Behind the Headlines – May 31, 2019

Behind the Headlines – May 31, 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. – The future of MLGW, tonight
on Behind the Headlines. [dramatic orchestral music] I’m Eric Barnes with
The Daily Memphian. Thanks for joining us. I am joined tonight
by J.T. Young, president and CEO of MLGW,
thanks for being here again. – Thank you. – Mark Halperin is an executive with Boyle Investment, is
serving on an advisory group that’s working with
MLGW on its future and some big
decisions coming up. Doug McGowen, chief
operating officer of the City of Memphis,
thanks for being here again. – Thank you, Eric. – And Bill Dries is a reporter
with The Daily Memphian. So I’ll start with you
J.T., you were on the show maybe a month, two months
ago, something like that. This was begin, we talked
about it some there, but there’s momentum
now for MLGW to move away from TVA, the
Tennessee Valley Authority, as the primary source
of electrical power. Tell us, it seemed, even
that couple months ago, it seemed like it was
kind of a thought. Now it seems like a
very real possibility that you all are exploring, why? – Well, one of the things
that I’ll sort of adjust that is to say that there’s
momentum around the evaluation of what’s
optimal for a power supply. And so we’re trying
to make that decision, and that’s why we’ve assembled this team of stakeholders
to help us get the input that we need to move
forward in the decision about where should
we, and how should we, acquire the electricity
for our customers at the most reasonable cost
and the best reliability. So we’re trying to go through
the process that’s known, I think we talked
about it before, as integrated
resource plan, an IRP, which is standard in
the utility industry to make those
kinds of decisions. And we’re embarking on the
first ever IRP for MLGW. – And we’ll dig into some of
the potential cost-savings and some of the risks
and the benefits and the timeline on
this in a second, so we’ll come back
to you on that. But I wanna get,
Doug, to get you in, the city’s role in this is what? Because MLGW is an
independent entity, but you’re, I think, very much
part, you and the mayor and the mayor’s office
are very much part of that decision-making
assessment process? – Well, absolutely,
it’s important that the city be involved. It’s the Memphis Light,
Gas and Water Division of the City of Memphis,
and obviously they have some statutory authority
to run the utility, but it is a publicly
owned utility and the largest three-utility, publicly owned three-utility
service in the country. And that is an asset
that it very important to the City of Memphis and
important to the citizens of Memphis who are the
owners of the utility. And I think it’s
important as we enter our third century
here, as you know, we’ve gone through
a comprehensive plan for the City of Memphis,
the first one in 38 years. We have a transit vision now. We’re doing a lot
of forward-looking for all of the infrastructure
that we have in the city, and so I think it’s
completely appropriate that we also take a look now at Memphis Light, Gas and
Water, the future there, putting a road map in
place, as J.T. said, an IRP that will be the road
map for service of the future. Irrespective of
what the outcome is, it’s worth doing
that introspection, setting a new course
for the utility that is consistent with
and complementary to the vision for the city. I would also say that part
of our comprehensive plan is a Climate Action
Plan, and to this point, it has not been the
forefront of discussion in the City of Memphis,
you know, what percentage of our energy comes from
renewables, that kind of thing. But that is going to be
part of the Memphis 3.0, the Climate Action Plan
that comes out of that, and so that will also help
inform, I think, this IRP. – Okay, and we’ll dig into
more of that as we go, but I wanna get, Mark, you
are serving on what’s called the Power Supply Advisory Team. It’s about 20 people, I
believe, neighborhood activists, I think people, I think
Doug is on that group, if I’m not mistaken.
– Yes, I am. – People from MLGW,
so a broad base, but you’re very much associated
with the business community and Boyle Investment
in terms of bringing in existing companies here
in Memphis that expand, companies that come in. So from your perspective,
from a business perspective, are you concerned
about this decision because to a degree that
maybe people don’t understand, the TVA provides economic
development incentives, the role of MLGW in terms
of business recruitment is important, TVA can
be important in that, are you worried
about this direction, or do you see promise from
a business development point of view in this direction that the city and the
MLGW is looking at? – We’re really just, you
know, what J.T. said, what Doug just said, it’s
the process of studying it and seeing where we are. I don’t think the business
community is at all threatened, specifically the
real estate community is not threatened
by this effort. I think, again,
as Doug just said, it’s in the best interests
of the community, probably a process that
should be almost ongoing. It certainly should’ve
probably been reviewed at different times in the past. You know, if you lose
power at your home, it obviously affects
you immediately, but I don’t think
people really think about the importance of reliability
and cost of services. MLGW is a unique
provider, as Doug said, only, or the largest
three-service provider that’s municipally owned
in the United States, and it’s always been
an advantage, really, I think for the
business community to have MLGW be part
of the city, I mean, where we pick up the phone and
call the president of MLGW, which it’s my 47th
year at Boyle, and I’ve called the president
of MLGW before with a problem. J.T., I’ve not called
J.T. as of yet, but J.T. really just got here. It’s a huge asset for Memphis. – Yeah.
