Auditor report on EPBView
EPB officials confirmed on Tuesday that the utility has overbilled taxpayers for its streetlights' energy usage over a number of years, though they downplayed the extent of the overcharges ahead of a whistle blower lawsuit by a former city lighting contractor and settlement negotiations with the city.
The utility's auditor, Mauldin & Jenkins, found that $1.53 million in overbilling for Chattanooga's energy costs were neutralized by $1.52 million in offsetting costs, yielding just $17,049 in overages, according to an agreed-upon procedures report.
"The analysis of the City of Chattanooga street light billings for eighty-nine months indicates a net overbilling of $17,049," said Warren McEwen, a partner with Mauldin & Jenkins who earlier in the day acknowledged that previous drafts of the company's analysis were flawed by faulty figures supplied by EPB.
Such a modest result from an analysis of seven years of flawed billing, though it conflicts with some findings by the city, would represent just a tiny fraction of the city's annual $3 million streetlight bill, and backs up EPB's contention for nearly a year that a maze of compounding errors would ultimately yield in a complete wash.
"Have we done things that are not as accurate as we want? Absolutely. We have messed up on some things, but nobody has done anything fraudulent, nobody stands to gain," said Harold DePriest, president and CEO of EPB. "What we have is processes that in some cases over a period of several years have simply not worked like they should."
But objections by the city's Office of Internal Audit as to the validity of EPB's counterclaims, and two whistle-blower lawsuits filed by former city lighting contractor Don Lepard, could lead to continuing debate about how much the utility truly owes the taxpayers of Chattanooga, Red Bank and East Ridge.
EPB will file in court this week to dismiss the whistle-blower lawsuits, but a judge will have to rule on whether they will proceed.
EPB's counterclaims have evolved since it first faced questions about its streetlight billing in November 2013. At the time, it said that overcharges for electricity were offset by the increased cost of newer lights. But that was not the case, Mauldin & Jenkins auditors have since revealed.
The vast majority of what EPB now claims is an offsetting charge -- $1.4 million -- is related to practices recommended by its regulator, TVA, but never implemented by EPB, as well as a 5 percent surcharge that EPB included in its contract for a number of years but for which it never invoiced the city.
The utility's new claims came as a surprise when they were first introduced in July at a City Council meeting. At the meeting, the utility released a report claiming that EPB was owed $619,000 for what it said was significant underbilling. But that claim, among others, was partially based on erroneous information supplied by EPB to Mauldin & Jenkins, leading to several more drafts of its analysis.
EPB says it should have charged the city more to compensate for power losses along the lines that serve its 26,000 streetlights, and for the amount of time the streetlights are kept on each day.
The Tennessee Valley Authority, which regulates EPB and other power distributors in its seven-state region, allows distributors to bill the cities they serve at a higher rate than what EPB did for the so-called "burn rate," or amount of time streetlights operate each year.
TVA's Jay Erikson, who oversees rate design and administration for the federal agency, told EPB in July that "if consistent with EPB's operating characteristics, EPB should have requested a lighting change to 4,377 burn hours" per light, per year, up from from 4,200 burn hours currently. That would have yielded an extra $800,000 over seven years.
But EPB never requested and TVA never approved such a change.
EPB also says that it should have charged streetlight customers a 5 percent line-loss surcharge, which is designed to cover the cost of electricity that is lost as it is transmitted down the power line. That would have garnered an additional $621,000 for EPB.
But a 2010 TVA audit by the agency's Office of the Inspector General, which was designed to "determine compliance with key provisions of the power contract between TVA and Chattanooga," did not find any errors relating to the failure to add 5 percent to streetlight bills, according to Chattanooga's Office of Internal Audit.
A number of other distributors like EPB, including Volunteer Electric Cooperative, Caney Fork Electric Cooperative, Fort Loudoun Electric Cooperative, Plateau Electric Cooperative and Appalachian Electric Cooperative, all of which are audited by TVA, do not add the 5 percent surcharge to their bills.
Fayetteville Public Utilities does add the 5 percent surcharge, but a staff member there told Stan Sewell, Chattanooga's independent auditor, that she was not aware of why the surcharge was being added, though she had been making the change since 1997.
J.Ed. Marston, vice president of marketing, said that EPB was open to negotiation on its analysis.
"It does not say this is the end of the matter," Marston said. "It very explicitly says this is the starting point for discussion, and we believe the issues are laid out for us to have that."
Contact staff writer Ellis Smith at 423-757-6315 or email@example.com with tips and documents.