billing and management reporting systems must be given critical and meaningful support over the next several months. The time spent will pay great dividends for the future. The Board and management must continue their due diligence on the oversight of this process.

Third, the revisions to the employee evaluation system and the completion of our compensation study will be critical for us to address the primary concerns of the employees identified in the Somerset Guild report. There must be a 360-degree evaluation that will assure employees that they have the opportunity to be evaluated by their peers and that they have the opportunity to evaluate their managers in how well they are managing. The development of this instrument is underway.

The last challenge I would identify for you is the challenge to develop a full strategic plan. We worked hard on such a plan over this past year and frankly it was disappointing that the Board chose not to bring it to completion. Without a clear strategic vision that clearly articulates where we are going as a utility, management will not know how to get there.

The PEC is in much better condition than it was at this time last year, and it will be in a much better position next year if these challenges are addressed.

Now, I would like to take a few moments of personal privilege to respond to some of the allegations and criticisms I have heard over the past week.

Let me start with a story. When I first applied for a CEO position in 1983, a good friend of mind told me; “remember Juan, you always go into a CEO job the same way you go out…fired with enthusiasm!!” As a CEO it is a fact that you go to work everyday knowing that you can be fired.

This past Monday, the Board exercised its right to make a change in leadership. They deserve to have someone working for them that supports them and that they support. I respect that.

I heard that I did not run fast enough or jump high enough. For that, I accept the responsibility, but I assure you it was not because of brain surgery or my age.

I know of no directive that this Board has given me that I have not responded to or taken action to address. It is the Boards responsibility to define what reforms need to be made, not the CEOs. I implement — the Board initiates.

My role as a CEO is to create a safe environment where people can operate with judgment and discretion and who go home knowing they have made a difference in people’s lives.

I criticized an audit that accused my managers of resisting change without any facts to back up such a damaging claim. I stand by my criticism of that audit even though I fully support and acknowledge the crucial role an internal auditor plays in effective management.

I have been criticized for not firing enough of the managers who were around during the Fuelberg era. In fact, I have been given instructions by individual Board members to fire any 3 to 5 managers just to show some blood. That is how it was presented to me.

I am not in the firing business. I am in the education and motivation and accountability for actions business. We have set up systems to ensure that any employee who is mistreated by managers, supervisors or their peers, as they were in the previous administration, are now given opportunities to openly address that mistreatment. Those systems are working.

The employees here at PEC, including the managers, have embraced this new culture of Servant Leadership. They are seeking more opportunities to learn how to use these principles more effectively in the day-to-day management of the organization.

There is no crisis at PEC…just the opposite. We are a very successful and strong company. We have a secure power supply from the LCRA, we have a rate structure that has transparency in our costs, we are reshaping our website and we are improving our financial controls.

With regard to the Somerset Guild Report, management decided early in 2009, as part of our corporate communications strategy to conduct this objective research to verify what industry leaders, our members and our employees truly think of PEC. In that report, 77 percent of our members are either satisfied or very satisfied with the service they receive from PEC. Only 6 percent of our members expressed any level of dissatisfaction with the service they receive from PEC.

The work of reform is not done at PEC and I regret that I may not have an opportunity to continue to lead it. But I am proud of what has been achieved here. Mostly, I am confident in the people who work here. I am confident that they will continue to do what they do best, provide outstanding service to our members.

Now, I am compelled to say a few words about the employees of PEC. I have not made any efforts to encourage or discourage the employees from taking the action to support me here today. I have never in my professional life been supported like I have today and I am deeply gratified.

I will remind the employees here and all of those who want me to be reinstated that you have had your say today and that is appropriate in the new PEC. Now, it is time to let the Board of Directors decide how this company should proceed for the future. A member elected Board of Directors now runs this Cooperative, and it is up to that Board to determine who should manage the Cooperative. It is up to the employees to carry out the policy decisions of the Board and support whomever they choose as their General Manager.

In conclusion, let me say that my time here at PEC has been the joy of my life, truly the joy of my life. This is perhaps the most exciting time in our history to be part of the electric utility industry.

I have loved every day of working with the employees here. The PEC employee is that rare breed that comes to work every day ready, willing and able to exceed expectations.

And this is not just a collection of exceptional professionals. This is a family, a real family that is ready to help whenever and wherever help is needed.

Over the years, we all face hardships, but when you’re a member of the PEC family, you never face them alone. Ask any employee who has gone through a family crisis how much the support of the PEC family means to them.

That’s what PEC is. It’s not a building, or our trucks, or our lines, or even electricity. PEC is the membership, but it is also to a great extent the employees. It is the partnership that has been built between our members and our employees that makes us who we are. I am confident that the employees of PEC will continue building on that partnership and strengthening our bond with the communities we serve.

It has been my greatest honor to serve as the General Manager of PEC and I wish the new Board all of the success for a sound and prosperous future.

Thank you.

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