Memphis Light targets 21st century competitiveness

Michael T. Burr

Editor

EL&P`s Utility of the Month for April is Memphis Light, Gas & Water (MLGW) division, a municipal utility serving about 400,000 customers in Memphis and Shelby County, Tenn. MLGW is the largest three-service municipal utility system in the United States.

MLGW is distinguished among not-for-profit utilities for its entrepreneurial culture and progressive business management practices. In addition to receiving numerous awards for quality and community service, the utility implemented its first-ever rate reduction in 1999-and one of the first voluntary rate reductions in the industry`s history.

Herman Morris Jr., MLGW`s president & CEO, spoke with EL&P in March.

EL&P: Please describe your overall strategic goals for MLGW.

Morris: Our goals are to be the company of choice, the option for our customers in a competitive, deregulated environment. We view that as the process of going from a monopoly as a matter of law and regulation to a virtual monopoly as a result of our unparalleled service and customer focus. Our strategy for serving customers in the new era is to provide them with a quality of service and commitment that creates in their mind only one option, and satisfies them to the level that it makes it difficult if not impossible for any competitive threat to take hold.

EL&P: But you`re not a power supplier, are you? Don`t you get your power from TVA?

Morris: Yes. TVA is a generator, and we repackage it and distribute it to our customer base. But we are on the retail end, where the actual service takes place.

EL&P: So why would it matter to you whose power you`re repackaging?

Morris: It doesn`t matter. We have a relationship with TVA by virtue of history and pre-deregulation legislation that has mandated that we receive and distribute TVA power. So while we have some emergency power ourselves, practically 100 percent of our power comes from TVA. The relationship with TVA will evolve as legislation changes, making other sources of power accessible to us to repackage and sell to our customers. In that environment we expect to have the benefit of the competitive market, where we can secure wholesale sources and turn around and sell them to our end-use customers.

EL&P: Are you planning to expand your organization?

Morris: We expect our footprint will look much different in the years to come than it is currently, both in its geographic reach and in the services and product lines we are able to provide to our customers. We want to grow in a planned and measured way so we can continue at all times to deliver quality services at a very good price to our customers.

We are a multi-line service provider. In addition to electric, we provide gas and water, and we`re rolling out a telecommunications product as well.

EL&P: How much of your budget depends on each line of business?

Morris: We`re 60 percent electric, about 30 percent gas and 10 percent water, in terms of revenue. Telecom has not yet started to drive any significant revenue. But in terms of our cell tower and fiber leasing revenue streams, telecom is less than 1 percent at present. But we expect Memphis Networks to be much more significant in the future.

EL&P: What deregulated ventures are you pursuing?

Morris: We are now selling water to a customer just across the state line in Mississippi, we`re selling electricity to customers in uniquely packaged formats, and working with other customers on proposals to build or get access to their own generation supplies, and we`re selling construction and maintenance services to other, smaller utilities. We have an energy services company, MLGW Energy Solutions, that provides advice on efficient energy use.

These things are just in their infancy, but they have great prospects and expectations.

Another unregulated product is agricultural. We are a large user of landfills, as is any utility that conducts tree-trimming operations. We evolved that into a mulch plant, where we process the refuse from tree trimming into mulch that we use at our own facilities and sell to our customers. That idea came to us from a group of employees, and has been quite successful.

Also, a few years ago we expanded our water service line to bottled water. It was such a success that we sold the project itself, and it is doing fairly well.

EL&P: Why did you sell your bottled water business? I assume you made a gain on the sale.

Morris: We made a modest gain. We sold it because it needed to expand to reach markets beyond our footprint, and we weren`t ready to do that. As it turned out it still only sells water in our community. In retrospect, I wish we had kept it.

EL&P: Clarify for me the organizational structure. Is MLGW a division of the Memphis city government?

Morris: Yes. It operates in a more or less autonomous manner. We take no revenue from the city, in fact we pay tax and other tribute to the city. We`re self-sufficient in terms of our finances in that we operate based on the revenue that we generate from the product we deliver to the customers we serve. The city council oversees us and annually reviews and approves our budget, and occasionally reviews and approves any rate changes. Our board is appointed by the mayor and approved by the city council. Board members have staggered terms. We report on an annual basis to the city as we produce, present and seek approval for our annual budget.

EL&P: Do you turn a profit?

Morris: We don`t make a profit as such, but we maintain sufficient reserves to meet contingencies. We`re basically a cost-based effort in that we will have enough revenue to meet our expenses plus a reasonable reserve. Everything else is returned to our customer base, either in the way of maintaining an affordable rate structure, or as a rate reduction, which is the closest we can come to issuing a dividend. We had a rate cut this last year.

EL&P: What are your goals, then, in expanding the organization?

Morris: It allows us to attract new customers and deliver to them the same high quality of service. And of course the larger and broader our customer base, the greater our economies of scale, and we can deliver those efficiencies to our customers through affordable rates.

If you accept the analogy that, for our customers, the closest thing we can do to a dividend is to hold rates steady or pass through a rate reduction, then in effect we deliver a profit to them when we enjoy more of the benefits of an economy of scale.

