BOARDS: MATA Now MLGW - FY25 Way Forward Not What Ratepayers Bought
Local & National News | October 14, 2024
Local & National News | October 14, 2024
PREREQUISITE KNOWLEDGE: You must know that the total amount for a 5 yr. capital improvement plan should not explode upward year over year (YOY).
There was the MATA Board and here is the MLGW Board. The MLGW Board should reject Doug McGowen's 5yr MLGW Way Forward capital budget and get back to reality. Ratepayers never bought an ever increasing and non-ending capital improvement deployment plan. Starting in 2020, "Way Forward" serves as the branding for MLGW's capital improvement plan. The plan was originally supposed to take 5 years to complete and conclude this 2024 year, but it's not.
A compelling case can be made that the Way Forward plan is on track for an $800M overspend from what ratepayers originally bought. But while some may question that conclusion, one thing is for sure, a 5 yr. capital improvement plan should not increase its total 5 yr costs year over year (YOY). A 5 yr. capital improvement plan should have its largest cost assigned to year 1, with succeeding years showing less, as years roll off and project work is completed.
Quick Question: Does anyone know how much $800M is on a public basis? Try 400 new buses and 4 new high schools.
Anyway, unlike current MLGW CEO Doug McGowen, MLGW's previous CEO JT Young's 5 yr Way Forward plans embraced a degree of budget logic, with most of the 5 yr costs in yr 1. But once local insiders took over for Young, in FY23, 5 yr Way Forward costs exploded. That's how it works in Memphis, where folks are seemingly run out of town to then have the "trusted" locals take over, with exploding costs for ratepayers and taxpayers.
For example, upon McGowen's arrival in December 2022, local commercial contractor Grinder Taber Grinder began to reap lucrative contracts, all while being a non-industrial commercial contractor, which is atypical of industrial utility contractors. Another case in point locally, outside of MLGW, is the Sheraton. Once Sheraton owners in Starwood and Schulte were run out of town, costs exploded for taxpayers, as the typical locals of such fare, in the likes of Chance Carlisle and Carolyn Hardy, now belly up to the table.
All that to say, let's take a closer look at MLGW submitted 5 yr Way Forward budgets, to include MLGW's current FY25 submission.
The red bars in the chart above are actual 5 yr MLGW budgets submitted by JT Young (2020-22) and those CEOs that followed him. For the sake of discussion, the green bars conceptually continue JT Young's original Way Forward plan, while adjusting for inflation, to then be compared to those CEOs that followed Young and their MLGW Way Forward 5 yr budget submissions. The above data was compiled from MLGW budget books 2020-24 and MLGW's most recent FY25 Board budget presentation. Normalized 5 yr capital budgets, once Way Forward is complete, should be less than $1 billion in current dollars.
The locals' Way Forward budgets lack logic. Following JT Young's YOY MLGW Way Forward budgets (2020-22), the locals' 5 yr capital budgets, submitted by MLGW Commissioner Mitch Graves in 2023 and then by Doug McGowen in 2024 and 2025 explode upward and lack logic during a 5 yr. capital improvement plan. Graves was the interim MLGW CEO when submitting the FY23 budget, but his administration's increase, while excessive, has at least some logical support, with inflation spiking during that time. In comparison to Young and Graves, McGowen submitted Way Forward budgets seem illogical, reckless, and disconnected from reality.
Before the Way Forward plan, MLGW spent approximately $100-150M per year on capital improvements. In 2020, JT Young introduced a 5 yr $1.2B Way Forward budget plan ($240M per year). And then in 2021 Young's 5 yr budget drops from $1.2B in 2020 to $1B with 4 yrs remaining on the capital improvement plan. That's the way a 5 yr. capital improvement budget should logically work. Young's 2021 and 2022 approved 5 yr. Way Forward budgets remain constant at around $1B, likely to compensate for capital underspend in the previous years of his MLGW 5 yr capital deployment plan.
