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April 23, 2007 THE MLGW CIRCUS CONTINUES ON WITH JOE LEE AS RINGMASTER The recent announcement by the MLGW is more than a little strange and requires a full explanation. Consider the following points. • First, they manage to lose $18 million dollars with a monopoly that can charge customers whatever they want to regardless of what they pay for the gas through the PGA, purchase gas adjustment. • Next, they buy gas for inventory to store in two caves and charge the customers for the gas through the PGA even though they did not use the gas. They overcharged the customers during the winter heating season when many were struggling to pay their utility bills. • Then, after the auditors came in they say, SORRY, we made a mistake and collected your $15 million plus dollars, held it for 8 months, earned interest on it but now we will return it. • Finally, worst of all, they paid anywhere from 26% to 41% ($75 million to $150 million) above market price for the gas that they sold to the ratepayers. It is not like they have never bought gas before and stored it. The November 2006 interim financial statement of the MLGW states on page 47 (note E) the following statement. “Prior to December 2005, during a refill month, MLGW recognized revenue collected from customers related to the costs of refill. However, gas cost was reduced by the cost of refill, and an inventory asset was recognized. During a withdrawal months, there was no recognition of revenue related to the sale of gas withdrawn from LNG, but gas cost was recognized and the value of inventory was reduced. To match sales revenue and gas costs, an adjustment was made to decrease retained earning. An adjustment was also made to increase liability in other accounts payable, accrued expenses, and deferrals by $7,202,584.37.” No rebate was made to the customers. What is different this time? Well the auditors have finished their work and the final audited statement is in the hands of the MLGW management. Last year, the auditors signed off on April 4, 2006. The public needs to have a copy of the statement made available to determine what happened in 2006 that was different from 2005 and prior years. Also an independent examination needs to be made of the MLGW gas purchasing operation, futures and hedging contracts to determine why the MLGW paid so much above the market price of gas. We can no longer afford the incompetent management of the MLGW.  April 9, 2007 Watchdog has been watching for some time the raiding of the reserves of the MLGW for the benefit of the City budget. Take the water division and the raid on it for the financing of the FedEx arena. Over $60 million dollars pledged to finance the arena bonds. At least this was done above board, legally, and with the approval of the City Council. Now, for some time, the City Council has been raiding the Gas Division reserves without the approval of the Board of Commissioners of the MLGW and in violation of the Memphis City Charter. From 2001 to 2006 the amount of the illegal payments comes to over $45 million dollars. I have attached a chart showing the amount of overpayment and the Memphis City Charter provisions that apply to this payment. What is the next step? A lawsuit? The whole situation at the MLGW needs an open study and explanation of 1) why the gas division overpaid the pilot payments and 2) why the gas division lost $18 million dollars through November 2006 and why they paid anywhere from $75 million to $150 million more than the spot natural gas prices during 2006 and 2007, costing the rate payers millions of dollars in high gas bills. Take a look at the city charter provision and the gas price chart which are part of the attached file. Hopefully Carol Chumney and the City Council utility subcommittee will discuss this situation tomorrow and at future utility committee meetings. The ratepayers need answers. Click here to see the overpayment of gas division pilot payments to the city of memphis and the high prices paid by the gas division for the gas that they sell to the ratepayers April 4, 2007 MLGW Gas Division Income statement for the 11 months ended 11/30/2006 shows an Operating Loss of $16,267,442 as compared to Operating Income of $7,725,572 in the comparable 2005 period. This is a negative turnaround of $23,993,014. The vast majority of this problem lies in the 2006 natural gas purchasing. Mr. Dana Jeanes, in a media interview, stated that the reason for the poor performance in 2006 was related totally to a decrease in customer gas usage. Mr. Jeanes is minimally correct … approximately $3,849,984 can be attributed to lower gas sales in 2006. There was a 2,228,000 MCF difference in the gas usage between the two years. That difference multiplied by the $.1728 Margin Block is the negative volume impact. That’s it, folks. The very big problem was in the gas purchasing and the fact that all gas costs have not been passed through to the ratepayers. Apparently, MLGW made some major errors in gas purchasing, did not pass these costs through … and, had to "eat them". Being on the "outside looking in", it certainly appears as though the Gas Division made some commitments for future gas purchases (went long) during a period when natural gas prices were extremely high (Hurricane Katrina). Well, natural gas prices went down as fast as they rose … and, MLGW Gas Division was paying the very high prices they were committed to all through 2006. This episode clearly demonstrates a serious lack of management competence and integrity in the executive offices of MLGW. A competent, seasoned professional utility executive would have had his thumb on this issue and it wouldn't have ballooned into a ~$20,000,000 loss for the stakeholders. Bottom line: there is, at least, a $20,000,000 screw up that was going to be paid for by ratepayers and stakeholders. Seems, it is getting a bit more costly entertaining the Mayor's vagaries. When Lee was in the city Finance Division, he only fumbled with "budget numbers" … now, he is costing taxpayers real dollars. Almost everyone wanted an experienced utility professional to succeed Herman Morris as the President of MLGW, except the mayor. Now, it appears "the pigeons have come home to roost". There are several exhibits contained in the pdf file below that supports our contention. It is hoped that the Board of MLGW and the City Council will review this information and take the prudent, and necessary, action. Click here to see the true story of your high gas bills during the last two winters March 30, 2007 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 the statement of Rich Gilstrap of AandL Underground about the MLGW cutting off their contract and giving the work to the union crews at a higher cost to the ratepayers March 21, 2007 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 price 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. We attach for verification of the above the following chart of MLGW gas prices versus the Henry Hub Natural Gas Price Index. The F 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 March 19, 2007 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 March 16, 2007 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. See the critical pages for the November 2006 MLGW financial report Click here to see how the MLGW lost your money in the gas division March 13, 2007 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 what the city charter says about reducing utility rates with surplus cash at the MLGW February 26, 2007 It comes as no surprise to any taxpayers in Memphis and Shelby County that the MLGW has given a special deal to Edmund Ford. This is serious and those responsible should resign. However this is a small amount of money compared to the mountain of cash and cash equivalents that the MLGW is sitting on and continues to pile up each year out of the pockets of ratepayers who do pay their bills. Consider that the MLGW only publishes their financial statements nine to ten months after they close their financial year on December 31. Looking at the 2004 and 2005 statements, the unrestricted cash reserves have increased from $177 million to $230 million. They say that they like to keep on hand 30 days of expenses, which is about $94 million so why do they need the extra $136 million? Could it have anything to do with financing the new proposed football stadium that the Mayor proposes? Actually the current cash after more than 13 months from the last published financial statement is probably over $270 million as they continue to pile up cash at the expense of the rate payers. Tennessee law 7-34-115 (Operation of Utility Systems- Disposition of Revenues) states that “User charges, rates and fees shall reflect the actual cost of providing the services rendered. No public works shall operate for gain or profit or as a source of revenue for a government entity, but shall operate for the use and benefit of the consumers served by such public works and for the improvement of the health and safety of the inhabitants of the area served.” Furthermore the law states that “Any surplus remaining, after establishment of proper reserves, if any, shall be devoted solely to the reduction of rates.” The City Council should not only investigate the Edmund Ford affair but should investigate why the MLGW continues to pile up profits when it is supposed to operate as close to zero profit as is possible and why it does not return the huge excess cash to its customers in reduction of rates. I have attached the figures from the 2004 and 2005 statements. Click here to see how the payments that you make on your MLGW bills are being stacked up in the coffers of the utility in violation of the state law October 16, 2006 The CA published a recap of this case brought by the partnership of Flautt and Mann against the City Council. The case is long running and complicated but what is clear is that Allan Wade, the well paid attorney for the City Council and recipient of lots of highly paid City legal work has cost the taxpayers of Memphis $1.8 million and counting at $1500 per day because he has flouted the court and is in willful contempt. But what does he care, it is only taxpayers’ money, not his or the City Council’s. The article was published in the CA on October 13, 2006 in the local news section under the heading “City’s tab: $1,000 a day”. This is just one of many incidents where Allan Wade has cost the taxpayers money. Take the case of William L. Thompson and his pensions from the MLGW. Larry Thompson was an employee of the MLGW and one of the most capable and respected employees at the Division. He should have succeeded Herman Morris as President but