- (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.

- MLGW CEO, Doug McGowen tonight, on Behind the Headlines.

[intense orchestral music] I'm Eric Barnes with The Daily Memphian.

Thanks for joining us.

I am joined tonight by Doug McGowen, President/CEO of MLGW.

Thanks for being here again.

- Sure.

Thanks.

- Along with Keely Brewer, reporter with The Daily Memphian.

We were talking before, it's been about 11 months, it was January of 2023 when you came on.

You were a couple weeks into the job, coming right into a series of rolling blackouts in a year that we'll try to talk about with a pretty record number of storms and outages and so on.

But let's start at the bigger or more immediate news, is the Council just approved, what, a 12% rate increase, four percent each year for the next three years.

Why the rate increase, and where will the money go?

- Sure, it's a really good question, and it has been one heck of a year, and it's culminated with this most recent decision by City Council.

As you know, as I did at the city, we were a data-driven organization.

We have done that here at MLGW too to make decisions based on data.

And the data is quite simply that our outages are twice as frequent and three times as long as they were in the year 2020.

And what supports our rate increase is the fact that we have underfunded the electric operation for decades.

One of the pieces of information I provided to City Council is that we had effectively 1 rate increase over 35 years.

And that's certainly not sufficient to keep up with inflation.

That erodes our ability to reinvest in the system.

And what that has culminated in is the organization essentially running to fail.

In other words, we don't replace things on a regular recurring cycle.

We wait for them to break, which means there's an outage, and then we replace it because you don't have sufficient funding to regularly update the system and provide new information, excuse me, new infrastructure into the system to keep it reliable.

- A couple things in that, the money will mostly go towards, is that new light poles and wires?

Is that substations?

Is that tree trimming?

Is it raises for employees?

Kind of break down in big blocks where that money goes.

- Sure.

So really, our approach to improving reliability, and that's what this is all about, every dollar is gonna go to improving reliability, is for more people to do the work, both in-house and contracted.

In-house will be doing the permanent level of work.

Outsourced will be for people that do temporary work, like to help us lift the new infrastructure.

But it's broken down into tree trimming.

It's no question that the cost of tree trimming has gone up because we have not met our goals for so many years.

We're hopeful that once we get back on the cycle, the cost can come back down to what would be perceived to be normal level.

But number one, we have to have a big investment there.

Number two, replacing outdated infrastructure, that is, replacing poles and wires and transformers both in the distribution system and at the substations.

The substations are where we take the high-energy electricity that comes in, and we step it down so we can distribute it across into neighborhoods.

There's a lot of equipment there, circuit breakers and transformers that need to be replaced.

Many of those are more than 40 years old.

And the next big investment is in grid modernization.

This is technology that is not new in the energy industry.

It is accepted standard for distribution utilities like MLGW is.

It's just new to us.

And so we have got to modernize our grid so that we have the automated way to manage energy in our system to reroute power around breaks to keep people from going off in the first place and to more quickly restore power when power does go out.

- Two quick questions, then I'll get Keely in here.

How long will those things you just laid out, how long will it take to implement those?

Is it six months, or is it six years or- - Well, we start right away, and we have been doing some of those things, but now we have the resources to be able to get the grid modernization and to replace things on a more aggressive schedule.

So it's a five-year- - Okay.

- Horizon for us to build out the full, what we call the ADMS, automated distribution management system, about five years to get all of that in place and to have 100% yield on the improvements that we're making in the system.

But the tree trimming will happen relatively immediately, over the next year or two.

- When you say...

I was reading this, and Keely wrote about it, and I've been a MLGW customer for whatever, twenty-five years that I've lived in Memphis.

You're saying was I paying the same amount in 1997 when I bought a house in midtown that I would be paying prior to this increase?

Or are you saying is there inflation in there?

- There's not inflation - Wholesale rate in there?

It's the same amount?

- The same rate per kilowatt hour.

The only changes that were in there were any changes that TVA, who's our provider, they may have raised the wholesale cost of power that was passed along to you.