– And we need reliable power, and we need it to be as
cost-effective as possible, and this process
is gonna tell us either we’re already there,
or there’s some things we can do to make it better. – And I should say, just
before I go to Bill, this Power Supply Advisory
Team is 20 people or so. You all are advising,
you’re not taking votes, I don’t think, right, it’s
not a determining body in terms of what MLGW
does, but it was a group that you set up, or–
– Right, yeah, the group, the team is actually
providing input to us as we seek to make that decision as we go through this integrated
resource plan process. We need the input from everybody
on that team and others so that we can be certain
that we’re considering all the factors that
are necessary as we, that’s a huge decision. And so we wanna make sure
we get diverse opinions and diverse input around
the kinds of things like Doug talked about,
renewables and what type of generation if at all
and what kinds of services need to be provided and the
value of economic development, et cetera.
– Okay. – So that’s all part of it. – Bill Dries. – So J.T., we’ve heard so
much about there’s another provider other than TVA,
there are other providers other than TVA that
could save the city hundreds of millions of dollars in the rates that, like
gas and water pays– – Sure.
– For the electricity that comes to our
homes and businesses. Is this determination as simple as this is what the rate is
and it’s cheaper than TVA? – Well, no, it’s
really not that simple, and the reason it’s
not that simple is because as we
think about this, I have to try to
explain it this way, we purchase right now in bulk, just like if you
went to a wholesaler out in the community and
bought a bunch of stuff and sold it at a
ballgame individual, we purchase
electricity that way. We buy in bulk, and then
we sell it out individually to homes and businesses
across the community. One of the things that
we have to consider is one cost is how
much we pay for that. The other cost that
we have to consider is what does it take to
get it from that entity so that we could make sure we
have it here as we need it. We have four delivery
points right now from TVA which provides us
a lot of diversity. So sometimes when outages occur
on their side of the fence, we never know it because
we have a lot of ability to move things around,
customers never see that. So we have to keep in
mind the importance of how do we get that power. Would we need to construct
generation plants? Would we need to get a lot more
renewables on our footprint? Would we need to maybe
construct additional high-voltage transmission lines
to access that other energy? All of those things
need to be considered, and those are all costs
that we have to think about in order to get to
that low-cost energy. And then what you
wanna make sure you do, as I say, is do no harm,
so you wanna make sure you’re no worse off
than you are today after you’ve done all of that, and that ultimately
customers at the bottom line on their bills see
the real benefit. – Doug, we heard so much
during the earlier part of budget season about Light,
Gas and Water’s infrastructure and the need to upgrade it. If TVA is no longer the
supplier of electric power to Memphis Light, Gas and Water, does the city
administration get involved or have to get involved
with some of the changes in infrastructure that just
that transition involves? – Well, I think from the
council oversight perspective as they approve the MLGW budget, which is one of the things
that they considered this year is how much and when do we
invest in infrastructure, and I think the
universal conclusion is we need to invest
in our infrastructure. I think that’s what caused
a lot of the interest early on was gee, if we
can save all of this money, we’ll have a big pot of money that we can immediately
invest in infrastructure. So to the extent that city
council approves the budget, the approve the apportionment
and the allocation and spending on infrastructure, I think it’s incumbent
upon the city to make sure that we
are investing here, because there’s a
difference as Mark talked about, reliable delivery of
power up and to the point where MLGW receives it, and
then it’s the transmission and distribution of power
within the MLGW network that we’re really talking about. So there’s two kinds of
reliability, I think, and J.T. would
back me up on that. It’s internal to our system,
and then it’s the reliability of the power external
to our system. And I do wanna add
just one piece. It’s not just about
what’s the cheapest. I think even
individual citizens, there are some things
that you can decide to get just the cheapest, but what
we want is the best value. I often equate it to
a vehicle purchase. You know, you can get the
very cheapest vehicle, it’s still a car,
or you get one, I related it to a car
that no longer exists, the Yugo, it’s still a car,
it was the cheapest car, it was like $3,000, or
you can buy a Honda, and a lotta people
opted for the Honda because it’s still a car,
but it was the best value. They looked at the
overall cost of ownership, the features, the reliability
and chose to spend slightly more money
for that product. I think that’s what we’re