EL&P: What changes have led to your present course?

Morris: Probably the most significant thing in the course of our history was the decision in the mid-1980s-about the time deregulation was rolling out in the gas industry-that we wanted to be recognized as the best at what we did by the mid-1990s. We established this as a marching order, as part of our strategic planning process. We called this our “Vision of Excellence.”

That has driven us to tweak and adjust our operations and efforts to attain the level of performance that would give us a credible claim to that distinction. Gas deregulation gave us the opportunity to learn what it`s like to thrive in a competitive industry. And by the early 1990s, we had met with tremendous success.

We evolved the Vision of Excellence into Mission 2000, which was designed to posture us to pass through affordable, quality services to our customers. This forced us to look at our costs and overhead, remove the fat, and refine our processes to make them more efficient, as well as to refine our employee population by training, re-training and deploying technology to make them more efficient. The goal was to manage our operations within financial parameters that would make us the best-priced provider of our services within, first, the Tennessee Valley, and now, on a national scope. Now we`re in contention among the top-25 large providers in America, and we`re looking for new initiatives. We`re destined and determined to be a 21st century company delivering 21st century quality to our customers.

Our success was possible only through the involvement and commitment of employees to achieve these goals, none of which were slam-dunk goals. They challenged us to reshape, rethink and retool a lot of things. So far, we have hit every target we set up.

EL&P: What are you doing, specifically, to improve your operations?

Morris: We are fairly aggressive in deploying technology, consistent with the goal of evolving from a company-centric to customer-centric company in a market with competition and customer choice. In effect, we are re-shaping our culture, and we will deploy technology in a strategic and tactical manner to help us deliver that quality and cost combination to our customers.

We are putting in a new customer information system that will provide 21st century capabilities. [Editor`s note: In June 1999, MLGW signed a $7 million contract with Malvern, Pa.-based SCT for the company`s Banner customer management suite of applications.] It will help us to manage, mine and maintain our customer relationships as our customers` expectations and our product lines expand. We vehicle will make us more efficient and more valuable to our customers as they come to rely on us as not merely a provider of the commodities, but for everything from consulting advice to design and deployment.

We are deploying a mobile dispatching of our crews so we can streamline the process of getting manpower deployed in our day-to-day operations, even while they are in the field, communicating not through radio but through computers in each vehicle or hand-held by each employee.

In 1998 we completed the replacement of our SCADA system in conjunction with several other municipal utilities. We pooled resources and got the same product, so we could drive a bargain as to the vendor`s price.

We`ve got e-commerce in its infancy, but we`re moving aggressively to attack it. Our customers` billing, payment and inquiry capabilities will be at their fingertips via their home computers.

Our facilities mapping system is being deployed on our computer so all the information is available to the employees electronically. We`ve had a school within our company for 20 years at which we provide unique and specific training and re-training for our employees on an ongoing basis. We`re making them familiar with everything from languages needed to deal with a growing and more diverse population to modern job skills necessary to be the company we want to be.

Those are some of the things we`re doing with technology that we expect to help us.

Our customers expect us to be experts in using technology to do the job better. It speaks volumes to them that where we can we use technology to make our jobs easier and to make their lives better by providing better service.

EL&P: Tell me more about the telecommunications ventures you`re pursuing.

Morris: Our telecom venture has been up and running for about five years. We started with a couple of cellular phone companies, selling them cell tower sites on our system, and we`ve seen that develop to become a significant stream of income for us. We were one of the first in our region to leverage our rights-of-way for that purpose.

We`ve also started a similar venture using some of our rights-of-way for stringing fiber optic cable. It`s called Memphis Networks, a joint venture with APTIS-which is a subsidiary of A&L Underground, a trenching company. We`re now rolling out our own fiber network. It`s the latest broadband fiber technology, and will give us a platform which we can use for our own internal communications-voice, data and video-and make available to our large customers to deliver their content to their own customers, who are after all also our customers.

EL&P: How do other, private-sector telecom companies feel about competing against MLGW?

Morris: Broadband retail telecom companies are welcome to come in and buy capacity from the system that we`re building. We`re in the business-to-business market. We`re not supplying retail service. We`re building the roadbed and highway, and anyone who wants to move their cargo over it is welcome as long as they`ll pay the toll.

We`re in an interesting environment in this community. Memphis is not one of the first-tier markets for companies building out this kind of infrastructure. If we waited for the natural evolution of the market, it would be a number of years before the first-tier markets are exhausted and Memphis would enjoy this kind of technology asset. In addition to enhancing our own internal communications, our effort will propel the community years ahead of where it would be otherwise, simply because of our size. If we`re successful, it will make us closer to a first-tier community in terms of our ability to attract technology business who need a high-quality broadband platform.

In all candor, if you`re on an old, coaxial cable system and you`re the only game in town, you might be concerned about the platform being available to potential competitors. But we ourselves will not be supplying retail broadband service.

EL&P: What rules guide you in your management of MLGW?

Morris: High respect and high expectation. I personally believe in working hard and doing good work, and having fun while you`re doing it. We ought to grow each day as individuals and as organizations in terms of our reservoir of knowledge, information, skills and talents.