instead the Mayor appointed the failed director of Finance for the City, Joe Lee. Then Joe Lee forced Larry out at MLGW and in the process two of the board members talked privately and illegally about the severance agreement that the Division had with Mr. Thompson and they admitted this. (Rev. Netters and Olin Morris). Mr. Lee was trying to get rid of Mr. Thompson without honoring the severance agreement. Mr. Thompson took them to court and has won the case at this point. To date this has cost the taxpayers $73,645.68 of which $44,406.55 has been paid to Allan Wade to represent Mr. Lee. The balance of $29,239.13 has been paid to the Bogatin Law Firm. This is what it is costing the taxpayers to not do the right thing and honor a legal agreement. But who cares, it is only taxpayers money. Click here to see what the MLGW, Joe Lee and Allan Wade are costing you in a losing legal battle that should have never been brought. June 19, 2006 After more than 5 months we get the financial statement posted on the internet by the MLGW. Still no budgets posted as do the other branches of local government. Click below to see a spreadsheet showing the essentials of the report. Click here to see the essential figures from the MLGW 2005 Annual Report. You will see the unrestricted cash at $167MM as of December 31, 2005 compared to $111MM as of December 31, 2004. You will see the net working capital (current assets less current liabilities) of $233MM versus $188MM at the end of 2004. Watchdog asks the following questions. • Why does the MLGW keep piling up net working capital and retained earnings when it is supposed to be a non profit organization devoted to providing the lowest utility rates to its customers? • The MLGW is a monopoly with no competition and the law says that any surplus remaining, after establishment of proper reserves, if any, shall be devoted solely to the reduction of rates. • The MLGW says that their policy is to have enough cash to pay one month’s bills. They are keeping millions more than that, in the order of over $100MM. • And do not forget that the MLGW water division will pay $60MM through the year 2026 to retire the bonds for the benefit of the Grizzlies and the FedEx Arena and Parking Garage. The MLGW ratepayers should demand that this pile of cash and cash equivalents be returned to the ratepayers in the form of rate reductions or mitigations of future proposed rate increases. The MLGW should operate as close to zero profit as possible for the benefit of the rate payers who are suffering while Rome is having public games in the new Memphis Coliseum. Also remember that by reducing this honeypot to close to zero, the bear at the other end of Main Street will not come sniffing around. Click below to see the 2005 balance sheet from the MLGW financial statement. Click here to see the balance sheet from the MLGW 2005 Annual Report. August 21, 2006 Watchdog has been informed that last Thursday, August 17, 2006 at the MLGW board meeting, that the long standing anti-nepotism policy at the MLGW was revoked. It was not on the regular agenda but was an add on item that the public did not know was coming up for a vote. This is outrageous but not unexpected at the MLGW. After all the MLGW is run by Mayor Herenton and his appointees on the MLGW board. This is the final nail in the MLGW coffin and is a fitting epitaph on the MLGW headstone. This will cause the morale and performance to go down even more as more and more of the Mayor’s friends and relatives come down to the MLGW job bank with their lack of skills and talents. Last one out turn on the lights, if you know how. Watchdog saw this coming and we printed the article below in April 2005. ANTI-NEPOTISM POLICY AT MLGW. IS IT HERE TO STAY? April 21, 2005 The MLGW has a very strict anti-nepotism policy as shown in the download page below. The City does not have such a policy as is shown by the many related people working for the City. I have been told that Joe Lee would like to see this policy changed at the MLGW to be like the City. As you may remember, he hired his cousin at the City to a $70K per year job before he came to the MLGW. Makes you wonder. Click here to read the MLGW anti-nepotism policy. Also read a story about nepotism at the City of Memphis which has never had an anti-nepotism policy like the MLGW had for years. This is the result on no anti-nepotism policy. Click here to read what happens when your policy is to hire your relatives. February 21, 2007 As the mayor announces a new FedEx type project (a new football stadium) you are asked to believe that it will not cost the taxpayers any property tax increases. Are we asked to believe that this will be financed without the backing of the citizens of Memphis and Shelby County with full faith and credit guaranty backing up any other source of revenues? And now we have the investigation of the MLGW (long overdue) concerning special no payment deals given to Edmund Ford and who know who else. As we approach an election in October, expect many other proposals that are intended to enhance the Mayor’s reputation so he can get another term. However remember the following. • The corruption in the City of Memphis and Shelby County is well entrenched and getting worse. Who knows who will be the next public figure to fall. • The City Council, the City Administration and the MLGW are changing fast as people run to secure a higher salary or pension as they are unsure who will be the next figure to fall. Look at the deal (a $40,000 raise and a $28,000 a year pension starting immediately) Gale Jones Carson got at the MLGW. • The only thing that is in relatively good financial shape in Memphis and Shelby County is the MLGW. As of December 31, 2005, they were sitting on $192 million in unrestricted cash and cash equivalents as compared to $151 million as of December 31, 2004. They have stated that they only need cash to cover 30 days purchases and this would be an average of $94 million. Why do they not return this $98 million dollar excess in lower rates? But you have to ask yourself why are they in such good shape? The obvious answer is that they are a monopoly and they can charge whatever they and the City Council choose. They always look good in their statements because they have ghost positions in their budget which they do not fill and therefore they come in under budget. If they make a mistake in gas purchases, they simply pass the mistake along in their purchased gas adjustment (PGA). A recent analysis shows that the gas rates in the last five months are running up to 65% higher than the Henry Hub Natural Gas Price index used as a standard for spot gas purchases rates. But you will only be able to know late this year if you have been ripped off because the MLGW is always very late in publishing their annual financial statements and they do not publish their annual budgets on their website as the City and the County do. WHY do they hide this information? According to the law the MLGW is supposed to operate at a break even position with any profits returned to the rate payers in lower rates. Section 7-34-115 of the Tennessee Code states: Operation of utility systems- Disposition of revenue. (a) Notwithstanding the provisions of any other law to the contrary, as a matter of public policy, municipal utility systems shall be operated on sound business principles as self-sufficient entities. User charges, rates and fees shall reflect the actual cost of providing the services rendered. No public works shall operate for gain or profit or as a source of revenue to a governmental entity, but shall operate for the use and benefit of the consumers served by such public works and for the improvement of the health and safety of the inhabitants of the area service. The law further states that “any surplus remaining, after establishment of proper reserves, if any, shall be devoted solely to the reduction of rates.” Year after year they keep piling up profit when they should be returning these profits to the ratepayers in lower rates. Why do the City Council and the media not investigate this surplus? Could it be that the Mayor has his eyes on this surplus to finance his new stadium as he did with the Water Division of the MLGW which is required to pay $2.5 million per year for the FedEx Arena for over $60 million total. Time will tell but not before the election. July 24, 2006 MLGW IS DEAD LAST IN THE PRESTIGIOUS JD POWER RATINGS OF PUBLIC UTILITIES!! WHAT IS THEIR RESPONSE? THEY REPORTED THAT THEY WERE RATED VERY HIGH IN THEIR OWN SURVEY. GO FIGURE. Ever since Joe Lee took over from Herman Morris in 2004, MLGW has been going downhill at an ever increasing rate. Low morale due to unfair promotion selections, new job hires and salary levels for unqualified candidates. Watchdog has been reporting on this since the beginning. But the biggest unreported news, other than in the watchdog website, is the pile of cash that MLGW is sitting on which should be returned to the ratepayers in rate reductions in accordance with the law. You will see the unrestricted cash at $167MM as of December 31, 2005 compared to $111MM as of December 31, 2004. You will see the net working capital (current assets less current liabilities) of $233MM versus $188MM at the end of 2004. Click here to see the essential figures from the MLGW 2005 Annual Report. Watchdog asks the following questions. • Why does the MLGW keep piling up net working capital and retained earnings when it is supposed to be a non profit organization devoted to providing the lowest utility rates to its customers? • The MLGW is a monopoly with no competition and the law says that any surplus remaining, after establishment of proper reserves, if any, shall be devoted solely to the reduction of rates. • The MLGW says that their policy is to have enough cash to pay one month’s bills. They are keeping millions more than that, in the order of over $100MM. • And do not forget that the MLGW water division will pay $60MM through the year 2026 to retire the bonds for the benefit of the Grizzlies and the FedEx Arena and Parking Garage. The MLGW ratepayers should demand that this pile of cash and cash equivalents be returned to the ratepayers in the form of rate reductions or mitigations of future proposed rate increases. The MLGW should operate as close to zero profit as possible for the benefit of the rate payers who are suffering while Rome is having public games in the new Memphis Coliseum. Also remember that by reducing this honeypot to close to zero, the bear at the other end of Main Street will not come sniffing around. May 31, 2006 Watchdog has been investigating this subject in order to bring out the cost of the stated policies in the