Behind the Headlines – February 22, 2019

Behind the Headlines – February 22, 2019


– (female announcer)
Production funding for Behind the Headlines
is made possible in part by: the WKNO Production Fund, the WKNO Endowment Fund, and by viewers like you.
Thank you. – MLGW’s JT Young on rate
increases, TVA and more tonight on Behind the Headlines. [dramatic orchestral music] – I’m Eric Barnes, President
and Executive Editor of The Daily Memphian. Thanks for joining us. I am joined tonight by JT Young,
President and CEO of MLGW. Thanks for being here. – Thank you for
letting me be here. – Along with Bill Dries, reporter with
The Daily Memphian. We got, I joked with you before. We’re either brilliant
in our timing or just completely lucky, but
we had wanted to get you on since MLGW’s been in
the news quite a bit, but just this week,
Tuesday, the city council rejected a number
of rate increases that you all put forward. They approved a 3%
increase on water, but nothing on electric and gas. – Right. – I believe and I’ll
let you talk about this. I believe you’ve been looking
for more of a five year plan of rate increases in
four of those five years. One, what was that
five year plan about? Why did MLGW come forward
with wanting rate increases, I believe total about 10%
over that five year period? What was that about? – Well our strategy,
originally, was to, as I’ve been using the term,
sort of go long on improving our services for our
customers and nibbling at this a year at a time is
difficult in our industry. We really need to make
investments for the long term and we certainly
needed to do that here to make the improvements that
we needed for the improvement of the resilience of our
network and our systems. So we made the decision to be
able to do a five year plan to allow us to plan
for, procure, acquire the equipment we needed
and install that equipment over a time as well
as mitigate the impact of any rate increases
on our customers. So instead of trying to
do it all at one time, let’s do one big rate increase. We decided to spread not
just the installation process over five years but as well
we wanted to spread out any cost impact for our
customers to give them time to plan and just to mitigate
any adverse impacts. So that was our strategy
going in because we felt like, and we knew that we
had substantial work to do in particularly
on our electric and water infrastructures
and we wanted to go ahead and do that any
way that allowed us to be strategic
and comprehensive. – And that proposal
was, what, $762 million? – About 740.
– 740, okay. – Right.
– $740 million. Without that rate
increase, how much will, that’s capital
improvement, I assume. – Predominantly.
– Predominantly. How much will, how
much are you limited to in terms of infrastructure
improvements without that bigger increase? – So none of the $740 million really was approved,
essentially. I mean the 3% on the
water relates to about a $2.5 million increase. There’s about $100 million of what we call
maintenance capital. So if we add that to the 740, it’s about an $840
million number, but the maintenance capital
is in our existing budget and that’s what
we call break fix. That’s when something fails,
we go out and replace it and our normal, car hits a
pole, we go put in a new pole. – That comes out of
that $100 million. – That’s across all
three divisions: electric, gas and water. It’s about $60
million in electric and so that remains and
it’s included right now, at least, in our budget. We haven’t gone back. We’ve gotta go back
and take another look since Tuesday at what kind of
cuts we’re gonna have to make to accommodate where we are and that’s what we’ll be
doing later this week. – Cuts in spending
or cuts in people? – Cuts in spending.