I believe you have to give something back, and we`ve got a firm commitment to making the world better wherever we are. And I believe we ought to celebrate.

I try to keep our employees informed so they know what we`re doing, where we`re going and how they fit into the plan. Obviously I want to keep them involved because that`s the only way you can get anything accomplished. I want them to be empowered so they-understanding where we`re going, what the rules of engagement are and what their roles are-can make front-line decisions that benefit our overall strategic agenda.

I want our employees to be invested in the effort, personally committed to the success. I want to keep them motivated and inspired.

The five-pronged approach I use is to keep employees informed, involved, empowered, invested and inspired. If we do a good job of that and take care of our employees, they`ll take care of our customers. If we do that, our customers will take care of us in our present environment or in a deregulated and competitive environment.

We`ve been fairly successful as that philosophy has evolved. We`ve had a tremendous run of inspired successes over the past several years that were only accomplished through an empowered employee base that was determined to reach our strategic goals.

EL&P: What kind of successes, specifically?

Morris: I am extremely proud of what our 2,600 employees have accomplished. This past year we passed through a rate decrease-the first in the history of the company, and one of the first voluntary rate cuts in the history of the country.

Our AAA rating from Standard & Poor`s is another mark of distinction that says to the world that we`re a first-class operation in our financial practices and standards.

Last year we received our state`s highest award for quality, the Tennessee Quality Award, and as a result of that we attended and participated at the Malcolm Baldridge Award ceremony.

J.D. Power & Associates has ranked us as one of the top 10 utility companies in America, as did Site Selection magazine, for our efforts in economic development. We`ve long been active in our local Chamber of Commerce to attract new companies to the Memphis community.

We`re engaged in our local community, in terms of giving back. We were recognized this year as a partner in philanthropy for our tremendous efforts in giving, with organizations like the United Way, Girls & Boy`s Clubs, Junior Achievement, and others.

We`ve had a tremendous run of successes on a number of fronts, which you can only attain with a committed group of employees that are focused together on a strategic effort to posture the organization for success. That`s what we`ve got. But it all rides on the backs of the most outstanding group of employees in the country.

EL&P: You emphasized keeping your employees informed and involved. How do you do that?

Morris: One of the things I try to do is to dive right into the pool of employees wherever they are. Every month I have formal visits with groups of employees. Every month I require our executive staff-all our vice presidents and adjunct staff-to spend an hour or so visiting with various groups of employees in various departments. Over the course of a year we will cover the entire organization.

I have regular meetings where I buy a meal for groups of employees, many selected by lottery, to talk about issues that are on their minds. I`ll visit with employees on the spot in various locales, as does the rest of the management team.

We use email and our internal video program-called WWYTK, which stands for “we want you to know”-on TV monitors at our facilities. This program provides a continuous stream of information on everything from marriages, births and graduations, to elements of our strategic plans, to the latest news relative to our efforts.

We meet quarterly with the union`s executive board to discuss agenda items of theirs and ours. This is just to keep the lines of communication open, so they understand where we`re going and how we plan to get there.

We have newsletters that go out to employees on a regular basis, bulletins that inform them of something special, and paycheck stuffers that keep them up to date on any number of issues every two weeks. We send additional information into the community, to retirees and community organizations.

EL&P: Do you have any special compensation programs to motivate your employees?

Morris: We`ve had a couple of gainshare models to share the results of our efforts with our employees. This year we re-cast and initiated an effort we call “Power Pay.” It is designed to pay a significant amount-$1,000 to $1,500 for each employee-if we`re successful in attaining a specific set of goals. The most important ones are financial, but it also has an index on customer service and safety.

We also have an array of employee appreciation awards to say thanks for a job well done and provide visible recognition.

EL&P: You seem to have a very progressive culture, as municipal utilities go.

Morris: Early in my career, at a Southern Gas Association executive conference, we were introduced by the then-chairman of the group, as “Memphis, the municipal that acts like a competitive company.” That supports a lot of what we do.

Because we`re a muni and not for profit, creating a competitive culture is a lot more difficult task than it would be at a profit-driven company. Be that as it may, we can`t let that deter us from hitting our strategic goals. We`ve been very aggressive and so far we`ve been successful. It`s a mark of some distinction and importance to us that we`re in consideration for the Utility of the Year award, being compared with the best utilities in the industry, across the board.

You might say that we`re where many investor-owned utilities are going, in that we provide multiple services. We are a little ahead of the curve in that way. Many large electric utilities are only now moving into gas, and vice versa. We`re there already. That is a significant advantage that we will preserve in a competitive environment.

Click here to enlarge image

Herman Morris Jr. (center), president & CEO of Memphis Light, Gas & Water, poses with some of what he calls “the finest group of employees in the country.” MLGW gains distinction as a municipal utility with an entrepreneurial culture.

Click here to enlarge image

Memphis Light, Gas & Water serves about 400,000 customers in Memphis and Shelby County, Tenn. MLGW is the largest three-service municipal utility system in the United States.

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