really looking for here is what’s the best total value. It’s not just the
single price point. So that’s one of the
things that I think J.T. and Mark and I are
really interested in is what is the all-in cost,
what’s the best value. This is, if as you said, Bill,
it’s hundreds of millions of dollars of savings, then
it’s incumbent upon us, and we have to take
the responsibility to study this seriously
because if there’s that much money in the balance, then we gotta make the
best possible decision and consider all factors. – Could the structure,
the relationship between Memphis Light, Gas and Water
and City of Memphis government, could that relationship
change in the process? – I don’t believe that’s
ever been contemplated. No one has ever put that
forth to my knowledge, and at least I’ll speak
for the City of Memphis, and I think J.T., we
don’t see any benefit of changing that relationship. – Okay, Mark, serving on this
Power Supply Advisory Team, it seems to me that that’s
gotta be very challenging, just putting your
arms around everything that’s involved here. Where do you start
in your consideration of this whole question? – Well, you’re right,
it’s very complicated. J.T. started our
session with telling us how complicated it
was, and I really think it’s highly unlikely
that anybody that’s on this taskforce
is gonna become an expert in the
delivery of power, but it is a group that
is very diversified in terms of business
interests, community interests, and I think it’s, to look at
the whole picture, you know, Doug’s talking about value,
and I think that this group of very diverse group
is gonna be able to at least give a
different perspective than the people
just looking at it from a nuts and bolts and the
technical engineering side. It’s a very complicated
undertaking, and I think our
goal is to be done by the end of this
calendar year. And as good as our
leadership team as MLGW has, I don’t think we’re
gonna be experts. I think that we’re gonna
be able to understand what’s going on, and I think
we’ll be able to provide the kinda support and feedback
that they’re looking for, but it’s a big engineering
question, I think. – Let’s talk some, with
12 minutes left here, J.T., some of the
just nuts and bolts, logistics of what
this would take. You’ve gotta give, if
I’m, MLGW has to give TVA five years notice that
you’re gonna move, right? – Yeah, so if we
opted to do that, we would provide a five-year,
we’d have to provide contractually a
five-year notification. – And would you, and the
current contract with TVA was a 10, 20, how long was
the contract that’s come– – Well, I call it an evergreen. It doesn’t really have
a termination date, but it does have that
five-year notification so that in the event
that we opt to do something different
that doesn’t include full requirements from them,
we give them that notice. – And it’s an 80-year
relationship, right, that– – We’ve been served by them
for over 80 years, yeah. – The main provider
that people talk about you looking at is
Miso, and I’m gonna– – MISO.
– MISO, thank you so much. Miso is the soup.
[J.T. laughs] MISO provides, is a
cooperative on the other side of the river in
Arkansas that people have talked about they
could provide power. – Yes.
– Is that true that that’s one of the main
alternatives out there, or has that been overblown?
– Well, certainly it’s one of the potential alternatives. MISO is really not, I
guess the thing to clarify is MISO’s really not a TVA. MISO is not a, they
don’t really own assets. TVA actually owns assets. They own plants and
inlines and power. MISO is an independent
system operator, and in the utility industry,
they actually serve, they have a lot of
generation at their disposal that they actually
control through, people bring their
generation to the table. MISO kinda oversees
that generation and how it’s actually dispersed. So someone like a utility
could opt to become a member of MISO and then take energy
from that system, get it– – Would MLGW have to bring
its own power to that system? – Well, typically–
– To share amongst that cooperative?
– Typically, companies that come to MISO do
bring something to the table. We’ve been looking at a
lotta different options. Even before we put
this team together, we finally decided to
go ahead and do the IRP, but we don’t, of
course, generation, we don’t own our own generation, so we would not be
bringing generation into that environment. – To that extent, I think
some people are probably, who don’t follow this
stuff that closely, are probably confused, and
I think the Allen plant, the new plant that
was just built– – Right.
– Down near President’s Island and that replaced
the old coal fire, they kinda probably
assumed that was not only an MLGW plant, but they
sort of assumed like, you know, you got a
generator in your backyard that powers whatever– – Right.
– That that was powering all of Memphis, but
it’s not quite that– – No, yeah, it’s
not that simple. – That plant is owned by TVA. – Yeah.
– And it is a part, but not the sole provider
of power to Memphis. – Right, and so that
plant actually provides electricity onto
what’s called the grid or the network of wires
that gets electricity all across the valley. – Right.
