When Memphis Light Gas and Water announced that it was borrowing $50 million last week because of the soaring cost of natural gas, it raised a few eyebrows at the Memphis City Council, which will consider the proposal on February 6th.
MLGW is financially rock solid, with some $220 million in investments and another $1.015 billion in its pension fund. Moreover, last year its board voted to take $20 million from its electric division and give it to Memphis Networx to start a telecom project.
So why the unprecedented borrowing?
“Each of the three divisions has to stand on its own,” said Mark Winfield, manager of budgeting, plants, and rates for MLGW. “It’s almost like three separate companies.”
Winfield says both the utility’s charter and the Tennessee Valley Authority are specific on that point, so much so that his own pay is split between the three divisions. Even if it were possible for one division to make a loan to another, it would have to be an arms-length transaction at market interest rates. And MLGW is getting “a very good rate” — under five percent — on its 90-day loan.
At the end of last November, MLGW had cash balances of $72.6 million in the electric division and $30 million in the water division. But those will be drawn down when usage increases during the summer months, Winfield said.
As for the billion-dollar pension fund, Winfield said any loan would have to be approved by the pension board, and there are restrictions about what the fund can invest in.
“The pension fund is most likely making more than that (5 percent) on their investment,”he said.
Memphis Networx is a partnership with private investors. The $20 million loan was done under a state law that set up telecommunications as a subdivision of the electric division. It also required approval of the TVA and the Tennessee comptroller.
