City, citizens share talents

Published 12:00 am Tuesday, July 31, 2007

FRANKLIN—A group of citizens concerned about a proposed rate hike from the city have been working with the city’s managers and financial officers for about a year to develop a financial plan to keep energy costs low.

The group of four businessmen made a presentation to the city council at its regularly scheduled monthly meeting this week to examine ways to keep the city as the primary provider of electricity and maintain and protect its steady stream of revenues raised by providing that electricity.

Franklin buys electricity from Virginia Power, then sells it to customers, sometimes at a reduced rate.

When the cost of energy increased nationally, the city proposed raising rates to keep pace with the increase. The citizens group proposed improving the city’s financial management — particularly as it pertained to transferring revenue generated by the sale of electricity — as a better approach.

The city agreed to review the group’s recommendations and meet for a follow-up session, although a date has not been set.

Members of the group are Chuck Lilley, retired from sales management at Union Camp; Benny Burgess, a city native and CPA for more than 25 years in Franklin; Norwood Boyd of investment brokers Davenport and Co. LLC and former member of the city council; and George Weidmann, who retired from Union Camp and formerly worked in the Purchasing Department there.

According to Lilley, the group had been working with Dave Howe and Paul Hartung of Franklin Power & Light, City Manager Bucky Taylor and Financial Director Andy Rose to pull data and such for research, and commended the city for its cooperation and for

keeping detailed records.

“This is not just about identifying wrong things,” said Burgess.

With information taken from fiscal years 1999 to 2006, the group identified transfers from the electric reserve fund, which reached $2.4 million at its highest level and $1.8 million at its lowest.

Draft budgets have shown that transfers of additional funds to the general fund are normal in city budgeting.

The transfer amounts were greater than profit levels, which meant the city had transferred more than the electric fund was making.

“If this was a business and the city was a shareholder, you would be creating negative equity,” said Burgess.

The group also discussed the cash balance of Franklin Power & Light. Burgess explained that cash represents a reserve for expansion, recovery from disaster such as hurricanes and ongoing capital expenditures.

“There was a big drop in 2003,” said Burgess, “when the general fund borrowed cash—about $2.7 million— from the electric department. It was repaid in 2006, but it was not really fully refunded, because it was used again.”

Problems with transfers, the group advised, is that excessive withdrawals will eventually cause deterioration of operations and infrastructure, citing an example of a similar utility situation in Mesa, Ariz.; financing versus buying of equipment causing additional drain on the cash flow; and the possibility of high percentages of transfers lowering the community’s credit rating.

Boyd spoke about the electric rates, saying that the kilowatt usage rate charged by the city is higher than the Virginia Power rate. He recalled that a selling point of annexation had been a “promise” by the city council members at the time, to offer a discounted retail rate.

Mayor Jim Councill defended the city’s rates compared to Virginia Power. “We have fewer lost power incidents than they do,” he said. “Our response time is almost instantaneous — I guess there’s a cost for that. That is some of the comforts we enjoy—to have a trained staff and good response time.”

Boyd also said that with 19 percent of revenue comes from customers outside of the city limits.

“Non-residents may petition the State Corporation Commission to let Virginia Power take over their electrical power, and the city would potentially lose $2 million in revenue annually,” he said.

Among the immediate recommendations were to have the city council publicly adopt a method of having electrical rates maintained at a discount to Virginia Power’s retail rate, and to have the council work to restore the electric reserve fund.

Weidmann discussed other suggestions, including establishing an independent commission that would be guided by a written policy and directly supervise the director of the electric utility.

“This is consistent with other municipal utilities,” he said.

City manager Taylor and financial director Rose said that money has been used over the years to recover from the flood in 1999 as a result of Hurricane Floyd, Hurricane Isabel in 2003 and more recently in 2006, flooding due to the nor’easter.

“Floyd cost us a million and a half,” said Taylor, “and we haven’t put that (all) back.”

They also reminded the group that they have begun reducing the reliance on the electric reserve fund.

“We have begun reducing it by $150,000 a year for the next five years,” said Taylor.

Boyd said he thought the council also should “make it a city policy for retail customers to be discounted 5 to 8 percent.

“Wouldn’t that limit the profit we are pursuing to make?” asked Councilman Fetherolf. “It isn’t our commitment.”

Boyd said, “It’s morally right. You serve to lose out of town customers. I would not like to take that chance if I were on council.” Boyd suggested cutting back on spending as well.

Said Mayor Councill: “We look at cuts in all of our budget discussions to bring costs down. It’s easy to say we need to cut, but where?”

Councilman Joe Scislowicz stated, “These are great recommendations, but we’ve got to think it through. A city our size, when you talk about cuts, the bottom line is personnel.

“If you have suggestions on where to cut, we’d be happy to hear it.

“Our job is to look at the big picture. If you change one thing here, it can have an effect over there.”

Councilman Wrenn suggested the group research tax rates and costs at the similar localities that the group used for comparison to the city.

“We’ll put our heads together and see what we come up with,” said Lilley.