What Are KPIs?
Developing and implementing strategy initiatives includes setting goals, measuring progress, making mid-course adjustments, and evaluating success. Key Performance Indicators (KPIs) are measures used to set baseline performance and implement improved performance strategies on those baselines. The measurement ability makes KPIs a management tool for setting priorities and measuring progress in implementing strategy.
What Should Be Measured with KPIs?
KPIs fall into two general categories — financial and activity-based. In both categories, a KPI should meet the following parameters to be effective:
- Meaningful — assists with managerial decision making.
- Material — concentrates on the most material issues to the organization, both financial and non-financial.
- External Assessment — assists with evaluation of the organization's strategic positioning in the industry.
- Aligned — directly reflects the organization's strategic direction.
Electric Utility Industry Applications for KPIs
A benefit of the electric utility industry is the wealth of measures available for comparison. This comes from the uniformity of the financial chart of accounts used by many electric utilities — based on the Federal Energy Regulatory Commission Uniform System of Accounts — the number of regulatory reports filed by utilities, and the availability of utility financial statements through utility websites, city publications for public power utilities, and SEC filings for investor-owned utilities.
While the first line of measurement and KPI baseline-setting should be your own utility's current levels, there are many sources for industry-wide benchmarks. These include industry associations and the financial statements of peer-sized utilities. In the electric industry, organizations such as the American Public Power Association and Edison Electric Institute have robust KPI databases available to members.
Deepen Your Utility Financial Knowledge
On-demand courses covering utility financial statements, KPIs, accounting, rates, and management — eligible for NASBA CPE credit.
Browse All Courses →Common KPI Measures
KPIs are ideally suited to measure short- and long-term financial results, trends, and impacts — as well as activity-based measures. The following section discusses common measures across four key areas.
Current Operations — Financial Strength KPIs
Current operations cover the budget cycle or a maximum of three to five years of future operations. KPIs effective in measuring financial strength include:
| KPI & Formula | What It Measures | Benchmark |
|---|---|---|
| Days Cash on Hand Unrestricted Cash ÷ (O&M Exp ÷ 365) Unrestricted cash and investments divided by daily operating & maintenance expenses. | Liquidity — how many days the utility could operate using only its cash reserves. | ≥ 150 days (Moody's "Aa") |
| Debt Service Coverage Ratio (DSCR) (Net Income + Depreciation) ÷ Debt Service Net cash flow (operating income + depreciation) divided by annual principal and interest payments. | Ability to service debt obligations from operating cash flow. | ≥ 1.25× (typical RUS minimum) |
| Operating Ratio O&M Expenses ÷ Operating Revenues Total operating expenses divided by total operating revenues. | Efficiency of operations — lower is better; measures cost control relative to revenue. | < 85% |
| Equity Ratio Total Equity ÷ Total Assets Membership equity (or net position for municipal utilities) divided by total assets. | Financial strength and leverage — higher ratio means less reliance on debt. | ≥ 25% |
| Revenue per kWh Total Revenues ÷ Total kWh Sold Average revenue received per kilowatt-hour sold across all customer classes. | Rate adequacy and revenue trend versus cost trends. | Compare to peers |
| Cost per kWh Total O&M Expenses ÷ Total kWh Sold Total operating & maintenance cost per kilowatt-hour delivered to customers. | Cost efficiency of electric delivery operations. | Compare to peers |
| Capital Expenditure Ratio Capital Additions ÷ Depreciation Expense Annual capital additions relative to annual depreciation expense. | Reinvestment rate — whether the utility is maintaining and growing its asset base. | ≥ 1.0× |
Customer Service and Operational Financial KPIs
KPIs effective in measuring customer service and operational financial performance include:
| KPI & Formula | What It Measures | Benchmark |
|---|---|---|
| Customer Cost per Customer Total Customer Expense ÷ Total Customers Total customer service and billing expenses divided by total number of customers served. | Cost efficiency of customer service operations per account. | $110–$150 (typical range) |
| Revenue per Customer Total Revenues ÷ Total Customers Average annual revenue collected per customer account. | Revenue adequacy relative to customer base size. | Compare to peers |
| Bad Debt as % of Revenue Bad Debt Expense ÷ Total Revenues Uncollectible accounts as a percentage of total revenues. | Collections effectiveness and credit risk in the customer base. | < 0.5% |
| Accounts Receivable Days A/R ÷ (Revenue ÷ 365) Average number of days to collect outstanding customer receivables. | Collections speed — lower is better for cash flow. | < 30 days |
| Average kWh per Customer Total kWh Sold ÷ Total Customers Average annual energy usage per customer account. | Load trends — declining usage signals efficiency gains or DER adoption. | Track trend YoY |
| Customer Complaints per 1,000 (Complaints ÷ Customers) × 1,000 Number of formal customer complaints per 1,000 customer accounts. | Customer satisfaction and service quality. | Compare to peers |