various ordinances. If these policies perform the stated function of teaching minority and women firms how to compete in the business world and then graduate into the normal competitive business world, that is good. However, if it is merely a means of rewarding friends and supporters, then that should also become public information along with the cost to the rate payers and taxpayers. Recently watchdog picked up a number of papers from the MLGW and the City of Memphis in response to several open records requests. At MLGW there were several large bids for computers. For years MLGW, being a large user of computers, has been buying direct from Dell and other suppliers. However on these two contracts a different method was used. One was a 36 month contract for Rackmount Servers in accordance with MLGW specifications dated January 12, 2004. Another was a 60 month contract for laptop and mini-tower personal computers also in 2004. The details are listed below and you can read about the results. Dell Marketing L. P. bid as did Thomas Consultants, Inc. (Darrell K. Thomas, owner). Dell was low at $1,356,357 with Thomas at $1,420,812. However Thomas Consultants was awarded the job for the same Dell computers at an additional cost of $64,455. The other contract was more interesting for 1725 computers. Trinity Technologies, Inc was awarded the contract at $2,468,215 whereas Dell was the lowest of the complete bids at $2,398,005. However in February 2006 Trinity Technology advised that there were unable to furnish the computers in accordance with MLGW specifications and the job was given to Thomas Consultants for $1,974,572. They in turn are furnishing Dell computers with apparently a 5% (about $100,000) markup for Thomas Consultants. The interesting thing here is that the MWBEC City Code states that if a minority subcontracts 50% or more of the work, the minority contractor shall be presumed not to be performing a commercially useful function. See the code below. Click here to read the part of the City Code concerning subcontracts. Click here to read about the Thomas and Dell bids on contract 122510. Click here to read about the Thomas and Dell bids on contract 127120. As the headline indicates, this is only the tip of the minority contracting iceberg. Click on the two items below and see what watchdog has received from the City of Memphis. We have the ACS (Affiliated Computer Services) Summary Reports for Minority/Women Enterprise Participation from July 2002 through March 2006. It reports on all the minority purchasing done through ACS during this period. We assume most if not all of these contracts were non competitive bids given to these firms. We have asked for the details of these contracts and are awaiting the information. Look at the spreadsheet shown below. We have concentrated on those firms whose owners are good friends of the Mayor and who ended up with a large amount of contracts. This is only the City of Memphis through ACS. The MLGW, MATA, The Airport Authority, the Memphis City Schools, Shelby County and others are also involved. On the spreadsheet we have concentrated on Lesure Computer Services, Integrate Technologies, Mitchell Technology Group, Thomas Consultants, Trinity Technologies and Small Planet Works. There are many others. Click here to see how much each of these firms received in contracts under the City of Memphis ACS program. Click here to see the full ACS monthly reports and how much each of these firms received in contracts under the City of Memphis ACS program. What is the cost to the taxpayers and rate payers. Frankly we do not know because there are no competitive free and open bidders. We need to make this process transparent and open so that we know what this process is costing. June 13, 2006 On April 11, 2006 watchdog sent the following open records request to the MLGW. April 11, 2006 Ms. Amy Burch Coordinator of Access to Public Records Memphis Light, Gas and Water 220 South Main Street Memphis, Tennessee 38103 Dear Ms. Burch, In accordance with instructions and as a taxpayer of the City of Memphis I would like to inspect the municipal documents in accordance with the Tennessee Open Records Law that contain the following specific information. 1. The records and documents that show any and all contracts and/or payments to or with Thomas Consultants Inc (TCI) and any contracts or payments to Mr. Darrell K. Thomas from January 1, 2000 to the present date, April 11, 2006. The records and documents should show the bidding process, the date of the bid openings and the losing competitive bids. I trust that you will inform promptly whatever department and personnel are necessary to make this information and documents ready for my inspection. In accordance with the MLGW policy concerning copies and cost of copies, I may want copies of some or all of the documents after inspection. Since I assume that all the information requested is on computer or in an available file and should be available readily. I expect you should have this information by April 21, 2006. If you need additional information or have questions about this request, I am available during working hours at 754-0699. Sincerely yours, Joe Saino 6560 Kirby Forest Cove Memphis, Tennessee 38119 On may 26 we picked up the follwing two sheets from MLGW concerning the open records request. One memo was from Jim Moncrief, the Supervisor of the Contract Management Department saying that there did not have any records of contracts with Thomas Consultants or with Darrell K. Thomas. There was another sheet which we received which showed $1,169,359.29 in purchase orders issued to Thomas Consultants since the year 2000. Apparently purchase orders were issued to Thomas Consultants without benefit of competitive bids. Nice work if you can get it. Click here to read how much Darrell K. Thomas got in no bid purchase orders from MLGW. May 16, 2006 In the 2006 City of Memphis CIP budget there was the below listed item for a $700,000 expenditure for imaging technology. Watchdog is all for this expenditure and it was in fact bought as shown below in City Council minutes dated August 2, 2005, item 19. This will allow many if not all paper records and computer records to be shared with the various divisions of local government. ALSO IT WILL ALLOW THIS INFORMATION TO BE SHARED WITH THE PEOPLE WHO PAID THIS $700,000, THE TAXPAYERS. The Tennessee open records laws are good but they have a defect. It does not require the information to be furnished in an electronic form. In most cases the information comes off a computer and is printed out and then given to the person requesting the information. That person has to come to the office and review the material. He then can have copies at generally 25 cents per copy. This is wasteful of the public servants time and the requester’s time. This information could have been sent in an email which would save both parties time and effort. Why do they not do this? The reason in most cases is that the public servants want to discourage open records requests. I will give you a recent example which shows how idiotic this process is. Watchdog asked the MLGW for a list of donation and contributions made to various organizations and events such as the Black Mayors Conference. When I showed up at the MLGW headquarters and went through security I went to a conference room with the person designated as the Coordinator of Access to Public Records. However for the first time there was another person there, Mr. Anderson Williams, executive analyst, and he sat there and read a book while I went through a large stack of documents picking out some that I wanted at 25 cents per copy. It took me one hour to decide what I wanted and this cost the MLGW one hour of Anderson Williams time at a rate of about $78/hour including benefits plus the time of the coordinator. And all of this could have been done electronically. The point of all this is that if a reform group of candidates are elected to the charter commission on August 3 of this year, then hopefully open records reform will be part of their agenda for proposed City of Memphis Charter changes. Click here to see what you as a taxpayer spent $700,000 on and then they won't even post the minutes of the City Council meetings on the City website. Click here to see the minutes of the City Council meeting (item 18) where they agreed to spend $700,000 on an imaging system and yet they do not even publish on their website the minutes of this meeting. May 25, 2006 As we approach Memorial day it is a good time to sit back and think about what is going on in the City of Memphis. • The City of Memphis is in bad financial shape with the bond ratings being lowered which raises our costs for capital improvement projects. • The City Council is going over the budget for 2007 and is fighting over park budgets but ignoring the funding of GASB 43 and 45 requirements choosing to put it off until after elections. • The only thing that is in relatively good financial shape is the MLGW. As of November 2005 they were sitting on $236 million in unrestricted cash and cash equivalents as shown below. To date they have not published the final 2005 financial report after almost 150 days from the end of the year. But you have to ask yourself why are they in such good shape? The obvious answer is that they are a monopoly and they can charge whatever they and the City Council choose. They always look good in their statements because they have ghost positions in their budget which they do not fill and therefore they come in under budget. If they make a mistake in gas purchases, they simply pass the mistake along in their purchased gas adjustment (PGA). According to the law they are supposed to operate at a break even position with any profits returned to the rate payers in lower rates. However at the end of November 2005, they showed an increase in net working capital in the electric division of $41 million, in the gas division of $15 million and in the water division of $3.3 million. Their unrestricted cash went from $126 million to $236 million. It is no wonder why Mayor Herenton has his eyes on the honeypot. He wants the honey. Click here to see the financial position of the MLGW at the end of November 2005. They have yet to publish their 2005 financial report and have never put on the website their annual budgets which the City and the County do. Why? May 22, 2006 In looking through the 2007 proposed budget, we looked to see if there was any money to meet the above standards which are required during this budget year. Here is the explanation and schedule for the implementation of these federal standards. From watchdog which we posted some time ago, here are the