watchdog

Friday, March 30, 2007

March 30, 2007

ANOTHER EXAMPLE OF POLITICAL DECISIONS AFFECTING THE RATEPAYERS COST OF UTILITIES

While Joseph Lee talks about his concern for the poor, it is interesting to read the statement that Rich Gilstrap of A&L Underground made to the board of the MLGW on March 15, 2007. This is a political decision and a cave in to the union because of the coming elections in October. A&L is a good company that does quality work at a cheaper cost than MLGW crews. Here is a statement from Mike Whitten, ex MLGW auditor.

This goes all the way back to 2004 and the "audit" forced on me by Joe Lee and Liz Moore, the City Auditor, which I refused to sign. It was nothing but a sham report, designed to get A&L removed and to discredit key employees at MLGW, who have since resigned or retired.

Rich is absolutely correct-A&L can and does do better, faster, cheaper work than most MLGW crews, especially now that Larry Thompson and Wade Stinson are gone. And, many of the MLGW customers know it.

This is another example of politics overruling good business decisions and another reason why MLGW should be removed from the influence of politics. I have asked for a report from the MLGW on the number of MLGW employees making over $100,000 per year including overtime and I am sure it will show the real reason why the union wants this contract killed, a large amount of overtime work.

Click here to read how the MLGW cares more about giving overtime to the union crews then they do about customer rates and service

Tuesday, March 20, 2007

March 21, 2007

FORGET THE $16,000 THAT ED FORD OWES THE MLGW AND PAY ATTENTION TO THE $18 MILION DOLLAR LOSS IN THE GAS DIVISION THAT YOU HAVE BEEN PAYING FOR FOR SOME TIME

Customers of the MLGW have been wondering why the MLGW lost $18 million dollars when their gas bills have been unusually high. Good question. So I finally got a copy of the November 2006 interim financial statement from a friend after trying for over two months to get it from the MLGW directly.

Here is what happened in the Gas Division of the MLGW. The story begins during the budget process for the 2006 MLGW budget which starts during July 2005. In August of 2005, Katrina happened and it looked like natural gas prices were going to go through the ceiling for a long period of time. Apparently the management of MLGW made some commitments for high priced gas for the future.

Henry Hub spot gas prices were high starting in August 2005 through November 2005 after Katrina. However starting in January 2006, Henry Hub gas prices went dramatically lower but MLGW gas prices charged to their customers were higher than the Henry Hub Index except for January 2006 and May 2006. 90% of gas revenues are billed during the 5 winter months, November through March and during the period November 2005 through March 2006 the MLGW prices was 6.4% above the Henry Hub Index. The MLGW tried to recoup their bad purchasing decisions from January to November 2006 but were unable to get it all back through their purchased gas adjustment mechanism (PGA) due to an outcry from customers about the size of their bills. Therefore a decision was made to put much of the recouping off until December 2006 and January, February and March of 2007, the biggest billing months. The average of MLGW gas prices versus the Henry Hub index for November and December 2006 and January, February and March of 2007 is 40% higher than the Henry Hub Index.

Looking at the November 2006 statement, they are working on a $33 million dollar PGA figure that they need to recoup in the last month of 2006 and during 2007. The MLGW management has denied that they made any bad decisions but the Gas Division has never had a year like this one and neither has any other professionally run utilities. The management of MLGW has a credibility problem and they need to come clean with the ratepayers and reveal the full story of what caused the huge loss in 2006. Also they need to explain why they are in violation of the City Charter because they paid $15.7 million dollars in a payment in lieu of taxes to the Administration without MLGW board approval. Here is what the City Charter says concerning PILOT payments.

(6) For the payment to the general fund of the municipality a sum not to exceed a cumulative return of six per cent (6%) per annum of the equity or investment, if any, of the municipality in the properties of the gas division, the said percentage to be fixed by resolution of the board of commissioners of the City of Memphis. Should the said percentage as fixed by the board of commissioners of the City of Memphis exceed a reasonable figure in the opinion of the board of light, gas and water commissioners, the amount to be paid by the board of light, gas and water commissioners to the board of commissioners of the City of Memphis shall be determined by a board of arbitration, consisting of one member of the board of city commissioners and one member of the board of light, gas and water commissioners who shall select a third member, and the findings of this board of arbitration shall be final and binding on both the board of city commissioners and the board of light, gas and water commissioners.
Provided that in no event shall the aforesaid payment to the municipality for any year exceed one-half of the net profits realized by the gas division during that year, unless the board of light, gas and water commissioners shall, by resolution, consent thereto.
(7) Any surplus thereafter remaining over and above safe operating margins, shall be devoted solely to rate reduction.