Operational, Safety, and Reliability KPIs
KPIs that measure operational performance, safety, and system reliability include:
| KPI & Formula | What It Measures | Benchmark |
|---|---|---|
| SAIDI System Avg Interruption Duration Index Total customer minutes of interruption divided by total customers served (annual). | Average duration of outages per customer — the primary reliability indicator. | Compare to peers |
| SAIFI System Avg Interruption Frequency Index Total number of customer interruptions divided by total customers served (annual). | Average number of outages per customer per year. | Compare to peers |
| CAIDI SAIDI ÷ SAIFI Customer Average Interruption Duration Index — average time to restore service once an outage occurs. | Restoration speed and crew efficiency. | Compare to peers |
| Lost Time Accident Rate (Lost Time × 200,000) ÷ Total Hours OSHA standard recordable incident rate per 100 full-time equivalent employees. | Workforce safety performance. | < Industry avg |
| Line Loss % (kWh Purchased − kWh Sold) ÷ kWh Purchased Percentage of electricity purchased or generated that is lost in transmission and distribution. | Distribution system efficiency; unusually high rates may signal theft or metering issues. | 3–8% (typical range) |
| O&M per Mile of Line Distribution O&M Expense ÷ Miles of Line Total distribution operations and maintenance expense per mile of distribution line. | Cost of maintaining the distribution system relative to its geographic size. | Compare to peers |
| Customers per Employee Total Customers ÷ Total FTEs Number of customer accounts served per full-time equivalent employee. | Overall workforce productivity and staffing efficiency. | Compare to peers |
Drilling Down — Materials Management KPIs
KPIs can also drill into specific functional areas for detailed performance measurement. In this example, materials management:
| KPI & Formula | What It Measures | Benchmark |
|---|---|---|
| Inventory Turnover Materials Used ÷ Average Inventory Value Total materials used in the period divided by average inventory balance. | How efficiently inventory is used; low turnover may indicate overstocking or obsolescence. | Track trend YoY |
| Days Inventory on Hand Avg Inventory ÷ (Materials Used ÷ 365) Average number of days of material usage held in inventory at any given time. | Supply chain efficiency and working capital tied up in storeroom. | 30–90 days |
| Inventory as % of Plant Inventory Value ÷ Total Plant in Service Storeroom inventory balance as a percentage of total plant in service value. | Relative size of materials holdings compared to asset base. | Compare to peers |
| Materials Cost per Work Order Total Materials Cost ÷ Number of Work Orders Average material cost charged to work orders in the period. | Material usage efficiency in construction and maintenance projects. | Track trend YoY |
| Obsolete / Excess Inventory % Obsolete Items Value ÷ Total Inventory Value Percentage of total storeroom inventory classified as obsolete or excess. | Storeroom effectiveness and impact on working capital. | < 5% |
| Purchase Order Cycle Time Avg Days from Requisition to Receipt Average number of days from material requisition to receipt from vendor. | Procurement efficiency and vendor performance. | Track trend YoY |
Tables 1–4 are a small sample of standard measures and possibilities. A practical approach to determining those meaningful for your utility is to assemble department heads, line managers, and employees in a group discussion focused on areas that should be measured, slated for improvements where KPIs can assist the process, and those that could be considered for impact on compensation plans.
Integrating KPIs into Business Planning — A Worked Example
The use of KPIs should be integrated into the business planning process. Here is an analysis using the "Customer Cost per Customer" KPI:
Situation
The Customer Cost per Customer KPI for the latest year is $100 per customer. Customer surveys indicate dissatisfaction with the current level of service.
Analysis
Analysis of the surveys reveals comments about incorrect meter readings and billing errors, long wait times for in-person customer service, and a lack of online options for customers. KPI analysis in trade association publications of peer-sized utilities shows a range in the Customer Cost per Customer KPI of $110–$150 per customer.
Business Planning Implications
Based on this analysis, the budget for the next fiscal year includes additional investment in:
- Hiring 3 additional customer service representatives
- Training for all billing personnel on billing software
- Initiation of an automated meter reading program
- Website enhancements for customer self-help and online payment options
The budget for Customer Cost per Customer for the upcoming year is $140 per customer. The year's activities will also include another customer survey to obtain feedback once these changes have been implemented — to assess the results of the initiatives.
KPIs Are a Strategy Tool — Not Just a Lookback
KPIs are more than just measures of past activities. Using KPIs as part of the business planning process makes them effective tools for making changes in operations to achieve desired improvements in the use of utility resources. The listing of KPIs in this article just scratches the surface — but if your utility does not currently utilize KPIs as measuring and planning tools, the tables above are a strong starting point.