standards. The Government Accounting Standards Board (GASB) issued Statement No. 43 of the GASB (GASB 43) entitled "Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans" in April, 2004. GASB issued GASB 45 entitled "Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions" in June, 2004. GASB 43/45 Overview GASB 43/45 is the governmental sector counterpart of FAS 106. GASB has determined that “Other Post-Employment Benefits (OPEB) is accruing cost, similar to pensions that should be reflected in a governmental unit’s financial statements. Retiree health care benefits represent the largest component of OPEB and when promised in the form of a defined benefit , OPEB includes post employment health care benefits. According to a 1998 GFOA Study, the vast majority of state and local governments provide some form of retiree health care benefits. Governments with over 100 million in annual revenues are required to implement GASB 43 for the fiscal years beginning after December 15, 2005, and for governments with annual revenues of 10-100 million the deadline is December 15, 2006. GASB 45 must be implemented one year later. GASB 43: Describes financial reporting for OPEB Plans that are pre-funded or administered through a separate trust. In brief, the plan needs to calculate the Annual Required Contribution (ARC) and include a schedule in the financial report that shows whether or not it is receiving contributions at that level. GASB 45: Describes financial reporting for sponsors of OPEB Plans. In brief, the sponsor needs to report a record of the cumulative under funding or over funding with respect to the ARC in its financial statements. Governments that do not follow GASB standards will have this noted in the auditor’s opinion that is included with their annual financial reports. Impact of GASB 43/45 Of the governments that provide retiree health care benefits, the financial impact of GASB 43/45 is likely to be significant. No longer will a government entity be able to fund only the current year’s cost for retiree coverage without causing a negative effect on their financial statements. Bond rating agencies have already indicated that attention will be paid to the mismatch between liabilities and assets. This comes at a time when many local governments are experiencing difficulty in retaining their ratings. Few government employers have calculated their OPEB costs and have yet to determine the impact of GASB 43/45 on their financial operations. For many, the unfunded annual required contribution will pose additional stress for already strained budgets. The advent of GASB 43/45 will force government employers to re-evaluate how they are reserving, and more importantly, how they are funding their OPEB liabilities. Although the financial impact of GASB 43/45 will be a gradual one, advanced funding of retiree health care benefits will become critical in the future. Astute issuers will want to be in front of this curve. The purpose of GASB 43 and GASB 45 is to require the accrual of liabilities of other postemployment benefits (OPEB) generally over the working career of plan members rather than on a pay-as-you-go basis which is the current practice for most government sponsored plans. The purpose of GASB 45 is to require the accrual of the OPEB expense over the same period of time. Apparently the City of Memphis budget 2006 and 2007 did not account for this increased liability. They should be including money in the budget to account for the increased post retirement health care benefits rather than just the actual projected annual costs? If they do not start putting money aside to cover this future liability then they are violating the law and building in a future train wreck just as many other cities around the county. Click below to read a recent article from USA today and look at the example of Duluth versus Minneapolis. It is scary. Click here to read the USA Today article concerning the cost of future health care benefits for public employees. Also read a local very forward looking warning article by Andy Meek in the February 3, 2006 issue of the Daily News. Click here to read Andy Meek's article. The past MLGW administration did recognize this future liability and in 1995 set up the MLGW TRUST FOR RETIREE MEDICAL AND LIFE INSURANCE BENEFITS with a $48 million dollar fund. Watchdog posted this information in the past. Whether this is enough to cover future liabilities is for actuaries to figure out. However, the City of Memphis and the MLGW are not doing anything about this requirement. Click below to see what the City and the MLGW say about this subject. Note that the MLGW still has not published their 2005 annual financial report 140 days after the end of the 2005 year. Click here to see what the MLGW says about this situation. Click here to see what the City of Memphis says about this situation. Could it be because there is an election coming up in August 2006 and October 2007 and they do not want this information to come out sooner than necessary. The schedule clearly states "Governments with over 100 million in annual revenues are required to implement GASB 43 for the fiscal years beginning after December 15, 2005". APRIL 13, 2006 As tax day approaches, it is a good time to consider your income and expenses. One of those expenses that you cannot take off your tax return is your MLGW bills. A friend of watchdog, a CPA, recently looked at his utility bills and here are his comments. I took a look at the gas costs included on my utility bills for 6 months. I used December 2004 as my base to look at the % increase in just the cost of the purchased gas for January & December of 2005, and January, February & March of 2006. I used the MLGW methodology worksheet, you procured, as the basis for verifying my bills. I then fetched the Henry Hub gas index for that period (that's what the Federal Reserve uses) and computed their % price increases for the same months, still using December 2004 as the base month. They publish an average of prices for each month ... to be fair (due to MLGW billing cycles), I averaged their months involved, eg - Nov & Dec for "my December". You can see what I did on the worksheet below. The website for the Henry Gas Price index is shown next. http://research.stlouisfed.org/fred2/data/GASPRICE.txt There appears to be no relationship between what MLGW bills as the "raw gas costs" and what is considered to be the "standard index". Look at my worksheet and see if you don't think something is amiss. MLGW is way "off the scale" in the % changes, as compared to an "industry standard index"???? Always to the upside???? Either they are gaming the ratepayers, or, just as bad, they are terribly incompetent purchasers of natural gas. I wonder which applies? Looks to me like it all started when they implemented their new "base gas cost" in Dec / Jan of 2005. They keep adding on to that very high number. Bear in mind, I'm not looking at absolutes ... just the percentage increase over a base. You have to wonder how much the lack of a "commodity specialist" is costing us ratepayers???? Nice to have monopoly pricing power, isn't it?  DID YOU SEE ANY OF THESE EXPENSES ON YOUR UTILITY BILL INCLUDING THE $20,000 FOR THE NATIONAL CONFERENCE OF BLACK MAYORS?
April 26, 2006 Watchdog sent an open records request to the MLGW on February 8, 2006 asking for the following information. 1. The records and documents that show the MLGW policy regarding contributions and donations showing what limits and types of contributions can be made without board approval and also with board approval. 2. The records and documents that show all checks payable to the City of Memphis, the Mayor’s office and/or City employees, charitable/Non-Profit organizations or to any party in support of a fundraiser, civic group or convention for the calendar years 2004, 2005 and 2006. You should provide name of payee, amount of payment and reasons for payment. Finally after more than two months I was told that the information was available and at 10 AM on April 21, I came to the MLGW building on Main and was presented with a huge stack of documents to inspect. As to the first request above, see the policy document below. Remember that the law governing Memphis public utilities says that “Any surplus remaining, after establishment of proper reserves, if any, shall be devoted solely to the reduction of rates.” Here are some interesting examples of where some of your rate money is going rather than for rate reduction for ratepayers who are struggling with their utility bills. • $20,000 for the National Conference of Black Mayors meeting in April 2006. • $422 paid to then MLGW Board member, Franketta Guinn, for membership in the YMCA of Memphis under the MLGW Healthy Executive program. • $7000 to the Black Business Directory • $25,000 to the Mid-South Minority Business Council after TVA cut their funding. This was approved by the MLGW board. • $2,500 for the Black Business Association • $13,000 Sisterhood Showcase sponsorship, check went to Birchett & Associates, Inc. • $6,500 for 2005 Freedom Award to the National Civil Rights Museum • $15,600 to Birchett & Associates, Inc for Diversity Issue in Grace Magazine • $48,000 to the City of Memphis for Lobbying Services under City Contract #20860. Specifically the contract calls for MLGW to reimburse the City the amount of $6,000 monthly for the services of REJ & Associates and in the amount of $2,000 monthly for the services of Farris, Mathews, Branan, Bobango Hellen & Dunlap, PLC. • $1,000 for the American Association of Blacks in Energy • $7,500 to AutoZone Liberty Bowl for Ad space to be used for “Wise Use of Energy” plus 250 employee tickets. • $5,500 Latino Memphis Fiesta sponsor • $3,000 to Playhouse on the Square for sponsorship of Peter Pan • $29,500 to the Corporate Executive Board for 2004 membership services for the procurement strategy council • $1,000 for the African-American Pastors Consortium, Inc. • $4,000 to the Memphis Area Home Builders Association • $1,000 to the LeMoyne-Owen Gala • $8,000 to the Memphis Business Journal for the Small Business Awards Banquet • $6,777.66 to the Chamber of Commerce for one month’s expenses for Economic Development Programs • $1407.56 to the City of Memphis for President Lee for July, August and September 2004 for Nextel charges including Blackberry email and web • $10,000 to Weekend Academy Inc • $7,500 for The 100 Black Men of Memphis, Inc • $1,000 Anointed Hearts Ministries, Minister Melvin Norman, CEO The above is just a sampling of monies that are being spent from the unrestricted cash that the MLGW is sitting on. Click here to see the $20,000 bill you are paying for in your utility bill. Click here to see the rules that the MLGW set up to allow contributions from MLGW rather than reduction of rates.   