The former is just speculation in trying to unravel the logic associated with JT Young Way Forward budgets. In this way, logic can be unraveled from Young budgets but not McGowen budgets. There is no logic associated with McGowen's 5 yr capital budget submissions - just more explosive spending.
McGowen's grossly excessive $228M tree trimming budget only slightly intersects the Way Forward capital improvement plan, as most of that cost is assigned to distribution maintenance and not the capital budget. So, tree trimming, for the most part, is not a subcomponent of this analysis but is also another cost that needs to be coming down. Another example of explosive MLGW Board approved McGowen spending and disassociated with the capital budget was the $18M customer service outsource contract with DirRad Technologies. The operational budget also contains explosive spending but back to the capital budget.
McGowen's likely responses for exploding capital budgets surround the unneeded doubling of switches for the automated distribution system, a new Engineering Operations facility, which newly emerged just this year from nowhere, and more water infrastructure. And don't forget excessive past MLGW Board approved McGowen purchases like the $27M Spectrum band with an absurd 40 yr. breakeven for ratepayers.
Ratepayers did not sign up for such excessive surprises, illogical YOY increases in the 5 yr. Way Forward capital improvement budget or a deployment plan that never concludes. This brings us to the $800M overspend versus what ratepayers originally bought.
The difference between the current Way Forward track at $2.3B less $1.2B for the original Way Forward plan, gives us a $1.1B projected overspend. Then high abnormal inflation rates for 2022-23 are incorporated into the analysis. If from the above chart, one just subtracts the inflation adjusted Way Forward original plan (green columns) from the current plan (red columns) one arrives at an $800M overspend. Again, ratepayers did not sign up for this massive Way Forward overspend!
This analysis, as shown in the spreadsheet in Check the Facts, incorporates actuals and projected actuals 2020-24 with the newly submitted FY25 Way Forward budget 2025-28, while excluding 2029. Why exclude 2029? 2028 was McGowen's original concluding year of his very own MLGW Board approved utopian Way Forward plan. All of this led by the "trusted" locals and approved by our MLGW Board.
And I guess, while a stretch, some will say that McGowen, as a new MLGW CEO deserved the right to craft his own version of Way Forward. But McGowen's massive 21% increase YOY to $1.5B for FY24, should be it! No way should McGowen have another absurd YOY 5 yr Way Forward 13% increase to $1.7B. Generously here, giving McGowen the benefit of the doubt with his utopian plan for FY24, McGowen's 5 yr costs should be coming down for FY25 from (and well below) his $1.5B FY24 5 yr. plan.
If MLGW wants to be a leader in economic development, then they should dedicate $100M from their Gas balance sheet to fill real Memphis economic development gaps like with transit and workforce.
MLGW should not build a new engineering operations center just because $170-180M in excess public cash resides on the MLGW Gas balance sheet. Besides, that is just what elitists do with excess public cash. Local elitists either push for the construction of unneded buildings, like the Downtown "Garage Mahal" Mobility Center or the public subsidizing of their own development projects. And the former has never worked for Memphis and never will.
Over time, the Gas division has been a windfall for the City of Memphis owned MLGW and Memphis taxpayers need help and deserve a $100M payout. Again, ratepayers never ever signed up for exploding YOY 5 yr. Way Forward budgets. Given the former, the MLGW Board should work to distribute $100M to City of Memphis coffers, while rejecting McGowen's 5yr MLGW Way Forward plan and getting back to logical budgeting and reality....
Check the Facts
Way Forward Current Track vs Original Way Forward - The original Way Forward plan in green was adjusted for inflation and subtracting from the current track. The current track, totaled in light red at $2.3B, was derived based on actual and projected capital spend 2020-24 in yellow then added to the proposed FY25 capital budget 2025-28 also in yellow. In bright red appears the $792,802,754 overspend vs original Way Froward plan
Way Forwrard vs Actual Historic Capx Utility Improvement Plan - See dark blue chart below and the excessive costs of Way Forward.
