MED sale

Chris Jones of Middle Tennessee Electric Membership Corp. points to a member of his team while talking about why the co-op should buy Murfreesboro Electric Department on Thursday. JASON M. REYNOLDS

Editor's note: The amount of MTEMC's ad valorem payment to the city was previously reported incorrectly. It has been fixed.

The Murfreesboro City Council may decide to sell the electric department before Christmas, with the transaction closing in the spring, according to city records.

Chris Jones, president and CEO of MTEMC, said the sale of Murfreesboro Electric Department would create efficiencies, reduce duplication and prevent the city and MED from having to spend on capital investments for the power grid. The city would receive two seats on the 10-member MTEMC board of directors.

Jones said 128 MTEMC employees live in Murfreesboro, which is its headquarters, and it has a good working relationship with MED employees. The co-op’s and MED’s lines are often located in proximity, and the merger can help prevent duplication of effort and maintenance, he said.

“Neither utility can reach its potential separately,” Jones said.

The next steps include a public input session from 5-7 p.m. Wednesday in the City Hall Rotunda and a vote on the sale on Dec. 19, according to a presentation made Thursday by City Manager Craig Tindall. The city expects the Tennessee Valley Authority to consider approving the sale in late December, and the closing would happen in March or April.

The sales price would be $245 million, with $43 million paid at closing and $202 million paid over 15 years at 3.3 percent interest, Tindall said. With interest, the payment should work out to $302 million. The annual payment would be $17.3 million for the 15-year period. 

Those funds would be used for the Capital Improvement Program (CIP), or large capital projects such as roads, parks and economic development efforts, Tindall said. The current CIP calls for about $777 million in projects over five years, and there is a $430 million gap.

The MED building and storage lot on North Walnut Street would not be sold to MTEMC, which would instead lease it for three years, Tindall said. The city would then have the opportunity to sell the building.

Build homeless shelter?

During discussion of how to spend the sale proceeds, Vice Mayor Madelyn Scales Harris said she wants to use a portion to build a homeless shelter. Council member Rick LaLance replied, “We’re not going to have a windfall,” and said there are a number of road construction projects in the CIP that have gone unfunded for years.

Council member Eddie Smotherman likened the receipt of the MED proceeds to that of the city receiving money over the years of selling off land in the Gateway. The city used that income stream to avoid raising property taxes for years, and when it did have to raise taxes, the increase was huge, he said. Also, building a shelter could make the city a homeless destination, Smotherman said.

LaLance expressed concern — which he described as “heartburn” — that the city recently paid to build a “dark fiber” network for substations, and that is part of the sales package. He asked to remove it from the immediate sale and suggested MTEMC could lease it for several years until the city can ensure the asset is not being undervalued. Mayor Shane McFarland asked Tindall to look into the matter.

Taxing considerations

During the debate, mention was made of in-lieu-of tax payments by made by MED and MTEMC.

The Tax Equivalent Payment (TEP) is one form of an in-lieu-of tax that electric utilities pay local governments instead of paying taxes on their electric system and electric operations. Another form of in-lieu-of tax is the ad valorem, which is a type of in-lieu-of property tax.

MTEMC told the Murfreesboro Post after the meeting that in 2018, it had paid the City of Murfreesboro an ad valorem tax of $292,876.

MTEMC said it paid $5.5 million last year in ad valorem taxes to local governments in its service area, with $2.2 million of that going to Rutherford County and the cities within it. 

According to the City Council budget for this fiscal year, it expects MED to pay it an in-lieu-of tax amount of $3.4 million, a 6.25 percent increase from $3,010,500 in FY 2019. The city also expects to receive $76,000 in reimbursements from MED in this year’s budget (it is not clear if that number will change because of the sale discussions).

The Post asked the city for additional detail on the tax payments based on a presentation Tindall made.

Tindall said in an email, “MED’s current Tax Equivalent Payment (TEP) is in the $3-$3.2 million range. If the sale is approved, the TEP will go away. MTEMC pays property taxes based off 55% of the assessed value of its real & personal property. It’s estimated that their property tax payment would increase by $1.8 million. Since the property that they will acquire through the sale and lease would have to go through the appraisal process with the County Assessor, the exact amounts are not yet known.”

MED SALE

City and utility officials will be available to talk to the public about the Murfreesboro Electric Department sale in an informal drop-in session from 5-7 p.m. Wednesday in the Rotunda at City Hall.

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