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On Shaky Ground?

Mayor Herenton rips MLGW's leadership for waste, costly mistakes, inaccessibility, and customer complaints. Is he on target?

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Under the watchful eyes of a security officer, two reporters and a television cameraman waited in the lobby of an office building one day last week while their "escort" was summoned. They admired a life-size cutout of the company president and a gift shop filled with merchandise emblazoned with the corporate logo. Fifteen minutes and a second phone call later, the escort arrived and led the visitors 10 steps to the elevator, up five floors, through a large atrium, and into the inner sanctum and their final destination.

A national defense installation, perhaps?

A casino count room?

The headquarters of a security-sensitive Fortune 500 corporation?

No, this was a regularly scheduled public meeting of the citizen board of commissioners of publicly owned Memphis Light Gas & Water.

Called "an island unto itself" by Mayor Willie Herenton last week, MLGW is the second largest branch of city government after the school system. Its services, which will cost 4 percent more next year, touch every business and residence in the city and county. Island MLGW may soon be getting a fresh injection of leadership.

In a scathing critique to the City Council, Herenton all but gave MLGW president Herman Morris and the five-member board of commissioners their walking papers. Like other Herenton broadsides, it was blunt and hard-hitting, but this target -- unlike the Memphis Board of Education or suburban mayors -- is well within his range and is, in fact, of his own making. The mayor appointed or reappointed Morris and every commissioner.

Sensitive to charges of meddling in an agency he once proposed privatizing, Herenton said he is "into MLGW's business because there have been some bad decisions."

From a historical perspective, it would not be unusual to bring in new leadership. Morris' three predecessors -- William Crawford, Larry Papasan, and David Hansen -- each served an average of just over six years, the same as Morris, who was MLGW's legal counsel before he became president in 1997. The terms of Morris and the five MLGW commissioners have expired.

But why the hard feelings?

In the eyes of the mayor and many of its customers, MLGW does most of the big things well but stumbles on the small ones.It provides light, gas, and water with commendable efficiency at a reasonable cost. It put the city back together two weeks after July's devastating wind storm. But five months later it still hasn't produced a promised written report on its response. The 25-member committee appointed by MLGW has met twice and is scheduled to meet again December 17th.

It tries to endear itself to the public and sometimes shoots itself in the foot instead. Its stated vision, hailed in the lobby, is to be the utility "company of choice" for Memphis and Shelby County. The fact is, of course, MLGW is a monopoly and for most residents there is no choice. It spends good money on what Herenton called "self-aggrandizing" advertising and bobblehead dolls of the CEO when it could garner 100 times as much goodwill by simply promptly and politely answering the phone.

When the City Council balked at its initial request for a rate increase in November, MLGW and Morris immediately took their case to the daily newspaper in full-page advertisements and opinion columns. The mayor claims MLGW ignored him and preempted his own plans for a smaller rate increase accompanied by higher sewer fees and possibly higher property taxes.

MLGW pays its 86 customer call-center operators $38,000 a year, which is nearly $3,000 a year more than the starting salary of teachers and police officers. Employees of the mayor's Citizens Service Center (all appointed by the mayor) in City Hall earn $26,600. They field approximately 40,000 complaints a year, and according to chief administrator Dwan Gilliom, about 7,000 of them so far this year have been about MLGW. It costs $371,000 a year to run the mayor's Citizens Service Center. Operator salaries alone at the MLGW call center will cost $3.2 million.

Functions of both offices could eventually be blended into a new all-purpose call center the city is developing with advice from FedEx.What seemed to bother Herenton more than anything was that two weeks ago he said he told MLGW officials of his plans for a general call center and the city's overall financial forecast, and they did not meet with him. There are, he said, 14 divisions of city government and "MLGW, whether they believe it or not, is one of those divisions."

Without a 7 percent rate hike, MLGW warns it might have to start charging for light-ups for senior citizens, read meters every other month, and eliminate payment extensions for poor customers. But a $330,000 expense for putting a global positioning system in every MLGW vehicle, a $4 million radio upgrade, and $5.7 million worth of dispatch equipment are not on the possible hit list.

