To avoid becoming another rubber-stamping MATA Board the MLGW Board needs to implement standards to inform budget sizing. Without such standards, like MATA, they are at the whim of MLGW administrative proposals. In other words, ZERO administrative checks.

After MLGW’s proposed $800M increase in their Way Forward capital upgrade plan through 2028, it’s common sense easy for one to conclude that MLGW is spending entirely too much money on just about everything. And sadly, no one knows about this overspend or the proposed 75% increase in water rates because it’s not being locally reported (Please see previous blog on MLGW overspend).

Much of the overspend is publicly justified using MLGW’s widely believed undocumented assertion of “decades of under investment” in the electrical grid. The public believes the assertion after experiencing less than reliable grid performance over the last few years.

But what if like MATA in many areas, MLGW has spent sufficiently, but has been ripped through excessive or underperforming public contracts? MATA is thought to have spent sufficiently on their ERP system, yet the system is barely working, if at all. And remember Memphis Shelby County Schools (MSCS) was ripped on HVAC after spending millions during COVID, leaving widespread HVAC problems at the beginning of this school year. A local knowledgeable HVAC contractor told me that MSCS paid 2x for HVAC during the COVID spending spree.

Keep in mind, the elitists publicly rip off the city through excessive contracts or contract under performance. Think Cobblestones or Mud Island. Such rip offs don’t occur through say a bunch of elitists explicitly ripping cash out of the MATA fare box. The ripoffs are far more sophisticated and occur through public contracts like, in this case within mostly the MLGW operating budget, a 5yr $228M tree trimming contract. 

Again, after EXPLODING increased Way Forward costs of $800M, it does not take a rocket scientist to conclude that MLGW is spending entirely too much money…

Back in March, Taxpayer Justice Institute published, for local Memphis public consumption, the first ever compilation of the Federal Transit Database (FTD). The compilation showed how Memphis public transit fared against the Chamber’s chosen 9 peer cities. It wasn’t good. While the Chamber was telling everyone that Memphis recovered fastest from COVID than the rest of the country, per the FTD, Memphis had not recovered at all, while other cities had drastically recovering public transit systems.

I wondered how the MATA Board could do their job, in the dark, without a benchmarking standard such as the FTD? Come to find out, they could not do their job. But for whatever reason, the former MATA Board seemed entirely comfortable being in the dark and at the whim of MATA executive proposals. Such board practice just does not work for the public good and consequently MATA has been publicly ripped off.

Without MLGW Board standards, could MLGW have also been publicly ripped off? I believe that is what has occurred. Through spending ratios in the next section, which is an available standard not currently employed by the MLGW Board, a conspiratorial assertion will occur, that like MATA and MSCS, MLGW has been publicly ripped off, leaving ratepayers like taxpayers holding the bag.

MLGW has NOT historically “for decades” financially under invested in capital improvements. At the same time, based on recent grid under performance, MLGW ratepayers appear to have been ripped off, as taxpayers have been with MATA and MSCS. The benchmarking ratio used to prove the public rip is (capital spend/depreciation). The Gas division for MLGW looks good so it was removed from this analysis with a projected 1.35 ratio for 2020-29. As far as 2010-19 the Gas ratio was 2.02 and 2014-23 a 1.58.

All selected individual public utilities are part of MLGW’s rate survey. The City of St Louis Water Division was selected based on being an urban center with declining population. Other selections in Huntsville Utilities and Chattanooga Electric, with above average growth, are part of TVA as is MLGW. And Chattanooga Electric implemented a distribution automation upgrade in 2010, which is benchmarked (2010-19) over a 10yr period as part of this ratio survey.

MLGW’s capital spend ratio (2020-29) was projected by taking the achieved and published planned capital spend as currently proposed by MLGW and projecting annual depreciation (2025-29). Annual depreciation for 2025-29 increases annually by 3.6% from 2025 for Electric and 5.7% for Water based on MLGW’s average increase in annual depreciation 2014-23. Here are the ratio results, as shown in the chart above, for the 3 categories of Electrical Upgrade, Electrical Non-Upgrade and Water.