But a rate increase that was proposed by MLGW, the last one was in 2004.

From 1985 to 2004, there was 4.7 all the way to 2020, when JT Young proposed the increase.

So 35 years, 1 rate increase and two rate decreases that were put into place by MLGW.

- Again, and apologies to Keely- - Same price per kilowatt hour, yes.

- Per kilowatt hour, so that kilowatt hour from TVA because of oil costs or natural gas could have ebbed and flowed and so on.

But the take that MLGW has on top of that, that's what hasn't been increased.

- That is exactly right.

- Okay.

- So what what TVA charges for power, you pay them for power.

But for us to operate the system, one rate increase in thirty-five years, When JT Young put the rate increase in 2020, that had been 3 rate increases across 38 years.

And what I'm proposing now when we're done in 2026 is that we will have a total increase of 23% across 41 years.

There is no other commodity, no other service, no other product that has experienced that low of a rate of cost increase.

Even today I was reading a story about there's nothing in the dollar store that costs a dollar any longer.

Everything is either $2, $3, $4, $5, or $1.25.

- Right.

Keely.

- Yeah, with us talking about this long stretch of time where there were no increases, and in some years there were even decreases, a lot of what I hear from customers is, "Why another rate increase so soon?"

We know that this group of City Council members started and ended their term with approving a rate increase totaling close to 20%.

Why is that needed again so soon?

- So it's a really good question, and I would tell you that what Mr. Young and the staff did was propose an increase.

They actually asked for a larger increase and were not granted the larger increase.

They had to back that down.

So if you wanna think about the baseline level of service that we were essentially running the utility for years in a run-to-fail mindset where we waited for something to break and then we would fix it because we didn't have money to reinvest.

The investment in the rate increase that was done when Mr. Young was here gave us enough money to begin the regular and recurring replacement of infrastructure.

That's why you see in the Way Forward Plan we've replaced poles and transformers and started to replace that outdated infrastructure.

That was a start.

That was not the end state to get us there.

This is now bringing us to a modern grid, and this investment is all about grid modernization and accelerating the pace of rate of change in replacing outdated infrastructure.

I do not believe that our customers can wait for more reliability to come along in the future.

It has to come now.

I think the demand for reliable power, even though we delivered it 99.92% over this past year, that's not good enough.

It's like oxygen.

People need electricity 24/7, and that's what we intend to do with this increase.

- And how do you help customers feel like they're getting their money's worth after an increase like this?

Because you've said previously if everything goes according to plan, nothing happens.

The power stays on.

- That's exactly right.

Unfortunately that is the measure of success.

If we are successful, nothing happens.

And I'm gonna count on the data to show people that outages are fewer and far between.

As I said, it's not a great metric.

The frequency is twice as much, and the outages last three times as long.

We will show that same data reported out to City Council and to the public.

And ultimately I have had some customers in areas where we've made improvements come back and say, "You know, actually outages are a little less frequent than they used to be."

And that's about the measure that you're gonna feel from customers out there.

But folks deserve reliable power, and we intend to provide it to them.

- Staffing, you may have... Let me come back to that real quick.

Are you adding... You talked about contractors to help build up things to get things where they need to be, but it's also, is it additions to the regular full employees?

- It's a permanent complement of about 100 people.

Almost all of those are engineers- - New, new?

- Yes, new people so that we can actually have a quicker throughput of the designs that we needed to put into the system and to operate the system once it's up and operating.

- People forget sometimes, probably not a lot of people who watch the show, but people do forget that TVA supplies mostly, I mean overwhelmingly the electricity to Memphis.

The power plant, yeah, the power plant down near President's Island, the new Allen plant, is not owned by MLGW.

Although it is really dedicated to serving MLGW'S customers.

TVA has had...

I mean, TVA could go down.

They've talked about...

I mean, they had rolling blackouts across their whole system, what, last summer?

Is that right, Keely?

- That was last winter.