– Yeah. – We are trying not to,
of course, cut people. That’s what we’re
trying not to do although at the end of the day, what we wanna make sure
that we do is maintain a great level of service
for our customers. We believe that’s what
they expect and deserve. At the same time, we wanna
do right by our people. We wanna make sure
that our people, because they are the
greatest asset we have of all the assets we have,
our people are the greatest, and we wanna make sure
that we treat them well. – Okay, Bill. – A year ago this month, we
were at the same general place. The dollar amount and the
percentages were different in Jerry Collins’ proposals
for rate increases a year ago, but it was basically for
the same general purpose, to improve the infrastructure of Memphis Light, Gas and Water. So, and you were just
coming onboard at that time. So was this a matter
of you finding, coming to basically
the same conclusions that Collins came to? – Well the difference
I would strike, I think yes, to
answer your question. I think the difference
I would strike is that we wanted to try to, again, I think the original
plan may have been around a three year arrangement. This was a five
year arrangement, again, stretching it
out a little bit longer for the reasons I
mentioned before. But I believe that it’s probably
been well-known for years that we have gaps
and we have issues with our facilities and
with our infrastructure. So that was really not, it
didn’t take a brain surgeon to figure that part out,
but at the end of the day, it was more about the how and
how we go about doing that and that’s what we were
trying to do in terms of making it more palatable
for our customers. – And the council members at
the first meeting this month wanted you to go
out and in essence, really sell this to the public to explain this to the public. – Yes. – And you did that between
the two council sessions. What did you find in terms
of the public’s reaction, once you laid this out for them? – One of the things we
learned fairly consistently with every session we had,
we had town hall meetings, we had Facebook and in
person town hall meetings. We did radio and TV and
we did a lot of things to reach directly
to our customers and what we essentially
learned because we surveyed our customers following
the town hall meetings that we had in the communities and one of the things we
learned was that after customers became aware of hat
we were doing and why, they were generally
much more receptive to paying incrementally
more for the better service and but like most of
us, we all wanna know before we commit to
something, we wanna know what that’s about so I
appreciate the council recommending that to us. We did that, we got
some great input and I believe that
the data shows that once customers
are better educated on what we’re doing and
why, they’re very receptive. – So you now have to take
what the council approved to your board so that
they can ratify it because that’s how this works. You have a board
and we also have the city council that you go to. So you take it back to
them and as you mentioned, you have to make some
adjustments to your budget. Once you get past that, does
the thought occur to you to maybe go longer, like
a seven year timeframe or are you even anywhere
near looking at that? – No, thank you
for that question. We actually are
going to consider what are some better
ways to bring it. Apparently what we did this
time was not palatable. So we know that doing the
same thing over and over again and expecting different
results is not gonna work. So we’re gonna have to do
something different and we will. And so we’re gonna
be getting together and trying to make
some decisions around the structure of it. The issue doesn’t change, the nature of what we have
to do really doesn’t change. We know what we have to do. What we’ll be doing
now is finding out what are some better ways
to maybe approach this and make it a bit
more palatable. – The same day you
were at council, I think it was the same day. There was a big power
outage downtown. Or maybe that was
the day before. It was the same day.
– Early that morning. – Coincidentally,
but in some ways, that kind of, what
you were speaking to and I don’t even
know what went wrong. It caused a very big
power outage downtown. What was that and is that part of what you’re talking
about ironically? – It is and we had a failure
in one of our substations and we had a failure of a
major piece of equipment in our substations and
forensics are still being done to determine exactly
why it happened, but at the end of the day, I’m not surprised
that we had an issue regarding some of
our older equipment. One of the pieces,
major piece of equipment in that substation was
installed in the ’40s and ’50s and so mechanically it’s
just not gonna be up to par. That’s the kind of thing and
I’ll describe it this way. You can always
wait for something to break and then replace it. That’s a strategy. Another strategy is to
try to get out ahead of it and replace it before it fails. It’s just like the
Proper 240 interchange. You know, the bridge
has probably just been there forever. It’s been decided that rather
waiting for it to fall down, let’s put a new one in. That’s what we do
and that’s typical. That’s what we’re trying
to do on our equipment. – And so, and that’s what we
talked about in the beginning, that replacement
of that equipment at the downtown substation will come out of that $100
million kind of ongoing capital, I mean ostensibly. – Well if it can’t
repaired, yes. Right.
– If it can’t be repaired. Okay.
– Right. – But otherwise,
something like that. Maybe not that one.
– That’s right, that’s right. – But something like that.
– Exactly. – Will come out of that 740. – That’s what we call our
maintenance capital, yeah. – Does that also get to, and
I think we talked about this a year ago when you
came on, give or take, right after you started. People talk during ice
storms and they talk about trees falling and all of
the above ground wires. Why doesn’t MLGW just
put those underground? I’m sure you’ve heard
that, I’m sure you’ve heard at the town hall meetings.