Its buttoned-down corporate culture is sometimes overly buttoned up, seemingly unable to differentiate between public curiosity and terrorism. Company spokesman Mark Heuberger said the new customer call-in center in East Memphis is off-limits to both customers and reporters because of "security" concerns. Not even an escorted visit would be possible, he said last week. MLGW paid Boyle Investment $8.5 million for the unoccupied building abandoned by its previous tenant on a marginally developed section of Whitten Road, now called the "Dr. James L. Netters Business Center." It is surrounded by a security fence and -- trust us, we tried -- cannot be breached by unwanted visitors. Yet thousands of people enter local courtrooms, arenas, schools, government buildings, and public meetings with little or no interference every day.

MLGW's aging five-member board appears to identify more closely with the company's interest or personal interests than with the public's. Board members get $5,000 a year and can participate in MLGW's pension and insurance plans at employee rates. If there was ever a time for board members to vent, probe, clarify, defend, and clear the air, it was at last Thursday's meeting, just two days after Hurricane Herenton blew through the City Council. Instead, two board members were absent and the others, after huddling outside the room, took refuge behind the corporate-speak of a printed statement.

The national clamor for aggressive and independent corporate governance in the wake of Enron and other well-publicized scandals hasn't cut much ice with MLGW. Board member James Netters is namesake of the new office building on Whitten Road. Another board member, Franketta Guinn, has sought a position on the board of the Tennessee Valley Authority, and her consulting firm won a $125,000 contract with TVA. MLGW just closed a landmark $1.29 billion bond deal with TVA to pre-pay for power for 15 years.

As MLGW CFO John McCullough outlined the successful placement of the first $100 million worth of bonds last week, board members gushed about the 1.12 percent interest rate but raised no questions about the deal, which will provide TVA with badly needed cash and eight bond firms with $5.36 million in fees. MLGW says it will save $15 million a year for 15 years. Might a little of that be passed along to ratepayers, who are in effect the utility company's shareholders, in the form of a "dividend" or rate reduction? Nobody asked.

"Not nearly as bad as the mayor thinks they are."

Morris, a soft-spoken CEO, local guy made good, Rhodes College graduate, and past leader of the chamber of commerce, NAACP, and United Way, has somehow run afoul of the one man who holds his job in his hands. Like the effects of the July wind storm, relations between MLGW and Herenton could still be repaired. The mayor stopped short of firing anyone and may meet with Morris later this month, although the mayor's spokesperson said Monday no date had been set. He recommended that MLGW get a rate increase, which the City Council proceeded to approve.

The board voiced its confidence in Morris, calling him "a man of impeccable character and extraordinary talent and vision." Its statement said MLGW needs "leadership that will not simply be carried along by the winds of change but will instead seek to shape these forces in such a way that the future success of our city and community is certain."

The statement said board members "appreciate the mayor's interest and input into the operations of MLGW" and noted that "the mayor stated that he has concerns regarding MLGW."

Attempts to get Morris to expand on that were unsuccessful. Heuberger was said to be out of the office and unavailable both Friday and Monday. In contrast to Herenton's straight talk, the platitudes and euphemisms about "concerns" only underscored MLGW's tin ear and made it seem more likely that Morris and the entire board could be replaced.

With the wind storm pretty much forgotten, Herenton (who was on a political fund-raising expedition in Arkansas in the immediate aftermath) is no shoo-in to win a popularity contest against Morris and MLGW, gauged by calls to talk radio and letters and editorial comments in the daily newspaper. His suggestion about putting himself on the board drew quick opposition from council members, who fear he would suck all the air out of the room.

"It would be hard to criticize the mayor in that circumstance," said outgoing Councilman John Vergos.

The storm follow-up report, if anyone still cares, is said to be a going concern. Committee members Jeffrey Higgs and Paula Jacobson said there are no indications of a whitewash.

"I felt like I was very well listened to," said Jacobson, president of the Methodist Healthcare Foundation.