We attach for verification of the above the following chart of MLGW gas prices versus the Henry Hub Natural Gas Price Index. The designated column denotes the percentage difference of your MLGW gas bill over or below the Henry Hub Index. One can also look at the MLGW vs Henry Hub Prices and easily see that in 2006 MLGW was paying 21% over Henry Hub Prices for their gas purchases. From November 06 to March 07 they were paying 41% more than the Henry Hub Index. Contrast that to the 3.8% & 4.5% they were paying over the hub prices in 2005 & 2004 respectively.
Bottom line, ... the loss problem is all in the prices MLGW paid for gas which they did not recover from the ratepayer. They simply did not pass their true cost of gas on. Now, the questions are ... Why did they pay such high gas prices in 2006 and why was this not passed through??? This incompetence is costing the ratepayers of MLGW millions of dollars.

Also attached are the five key pages of the November 2006 statement showing the PGA figures and adjustments to sales.

Click here to see the MLGW gas cost versus the henry hub national gas index. See how the MLGW paid too much for their gas and now you are paying

Click here to see the critical pages from the November 2006 MLGW financial report showing how they lost $18 million dollars in 2006

Monday, March 19, 2007

March 19, 2007

IT IS TIME FOR A THOROUGH HOUSECLEANING AT THE MLGW AND ALSO CITY HALL

In yesterday’s commercial appeal in an article by Michael Erskine, Mr. Dana Jeanes and Mr. John McCullough tried to put the best face on the pile of cash that the MLGW is sitting on. What Mr. Jeanes and Mr. McCullough are not telling you is that in addition to the $150 million in unrestricted cash and cash equivalents, the MLGW had on December 31, 2005, they also had an additional $248 million in accounts receivable (less allowances for doubtful accounts, apparently they were not counting on the Edmund Ford account being paid) and unbilled revenue. All of this will turn over in 30 to 45 days in time to pay their bills. Also by the end of November 2006, the above figure had increased by $27 million and would have increased by an additional $24 million if they had not lost $18 million instead of making the $6 million in the gas division as they did in 2005.

By comparison, Nashville Electric at the end of their 2006 year had current assets minus current liabilities of $188M less $119M = $69M. This compares to the $161 million for MLGW’s Electric Division. Nashville Electric is of similar size and billing as the MLGW Electric Division at $903 million per year.

AGL Resources (Chattanooga Gas is part of AGL) at the end of 2005 had 2.032 billion in current assets and $1.939 billion in current liabilities with only $30 million in cash and cash equivalents.

Laclede Gas, St. Louis, for the year 2006 had total current assets $331 million, total current liabilities, $367 million, total cash and cash equivalents, $2.3 million.

MLGW does not want to talk about the account receivable and unbilled revenue as being quickly converted to cash. They just want to hold onto your cash and earn interest on it rather than returning it to the ratepayers in rate reductions.

Now we have the MLGW sorry state of affairs reported in the New York Times. It is time for a house cleaning at MLGW and also at City Hall.

Click here to read about the MLGW and Joe Lee from the NY Times

Click here to read the financial data from a well run electric company, Nashville Electric and see how much cash they keep on hand as compared to the MLGW

Click here to see the Chattanooga Gas parent company handles their cash as compared to the MLGW

Click here to see how Laclede handles their cash as compared to the MLGW

Friday, March 16, 2007

March 16, 2007

MLGW GAS DIVISION MISTAKES THAT YOU WILL BE PAYING FOR NEXT WINTER, AFTER THE ELECTION ON OCTOBER 4th

A statement to the MLGW board by Joe Saino on Thursday, March 15, 2007

I finally got a copy of the November 2006 financial statement after waiting several months for my open records request. I got it not from the MLGW but from a friend.

As expected, the electric division increased its net assets by $74 million and the water division increased theirs by $10 million. However there is something very strange going on in the gas division. They show a loss of almost $18 million, a $29 million dollar swing from last year. In looking through the document I find the following items that need explanation.