– Yes we do, no doubt. – And so why don’t you? – Well we do in certain areas
have underground facilities. One of the perils of
underground, while it’s probably more aesthetically pleasing
to the eye, one of the perils of underground, especially
in a community like Memphis where you have a lot of trees, is you have a lot of tree roots, you have a lot of other things that could impact what you have. But not only that, probably
the biggest challenge with underground facilities,
especially on the electric side is the difficulty in accessing
it when there are issues and underground facilities fail. So we also have, had
incorporated in our plan, we were bringing on some additional
crews to help with that. We had plans for a
contract to go out at 10 different
locations to replace some underground cables that
has failed multiple times. So many times they just
need to be replaced because we’re trying to fix
it and unfortunately, what happens when you do
that is it’s gonna fail again and so we were trying
to deal with that. So underground, I always tell
people, it’s not a panacea. It is one of the
things that it does, maybe get you away
from issues with wind, but then you have other issues associated with
underground as well. Plus the cost is
exorbitantly higher. I’ve heard estimates from
$3-5 billion with a B if we were to try to
underground our total system. Plus the time and the effort, it just may not be
feasible to do that. – One of the things that
comes up in this conversation about rate increases
and as a public utility, it goes to the city council
is the burden on the poor. So that it’s a big bill
for a lot of people in a city that has
a lot of poverty. So those rate increases, I
think you all put up with the 3% on water worked out something
like 45 cents a month. – Roughly, yes. – For the average
residential customer. But how, how do
you balance that? I mean in your board and
your management team, putting these rate increases on the table and going
forward with them. Do you calculate that
impact on poor people and did you hear from
them in the town hall? Did you hear that concern
raised again and again or once or twice in
those town hall meetings? – We didn’t hear it a lot, but we did hear
questions about it, but what we predominantly
heard were concerns around customers wanting good service. And so the way we balance that, to your question about balancing that is one of the ways
we balance is the company went for a long
time without trying to raise rates on
customers in an attempt, I think, to be sensitive
to what you just mentioned. Last year, we were
granted a 2% increase that went into effect in
July for gas and electric and that is baked into
our current budget, but overall, to address
the needs that we have, of course, a combination
of a rate increase as well as debt
insurances or bonds is what we had planned
in our strategy to improve our infrastructure. We issue bonds to
try help offset the need for raising the rates
so that also helps mitigate the impact on all customers including the financially
challenged customers and so we just try to make
sure that we’re sensitive with a litany of programs. I share this many, many times
during our town hall meetings. I’ve never been in a company, I’ve been in this
industry 36 years. I’ve never seen a
company like MLGW that has so many programs
to assist customers who are financially challenged. We do that because we know
it’s a challenge for customers to meet their burden of payment and so I think MLGW and the
team has done a great job attempting to address that. – 12 minutes, Bill. – As this proposal was making
this way through the council, there was also a lot of
discussion and actually a couple of studies
released about Memphis Light Gas and Water
possibly seeking alternatives to the Tennessee Valley
Authority as what amounts to the wholesale
supplier for electricity. You made this point several
times that the rate increases that you are proposing
had nothing to do with what TVA charges Memphis
Light Gas and Water for electricity. – Right. We wanted to make sure
everyone understood not to conflate
the two because we, the power that we
purchase from TVA is a pass through to customers. Customers see that on
their bill as delineated and what ultimately happens,
that power cost fluctuates. It can go up and down and over
the last seven or nine years, that overall price
to our customers for the power supply cost
has been relatively flat, a little less than
a percent in total, notwithstanding TVA’s one
and a half percent increases periodically but
because of fuel offsets, those one and a half
percent increases have been largely offset
because of some fuel decreases that customers have
benefited from. So what we’re trying
to tell customers and trying to tell
everyone is those costs for our power supply
wholesale cost aren’t baked into our
infrastructure cost. Those are separate. We are looking as we
speak, we’re formulating. We’ve formulated a team now and we are moving forward to
consider options on the table. Whether those options
would include something different from TVA or something completely different
not including TVA. We wanna look at
the whole gambit and then we’re gonna spend the next several
months doing that with what we call an integrated
resource plan process. That plan will actually
allow us to consider whether or not we wanna continue
to purchase wholesale power or do we wanna generate
our own in some fashion? Do we wanna have a
combination of the two? So there are a lot
of things to consider and we don’t wanna make
a knee-jerk reaction. We actually have four studies
that have been presented, all of which tell us something
