Electricity 101:

Published 12:00 am Friday, October 26, 2007

“So what’s the problem?”

This was the first question asked by a civic group member after a recent presentation I made concerning the findings of our Concerned Citizens Electric Committee. The audience question was from an individual who sells financial data to make his livelihood. Conclusion: The information that we have spent almost a year collecting and presenting has been too confusing for many citizens to understand, including perhaps members of the city council.

Despite our best intentions, we may have been guilty of “preaching to an empty choir.” Hopefully, the following will simplify and explain part of our reasons to recommend the formation of an independent Electric Oversight Panel.

Franklin’s Electrical Department, thanks to a long-standing program utilizing city generators, is a moneymaker for the city to the tune of $2 million in profit a year. Most of the profits that are left after the Electrical Department pays its bills are deposited by the city manager and/or treasurer into Franklin’s checking account, or the general fund. These electrical profits combine with our tax dollars to financially maintain the City of Franklin.

The city manager, who reports to the city council, acts as a banker, making decisions and setting guidelines. He establishes, with council approval, how much of our tax dollars should be spent on buildings, equipment, personnel and services such as water and sewer and how much should be held in cash reserves.

Occasionally, electrical profits will be deposited into a second account, the Electrical Emergency Fund, by the city manager or city treasurer. Readers should think of this fund as the savings account at your local bank. Individuals generally maintain a savings account “in reserve” for household “emergency” situations.

The retiring Electrical Department Director, Dave Howe, successfully built up and tried to maintain a $3.5 million balance in this fund for catastrophic emergencies such as floods and hurricane damage that have befallen Franklin.

“So what’s the problem?” If you forget everything else in this column, please remember that more of the Electrical Department’s profit is being transferred into the General Fund checking account for spending than the Electrical Department is making!

The corporate world calls this disturbing spending trend “creating negative equity.”

Net income from the Electric Department began to decline in late 2004 and continues to decline today due to increasing costs. Has the city decreased spending to reflect the decline in electrical profits? Answer: No.

The city manager continues to point out that the city is committed to “putting back” $150,000 per year into the Electrical Emergency Fund. As long as the amount being transferred into the General Fund is greater than the declining profits of the Electrical Department, such action reminds one of the adage “robbing Peter to pay Paul.”

“So what’s the problem?” Our committee found that confusion exists between the city council and the city manager over rules for Emergency Fund transfers. We “followed the money” trail of a $2.7 million withdrawal from the Electrical Emergency Fund and discovered that this lump-sum withdrawal was made without the specific knowledge of the Electrical Department director and the City Council.

According to Councilman Charles Wrenn, who spoke to a group of citizens on Oct. 8, “Short-term withdrawals from the Emergency Fund by the city manager and treasurer do not need council approval. Long-term withdrawals do need such approval.”

The accounting entry to offset the $2.7 million withdrawal was not made until

three years later, according to financial statements reviewed by our committee.

The city manager, through the use of a consent agenda, does not seem bound by Mr. Wrenn’s understanding of council’s requirement. Consent agendas in themselves are not unusual as time-savers in city council proceedings. Using them to include monthly departmental finance reports in lieu of departmental managers’ open presentations is unusual and can lead to poor oversight on the part of council members, as it did with the $2.7 million withdrawal.

Note: As of this column, neither members of our committee nor city council members have been able to find a specific accounting of where the $2.7 million was actually spent other than in the General Fund.

Citizens should demand an answer from their council members, as there have to be journal entries for this or presumably our auditors, Goodman and Co., would not have signed off on our financials.

“What’s the problem?” The more pertinent question is, “What’s the answer?”

The lack of accounting transparency and council oversight of the transfer and spending of $2.7 million from the Electrical Emergency Fund are but two reasons our committee favors an independent Electrical Oversight Commission or Authority.

By visiting and speaking with members of established commissions and councils in other Virginia locations, we became convinced that such an independent

body would do a better job than the city council of managing the electrical department as a true profit center and gradually lower electrical rates to residential customers. Franklin citizens deserve nothing less.

Chuck Lilley of Franklin is a retired Union Camp sales manager. His e-mail address is chucklilley@hotmail.com.