– So we don’t necessarily have Memphis, and this is
really a benefit right now. We don’t have a dedicated
plant serving us. We actually are blessed
to have the benefit of the plurality of generation that is all across the valley, and that’s why it’s a
very reliable source. – And then so a
couple of other things that have been talked
about, one is, I mean, would MLGW make an
offer to buy that plant? It’s a quote, billion-dollar
plant that was built, gas fire replacing, and
we’ll talk a little bit about some of the controversies
with the water use there, but is that on the
table that MLGW would make an offer to buy it? – Yeah, so that’s,
again, part of the reason we’re doing this process, right, so at the end of the day, when
we go through the process, if it’s determined that we
should acquire generation of some sort, that
may be an option, something like that
may be an option, but that would not
be enough to power the customers that we serve,
so we would have to get actually more than
just that plant. – So and then does that get
into that there’s this kind of what I would think as
sort of a hybrid plan, some comes from MISO,
some comes from TVA, some comes from other
sources unidentified at least in this conversation.
– Yeah. – Is that a possibility as well? – Well, again, at this point,
everything’s a possibility because we haven’t really
finalized anything. And one amendment I’ll
put on what was said a little bit earlier
is this process, the IRP process, typically
goes about 12 to 18 months in normal timeframe. Ours will probably
bleed over into 2020 probably because of the
nature of this process to be able to do the
evaluation the right way, and that’s what we’re gonna do. – And I’m gonna go
to Bill in a second, one more thing,
when you were back, when you were on the
show a month or two ago, we talked about, and
Doug alluded to it, the maintenance, the
deferred maintenance. You were trying to get
a rate increase done that didn’t quite happen
the way you all had hoped, again, tell me again,
tell viewers again, what you guys identify, not
just as ongoing maintenances but deferred maintenance
and overdue maintenance, it’s what, $700 million or more? – Well, the plan that
we brought to the table was really, and it just
wasn’t just electric. It was gas, water, and electric. – Okay.
– So it was the whole thing, and that was a five-year
plan that was a little over $700 million that we were
wanting to put forth, and it included a lotta
things, not just equipment. It was additional tree trimming, it was automation, it
was adding technology, and doing some things to
help improve reliability, not just on the electric side, but also improving
our infrastructure in our water production
facilities as well. So that was the total
package, the $730 million. But most of it, of course,
was on the electric side, and what we’re
talking about there is really doing what I call, we do maintenance all the time. When stuff breaks, we fix it. When a pole goes down,
we go back and put it up. But at some point, you
have to actually invest in your infrastructure
so that you avoid some of the outages and
the lengths of outages that we have to incur. That’s what we were trying
to do in that regard. – Does, I was gonna go to Bill, but part of what Doug
alluded to was council, I mean, people get
excited when they hear there might be a couple hundred
million dollars in savings by switching from TVA,
and then they look at this $750 million in
proactive, you know– – Right.
– Work that you all wanna do. Does that ironically
make it harder for you get the rate increase
passed because people see this potential savings.
– Sure. – But that savings doesn’t
come for another five years. – Well, it’s even more
complicated than that, but to sorta shorten it,
it’s kinda like someone says, hey, you could save 80%
of your gasoline costs, and I can show you
how to do that, right? So you can save, if you
spend $1,000 a year, you could save $800 a
year, you just gotta get this hybrid electric car. Well, you gotta buy the car
to get the savings, right? So when you think about
it, at the end of the day, the net effect, you
saved on the gasoline, but you’ve had to make
other investments. – Right.
– So what we’re trying to make sure folks
understand is it’s not just a simple as you
get to save this, and there’s assumptions
built into the calculation of all those savings in
the studies we’ve seen that we wanna
review more closely, and that’s what the IRP will do. – Yeah, coming to you, Bill.