April 10, 2006 Watchdog has been reading the financial statements of the MLGW up to November 2005 (the latest they have published) and we find the following facts as shown above as taken from their financial statements. • The unrestricted cash has increased from $126 million in December 2004 to $236 million in November 2005. • The net working capital has increased from $140 million to $199 million. Net working capital is current assets minus current liabilities. • The retained earnings has increased by $85 million. Remember that the MLGW is a non profit public utility and a monopoly and should be operating as close to zero profit as is possible. In reviewing the MLGW financial statements from 2001 through November 2005, the MLGW has overpaid its PILOT payments to the City and County by over 12 million dollars in 2001 and another 12 million dollars in 2004, taking the money from the reserves of the MLGW. The financial statements state that these payments are in accordance with the 1987 Gas Tax Equivalent law and that law states that the payments are made for each year only from the new operating income of the gas division. Please note two important points in the law. • No public works shall operate for gain or profit or as a source of revenue to a government entity, but shall operate solely for the use and benefit of the consumers. • Any surplus remaining after establishment of proper reserves, if any, shall be devoted solely to the reduction of rates. Click below to see the facts on this overpayment and the supporting law. The MLGW needs to answer these questions. Click here to read how the MLGW overpaid their PILOT payments to the City and County in 2001 and 2004 to the tune of $24 million dollars, taking the money from the MLGW reserves. March 13, 2006 As a former member of the MLGW board and a former chairman of the MLGW board I have been following with some trepidation the operation of the MLGW since July 2004 when Joseph Lee replaced Herman Morris at the instigation of Mayor Herenton and the City Council. Joseph Lee was the former director of finance for the City of Memphis and was responsible for the depletion of the reserve fund, the lowering of our bond ratings and for three straight years of unbalanced budgets for the City of Memphis. Since coming to the MLGW we have seen a series of situations involving hiring of cronies of Mayor Herenton without the traditional and long standing posting and hiring procedures which have traditionally allowed the internal promotions to come from currently employed experienced qualified people. This has damaged employee morale as they see patronage employees replacing long time well qualified people. The MLGW is facing a series of problems that will require well qualified people in management and being run by a person who failed at the City of Memphis does not give great confidence for the outlook. Some of the problems need to be mentioned. • The MLGW customer growth in the last five years is less than 1% annually. • The total labor cost have increased 36% over 6 years • The total medical benefit costs have doubled in 6 years • The payments to the city of Memphis for in lieu of tax payment have increase by 54% over 6 years and remember that $2.5 million from the water division is now going to pay for the FedEx arena. Part of the reason they are overpaying PILOTS is that they have paid $24 million more in the last four years than the 1987 law envisions. • MLGW pension costs have increased by 74% over the last six years. • The net write offs for unpaid bills are projected to increase by $5 million dollars this year. MLGW’s plan to overcome these problems is interesting. They plan to reduce vacant positions by 185 from 320. In other words in their budget they have had 320 ghost positions and now they are going to cut them by 185. Why not cut them all? By having the salary of ghost positions in the budget, they hope to make themselves look good when and if they come in under budget. They also are reducing the medical benefit costs by 5% from 80% to 75% paid by the Division when the city and the county are already at 70%. The problems at the MLGW are so severe that only a major reorganization can possibly turn it around. To address huge increases in utility bills we need new management with changes in overhead, salaries and benefits to make the Division more closely resemble a private sector utility company. This can only come about with charter commission changes and a new mayor and city council. February 21, 2006 I thought that the MLGW policies were bad before Max Williams left but I ascribed that to Joe Lee and his penchant for secrecy. What would you expect from someone who came with his training obtained from City Hall. However, Odell Horton Jr. is now personally taking a hand in the obstruction of the public’s right to know about the company that all of the taxpayers and ratepayers own. I show below an open records request that I sent on December 21, 2005 to the MLGW. On item 3, I asked for the records and documents that shows all legal and other fees paid by MLGW in the case of the TVA electric bonds. The documents should show to whom the fees were paid and the dates of the payments and for what services. His answer lists 1 payment of $24,961,21. Also with the one sheet shown, I received a letter from Mr. Horton saying that was all that was paid. I guess I did not word my request exactly right and he took the opportunity to not tell the full story. However look at the answers obtained by City Councilman E. C. Jones from the MLGW to a very similar request, $8.244 million dollars. I suppose Mr. Horton would contend that the money was not paid directly from the MLGW but as a fee from the bonds. However in a letter dated July 24, 2002, the Memphis Light Gas and Water Division agreed to pay a fee of $7.5 million to J.P. Morgan and more to other participants. Mr. Horton takes every opportunity to tell less than the whole story. Included in the file is a number of interesting letters detailing how the Mayor worked to get a percentage of the pie for his buddies. Read and prepare to vote Willie out of office in 2007. Click here to see my open record request and the answer that was not a forthcoming answer. Click here to see who got the bacon on the mlgw 1.5 billion dollar electric bond issue. February 17, 2006 Here is a statement that I made to the MLGW board yesterday. My name is Joe Saino and I am here to ask some questions and to make some recommendations. Your 2004 financial statement shows that you are sitting on $110 million in unrestricted cash and short term investments. For a company that is supposed to be non profit, this seems like a lot of money and should be cut down by rate reductions and returned to the ratepayers. Also in looking at the 2004 financial statement, on page F-3 you show a loss in the gas division of $7.8 million after a payment to the City of Memphis and other Shelby County cities of $14.5 million. The November 4, 1980 MLGW charter says concerning payments in lieu of taxes 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. This charter provision has been superseded by the Municipal Gas System Tax Equivalent Law of 1987. This law which is shown below provides for the calculation of the Payment in Lieu of Taxes mainly to the City of Memphis but it has a provision that reads (2) Such tax equivalent payments shall be made only from gas system revenues remaining after payment of, or making reasonable provision for payment of: (A) Current gas system operating expenses, including salaries, wages, cost of materials and supplies, power at wholesale, and insurance; (B) Current payments of interest on indebtedness incurred or assumed by a municipality for the acquisition, extension, or improvement of the gas system, and the payment of principal amounts of such indebtedness, including sinking fund payments, when due; (C) Reasonable reserves for renewals, replacements, and contingencies; and (D) Cash working capital adequate to cover operating expenses for a reasonable number of weeks; Looking at the MLGW gas division statements for 2001, 2002, 2003 and 2004 and taking out the PILOT payments made during those years, the MLGW gas division shows a profit of $36.8 million but they paid a total of $55.3 million in PILOT payments. Clearly they are in violation of the 1987 law and are overpaying the PILOT payments. This needs to be investigated. This company belongs to the rate payers and to the citizens of Memphis and Shelby County. The employees should remember the term, public servant. The arrogance shown by City Hall and the MLGW grates on the overburdened taxpayers and ratepayers. I recently sent in an open records request to question why my utility bill from December 2004 compared to December 2005 was up 104% per hundred cubic feet. Nationally, residential gas prices are up 43% for that same time period. Eventually I received a rate chart for the two months showing that the customer charge was changed from $3.40 to $7.00 per month and that the 31% discount over the first 15 ccf usage was deleted. Also the gas rate was increased by 11%. I asked a board member to explain this change to me and how it compared with the statement in the 2004 MLGW financial report on Page N-26 that claimed a gas rate increase of 6.2% and a total revenue increase of 19.1 million. I received a detailed analysis from the rate department which I appreciated. It is very complicated and shows that the MLGW margin increased by 20 to 25% and that the gas rate per ccf increased by 132%. Naturally I wanted to ask some questions and I called the rate department to talk to the person who prepared the analysis. He was out until next Monday so I asked for Dana Jeanes to call me so I could get some answers. The next call I got was from Odell Horton Jr. the new general council who told me to put my questions in writing and they would eventually be answered. This really made me furious. Do they not understand that we own this company. We will not be treated as children who must stand in line to get some simple answers. There is such a storm building due to the arrogance of the City and the MLGW that it will make hurricane Elvis look like a summer breeze. The taxpayers and the ratepayers will sweep these people out of here soon, as we are mad as hell. To win back the confidence and support of the MLGW customers my suggestions are these. Put the following things on the MLGW website. Your budgets, your minutes of your preliminary and formal meeting, copies of your important contracts, your salaries and benefits, your pension plan, all data that you distribute to your board members and most importantly a detailed explanation of how your customers bills are computed showing for instance the overhead and the gas costs separately on the bill. Release your preliminary results of fiscal year 2005 so we can see the profit or loss of the gas division and that will settle whether you are overcharging the public or not. Many suspect you are but the figures will state the case. Change your rules of sunshine requests so that a person can go directly to the person who has the answers and let that person reply directly by electronic communication. If you want to win back the trust of the public, you must embrace transparency and not hid behind Odell Horton Jr. with his asinine request to put any questions in writing and then wait for the answer. Click here to see the Municipal Gas System Tax Equivalent Law of 1987 which shows how much is supposed to be paid to the City of Memphis and other Shelby County cities. Click here to see how the MLGW figures your gas bills including their overhead.  