THE MISSISSIPPI LEGISLATURE

The Joint Committee on
Performance Evaluation and Expenditure Review

Report # 463

A Management Review of the Municipal Gas Authority of Mississippi

Executive Summary

Introduction

PEER sought to determine whether the Board of Commissioners of the Municipal Gas Authority of Mississippi (MGAM) operates in accordance with its statutory responsibility to provide services that benefit municipal gas operations. According to state law, the MGAM is responsible for providing an adequate, dependable, and economical source and supply of natural gas to state municipals that use its services. PEER also examined the operational and financial relationship that exists between the MGAM and the Municipal Energy Authority of Mississippi (MEAM).

Background

The Legislature created the MGAM in 1988 to be a “local gas distribution company of the state” and granted to it all rights and powers that are conferred to other state authorities and related to fulfilling its purpose in providing gas to their municipal customers. Commissioners are appointed by the respective utility commissions of the municipalities that are members of the authority.

In order to minimize start-up costs, the MGAM Board of Commissioners contracted with MEAM to provide management, clerical, facility, and operational supply support on a reimbursable basis for a term of five years. Since the contract expired in 1994, MGAM and MEAM have continued an informal arrangement whereby MGAM reimburses MEAM for its portion of actual costs related to office and payroll expenses.

Compliance with Statutory Authority

The MGAM operates within the bounds prescribed by enabling legislation, providing beneficial services to municipal gas operations through gas supply and storage gas projects and flexible gas management services while operating in a financially sound manner. The MGAM’s Board of Commissioners and its staff have pursued and implemented long-term and short-term gas supply projects that increased the availability of gas supplies from dependable sources at reasonable prices for municipal operations that chose to take advantage of the MGAM projects. It has also used various marketing strategies to sell unused long-term project gas to its non-participating members or other eligible entities at a reasonable price and to make open market purchases for municipal gas operations. Further, it has provided gas management services to municipals that do not have the staff or information system capability to perform the tasks associated with this function at a relatively low fee.

As the policymaking body for the authority, the MGAM’s Board of Commissioners decided not to provide assistance to municipalities in financing additions and other expenditures for their public gas system operations. Since the board consists of one voting representative from each member organization who chooses to participate on it, PEER does not question its decision, since its members apparently believed it was in their best interest to forgo any local benefits received from the MGAM fulfilling this responsibility to state municipalities.

PEER did identify some weaknesses in the MGAM’s management practices involving fee-setting methods, the refund policy for prepay gas supply bond projects, the informal agreement between the MGAM and the MEAM, and performance raise policy and practices. The following text of this executive summary briefly describe these weaknesses.

MGAM Financial and Gas Sales Summary

The MGAM primarily finances its operation through its sales of long-term prepaid bond project and other gas purchases, corresponding administrative fees for the purchased gas, and administrative fee charges for member services. From FY 1998 through FY 2003, MGAM gas sales and revenue experienced a significant net increase with a minimum cost increase per MMBTU for its customers. Specifically, the volume of gas sold has increased 43,043,684 MMBTUs, or 1,707.4%, while the revenues have increased $175,964,365, or 2,280.7%. The associated average cost increase per MMBTU is $0.97 ($3.06 to $4.03), or 31.7%, for this six-year sales period. The MGAM and its customers have experienced this increase primarily due to the increasing market price for the gas supply.

Weaknesses in MGAM Management

PEER found evidence that the MGAM’s Board of Commissioners has established key management processes and controls to operate the state’s local gas distribution company while achieving its operational objectives. Although it has not published a comprehensive policies and procedures manual, the board operates the MGAM in a financially sound manner, while it provides the short-term and long-term gas supplies to authority members and other municipals at prices less than market. These processes and controls include detailed and documented accounting, external audit, internal post audit, budgeting, operational management, and planning systems and processes.

While the MGAM manages its operations well, the board should correct the following management and policy weaknesses to make its operation stronger.

The MGAM does not have a defined and documented fee-setting method for establishing its contract service fees for basic membership, special membership, and administrative prepay project management services. As a result, the MGAM cannot determine whether current fees for each service are sufficient to cover costs or whether specific services are cost efficient. Any service organization that charges fees for its management activities and services has a responsibility to demonstrate to its customers that they are paying a fair price for the services being received. This practice must especially apply to an organization like the MGAM, which was created to develop, obtain, and promote the public good for the municipal gas operations in the state.

The MGAM’s policy for refunding excess revenues generated in the 1998 Prepay Gas Supply Bond Project to the nine full-time project participants is inequitable because it excludes participating non-MGAM members. As a result, the city of Vicksburg and its municipal gas customers have paid more for their prepay gas supply than the other full-time participating MGAM-member municipals, who received refunds totaling $375,000 during FY 1999-02. As a result, Vicksburg’s cost for purchased project gas was not reduced another $35,984, or approximately $0.04 per MMBTU.

The MGAM and MEAM Boards of Commissioners have used an informal verbal agreement since October 1, 1994, to define services to be provided by the MEAM staff and amount of administrative and personnel expenses that the MGAM would reimburse. Also, MGAM and MEAM do not have any defined methodology to determine periodically the actual personnel expense associated with each organization’s workload. Therefore, the MGAM proportion of personnel costs from FY 1998 through 2003 has steadily increased by $134,484, or 26.4%, over the six-year period. This cost increase is due to a larger proportion of allocated costs for existing staff positions, two new full-time filled positions, annual employee cost-of-living raises, and employee performance raises.

The MGAM has not documented employee responsibilities through written position descriptions with established minimum job qualifications and written performance standards, nor has it produced formal, written employee appraisals. However, the MGAM’s Board of Commissioners approved twenty-eight performance salary raises to seven employees totaling $59,077 from FY 1996 through FY 2003.

Recommendations

The MGAM Board of Commissioners should establish an analytical methodology to establish its basic and special membership services fees, as well as its administrative fees for its long-term gas supply projects.

The MGAM Board of Commissioners should review its policy of requiring organizational membership to participate in any annual refund of excess revenues from prepay gas supply bond projects and consider adopting a policy to distribute these revenues equitably to all full-time project participants regardless of their membership status.

The MGAM and the MEAM should use a formal contractual agreement on a continuous basis to define financial and support responsibilities. This agreement should include, in part:
1. an established employee time accounting system for determining the correct share of employee compensation for each authority;
2. the necessary workload analysis method(s) that will be used to determine the correct share of other unidentifiable administrative and operational expenses for each authority;
3. an established personnel management system for managing and evaluating joint staff. This system should include, in part: written position descriptions with minimum job qualifications; established job performance standards for “below,” “meets,” and “exceeds” evaluation categories; and,
4. the MGAM and MEAM personnel compensation policies concerning cost-of-living, performance, and salary alignments for their joint staff.

The MGAM Executive Director should publish an MGAM Policies and Procedures Manual for the authority.

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