Electric Upgrade – MLGW’s average capital spend ratio for 2025-29 is projected to be 3.00 and 2020-29, during the Way Forward upgrade, is projected to be 2.52. The American Public Power Association’s (APPA) 2022 survey’s top third quartile capital spend ratio of 1.95 was combined with Chattanooga Electric’s 10 yr average 2010-19 to generate a 1.78 average for a 10-yr cycle that includes a capital upgrade. Chattanooga Electric’s distribution automation project began in 2010 and concluded in 2013. Chattanooga Electric’s 2010-19 average capital spend ratio was 1.74 and shown in the above chart. APPA employed ratios are for utilities with 100K+ customers.

Electric Non-Upgrade – MLGW’s average capital spend ratio, prior to the Way Forward capital upgrade plan 2010-19 was 1.69. The APPA 2022 survey’s average capital spend ratio of 1.33 was combined with Chattanooga Electric’s average 2014-23 of 1.64 and Huntsville’s 1.60 to generate a non-upgrade cycle 10 yr capital spend average ratio of 1.52. MLGW’s 1.69 ratio above 1.52, prior to Way Forward, proves that financial capital under spend has not occurred in Shelby County, Tennessee.

Water – MLGW’s proposed capital spend ratio for the Water Division 2020-29 is 4.30 and for 2014-23 was 2.49. St Louis and Huntsville’s combined average Water capital spend ratio 2014-23 was 1.92. St. Louis’ and Huntsville’s ratio respectively for 2014-23 was 1.54 and 2.30.

But that’s not all, MLGW’s Way Forward Budget results in a 4.30 ratio for 2020-29 and for 2025-29, get ready, a 6.82 ratio. This exploding ratio leads to a MLGW proposed 75% total water rate increase. This is way out of control and entirely detached from reality just like claims of “decades of financial under investment” or “fastest to recover from COVID.” There must be a connected to reality better way.

The red flag that incited this blog was the year over year FY25 increase in the MLGW 5yr Way Forward capital upgrade budget from FY24. The increase lacked logic and any evidence of budget discipline that now includes an $800M increase from an inflation adjusted $1.5B Way Forward budget to $2.3B.

If the MLGW Board does not implement ratios to inform budget sizing, they will become just another rubber-stamping MATA Board. The Board needs to get back to reality and know that Memphis is not the most generous city in the country, that Memphis would not be Jackson, MS if not for Blackjack, that Memphis did not recover fastest in the country from COVID, that MLGW was likely publicly ripped off like MATA and MSCS and that decades of financial capital underspending have not occurred at MLGW. With the former in mind, the MLGW Board should:

1. Implement ratios for budget sizing.

2. Cut the “out of nowhere” and unneeded $60M+ Engineering Operations facility.

3. Decrease the 5 yr Way Forward capital budget from $1.7B to approximately $1.4B, while decreasing the FY25 capital budget by $100M

4. Find a way to get $100M in excess cash off the Gas balance sheet and back to taxpayers. Memphis taxpayers need help.

If the MLGW Board executes on the above, they will move rapidly away from being another local rubber-stamping board.

Check the Facts

APPA 2022 Survey

Chattanooga Electric

City of St. Louis Water Division

Huntsville Utilities

Corrections and Disclosure Notes: The yellow line averages were technically incorrect for the Electrical Upgrade and Electrical Non-Upgrade and have been corrected in the above blog from the original blog. The Electrical Upgrade average was adjusted upward from 1.78 to 1.85 and the Electrical Non-Upgrade was adjusted down from 1.59 to 1.52

Also, it was not disclosed in the original blog that capital improvement costs for the Engineering Operation Center were reallocated from the Gas division and originally prorated based on incorrect revenue figures. After this mistake was discovered, the executive decision was made to reallocate Engineering Operations facility spending, prorated across all divisions based instead on “Utility Plant Net”. These modifications decreased the Electrical Upgrade (2020-29) ratio from 2.53 to 2.52 and increased the Water ratio from 4.23 to 4.30. And the 2025-29 Water ratio increased from 6.68 to 6.82.

Finally and added to the original blog, the MLGW Electrical Upgrade capital spend 2025-29 average is 3.0 and the Gas capital spend adjusted 2020-29 capital spend ratio is 1.35 or about the same as the APPA average of 1.33, which is a favorable added MLGW mention.  For 2010-19 MLGW Gas had a ratio of 2.02 and 2014-23 at 1.58. Given Gas was average for 2020-29 and in range 2010-23, Gas was excluded from the analysis.