In a recent open records request to the MLGW I asked why my December 2005 gas bill was 104% higher than my December 2004 gas bill. I asked because nationally gas rates had gone up somewhere between 25% and 46% depending on location and time of year. As usual it took weeks for the answer to come back and I got a rate schedule as shown above. At first glance I did not understand what I was looking at but then it dawned on me. I calculated the two bills from the G-1 schedule and they were correct. I looked it over and noticed that in the December 2004 you paid 0.6458 for the first 15 ccf and then 0.4439 for the rest of what you used. However, the December 2005 schedule left the Second Block Consumption blank. In other words you paid 0.7192 for all you used. Who gave them the right to change this method of rate charge? Also they upped the customer charge from $3.40 to $7.00. Here are the calculations. December 2004 Customer charge $3.40 plus 15 ccf x .6458 plus 170 ccf x .4439 plus 185 x .2416 equals $133.25 December 2005 Customer charge $7.00 plus 268 ccf x .7192 plus 268 x .7269 equals $394.56 If my December 2005 bill had been figured by the same method as the December 2004 method (with the first 15 ccf at .7192) and 253 ccf at .494 [68.7% of the rate at the first 15 ccf]), then my bill would have been $337.67, not $394.56, or about 15% less. We are talking millions of dollars (I roughly calculate $36 million extra charges in the12 months of 2005) that the MLGW has charged by this simple change in the method of calculating the bill. I have contacted MLGW board members and asked them about this change and they were not aware of it but said that they would check. I have not heard from them yet. It seems that there are three possibilities. • It was a mistake and the MLGW owes the public a rebate. • It was done knowingly with the hope that it would slip through without anyone noticing. • It was presented to the MLGW board and the City Council and no one realized the significance of the change. Take your choice but we need answers. February 6, 2006 Having a close connection to Willie Herenton and Joe Lee pays off very well if your name is Allan Wade. He not only is the lawyer for the City Council and is on the City’s pension system with health benefits but he also gets legal work at the MLGW in addition to City work, the lottery commission and others. In the past two years he was paid $258,557.54 for legal work at the MLGW. This information was discovered with an open records request to the MLGW. Listed below is the total for 2004 and 2005 of $3.48 million dollars paid to a number of Memphis law firms. Click here to read about how your utility dollars are funding local law firms. January 30, 2006 There is a new document from the MLGW that the public needs to know about. I have attached a MLGW cost containment plan update. It contains some startling information. I think this should be reviewed in light of upcoming high salary jobs that are due to come before the City Council for approval. Also some basic questions need to be asked about MLGW’s hiring practices and their benefits. Look over the report. 1. Page 3, customer growth is less than 1% annually. I guess the Mayor’s statements inviting residents to leave are having an effect. 2. Page 4, total labor costs have gone up 36% over 6 years. The CPI is up 13%. 3. Page 5 Medical benefits have doubled over 6 years. Most private companies do not pay more than 50% of the cost of medical insurance. MLGW is only proposing to reduce the portion of the premiums that they pay from 80% to 75%. 4. Page 6 Pilots have gone up 54% over 6 years. It is my understanding that the gas and electric divisions pilots are controlled by state law. I know about the water division and the money that ws diverted from the City budget to the fedex forum bonds. 5. Page 7, pension costs have gone up 74% over 6 years. Why do the president and the vice presidents of MLGW have their pension contribution paid by the division? 6. Page 9, net write offs will jump 5 million in 2006. What are the rules for cutoffs and collections. Those that pay are subsidizing those that do not pay. 7. Page 14, they show 320 vacant positions and on page 16 they show $5.4 million cash flow enhancement by eliminating 185 vacant positions. This shows that the budget is phony with a lot of vacant positions with salaries for vacant positions. We need information comparing budgets and actual expenditures for the past years. They like to keep the vacant positions in the budgets so that when the actual numbers come in they can say that they are under budget. This is phony. PFM has got their nose in the trough again for two studies that are probably not needed. Much of this information is available on line. Also you need to ask now what will be the future effect of GASB 43 and 45 on the City and the Division. The Government Accounting Standards Board (GASB) issued Statement No. 43 of the GASB (GASB 43) entitled "Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans" in April, 2004. GASB issued GASB 45 entitled "Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions" in June, 2004. The purpose of GASB 43 is to require the accrual of liabilities of other postemployment benefits (OPEB) generally over the working career of plan members rather than on a pay-as-you-go basis which is the current practice for most government sponsored plans. The purpose of GASB 45 is to require the accrual of the OPEB expense over the same period of time. Notice on terminology: The term "postretirement" is sometimes used instead of "postemployment". While somewhat confusing, it is understandable, given the generally different approaches given to such benefits by FASB and GASB. For the purposes of defining the effective date of the standards, GASB 43 and 45 use the terms phase 1 government, phase 2 government and phase 3 government where such terms are defined in GASB 34, paragraph 143. The following table shows the definitions of these three phases and their respective GASB 43 and 45 effective dates: Phase Total Annual Revenues (1) GASB 43 applies for periods beginning after the following dates: GASB 45 applies for periods beginning after the following dates: 1 $100,000,000 or more 12/15/05 12/15/06 2 $10,000,000 - $100,000,000 12/15/06 12/15/07 3 Less than $10,000,000 12/15/07 12/15/08 Note 1 - Based on a government's total annual revenues in the first year ending after 6/15/99. Click here to read about high increases in MLGW overhead cost over the past 6 years. January 19, 2006 Here is an excellent informed comment on the current employment situation at the MLGW. The situation is becoming critical as talented people leave and/or retire and are replaced by Herenton cronies. EROSION OF TALENT AT MLGW Industry spends a great deal of time and money on Human Resource processes used in the recruitment and retention of highly skilled employees. All Employee Compensation systems are designed with at least one of three basic principles in mind: Attract Retain and Motivate necessary talent. The ability to get ‘em, keep ‘em and make them productive is crucial to the success of any business. MLGW’s current practices are eroding its ability to attract, retain and motivate the highly skilled individuals necessary to operate a very complex three service utility. The factors contributing to this negative trend are as follows: MLGW’s Elimination of Compa-ratio Pay New, inexperienced employees should be paid at or near the minimum of a competitive salary range. As experience increases so should the employee’s pay until that individual reaches the competitive pay rate defined by the salary mid-point. Thus, a compa-ratio pay adjustment is a type of predetermined “step” adjustment given in addition to the annual pay adjustments until that individual reaches the competitive rate (midpoint). These step or compa-ratio pay adjustments are necessary to bring new employees’ pay in line with others, in like positions within the organization, over a reasonable period of time. The cost of these pay adjustments are funded by what is called, salary slippage. Salary slippage is where a high paying employee leaves the organization and is replaced with a much lower paid individual. Those savings can be later used to fund the increased salary for that new employee as he or she progresses. Thus, there is no increased cost to payroll as long as the workforce numbers are not expanding. The current administration has eliminated compa-ratio adjustments for the employees not covered by the union agreement. However, the union employees are still eligible for their “step” increases. This unfair practice will contribute to the turnover of young, promising professionals and ultimately hinder the recruiting effort. Inconsistent Promotion/Hiring Practices MLGW was known as an employer that strived to attract the best talent in the community and to retain much of that talent until retirement. This is evidenced by the many years of low employee turnover prior to the current administration. The current administration has not perpetuated the long established practice of “promoting from within” even though there is an internal bid system still in use. The inconsistent use of that system, by the current administration, will cause concern for existing employees about future upward mobility potentials. This atmosphere of uncertainty and inconsistency will lead to increased turnover of employees with 10 years or less experience. Ultimately, MLGW’s reputation will be such that promising new engineers or other professionals will not even consider coming to MLGW due to lack of opportunities after coming on board. Thus, MLGW