• On page 22 (Gas Division Statistics) there is an item called Risk Management Cost/(Benefit) and this shows a $14 million dollar loss.
• On page 31 Operating Revenue by Rate Schedules Spot Gas) under the Note at the bottom it shows PGA Adjustment to Revenue ($27.7 million loss)
• On page 1 Report: BUL625 Statement of Income and Expenses-Gas Division under heading 2-400-0150 (Gas-PGA-Sales Revenue) it shows $33.7 million deducted from sales revenue

Now under the MLGW pricing formula there is a customer charge (currently $7.00), a MLGW margin block, a base gas cost and finally a PGA component. The PGA is where they adjust for what they paid for the gas. Apparently a decision was made not to pass this along to the customers during the winter of 2006, probably for political reasons. Possibly they have another explanation for these entries and the public is entitled to know.

Last night on TV, Dana Jeanes from the MLGW stated that this loss was due to a decrease in gas sales. Page 21 shows a 4% decrease in gas sales but strangely the income from gas sales on the same page for Residential, Commercial and Industrial shows an increase in billing for the 4% less gas than the year before. Clearly that is not the answer. Here is what I think happened ... if the numbers aren't simply an "accounting error". Hurricane Katrina came in August 2005 and after that disaster it looked like gas and energy prices were going to go through the ceiling. I think they then decided in the fall of 2005 to make some huge future purchase commitments at very high prices for natural gas thinking that gas prices were going to go higher but they did not hedge those bets and as it turned out prices went the other way and they have been paying very high prices, under those contracts, since the fall of 2005. Then starting in November 2005 through the heating season they tried to recoup their decision through high PGA figures but were unable to recoup the whole amount because there was such a huge outcry from gas customers concerning high gas bills. Therefore a political decision was made not to charge the full PGA and that is showing up now on this statement. Since no one pays much attention to this interim statement they thought it would slip by unnoticed but then the Edmund Ford affair happened and the spotlight was turned on the MLGW. I asked for the statement on January 8, 2007 but still have not gotten it from MLGW but received it from a friend

There is a further problem in that the City Charter states the following concerning PILOT (payment in lieu of taxes) from the MLGW to the City.

“Provided that in no event shall the aforesaid payment to the municipality for any year exceed one-half of the net profits realized by the gas division during that year, unless the board of light, gas and water commissioners shall, by resolution, consent thereto.”

Their November 2006 statement shows a payment in lieu of taxes for the gas division of $15.7 million and it should be zero unless the board here, by resolution, consented thereto. I am not sure if you did or not as you do not publish your minutes on the website as suggested recently by Commissioner Clark but I am sure you can check. It is also interesting that the same overpayment occurred in 2001 and 2004 although not to this huge amount.

All of the recent incidents and issues with the MLGW need a thorough and complete investigation including all correspondence, email, gas price contracts, trades and everything else concerned with this matter. If you ever hope to regain the trust and confidence of the public, you need to open up your operations to the sunshine of full disclosure including salaries, benefits, pensions, RFP’s, contract results, contract awards and all related correspondence. Public confidence and trust comes from full disclosure.

Click here to see the mistakes that cost you, the ratepayers, $27 million dollars which you will have to make up for in higher rates next winter

Tuesday, March 13, 2007

March 13, 2007

WOULD YOU TRUST THE MLGW WITH YOUR BANK ACCOUNT OR CREDIT CARD NUMBER?

The recent response by John McCullough of the MLGW to questions raised by watchdog concerning the mountain of unrestricted cash that the MLGW is piling up is demeaning and amounts to talking down to their customers. He compares the MLGW to ratepayers in that they need to keep enough cash in their checking account to pay their current upcoming bills.

I know many people use the automatic deduction system where the utility bill amount is automatically deducted from their bank account. Maybe I am old fashioned, but I want to see my MLGW bill before I pay it. I pay on line electronically but not before it is due and after checking my bill. I only keep enough cash in my account to cover current bills and keep the rest invested. I assume and hope that the MLGW does the same as we all want to keep this surplus cash working.

I checked the changes in net assets for the past few years and here is what I found.

Change in Net Assets for MLGW’s three Divisions
• Year ending 2002 plus $39.5 million
• Year ending 2003 plus $31.4 million
• Year ending 2004 plus $52.3 million
• Year ending 2005 Plus $79.8 million
• YOU HAVE TO ASK THE QUESTION, HOW MUCH IS ENOUGH? AT WHAT POINT DO YOU START RATE REDUCTIONS? I HAVE ATTACHED THE CITY CHARTER PROVISIONS CONCERNING RETURNING SURPLUS TO THE RATEPAYERS IN RATE REDUCTIONS.