Other anti-Herenton reaction missed the mark. At no point did he criticize the MLGW board or any other public board for speaking its mind. If he wanted to appoint rubber stamps, he has had 12 years to do it. It has been five years since Herenton, along with Morgan Keegan and consultant Rotan Lee, made an aborted overture to sell MLGW. And although the MLGW critique came the same day the council decided to raise the mayor's salary from $140,000 to $160,000, that wasn't by the mayor's design. It was Herenton himself who recommended last year that Morris be paid $231,000, which is what MLGW said was the average pay for CEOs of 16 comparable utilities. (He got a raise to $184,000 instead.)

Netters, a minister and former City Council member, talked to the Flyer before the board officially clammed up the next day. He said he was surprised at the reaction of the mayor, who is a member of his church congregation.

"I didn't realize he was having those kind of feelings," said Netters. "I think what really happened is a breakdown in communications because many of the things he asked about and is concerned about are not nearly as bad as he thinks they are."

He said the call center was in the process of moving from downtown to Whitten Road when the storm hit but should be fully functioning -- with the help of consultants from FedEx -- by December 18th. He suspects that the mayor's objection to the Whitten Road facility is "because it was not downtown." MLGW plans to move about one-third of its downtown personnel there.

Developer Henry Turley, however, said MLGW has been helpful on downtown projects, particularly the Uptown development that is replacing the old housing projects north of St. Jude Children's Research Hospital with modestly priced, energy-efficient homes.

"They got the idea that we didn't want the residents' money all going up the roof for utility bills," said Turley. "I have been impressed with the way they cooperated."

Netters did not dispute criticism of top-heaviness in MLGW in past years, but said, "We have retired and downsized a lot of executives, and they are not on board any more. Some officers are carrying two or three responsibilities that used to have one."

He said what appears to be heavy spending on advertising is valuable "customer information," with airtime often donated by television stations, WREG-TV Channel 3 in particular, which he described as "sort of a partner." Former WREG-TV executive Olin Morris is an MLGW board member.

The communications problem, Netters suggested, goes both ways.

"It is the mayor's responsibility to tell us what he wants," said Netters. "And we don't get those communications from him. I know Herman goes in on a month-to-month basis, or at least never misses a quarter, and goes over everything we are doing. If there is anything he is unhappy about, all he has to do is tell us. Yesterday was the first time we heard there was a need to increase sewer fees, and we collect them."

Netters plans to retire from the board next year no matter what the mayor does. His colleagues may not have that choice. n

Additional reporting by Janel Davis.

Possible cuts to save $34 million (source: MLGW)

Eliminate up to 580 jobs.

Read meters bimonthly instead of monthly.

Reduce security forces.

Close community offices.

Charge for light-ups for senior citizens and for customer-service trouble calls.

Eliminate extensions for customers who can't pay.

No salary increases in 2004.

Delay replacement of some motor vehicles.

A sample of what's in the $361 million 2004 budget

Waterproof parking deck of Beale Street Garage: $247,000.

Mobile radio system upgrade: $4 million.

Debt service for share of FedExForum: $2.5 million.

Global positioning systems for all MLGW vehicles: $330,000.

Computerized dispatching system: $5.7 million.

New motor vehicles: $7 million.

Mayor Herenton's complaints

Rate hike proposed out of context of other city revenue needs.

New call center on Whitten Road was unnecessary.

Poor response to customer complaints.

"Costly mistakes" in technology.

Employees with "bad attitudes."

"Unbelievable" compensation and benefits.

Advertising is "self-aggrandizing."

MLGW is "an island unto itself."

President and board unresponsive to mayor.

Salary comparisons

Mayor Herenton, $140,000 (raised to $160,000 for 2004)

Shelby County mayor A C Wharton, $160,000

MLGW president Herman Morris, $184,000

MLGW COO Larry Thompson, $182,832

MLGW CAO Curtis Dillihunt, $182,832

MLGW call center employees, $38,000

Mayor's Citizens Service Center employees, $26,600

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