will erode its ability to recruit. The turnover numbers are already beginning to increase for the professionals with less than 10 years service. The question must be asked, “Why are they leaving?” Most will point to inconsistent hiring/promotion practices for jobs to which they had aspired. The ole, “if they passed over him, they might pass over me when I obtain that level of experience”----“I better look for other opportunities elsewhere, now!” Cronyism erodes MLGW’s ability to attract, retain and motivate the best talent available and may even be the source of employment lawsuits. Artificial Recruitment Restrictions The current administration has followed the City’s mandate that all new employees must be a resident of the City of Memphis. This restriction does just that----restricts MLGW from recruiting the brightest and best from wherever they live or desire to live. MLGW serves more than just the City of Memphis; it serves Shelby County and even occasionally crosses the Fayette County line. What positive purpose is served by such a restriction? Already, City managers are asking for exemptions to the mandate in order to fill critical positions. MLGW will not be far behind---but the damage will already be done. MemphisWatchdog.org has reported the MLGW employee turnover numbers secured by several public records requests and found the trend to be alarming! It takes MLGW so long to respond to these requests for information that it appears that no one at 220 S. Main Street is keeping up with the numbers. Measuring turnover and assessing its cause/effect is a basic management chore-----HELLO!!!! Watchdog will continue to follow these very important issues. A concerned MLGW retiree January 3, 2005 No this is not a headline in the Commercial Appeal. It is a headline taken from the Nashville Tennessean from the issue of December 31, 2005. Here are some other points made in the article. “Natural gas customers are getting a little break in the coming months after getting clobbered with high energy prices this winter. The parent company of Nashville Gas, Piedmont Natural Gas, announced yesterday it was filing for rate reductions to be effective New Year's Day that would mean a savings of $25 to $35 in January for the average consumer. It would be the first rate reduction this winter.” Also “But despite falling rates, natural gas prices still are sharply higher than they were a year ago. Prices for futures contracts this year have been about 46% higher than last year and more than four times the average price of $2 per million British Thermal Units through the 1990s.” Again I ask the question of why our rates per CCF are up 104% from a year ago. I have written an open records request demanding an explanation. December 30, 2005 A very important question needs to be answered about MLGW natural gas rates. We know that gas rates are going up and we were told to expect up to a 70% increase this winter. But in a report sent to me by one of the smartest guys I have met in a long time, a CPA by education and employment, he points out that nationally, natural gas rates have gone up 38%, but my rate and others I have talked to see a 104% increase in our price per CCF. We all smell a rat and it seems that the MLGW is padding the markup for natural gas to cover the 6% overall increase in the MLGW budget or could it be that the City wants some of this increase or another possibility is that they know that a lot of bills will not be collected this winter and those who will pay are being overcharged to make up for this expected non collection. We need answers. Here is the email from Bill Farrell. Something is not right here. MLGW predicts an increase of 55% in winter utility bills ... per the Energy Information Institute, the average American household will pay 25.7% more. MLGW says natural gas prices are $11.40 per 100 cubic feet compared with last year's $6.21 during the last week of December ... a 71% increase over last year. The Energy Information Institute is looking at a 38% rise in prices. MLGW says the new budget provides no rate increases for 2007. This statement, in spite of granting significant pay increases to their executives, management and union workers, and loading the payroll with a new set of unqualified, over compensated cronies, is an impossibility ... unless, the existing, and budgeted "rates", are already "burdened" with an awful lot of unjustified overhead. Remember also, all this is being accomplished in a "no growth" environment. Council Members, Lee needs to provide you with several pieces to the "budget puzzle": for 2004/2005/2006 you need the actual vs budgeted - FTE's by department, average salaries by department, benefits, gas & electricity purchases AND, most importantly, the compilation (bill of materials) for his budgeted utility rates with a comparison to the actual costs in the rate models. This could be accomplished in a 2 - 3 page summary which, I guarantee you should be very understandable and will cause many, many questions to be asked. I believe you will find that ratepayers are already being waxed in the interest of preserving what has become the "status quo" at MLGW. In other words ... it's already being paid for, then some, for next year. Demand a understandable compilation. WFF =========================== Click here to read about natural gas price increases across the country. December 23, 2005 The recent suggestion that Jesus Christ be hired at the MLGW is a good one. I hope that on His birthday, He will be hired to be in charge of MLGW ethics. December 19, 2005 Here is an email from a former MLGW employee commenting on the recent decision by Joe Lee to give up his car allowance. Gentlemen and Councilady, Before anyone gets all weepy eyed and pitiful over the "noble gesture" that Joe Lee made today in giving up his car allowance, let us remember that: 1. He came into the job with A $115,000 INCREASE over his prior position with the City. No MLGW President in HISTORY ever got that kind of increase, including Larry Papsan and Bill Crawford who had a combined 65 years of utility experience between them. Bill Crawford retired with a salary of $125,000. Herman Morris's top salary, after he was twice nominated for "Global Energy Executive of the year, orchestrated the largest and most unique utility bond prepay electric deal in the HISTORY of public utilities, and raised a record amount for United Way 3 years in a row, including a term as United Way Campaign Chairman, during which he raised a City wide record when United Ways across the country were seeing declines"--was only $187,000. So, Joe Lee, without car allowance, is worth $90,000 more than Bill Crawford and $62,000 than Herman Morris, IN HIS FIRST YEAR??? Please help me understand this. And, let's not forget that during his first year, when he did collect his almost $13,000 in car allowance, that he also commandeered a fully loaded Ford Explorer SUV and an armed body guard/driver, for which he reimbursed NONE of his car allowance. Finally, he moans about losing the car allowance in his pension base, but several times before I left MLGW, he CLEARLY STATED that he had no plans to retire from MLGW, and in fact did not plan to be there more than about 4 years. Please explain to me exactly what Joe Lee has done in his first year at MLGW to distinguish his presidency? He has lied to the union, single-mindedly decimated experienced management ranks, significantly reduced the MLGW United Way and other charitable efforts, added layers of cronies in appointed--not bid--jobs. He has destroyed the independent oversight function of an Internal Audit Department that once saved MLGW over $20 million in cash. He has reduced the JD Powers satisfaction rating with customers from Number 1 to Dead Last. In any other business entity on this planet, this man would be summarily dismissed, but instead he is seen mugging for the cameras, crying about how "mistreated" he is. He was a disgrace and a failure in former positions at Kimberly Clark and the City of Memphis, and only by the basis of a kinship and political relationship with Willie Herenton does he still prosper. If he is not stopped, or severely controlled, he will single handedly destroy MLGW as our hometown utility. Michael D. Whitten, CPA, CIA December 9, 2005 Recently in an open records request we asked for turnover reports for the following periods. July 1, 2002 to June 30, 2003, July 1, 2003 to June 30, 2004 and July 1, 2004 to June 2005. We were concerned with reports that good experienced people were leaving or being driven out and that they were being replaced with patronage people without any utility experience. Here are the results of our request for information. It is obvious that under Joseph Lee, and his boss Willie Herenton, good experienced people are being driven out and replaced with inexperienced patronage cronies of the Mayor. What is worse is that good lower level technical people who are vital to the efficient operation of this highly technical utility business will see the handwriting on the wall (who you know is more important to advancement than what you know and can do) and since they can get good jobs in the real private working world, they will leave. This situation needs to be corrected soon by firing Mayor Herenton at the first opportunity, October 2007. Remember that Joseph Lee took over at MLGW on July 1, 2004. (The years listed below run from July 1 to the next June 30). Job Group 1-Executives 2002-2003- No one leaving 2003-2004- 1 person leaving (Herman Morris, the President) 2004-2005- 5 people leaving (Stinson, Magness, Dillihunt, Dubose, Thompson) Job Group 2- Managers 2002-2003- 2 people leaving 2003-2004- 1 person leaving 2004-2005- 8 people leaving Job Group 3-Assistant Managers 2002-2003- 1 person leaving 2003-2004- 1 person leaving 2004-2005- 3 people leaving Job Group 4- Supervisors, Non Engineering 2002-2003- 7 people leaving 2003-2004- 6 people leaving 2004-2005- 14 people leaving Job Group 5- Supervisors, Engineering Systems 2002-2003- No one leaving 2003-2004- 1 person leaving 2004-2005- 1 person leaving Job Group 6- Foremen-Chiefs 2002-2003- 8 people leaving 2003-2004- 16 people leaving 2004-2005- 9 people leaving Job Group 7- Professional and Technical, Non Engineering 2002-2003- 4 people leaving 2003-2004- 8 people leaving 2004-2005- 8 people leaving Job Group 8- Professional and Technical, Engineering and Systems 2002-2003- 4 people leaving 2003-2004- 3 people leaving 2004-2005- 8 people leaving December 5, 2005 MLGW TRUST FOR RETIREE MEDICAL AND LIFE INSURANCE BENEFITS In a recent open records request, we asked for a copy of the MLGW trust for retiree and life insurance benefits and the reports and statements of that trust. Here is some of the information that we received. Shown below is a copy of the trust document set up and signed on January 1, 1995. The purpose of the Plan is as written in the Trust document. WHEREAS, Division maintains medical and life insurance plans that provide benefits for retired employees of Division (the Plans); WHEREAS, Division has incurred and expects to incur liability under the terms of such plans with respect to the retired employees participating in such Plans; WHEREAS, Division wishes to establish a trust (the “TRUST”) and to contribute to the Trust assets that shall be held therein, subject to the claims of Division’s creditors in the event of Division’s Insolvency, as herein defined, until used to provide benefits for Plan participants and their beneficiaries in such manner and at such times as specified in the Plans; WHEREAS, it is the intention of the parties that this Trust shall constitute an unfunded arrangement and shall not affect the status of the Plans as unfunded plans maintained for the purpose of providing benefits for retired employees of Division; WHEREAS, it is the intention of Division to make contributions to the Trust to provide itself with a source of funds to assist it in the meeting of its liabilities under the Plans; In the Ernst and Young Auditors Report dated April 15, 2003 (shown below) it was noted that approximately $36 million dollars was contributed in 1995 when the trust was set up. In addition MLGW made contributions to the trust during 1995 through 1997. No contributions have been made to the trust since. 