Something struck me about the above numbers. Joseph Lee took over on July 1, 2004. Keep in mind that the City and the County used the water division of the MLGW to fund over $60 million dollars for the FedEx Arena. This is what happens when you keep the honey pot full of honey and local politicians get hungry and possibly want a new football stadium. It is your money and you should want some of it back in rate reductions.

Click here to read the city charter which requires surplus cash to be used only for reduction of utility rates

Thursday, March 08, 2007

March 9, 2007

Watchdog shows below an article written on February 13, 2007 concerning its recent lawsuit again the Midsouth Minority Business Council (MMBC). Recently we investigated a massive accumulation of files that the City and the County has concerning the Public Building Authority (PBA) and the results concerning the MMBC are interesting. The MMBC got a contract from the PBA for $49,999.98 and we show below the contract document. Actually there were three contracts for implementation and verification of minority participation in the FedEx arena which are shown below.

• Midsouth Minority Business Council $49,999.98
• Monguinn Enterprises Consulting 239,624.97
• Franketta Guinn was a former commissioner of the MLGW and a friend of Mayor Herenton
• Griffin and Strong 250,574.94
• Total $540,199.89

We have shown below the contract for MMBC and the billing for MMBC to the PBA. It is documented that the MMBC billed the PBA for $8333.33 on 4/30/03, 5/1/03, 6/1/03, 7/1/03, 8/1/03, and 9/1/03 for a total of $49,999.98. There is no documentation of work done and hours worked as there is for the Monguinn and Griffin and Strong billings. They just billed and collected. This is your tax dollars at work for the FedEx arena. Why is the non profit MMBC sitting on $820,000 in cash as shown below?


(The following is an article written on 2/13/07 about watchdog’s lawsuit against MMBC and the results).
Watchdog sent an open records request to the Mid-South Minority Business Council (MMBC) back on April 28, 2006 asking for open records information about salaries, benefits and especially about the Uniform Certification Agency, the function that they perform for the City of Memphis to identify and certify those firms that are minority or women owned businesses. This certification opens the doors to these M/WBE firms to bid on and obtain millions of dollars of public business contracts.

Watchdog received a prompt return letter from MMBC stating that they were not subject to the open records laws because they were a non profit organization. They referred the open records request to the law firm of Burch, Porter and Johnson.

Later in the year, due to various revelations concerning minority preferences and contracts, watchdog began investigating the activities and finances of the MMBC. It was found that the formation of the UCA activity was as a result of City Ordinance #4388 and the function of certification was given to the MMBC. Also we requested and got copies of monies furnished to the MMBC from the founding organizations, the City of Memphis, the MLGW, MATA, the MSCAA and TVA. This amounted to $1.9 million dollars over the period for which we were able to get records.

• MLGW $285,990.93 1995 to 2006
• TVA $975,885.00 1993 to 2006
• MSCAA $189,400.00 1999 to 2006
• City of Memphis $279,125.00 1993 to 2006
• MATA $180,200.00 2000 to 2007
• Total to date $1,910,600.93

Also we were able to get the 2004 and 2005 #990 IRS report (Return of Organization Exempt From Income Tax) and the 2004 report showed a net worth of $623,000 and $820,000 in 2005 a jump of almost $200,000 in one year. This seemed strange for a non-profit organization.

All of this convinced watchdog that MMBC was subject to the open records laws because they were apparently a quasi government organization and had received millions of dollars in public money. We therefore filed a lawsuit (pro se) in chancery court in October 2006. We were answered by Burch, Porter and Johnson by a motion for summary judgment to dismiss the case.

Watchdog, not being a lawyer, decided to hire one as we were unsure how to answer such a high powered legal maneuver. We did hire one and filed a cross motion for a summary judgment based on our facts and investigation. The case was set to be heard on February 13, 2007 but a week before the hearing, we were approached by Burch Porter and Johnson asking for a settlement. MMBC agreed to give watchdog the information concerning companies that have been approved for certification but refused to provide the same information concerning companies that were turned down for certification. They also offered to pay all legal costs for watchdog.

We agreed with the proposal but whether we will file another suit to obtain more detailed information, particularly concerning the firms that were turned down for approval, depends on how forthcoming and open the MMBC is with their records. What watchdog wants is to open up the certification process so that the public is assured that all M/WBE firms are being treated fairly and to find out the criteria upon which these critical decisions are made.

