LEAN TRANSIT

Presenters Kevin Craig – Director, Finance & Corporate Controller Megan Hill – Director, Budgeting & Forecasting Kevin Schubert – Director, Regional Transit Systems

Overview Budget Preparation Timing BC Transit Funding 3 Year Service Plan Summary Major Cost Drivers Next Steps 1st Group Activity Lean Transit – Cost Efficiency Strategies 2nd Group Activity Comments? Questions?

Budget Preparation Timing Fiscal versus calendar year ends: Province has a fiscal year end (March 31st) Local Government’s have a calendar year end (December 31st) Communication and information timeline discussed at RTS roundtable September is a key date to keep in mind as 3 year draft budgets are sent out to LG to assist in their budget preparations. Do not receive confirmation from Province for 3YR budgets until Budget day in Feb. In addition, it is important to remember that significant service changes need to be decided up to 16 – 18 months in advance of the change.

BC Transit Funding Operating and capital contributions based on cost sharing formula: BC Transit Act & Regulations Specific Funding Formulas Victoria Region gets 3.5¢ per litre in gas tax. -The difference between Victoria and RTS cost sharing formula due to the fact that Victoria receives 3.5 cents per litre and therefore the provincial share has been reduced. In addition, this is a matching funding formula. One partner cannot choose to pay more without the other partner agreeing to fund their portion. Conversely, if one partner chooses to fund less, the other partner’s contribution will go down as well.

BC Transit Funding (continued) Funding Components Provincial transfers Operating Deferred capital contributions Operations Passenger fares Advertising Local transfers Property taxes You can see from the pie chart, that the province contributes approx 50% towards the cost of transit and the local government funds the other 50% through revenue, adv and property tax (and in the case of Victoria, fuel tax). All operations revenue belongs to local government partner and is used to offset local share of operating and capital cost of transit. Fare strategies and structures are the responsibility of the local government. Fare Strategy: Improving Yield – Today at 3:00pm

BC Transit Budget Funding (continued) Strong Provincial financial contribution compared to other Provinces

BC Transit’s Service Plan Provincial operating funding over the 3 year service plan period is relatively flat Funding sufficient to cover inflationary pressures in 2015/16 and maintain current service levels Use of asset costs increase due to vehicle replacements, major capital repairs and other capital projects.

Projected Local Lease Fees Asset Funding (based on legislated cost sharing formula) Local government – Responsible for lease fee payments over the life of the asset Province – Responsible for funding the asset cost upfront 1095 buses in fleet as at Feb 2015 608 (>50%) need to be replaced over the next 5 years Estimated $225.1 million replacement program over 5 years Relates to vehicles only $225.1 includes TED and refit programs 35% increase in lease fees

BC Transit 2015/16 Operating Costs

Next Steps Cost Containment Review operational and administrative efficiency opportunities Service Optimization Strategies Identify, describe and value all services within each transit system Prioritize service options to identify saving opportunities Fleet Management and Right Sizing – Tomorrow at 8:30am The Relationship of Scheduling to Costs – Tomorrow at 1:00pm

Group Activity Drivers’ Wages/Benefits Maintenance Fuel Insurance Major Repairs Information Systems BCT Shared Services Municipal Admin Training Taxi Programs Property Maintenance Marketing/Fare products/Guides Lease Fees Please discuss at your table what opportunities or initiatives you would propose to help reduce costs. (10 – 15 min) Decide what the top 3 initiatives your table would propose.

Lean Transit - Cost Efficiencies Procurement strategies Contracting strategies Maintenance strategies Use of Asset strategies Administrative strategies Articulate Thank everyone for participation in group activity Purpose: Share with you BCT Strategies

Procurement strategies Economies of scale Fuel Bulk purchasing (24 million litres each year) Volume rack discount Forward buy program TransLink joint diesel procurement discussions underway Goal = Reduce operating costs and provide budget stability Policies in place to mitigate volatility in price Long term view – lock in where appropriate Average locked in % = 40% - 9.6 million litres 15/16 – 15.6% locked in - $1.24 (wait and see approach – Budget $1.25 - Actuals $1.03

Procurement strategies (continued) Economies of scale (continued) Vehicle Replacement Program Typical Discount Heavy Duty: 10-11% Light Duty: 3% Inventory (parts and consumables) Typical discount: 20.5% bus parts Reduction in lengthy procurement lead times Insurance Sophisticated insurance program in place Seeks to balance cost and efficiency with the potential impacts of financial shock Vehicle Replacement Program Goal – Reduction in capital costs and lease fees Shared services model - economies of scale Provide volume discounts – RFP process Inventory Goal – Reduction in parts costs and lengthy lead times Volume discounts with bus part vendors Insurance Goal – Reduction in insurance premiums while providing a sophisticated insurance program Self insured – no collision Corporate excess policy

