Table 1

A. Benchmarking - An art not a science

1. Definition of Benchmarking.

Benchmarking is a method of trying to evaluate the relative efficiency or inefficiency of one system with industry standards. It is subjective, data constrained, and the results are interpretative. It is usually based on average analysis, not the more rigorous marginal analysis of orthodox economic analysis as used in production and pricing decisions.

Benchmarking is used to for many comparative studies. For example, it is used to compare relative living standards between nations by comparing per capita gross domestic product (GDP) between nations. In our endeavor the efficiency of San Jose Municipal Water System (SJMW) is compared with local, state, and US wide systems by a similar comparative process.

In using the dollar per capita GDP approach economists have long realized the weaknesses inherent in such an approach. Such items as disposable income distribution, qualitative externalities (environment, space, etc.), and methods of data collection are not reflected in $GDP v $GDP comparisons. However, the per capita GDP ratio retains a good measure of viability as a first pass measure of living standards between countries. The same argument holds true in comparing water systems.

An objective and systematic effort to isolate and quantify key efficiency variables among water systems does yield an excellent meter for comparing the relative efficacy of various systems. Psomas realizes that benchmarking on a stand-alone basis is a necessary but not sufficient tool for total inter-system efficiency evaluation. Hence, Psomas has addressed the broad spectrum of inputs required to assess where SJMW stands vis-a-vis industry standards and what measures can be taken to ensure and enhance future efficiencies.

2. Approach to the Study

Psomas identified a benchmarking population base that would yield the most valuable information by which compare and quantify the current operating efficiencies and quality of service being provided by SJMW. This population base included Bay Area Water Users Association Companies (BAWUA), other similar sized municipal/district utilities operating in the California and the US, the investor owned utilities (IOUs) sector, and specific IOUs which operated in California and or are closely adjacent to SJMW.

		Table 1 SURVEY DATA BASE			NAWC DATA SCORES
	SJMW	Count	Average	Std. Deviation.	Count	Average	Std. Deviation
Customers/employee	807	15	481	341	73	519	164
Population served/employer	3,130	15	2,027	1,515	70	1,797	983
Miles of pipe/employee	10	15	6	5	69	8	2
Acre ft/employee	661	15	324	296	72	240	121
Gross Plant/Employee	1,840,540	13	976,504	846,532	72	1,301,239	617,242
Gross revenues/employee	507,176	15	255,994	163,936	73	263,403	92,691
O&M/Customers	547	18	365	199	76	263	95
O&M/Revenues	0.87	17	0.37	0.25	76	0.52	0.12
Total Revs/Residential Revs	NA				76	1.68	0.55
Loss Factor (imputed)	0	17	9.98	0.33	74	14.96%	9.34%
Revenues/Acre Feet	767	18	1,275	1,580	75	1,295	558

Table 1 summarizes comparative benchmark relationships of San Jose Municipal Water (SJMW) with all systems survey for this study and the most recent available statistics of like relationships from the National Association of Water Companies NAWC), 1999, available December 2000.

Summarizing:

Customer/employee ratio -- On average, each SJMW employee served 807 connections per employee compared with the survey average of 481 and the NAWC survey average of 519.
Population served/employee -- On average, each SJMW employee served 3,130 people per employee compared with the survey average of 2,072 and the respondents to the NAWC survey average of 1,515.
Miles of pipe per employee -- On average more miles of pipe were served by each SJMW (10) employee as compared with the survey results (6) and the respondents to the most recent NAWC (8) survey.
Acre-feet served per employee -- On average each SJMW employee served 661 acre/feet as compared with the survey average of 324 and the respondents to the most recent NAWC survey of 240.
Gross Plant/Employee -- On average each SJMW employee was accountable for $1,840,540 of gross plant as compared with the survey average of $976,504 and the respondents to the most recent NAWC survey of $1,301,239.
Operations and Maintenance/Connection (O&M) -- On average each SJMW customer received $547 in operation and maintenance expenditures as compared with the survey average of $365 and the respondents to the most recent NAWC survey of $263. An interpretation could be that SJMW is not deferring maintenance expenditures and avoiding future capital outlays with associated rate increases.
O&M/Revenues - SJMW had a ratio of 0.87 as compare with the survey average ratio of 0.37 and the NAWC average ratio of 0.52.
Revenues/Acre feet -- This statistic was obtained by dividing total revenues by acre-feet of water served. In effect, it was a proxy of an average system-wide water rate. The average system-wide average for SJMW was $767/acre-foot which compared favorably with $1,275 for the survey and $1,295 for the NAWC survey.

Table 2

ITEM

SJMWS

Cal-Am.

CWS

SJW

Customers/employee

807

526

573

766

Population served/employer

3130

1682

2367

3472

Miles of pipe/employee

10

7

7

9

acre ft/employee

661

327

364

516

Gross Plant/Employee

1,840,540

1,102,686

1,032,527

1,520,072

Gross revenues/employee

507,176

341,859

300,179

410,246

O&M/Customers

547

395

352

337

O&M/Revenues

0.87

0.61

0.67

0.63

Total Revs/Residential Revs

NA

Loss Factor (imputed)

0.00

0.11

0.26

0.07

Revenues/Acre Feet

767

1470

825

796

Investor owned water utilities (IOU), Cal-American, California Water Systems (CWS), and San Jose Water (SJW) did not respond to the survey. The 2001 survey results were compared with the 1999 NAWC survey. Using these data have acknowledged shortfalls, however, SJMW compared favorably on available efficiency criteria and cost of providing service criteria.

Summarizing:

Customer/employee ratio -- SJMW employees service more customers per employee than the three IOUs studied in this sub-group.
Customer/population ratio - SJMW employees served more people (customers x number in structures) than the three IOUs studied.
Miles of pipeline per employee - - SJMW used less employees per mile of pipeline than the three IOUs studied in this sub-set.
Acre feet/employee - SJMW provided more water per employee than any of the three IOUs studied in this subset. This coefficient could be extrapolated to illustrate average productivity per employee and as such would indicate the strong regional competitive position of the SJMWS.
Gross plant per employee - SJMW has the highest investment of gross plant per employee. This labor/capital intensity could be one explanatory variable in explaining why SJMW exhibits such competitive benchmarking coefficients.
Gross revenue per employee - SJMW employees generate on average higher revenues than the three IOUs used in this sub-study.
O&M per employee -- Again SJMW has the highest outlay per employee in O&M expenses. There are numerous interpretations as to what this means. High O&M could be correlative with a more intensive capital/labor ratio and a business model, which uses an ongoing asset management restoration approach, versus a deferred maintenance approach.
Revenues/Acre feet -- SJMW has the lowest per acre-foot revenue requirements among the four regional utilities studied. On average, this translates into a lower average cost to the aggregate end users per acre-foot.

ITEM	SJMWS	Cal-Am.	CWS	SJW
Customers/employee	807	526	573	766
Population served/employer	3130	1682	2367	3472
Miles of pipe/employee	10	7	7	9
acre ft/employee	661	327	364	516
Gross Plant/Employee	1,840,540	1,102,686	1,032,527	1,520,072
Gross revenues/employee	507,176	341,859	300,179	410,246
O&M/Customers	547	395	352	337
O&M/Revenues	0.87	0.61	0.67	0.63
Total Revs/Residential Revs	NA
Loss Factor (imputed)	0.00	0.11	0.26	0.07
Revenues/Acre Feet	767	1470	825	796