Watchdog has no problem with the stated purpose of the MMBC. Our concern is that all of these critical decisions concerning who get access to minority based contracts be fair and open to the public and that the taxpaying public knows what this process is costing the taxpayers. Watchdog has turned up a number of minority contracts which have been no bid contracts and contracts where the minority bidder was up to 30% higher than the lowest and best bid. We cannot afford this kind of excessive spending with our tax money.

Click here to read the Midsouth Minority $49,999.98 contract on the FedEx arena

Click here to see the monthly payments made to the MMBC for the work done on the FedEx arena. Your tax dollars at work

Sunday, March 04, 2007

IT IS A TALE TOLD BY A MAYOR, FULL OF SOUND AND FURY, SIGNIFYING NOTHING

The recent antics by the Mayor remind me of the line from Macbeth. He is trying to stir up his base and obscure the real facts about the high bills at the MLGW. After all this is an election year and he is feeling the heat.

The real reason for the high bills is that the MLGW is piling up profits and unrestricted cash at a rate of over $50 million per year. The latest publicly available audited financial statement is for the calendar year 2005. The unrestricted cash as of December 31, 2005 was $230 million, up from $177 million at the end of 2004. By the end of 2006 it is probably over $280 million. State law requires that the major part of this surplus be returned to the rate payers as rate reductions. This is not being done. The Mayor could follow state law and reduce the utility rates and bills. If he does not, there could be a class action suit by the ratepayers.

I have asked for the latest monthly unaudited financial statement. This monthly statement will give some indication of the amount of profits that the utility is making. Sources tell me that these are furnished monthly to the board of Commissioners of the MLGW and to other executives of the utility and are available by the middle of the month after the end of the preceding month. However, the open records person at the MLGW keeps telling me that it is not yet available. It looks like it will require a law suit to get this open records information from our public utility. And they are wondering why the public has lost confidence in the MLGW. If they had opened their records, none of this would have happened. I have shown below the November 2005 monthly statement which
I finally received in the past long past when it was available. They have so far refused to give the November and December 2006 statements or the January 2007 statements. What are they hiding and why?

Click here to see what the Board of Commissioners of the MLGW and the executives see each month but which the public is denied

Friday, March 02, 2007

March 2, 2007

I congratulate MLGW Commissioner Nick Clark on his memo (see attached) and proposal to the MLGW board. After the 11 AM meeting which I attended and after hearing his proposal, I decided not to attend the 1:30PM meeting and speak to the board. I got a copy of his memo to the board from Gale Jones Carson and read it that afternoon.

I got a call from the local media and gave an interview for the evening news. I told them that I agreed with Mr. Clark’s proposals and hoped that he had the other two votes to put it through in full. They asked me specifically about what was passed by the board at the afternoon meeting and I said that it was a start but that much more needed to be done to restore confidence.

I recommend that Mr. Clark change his priorities in his memo in order to restore confidence in the board and the MLGW. I list below some of the items that have destroyed confidence in the MLGW.

• The firing of Herman Morris was perceived as putting someone in at MLGW who would do what the Mayor wanted rather than what was good for the ratepayers. In other words, the Mayor wanted to control patronage.
• The hiring of Anderson Williams, Janas Jackson and the firing of Larry Thompson and Mike Whitten.
• Worst of all was the recent hiring of Gale Jones Carson and the huge salary increase and letting her also receive her January 2001 pension in addition to her MLGW salary. This said to the rate payers that the MLGW does not care about your struggles to pay your utility bill.
• Doing away with the traditional anti-nepotism policy at the MLGW was perceived as opening up jobs for cousins, relatives and friends of the Mayor regardless of their qualifications.
• The continued piling up of unrestricted cash from profits at a public utility that is by law non profit and which, by law, excess cash is supposed to be used for the reduction of rates.

I read in the morning paper that the Commercial Appeal had to threaten a lawsuit to get the redacted information about who was on the third party notification list. This is a transparency issue. Mr. Clark needs to change his time line to move up the long term issues to immediate issues and to put forward immediately the issues he lists on pages 7 and 8 of his memo to the board.

I again commend Mr. Clark for his stance and vision on these issues. I hope that he has the votes to implement these critical proposals.

Click here to read Mr. Clark's proposal to the MLGW board in order to restore the public's confidence