Financial troubles loom as Lenoir utility board readies for labor negotiations

By Hugh G. Willett knoxnews.com

 

Lenoir City Utilities Board is facing financial difficulties that could signal cutbacks at the power company and have an effect on upcoming negotiations for a new labor contract.

A labor contract with the International Brotherhood of Electrical Workers local, which represents LCUB employees, expired earlier this week following a March 11 meeting in which the utilities board went into executive session to discuss labor issues.

According to a letter to LCUB employees from the utility's chairman, Tony Aikens, who also is Lenoir City's mayor, LCUB is facing tough decisions after a meeting with the state comptroller's office to discuss financial problems.

"While I do not necessarily advocate reductions in force and operational costs, I want you to be aware of the serious issues facing the department and LCUB as a whole," Aikens said in the letter.

Aikens also made reference to a Jan. 31 letter he received from state Comptroller Justin P. Wilson. In the letter, Wilson outlined problems LCUB has had in making payments on debt to fund a new water treatment plant.

Aikens specifically referred to the seventh paragraph of Wilson's letter, which read, "I noted that the city provide a very attractive set of benefits both salary and fringe, to its employees, which appears to be above the level provided by most local governments in the state."

Wilson's letter continued with the suggestion that cuts might be necessary.

"Although it may be difficult, you may wish to consider some reduction as one of the areas related to the reduction of overall operating costs," Wilson wrote.

According to Aikens, the purpose of his letter to employees was to improve communication between management and employees at LCUB. He cautioned against interpreting the letter to mean that layoffs were coming.

"We must rethink how LCUB does business, however nobody's job is in jeopardy," Aikens said.

The utility already has reduced staffing without having to lay off anyone, Aikens continued.

An example would be the utility's wastewater management position, which LCUB eliminated after the resignation of Greg Jones earlier this year.

Present at the March 11 board meeting was Edward Phillips, a lawyer with Knoxville law firm Kramer Rayson who has experience with issues involving utilities and unions. Aikens introduced Phillips as a lawyer representing the utility prior to adjourning to executive session for about an hour.

According to the meeting agenda, the purpose of the executive session was to discuss labor issues. Executive session often is invoked because of possible litigation.

Phillips has represented utilities including KUB and Harriman Utilities Board. In the case of Harriman's utility, Phillips won a ruling that determined that city employees were prohibited from requiring Harriman to bargain with their union.

IBEW representatives in Knoxville said they were aware of the contract situation but declined to comment.

Financial problems at LCUB stem from the longtime challenge of water treatment capacity. In 2009, the utility was ordered by the state to increase treatment capacity before allowing more connections to the city sewer system. Cost of the new plant has been estimated at about $12 million.

When LCUB attempted to raise water rates to fund the treatment plant, local businesses including Elm Hill Meats and Wampler's Farm Sausage threatened to leave the service area. Wampler's installed its own water treatment plant to reduce costs.

The LCUB board later reversed its decision to increase rates.

According to the letter from Wilson, such a rate increase was necessary to pay the interest and principal on the loan for the new treatment facility.

"Based on the projected numbers for the system's operating revenues and expenses, the system will not generate a sufficient cash flow to pay both operating expenses and the principal and interest on long term debt," Wilson wrote.

Wilson's letter also refers to an LCUB request that the utility use funds or rate increases on its electrical customers to help pay for the cost of water treatment. Wilson referred to state law, which prohibits using funds from one customer base to fund the operations of another.

"This would certainly include the use of such transferred funds for the retirement of general long term debt," he wrote.