regarding potential savings on the marginal cost side
when you compare it against our total all-in cost with TVA. So what we wanna try, and
when I say marginal cost, I’m talking primarily about
fuel cost and the cost for the generation to
get the power to us. We have other costs
that we have to pay for that service to get to us that’s not necessarily included
in every study that we have. Some have and overall,
they all indicate that there’s the potential
for some savings. One of the things that
we’re concerned about is making sure that we’ve
looked at some of the utilities who serve customers
outside of TVA. Our cost tends to be
the lowest in the valley and among the lowest
in the country. Even against some
of the companies who actually take
service from companies from entities like
MISO, for example, – we’re very competitive–
– MISO, say who MISO is. – MISO is the Midcontinent
Independent System Operator which operates a large operator, it’s sort of what they call a regional transmission
organization. Companies can purchase
power from that entity and provide that energy
to their customers. So in effect, it could
be like a TVA serving a customer like MLGW. We’ve looked and we are
still looking at options that include that
but other sources because at the end of the
day, what I’m charged with and what I also swore an oath to is to make sure that we’re doing what’s in the best
interest of our customers for the long-term and that’s
what we’re gonna look at and that’s why we have
to be very diligent about this process
as we move forward. – And the other cost that
would be involved in this would be setting up a
transmissions system. You have a transmissions system now with the Tennessee
Valley Authority. You don’t with MISO or
the other suppliers. – Correct. Yeah we actually have,
and that’s been a benefit to our customers, actually. We have our own
transmission network and we’ve received a
transmission discount from TVA because of that
and so that’s an advantage that our customers have
enjoyed for a long time and we also know and everyone
may or may not be aware that contractually we have
a five year notification that we must provide to
TVA if we were to leave TVA or to do something different and so we couldn’t unplug today and plug in tomorrow
to any other company. At the end of the day though, you’re always in a better
position when you have options and we believe we
do have options and we’re gonna look
at all of those options for the best interests
of our customers. – So what about
the idea that okay, by the most general estimate
of two of the studies there’s a $200-$300
million savings, those studies say on
basic electricity rates compared to Tennessee
Valley Authority. So the people advocating
for those positions have said okay,
well you just take the savings from
that, float some bonds and then you’ve paid for
your transmission system. Is it that simple? – It’s not to me and the
reason it’s not to me is because what you have to
remember is that those studies were based on
certain assumptions. We would, before we
commit to any route that we would take for
service for power supply, we wanna make sure
that we’ve determined that’s the best option. So one study may say two
or $300 million and then we go that route
and then another study may come six months
later and says we could’ve saved
you $500 million. So that’s why we have
to do this deliberately in an open environment where
we could be transparent and we can get input
from a number of entities if that’s the path
we decide to go. Plus we have to decide
what type of mix for resources do we wanna have. Do we wanna just take
all from one source or do we wanna have multiple
sources for diversity? So it’s not as
simple as just saying okay there’s $200-$300
million here. Let’s go for it. We couldn’t do it that way. We actually have to
go through our plan and actually ultimately
go through a bid process as you would imagine,
something this large. It’d have to be
competitively bid. The board has to be involved,
ultimately city council. So it’s something that is
gonna take a little time because it’s a pretty big deal. – In the Fall, a
proposal came forward that was, in my mind,
maybe the precursor to this or maybe what a lot of
people tuned into it was a nuclear power
plant in Alabama. Frank Heine, an
investor developer from East Tennessee wanted
to buy that plant from TVA and it’s never been finished. He would finish it out at some
couple billion dollars, give or take, but that was dependent
upon getting a contract or commitment from MLGW to be the primary customer
for that power plant. Is that proposal dead? – Well we signed, as you
know, prior to my arrival, we signed, MLGW signed a
nonbinding letter of interest with Nuclear Development
LLC for the opt to purchase the output
of the Bellfonte Plant. It was singularly about that. It is our
understanding right now that they don’t own that plant so they don’t really
have anything to offer. The plant’s not running. – And they missed their deadline
to close on the purchase. – Right so it’s our
understanding that that’s over. We’re pursuing, again,
think about it this way, by virtually the fact that
we’ve seen other studies that have come sort
of proves my point had we just jumped
on that, right? There are now other studies
saying there are other ways to save so that’s my point about why we have to be
very deliberate. We can’t just take one,
something that one person brings and jump on that
and ride that horse. We have to be very deliberate and we have to look
our hand over it. – I mean even that proposal
in part relied on MISO, right? – It did not.