- Last winter, sorry.

And then I mean, when you look at TVA and your dependence on them, does that give you some discomfort about your ability to provide this electricity at the highest possible level?

- So if you want to talk about the scale of the things that keep me up at night, it's our ability to distribute the power no matter where it comes from to our customers because that's where the failures have been.

- The poles, the substations.

- The poles, the substations, the breaks here.

It's not been a unreliable source of power until last December 22nd and 23rd, when we had the first ever in our history for TVA and of MLGW of rolling blackouts.

Making sure that we had supply coming to our four delivery points has never been a problem until then.

It has always been a problem of distribution of that power across our system.

And that's why my focus is to improve the distribution reliability in our system because that's where the failures have been.

- Maybe we talk about AeroDerivatives and solar, which I know you've been writing about with MLGW.

- The vote this Tuesday at City Council in the same meeting where they approved the rate hike, they also approved the annual budget.

One of those things that was scrapped last minute was AeroDerivatives.

Tell us where that proposal started and why it ended on Tuesday.

- Sure.

So everybody knows that across America and the world, that electrification of things is coming at us very rapidly.

And so the demand on the bulk electric system is growing, and it's gonna be very difficult for everybody across the country to meet that electric demand.

So that's why you're seeing the push for energy efficiency.

You're seeing the push for battery storage and everybody to come online with new generation sources.

Last summer, TVA's forecast was that for about the next five years, largely because of the demand for new construction in the southeastern part of the United States and in the Tennessee Valley for economic development, we were seeing an unprecedented level of growth from the onshoring of manufacturing and the desirability of the area we are.

They forecast that was gonna challenge their ability to meet this significant increase in demand and put into place a program that was called the reliability and growth provision that would have provided a predictable path of growth.

One of the suggested implementations was to put a limitation on new loads over five megawatts, that would've had to be agreed to be interrupted contractually should the grid reach a certain level of pressure.

Together with the Chamber of Commerce, our staff talking to local mayors, we said that will have a chilling effect on economic development here if people have a choice.

They're choosing between West Memphis, Arkansas or Memphis, Tennessee.

- West Memphis, which has a different provider- - Different provider of electricity.

So they may be choosing to go somewhere else.

We didn't need one more thing in our competition.

So we knew there was a problem, and we intended to solve it.

The most expedient path forward for us to provide new energy into the system were these AeroDerivative turbines, which can be trailer-mounted or modular and can be installed in under 30 days.

We wanted to make sure that we had the ability to provide power should a new project come.

We certainly were not going to build that unless and until we saw that need come forward.

Recently, as recently as last week, TVA has said, "We've taken another look at this.

"We have seen the projects that have come forward.

"We are back in a safe, comfortable margin "for our generation to meet the demand.

"And so the reliability growth provision is hereby halted, and you can move forward with normal operations."

It didn't make sense for me to continue with AeroDerivatives in our budget because of that change.

And so that gives us the opportunity to accelerate what we all want, which is battery storage and solar in our system.

And so that's what we made the change to, and that's what City Council approved last week.

We're very pleased to be able to do that.

We're glad that it appears the urgency for us to take immediate action with some other kind of generation has passed, but at least we have that in our hip pocket should we ever need it in the future.

- And just to clarify, AeroDerivatives are natural gas-powered?

- Yeah, they're jet engines.

They're fired by natural gas.

They can also use fuel oil, but they very quickly, they're peakers.

They generate electricity very quickly when there is a peak in the system so that you do not have to do any scaling back of anybody's power availability.

- Which is not really the case with solar.

I mean correct me if I'm wrong.

You can generate a lot of power, and it's become more and more efficient, but it doesn't- - It doesn't work all the time.

- It doesn't work all the time, and you can't quickly ramp it up.

That's where the battery, I mean, industrial-scale battery comes in.

- For solar, it's either available or it's not unless you're storing the power in batteries.

And today, just know in our system, MLGW does not have any battery storage, and we do not have any MLGW-owned solar in our system.