1997. Beginning January 1, 1999, the trust began making payments for retiree medical and life insurance premiums in accordance with the trust agreement. The Trust made payments to MLGW of $9.3 million and $10.8 million in 2002 and 2001 respectively. The net assets of the trust is as shown below. • 1995 48 million • 1996 57 million • 1997 70 million • 1998 78 million • 1999 83 million • 2000 82 million • 2001 64 million • 2002 45 million • 2003 46 million (This figure given in notes of the MLGW financial statement) • 2004 55 million (This figure given in notes of the MLGW financial statement) We were told that the firm of Watkins Uiberall will begin auditing years 2003 and 2004 shortly. We wonder why the 2001 and 2002 audits were available by April 15, 2003 and here it is December 2005 and they are just beginning on the audits of 2003 and 2004. If the assets of 55 million earn 5% per year (around $3 million) and the plans has to pay out $10 to 15 million per year in expenses, then it is obvious that more will have to be contributed to the plan in the future. The new GASB rules in 2006 will require that the unfunded liability be reflected on the MLGW books next year. Click here to read the trust document set up in 1995 fore MLGW retiree medical and life insurance benefits. Click here to see the 2001-2002 audits of the trust fund for MLGW retiree medical and life insurance benefits.  December 1, 2005 We receive a number of letters from our readers and here is one that sums up the situation at the MLGW concerning hiring and promotions at the patronage factory known as the MLGW. No wonder morale is low. October 31, 2005 We asked in a recent open records request for information on a number of recent hires at the MLGW. We got some answers that reveal what is going on at the new patronage factory under the direction of Joseph Lee. Under MLGW hiring procedures a job is advertised and internal and external candidates may apply. If a qualified internal candidate is available, then that person should get the job. We have attached information that was provided by the MLGW in response to our open records request. You will see a special notice about the job, a list of internal and external candidates, a salary approval sheet and a resolution from the City Council approving the salary. What is interesting here is that Mr. Horton is not listed on the external candidate sheet. Obviously, he was going to be chosen regardless of past precedent and practices and regardless of the outstanding qualifications and utility experience of the internal candidates. This is a very good example of what is going on at MLGW to the detriment of the taxpayers and the ratepayers. We have been told by insiders at MLGW that Joseph Lee wrote a letter to Mr. Horton offering him the job before the advertising for the job. We asked for this letter but were told it did not exist. The process that did end up with Mr. Horton's selection opens up the MLGW to a discrimination lawsuit should one be filed. It is always best to follow the rules and past procedures when situations like this one and several similar incidents come up. Click here to see the documents that show how Odell Horton, Jr. got this job over well qualified internal candidates. October 27, 2005 Are you aware of GASB No. 43 and 45? You can look up the definitions by clicking on the link below. Click here to see the definition of GASB No. 43 & 45 If you will look at the 2004 MLGW financial statement you will see the following statement on page N-2. which states that in April and June 2004, GASB issued Statement No. 43 Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans, and Statement No. 45 Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pension, which is referred to as other postemployment benefits (OPEB) respectively. OPEB are benefits, other than a pension, received by employees (i.e. life insurance) that should be reported as employee compensation. GASB 45 attempts to match the cost of OPEB with the period in which service is rendered and report such benefit. MLGW is required to adopt GASB Statements No. 43 and 45 for financial statements beginning after December 15, 2005 and 2006, respectively. MLGW has not elected early implementation of these statements nor has the financial impact been evaluated. I recently sent the following open records request which seems to be covered by Statement No. 45. In accordance with instructions and as a taxpayer of the City of Memphis I would like to inspect the municipal documents in accordance with the Tennessee Open Records Law that contain the following specific information. 1. The records and documents that show all of the following records and documents concerning the post retirement fund for the health benefits of retirees. I am requesting the trust document, the present and past board members of the trust and all annual financial statements since the inception of this fund. I want to know the present and past annual balances of this fund and the documentation of what the annual income was and the purposes of the expenditures from the fund. Here are some comments from a former Auditor at the MLGW. Both of these GASB pronouncements deal with a subject--the liability for post retirement benefits--that has been addressed by the for profit sector over a decade ago. When I was at MLGW early on, I was arguing that MLGW needed to start accruing for this cost. We had an actuarial valuation study done back in the early 1990's that indicated back then--that the liability was in excess of $300 MILLION dollars. Since it was not a mandatory accounting standard, nothing was done, except to set up what is now the Post Retirement Benefit Fund, an off balance sheet trust whose assets are protected from corporate raiders, and dedicated to the payment of insurance liabilities for retirees and employees. The problem is that this trust fund is woefully under funded. I can tell you that MLGW is seriously under prepared for the accounting impact of these pronouncements, and that when they are implemented they will have a serious impact on rate structures. It may well be the driving force behind why Joe Lee had Marlin Mosby prepare the benefit analysis that was recently published on this website, the one that recommends the possibility that all the retirees be cut loose from an insurance benefit that they were promised their entire career. MLGW and all public municipalities have some really interesting accounting issues coming up, and I'm not sure who is left with the expertise to answer them. This standard and its implementation will also apply to the City, County and other government agencies including the school districts. I have been told that the MLGW fund has been run down to zero but I do not know that for sure which is why I sent the above open records request to the MLGW. Recent financial decisions by the City do not give much hope for the actions necessary to address the current fiscal crisis. October 14, 2005 The PFM report to the MLGW is very interesting but the heart of it is on pages 18 to 22 which we have presented below in an attachment. This is a list of a summary of possible initiatives and in some cases the 5 year fiscal impact is listed. For instance item 1-a lists a savings of $48.3 million dollars where MLGW pays 100% of health care coverage for employee only and the employee pays for his family’s coverage. Item 1-d is where MLGW pays for 60% of single and dependent coverage whereas now they pay 80%. This saves $33.2 million over 5 years. Item 3-d is very interesting and plans a defined contribution plan rather than a defined benefit plan. A defined contribution plan is what most of the real world private companies have. Only government institutions have defined benefit plan anymore. No cost savings are listed for this but it would be substantial depending on the contribution level. Whatever is done, particularly some of the above, should be done across the board not just for the MLGW but for all City and County governments. It is time they come into the real world and get out of their fantasy world. Click here to see the PFM recommendations on changing the MLGW. October 10, 2005 We asked for this report on July 11, 2005 after it was due to MLGW on July 1, 2005. We have never received the report from MLGW until it came into our hands recently from another source. It is a public report paid for by the rate payers and tax payers and it should be available to the public. Mempiswatchdog.org is making it available immediately as it contains some very controversial recommendations that will affect existing and retired MLGW employees and the rate payers. It should be noted that this report was produced by PFM and Marlin Mosby who produced a similar report for the County. Mayor Herenton has proposed a similar report for the City. As soon as we have had a chance to study this report, we will have further comments. Click here to see the new PFM report that Joe Lee probably does not want the public to see. September 23, 2005 If you want a job at MLGW, ability, test results, education, experience in the utility business and qu |