– It did not, okay. – The nonbinding letter
venture we signed had nothing to do with MISO.
– Okay. – It was just about taking the output of the
Bellfonte plant. So MISO was nowhere in that. Of course, should we
choose to pursue anything along the lines of MISO,
we will engage them. We’re actually
gonna probably have some conversations with them. We will take care of that. We can handle that part, so. – Right now, there’s
four minutes left here. Right now, the bulk, if
not all the, you tell me, the electricity for MLGW
comes from the new power plant down the Allen power plant.
– Well– – What percentage comes
from that or the old one. Where are we on that? – Well we are 100% requirements customer of Tennessee
Valley Authority. So we actually take power
from their whole network. – Okay. – The Allen planet,
the way it runs and I don’t want to get
too deep here, but the way, it depends on when
those plants run. That plant is a very
efficient plant, so it probably runs a lot. It’s their newest,
most efficient plant. But we take power, of
course we take more power than that plant can
provide so we need, generally we need more
than that output anyway, which was the same
situation with Bellefonte. We needed more than
that plant could provide. So we take energy from
the TVA system overall, which is why we get the benefit of fuel diversity
across the network. – What is your understanding,
I mean that is a TVA plant, but the old plant, the
coal ash that’s there, what’s the status
of the coal ash and what happens next? – Yeah so I’d have to let TVA
speak to the status of that. I’m not sure, I’m not aware
of the details of that so I’d let them to speak to it. – Okay, just a
couple minutes now. Bill. – Can you take bids
on alternative sources for electricity before
you sever the relationship or tell TVA we
want to change it. – Absolutely. In fact, that’s, the process
will probably work that way if we, as we go
down this process, we will probably move through
the integrated resource plan, figure out what the
optimal arrangement for resources would be,
put that out for bids and say okay this is
what we’re looking for and depending on what
we find from that, TVA is welcome to be
a part of that as well if we get to that point. And so that’s probably how
that process would work. – The Friends of the
Earth commissioned the study that I saw last week. It talked about possibly
Memphis Light Gas and Water having its own electric
division which would also generate its own power.
– Right. – What about that? How realistic is that? – That’s another piece of
this integrated resource fund because it looks at
whether or not we want to, should we be in the
generation business? We’re not today. That, again, adds a different
structure to our makeup because we don’t do that today. We don’t have the
staffing for that today, but if we were to get into that, we would have to
staff up for it, manage that, own
and operate likely, facilities associated with that. But that may still be in the
best interest of our customers and to the extent it
is, we will pursue that. – With just a minute
left here, the aquifer. So it came up on the radar
screen of a lot of folks a couple years ago when this
new TVA plant was proposed and they were gonna take water. Originally they talked about
taking water from a river or Gray Water which is semi
treated water in layman’s terms and they were gonna drill
directly into the aquifer and a whole lot of
folks locally got very, some have seen the
protect the aquifer signs. That also exposed, or
made light the fact that a lot of people
could just drill directly into the aquifer. Industrial, various
plants and so on. Where do things stand
with the aquifer and you all don’t
manage the aquifer, but you’re obviously the
biggest consumer of it. What is the safety and
the future of the aquifer? – Yeah as I understand
it right now, our water quality
still remains pristine. We don’t have any, have
not see any adverse impact on the deep aquifer where we
get our water supply from. TVA at the new Allen plant actually purchases
water from us now. They abandoned the wells
that they were looking at and the study that’s
being conducted as a five-year study
to really look at it, if I’m not mistaken,
the shallow aquifer area to look at the impact
of any adverse impacts in that regard, but I’m not
aware of any quality issues associated with the
aquifer for our customers. – Alright, that’s
all the time we have. Thank you for being here.
– Okay. – Thank you, Bill, and
thank you for joining us. Join us again next week. [dramatic orchestral music] [acoustic guitar chords]

Author:

Leave a Reply

Your email address will not be published. Required fields are marked *