Contracting strategies Service Provision Term of Agreement Master operating agreements in place for 9 years with option to extend for two 3 year terms Incentivize opportunity for investment Minimize administrative burden Regionalize Service Provision Maximizes opportunity for economies of scale Maximizes potential for competition Budget Predictability Rates negotiated for 3 year periods (aligned with 3 year service plan) Implemented operations reviews (including service experience evaluation reviews) in February 2015 Goal: Reducing our contracted service costs while providing a robust transit service Budget predictability Lengthen the term – up 15 years Economies of scale Maximize investment and planning Minimize admin burden Operational auditing Seminar : Measuring and Promoting Operator Performance – Wednesday 10:30

Maintenance strategies Vehicle strategies Reassessing fleet mix (right fleet, right amount) to consider future needs (right sizing) and improve operational costs Maximize lifecycle/minimize costs Vehicle useful life aligned with its duty cycle Replacing major components before failure to ensure asset reliability and longevity (transmissions, engines, differentials –TED Program) and to smooth costs Performing mid life, and life extension refits on wearable components related to body and HVAC systems to maintain life and smooth costs Goal: Provide the right fleet, right amount, maximize lifecycle and minimize operational and capital costs Diagram – Balanced in the middle, can lead to reduction in operational, maintenance and capital costs Right Sizing seminar – Tuesday 8:30am Maximize lifecycle/minimize costs Component life determines duty cycle (13 years) TED’s – Asset reliability, longevity, smooth lease fee cost spikes Midlife refits – Maintain life for older 20 year fleet

Maintenance strategies (continued) Facilities strategies Facility master plans Facility major component replacement plan initiated (owned and leased) Alternative revenue opportunities (CNG refueling, bus washing, sanidump) Lighting (LED) upgrades Water consumption audit initiatives Goal: Reduce our capital and maintenance costs associated with facilities while being cognisant of the operational needs Facility master plans – Future operational needs

Use of Asset Strategies Asset componentization Shorter useful life for TED and refit program assets Helps to avoid cost spikes over the assets duty cycle Average lease fees Lease fees similar by vehicle type and year Assists with fleet mobility and equality Standardized lease fee strategy initiative Initiative to reduce step functions associated with vehicle replacements Reviewing reserve options: Preventative maintenance Catastrophe's (insurance, accidents) Vehicle write-off’s Goal: Provide budget stability and to minimize cost spikes associated with lease fees.

Administrative strategies BC Transit Shared Services Review of all administrative costs during annual budgeting process Salaries & Benefits Compensation based on collective agreements and provincial mandate Provincial salary freeze for all supervisory staff for last 5 years Tracking full time equivalents on a quarterly basis BC Transit Share Services Goal: Demonstrate the value of our shared services while being prudent with the costs that go into it Annual increase contained within the 3% threshold Less than the 8% ceiling under the regulations Trend is BCT Admin is decreasing compared to operating costs Salaries & Benefits Goal: Stabilizing cost Drivers wages/benefits largest cost driver BCT – Settled COPE, CUPE in progress and CAW ongoing

Administrative strategies (continued) Rider Guides, Fare Products 15% reduction in printed materials including Rider Guides Simplified fare strategies to reduce productions costs and maximize fare yields Safety, Training Safety management and return-to-work programs have contributed to lower experience ratings and Worksafe premiums. Certificate of recognition program resulting in lower Worksafe premiums Custom registration pilot Pilot conducted to assess potential costs savings. Recommendations expected in 2015/16. Rider Guides, Fare Products Goal: Move to digital content/new website/less fare product alternatives Seminar – Fare Strategy: Improving Yield – 3:00pm Safety Training Goal: Reduction in costs and safe and healthly working environment $1.5 million in savings Worksafe premiums due to return to work and safety programs Custom registration project Goal: Review Handy Dart Service application processes to stablize operating costs and mitigate expansion pressures. Pilot has engaged Occupational Therapists to assist with application reviews in person or over the phone and impact this has on the service – stayed tuned. Custom Roundtable: Today 3:00pm

Group Activity # 2 Please review your top 3 recommendations from the first group activity. Would you change, add, or delete any of these recommendations?

Comments? Questions? Kevin Craig – Director, Finance & Corporate Controller Kevin_craig@bctransit.com Megan Hill – Director, Budgeting & Forecasting Megan_hill@bctransit.com Kevin Schubert – Director, Regional Transit Systems Kevin_schubert@bctransit.com