Although there is some here in our footprint in Shelby County.

- So let's come back to the TVA thing.

Again TVA said we're gonna...

They announced, and you correct me where I'm wrong, or Keely can correct me, "a 10-year plan that would've required "all industrial customers that use more than five megawatts "of power to be cut off at times when TVA struggles to meet energy demand."

And again, that's why you said, "Hey, we can't do that "if we're attracting industrial customers "that might be radiant out of the Ford plant "or other things going on.

We can't do it."

They turn around some months after announcing that plan and say, "No, no, it's all good."

But is that give you comfort that they're all good?

- About six months after the fact, they've been looking at different solutions.

We have been a part of that conversation from the beginning, and look, sure, we wanted to make sure we took action to fill a gap if there was one.

And so that dialogue continues.

Certainly it's our responsibility to make sure that our customers get the power that they need, and so you can bet that we're deeply involved in ensuring that that is going to be the case going forward.

So we continue to have the dialogue with them.

We are comfortable today that we do not have to pursue the AeroDerivatives.

I will tell you that I am very comfortable also that should conditions change, I can quickly turn that around, and I would go back to City Council and the board.

Today I'm comfortable that we can accelerate batteries and solar because it's the right thing to do for our customers.

It's the right thing to do for our system.

And so that's the path we're going to go on.

- Keely.

- Source of confusion among our readers for a while was that these would be part of the projects funded through rate hikes.

Clarify where that funding was coming from and how it'll be directed towards solar and batteries.

- Yeah, they are not.

For the solar batteries and AeroDerivatives, this is a generation project.

They would not be funded by the rate hikes which fund our operations and our capital budget.

These would be funded with what are called revenue bonds.

So I have to have a source of revenue in order to pay them back.

If I don't have a project, I don't have revenue, and therefore I don't issue the bonds.

And so that was the case for AeroDerivatives.

It's also the case for batteries and solar because I will have a dedicated revenue stream that can pay for these projects.

So they're immaterial.

What I was getting when I requested this from City Council is authorization to issue revenue bonds for these projects, but they are disconnected from the rate hikes.

They're disconnected from the overall level of revenue I receive from the rate hikes.

- And this will help speed up the process by about a year of getting solar moving.

And it'll be the first time MLGW has generated its own power since the '50s.

Is that right?

- That is correct.

And so again, we do have an all-requirements contract with TVA today.

We are working that, and TVA knows that we have things to work out so that we can make this happen in a way that makes economic sense for us, and they are working with us on that.

But this is the first step for us to get moving in that direction.

- You just said an all-requirements contract with TVA.

I don't know what that means.

- Oh, I'm sorry, what you said earlier, Eric, that they provide all of our power, that is through an-all requirements contract.

In other words, we have to buy all of our power from TVA.

- So they have to give us permission to build solar?

- Well, I have to have essentially permission.

That's what they've done in their flexibility- - In the modification of the contract or however that is.

- Sure, so, we have to just decide that that's in the best interest of everybody for us to do that.

If I was to follow the firm terms of the contract, I couldn't do that today.

But everybody understands that's the right thing to do.

So I'm confident we're gonna get there.

- You may have said, and I apologize, one, where the solar's gonna go and two, what sort of megawatt that will generate.

- So, what I've asked for is up to 100 megawatts of batteries and 200 megawatts of solar.

We would certainly not build that overnight.

We would start with something smaller, probably like 35 and 35 or 50 and 25 because you also wanna get confident that you're building the right thing that you can manage and put in your system in the right places.

As to the location, it's undetermined.

We have several locations in our footprint that are MLGW property where we could put the batteries and where we could put the solar.

That was part of the IRP, where we identified locations where that could go.

That is- - IRP being federal funding, Inflation Reduction Act?

- Well, no, no, I'm sorry.

- Oh no.

- That was the study that we did about- - Oh sorry.

- Our power requirements of the future.

Yeah, there's a lot of acronyms, I apologize.