– Can I just offer something to you,
just as analogy here? What we’re really
talking about is, I think about it like
a general contractor. If you were gonna
build your house, you could hire a general
contractor that’s turnkey, I want you to build me a house. In this case, we have
turnkey general contractor relationship with TVA, I
want you to provide me power, and they do everything necessary behind the scenes to do that. I could choose to
save a lot of money by building my own
house and becoming my own general contractor,
but that means I need to bring some of my own
capabilities to bear. I need to have contracts
with all the subcontractors. So could I save money? Yes, do I have the capability
internally to do so? I have to evaluate
my own skill set. Maybe in the case of
MLGW, I have to bring on some new staff to do
that management for me. So I come to this table
in the P-SAT agnostic. I wanna make sure we
have the best value. We gotta make a decision
about what’s the best fit for us, and that’s why
we have a diverse group of stakeholders like
Mark at the table to make sure that what
we can do for J.T. I think the best thing is
say here are the things that we value most in Memphis. We want reliable power,
we want to be able to make sure that we
keep our rates reasonable and competitive, whatever
those things happen to be. That’s what our real role is so that they can make
an informed decision, whatever that happens to be, whether we keep a
turnkey operator or we ask them to
bring more staff on and manage more
of it internally, but that’s why it is
a robust discussion, and it’s multivariate,
and we have to really dig into every one of
those to make sure we have the best solution. – Five minutes, Bill. – Mark, it’s also a
discussion that has some really high-dollar figures and talk about a
five-year notice. Do you think some of
this is about a deal, putting together a deal, bargaining with
whoever’s at the table? A lotta the talk
has been just about, well, can we, TVA will
come to the table surely, but I mean bargaining
on a broad level to put together what
amounts to a deal? – Well, it could be, and I mean, that could easily be part
of what comes out of this. I think TVA has already
made some suggestions that they might be
willing to do some things that they have not
been doing in the past as relates to our
infrastructure. That was just, I would
say, a passing comment. There’s no commitment, but
I think that the calculus of this whole process may
create a variety of changes. And it’s pretty simple. If it benefits Memphis, it’s
gonna be great for everybody. And the redundancy
which J.T. mentioned, getting supplied from four
different points from TVA, that kind of thinking
goes all the way down to the level of a building. You know, office buildings,
we look for redundancy, how many different
directions can we get power for certain
mission-critical-type users, and what we can’t
do is save money and trade for it reliability,
redundancy, et cetera, ’cause we’ll actually
do more harm than good. Just ’cause we save
money doesn’t mean that Memphis is gonna have a
acceptable or better situation. – And as we go on
this value journey, Bill, the one thing
to remember is, and I’ve shared this with
TVA’s senior leadership, and they’re being great
through this process, we didn’t embark on this
to get them to the table to make a deal, right? We embarked on this
to, as Doug said, to determine what’s
the best value for the customers, the
folks here in Shelby County. And to that extent,
we’re out of the gate, and we’ll be doing
this until we’re done. If TVA brings something to
the table, that’s great, but we’re gonna exhaust this
process to ensure we’ve got the optimal best value
at the end of the day. And we’ll compare that
against whatever’s out there. – In the event that
there is a decision to give TVA the
five-year notice, does that close the door
on going back to TVA in some form or in
the original form? – We will assume that in the
event that we provide notice, because we wanna maintain
the integrity of the process, we would assume that if
we provide notice to TVA, if we were to do
that, we would assume that we would not have that
option on the back side. Now, whether we would or
not as a reality, who knows. But on the front end as we plan, we have to assume that once
we give them that notice, there’s a reason that’s
structure into the contract. So we would operate as if we
don’t have recourse with them, and that’s why it’s
so important that, as I’ve said before, you
measure twice and cut once because we’d have to assume that we wouldn’t
have that recourse. – Real briefly, a huge solar, Doug mentioned renewable energy, what, 53 megawatts opened
up in the Millington area, 525 solar panels or 525,000. – Half a million.
– Yeah, half a million solar panels, is it $100
million that was spent? I mean, or that was the
number, it was a big number in the story.
– Yeah. – Briefly, 53 megawatts
compares to what in terms of the Allen gas
plant, what is that percent? – Well, the Allen
plant, it’s about 5%. The Allen plant’s
about 1,100 megawatts, so it’s a little
less than 5% of that. – Okay.
– And but again, it serves its purpose. Solar is much more
competitive today than it was five years ago. – Okay.
– And once storage is at the point
where it needs to be, it can be even more
competitive probably. – With a minute left, Doug,
last week you may have heard that we had Joel
Weinshanker on the show. He is the head, managing partner of Elvis Presley
Enterprises, Graceland, where do things stand with
Elvis Presley Enterprises? He made a lot of,
he dropped a lot, threw a lot of bombs, and people
can watch that show online or read about it,
but he accused, let me jump with 30 seconds, he accused the, Jason Wexler,
president of the Grizzlies of really controlling
this whole process and controlling what
the city is doing. First, is Jason Wexler
or the Grizzlies, are they controlling what the
city does in this process? – Absolutely not. – Okay, where do things stand from your point of
view in terms of– – Our position
remains unchanged. We have given the course ahead. If they wanna do
additional development down on the Graceland campus, we’ve given them the path ahead for how they should apply
for those incentives and what can be
included and what can’t, and should they decide that
they wanna do manufacturing and decide that they need
an incentive like a PILOT, then they should apply for it. We’ve given them that
advice two years ago, and we keep that advice today. – Not enough time, but thank
you for answering that quickly. Thank you
all for being here, and thank you for joining us. Join us again next week. [dramatic orchestral music] [acoustic guitar chords]

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