But we looked at the power supply in the past.

We identified some areas where we might need some either solar generation, some batteries, or some gas fire.

But we've heard that there is obviously some concern in the community.

There's concern about gas-fire generation.

There's also concern about where we're placing solar.

So we are very sensitive to that, and there's a process to go through.

- Okay, before I go back to Keely, the 100 megawatts compares to what amount that comes from the gas-fired Allen plant?

- Well, that's about a 1,200 megawatt plant.

- Okay, so about a little less than 1/10 the size of that.

- Just to give a sense, our peak, our largest peak ever was 3,500 megawatts at MLGW.

On a day like today, we're right around 1,400-1,500 megawatts.

So it ranges in scale depending on the demand for that day.

It is a good start for us.

- Okay, we could go back to Keely.

- And something we've talked a lot about recently is heading into this winter, you had just taken your job as president of MLGW a few weeks before the city's first rolling blackouts.

A year later, what's the forecast looking like, and what's changed since last year?

- So pretty substantial material change has happened both in a process and a physical environment.

Number one, the weather forecast.

We're now out of La Niña and into El Niño, a warmer, wetter winter.

That doesn't mean that we won't have some severe weather.

But number one, on the communication side with TVA, our electrical provider, and I think many of the other bulk energy system providers who were challenged, new communication and better forecasting so that we can give our customers a heads-up.

One of the things I heard during the rolling blackouts is, "Hey, I understand why we might have to do this, but I sure would've liked to known ahead of time."

That's what we wanted to ensure, is that we have as much heads-up for our customers.

And then when we do have that heads-up, we can ask everybody, "Hey, "let's all collectively conserve energy so we don't have to do something more dramatic."

None of us had the chance to do that last year.

You will have the chance to do it if we ever get to that point again.

Number two, all of the bulk energy providers, including TVA, have made some significant changes to their generation platforms.

They had instrumentation freeze.

They have insulated that, protected it from the elements.

They have sensors on there that will tell them when it's freezing or about to freeze so they could take action.

So the problems that caused those shutdowns should largely be solved.

And the third part is that they have actually brought forward about 1,500 megawatts of new generation that could be added to the portfolio.

And for us, we have exercised all of our systems, both communication.

We participated in a national exercise about that was based on last year's outages called GridEx.

So we've exercised all of our communication functions.

And at all of our substations, we have exercised and winterized all of our switches so that we know that things work when we get to cold weather and if we ever had to exercise those switches.

So it is a different day than it was last winter.

I cannot guarantee that nothing will happen, but I can guarantee that we are much more well prepared than we were last winter.

- Does that extend to water?

'Cause there were water boils.

- Absolutely.

- There were water problems that were in part caused by the electrical outages, in part caused by freezing.

What's your forecast there?

- Yeah, so we are much better prepared there as well.

And again, I can control the things that we control in the distribution system.

So all of our wells have been winterized, and that was a problem two years ago.

All of our pumping stations have been winterized.

We have additional capacity at our pumping stations with variable frequency drives that allow us to push more water out.

Last year's problems were fire protection systems that were not being monitored, and it burst in buildings that were cold.

And so- - And for sense of scale, it was something like 100 million gallons a day, and MLGW typically pumps 150 million gallons of water a day.

- That's right.

- So it's massive water loss.

- That's right, so we were pumping at some point 260 to 280 million gallons of water, while we're typically pumping about 150.

And we were still losing pressure because it was bleeding out into these fire protection systems that were burst.

We worked with Memphis Fire, with code enforcement with Shelby County Fire to at least know those buildings that are not monitored so we can get a better handle on it and notify the customers that, hey, you need to take some action to make sure your pipes don't freeze.

- Let's with four minutes left here, streetlights.

MLGW is in the midst of changing out all the streetlights around the city and its service area to LED.

What is the progress, and where are you in that process?

- So we're just about 90% complete with the city of Memphis.

We have just started the Bartlett transition.

We'll start Collierville here in a week or two.

And they have contractors that are helping them do that.

We'll move on to Arlington and Millington right after that.

With the streetlight conversion, there are some lights that are out, some lights that are blinking.

We knew this was going to be the case when you transition to new technology.

They're very sensitive to voltage.

The old lights were not sensitive to voltage.

If they had any electric power, they shine.

These new LEDs are pretty sensitive.

So that's what you're seeing, is we have to go back and fix the voltage so the lights work properly.

- How many times a day do you get a text from someone saying that their streetlight is blinking?

- It actually has not increased in frequency because as we replace the LEDs, we always had out of the 109,000 street lights, there were always 1,500 or so that were out or not working.

And so as we replaced them, it's about the same number.

It's just that we have to solve the problem on the LEDs.

- And then when you were on the show, again, you know, 11 months ago, you committed to a number that I forgot to look up, but it was something- - 77,000.

- Seventy-seven thousand, was that the number of streetlights that would be connected?

'Cause we talked about the outages and the outages that frustrate people.

I mean, I joke, but it's serious, you know, and you took it seriously.

Neighborhoods that are dark- - That's right.

- It's a safety issue.

It's a convenience issue.

It's a driving safety issue.

When do you think you'll get to your goal for, I think it was, you know, near 99% of the streetlights operating?

- Substantially complete this month.

- Really?

- Yes.

So we are on pace to complete it by the end of December.

There may still be some, those 1,500 out of 77,000 that we're still working on the power, but they'll be substantially complete with the transition by the end of the year.

- Keely.

- If we have time to touch on briefly, headquarters move?

- Yes.

- That was something that didn't appear on the budget Tuesday, and that's been scrapped for now.

Tell us where you're at with that decision.

- So that what we proposed to the board, is that we build or buy a building for a utility support center.

I am in need of a new system operations center.

I had the opportunity, and we have plans to build a new system operations center.

This building became available for us to consider.

It is a one-of-a-kind building that has redundant electric feeds, backup generation times four, uninterruptible power supply.

It used to be the home of Harrahs International, the international gaming center.

That's why it has all of this redundancy, and that's what you want for your system operations center.

The fact that it came with a 300,000 square-foot office building for the same price was something that we said for efficiency we might want to consolidate all of our operations.

Make no mistake, for $30 million, you were getting 300,000 square feet, 68 acres, as a home for our system operations.

And it made sense for us to consolidate as many operations.

I heard loud and clear from City Council and from other people that moving headquarters from downtown was not the right signal at this time.

And so before I move forward, it was not in the budget, as you said, I will have to go to City Council for approval to acquire the building.

But it would be with the condition, if my board approves, that I would keep a headquarters downtown and headquarters people downtown.

Again, the impetus for this was a new system operations building, and procuring a building that is ready for us to move into is going to be cheaper than building a brand-new building that has much less square footage.

It will not be as resilient.

So it's something for us to consider going forward.

- With a few seconds left, we have a new mayor.

You may have heard.

And in this room, where we were taping this during the debates and the conversations we had, I asked everyone on the stage, you know, who they were gonna support, CJ Davis, other staff members, who they would bring forward to their administration.

They did not want to commit to that.

That included you.

You have since talked to Paul Young, the mayor elect.

You've worked with him for many years back in the Strickland administration.

Good relationship with Paul, and you expect to be moving forward with him?

- I actually have a good relationship with all of the candidates there.

I know all of them.

And when you had asked the question, I had not had the opportunity, none of them had taken the opportunity except for Paul to actually talk to me about what the plans were.

So I was unsurprised that people had that reaction because I think they were a little taken aback, but excellent relationship with all of the people who were candidates, including Paul Young, and I'm very happy that he's gonna be our new mayor.

- Thanks for being here.

We'll have you back sooner.

Thank you, Keely.

That is all the time we have this week.

If you missed end of the episode, go to wkno.org to get the full episode.

Thanks very much, and we'll see you next week.

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