Council to audit MLGW's Networx

Can't halt sale of fiber optics firm but calls for study of investment

By Alex Doniach
Contact
July 11, 2007

Unable to stop MLGW from selling the public utility's share of Memphis Networx, City Council members who are angered by the deal voted Tuesday to audit MLGW's investment in the fiber optics firm.

"There are a lot of questions that haven't been answered," said Councilwoman Barbara Swearengen Ware, who made the original request for the audit of Memphis Light, Gas and Water Division's financial records as they relate to Networx.

This latest move by council members comes almost a week after MLGW's board of commissioners voted to sell its share of Networx to a Colorado company for $11.5 million -- despite the vocal objections of council members and the arguments by two other bidders that their offers were more lucrative.

If the sale goes through, MLGW stands to lose all but $994,000 of the $28.6 million of rate-payer money that the public utility invested in the public-private telecommunications venture, founded by MLGW in 1999.

Council members took issue with MLGW's quick decision to sell to Communications Infrastructure Investments (CII), a Colorado holding company.

Ware asked why MLGW didn't give more consideration to the two other companies, American Fiber Systems (AFS) and BTi Corporate, who contend they made better offers. MLGW officials said they went with CII because it was the only potential buyer that could finance and close the deal within 30-45 days.

Councilman Joe Brown said there must be a better option.

"We don't have to give it away," Brown said, adding that Memphis might benefit from keeping a stake in the company. "We could come out better keeping all of that asset."

But unless the city of Memphis chooses to buy MLGW's share of the company, the City Council does not have the legal authority to stop MLGW from selling its share of Networx.

The only opportunity for the council to affect the deal will be in their approval of an amendment to Networx's franchise agreement with the city to allow the transfer of the company to new owners.

But council attorney Allan Wade said Tuesday that the council could not use this as a tool to stop the sale.

"You do not have the ability to forestall (the deal), but you can make limited inquiries as to whether they are willing to honor the franchise agreement and protect public safety," Wade said.

Unable to thwart the sale, council members voted in favor of conducting an independent audit of MLGW's investments in Networx. Only Councilman Scott McCormick voted against the audit.

"It just doesn't seem to make sense to me that there are that many million of rate-payer dollars involved and the council has no vote," Ware said.

Following the vote, councilwoman Carol Chumney, who chairs the council's MLGW committee, said she would organize the independent audit this week to "look at the books."

Chumney said whether the council has a say in the deal could be determined next week, when the issue is due in court.

American Fiber Systems, one of the bidders, filed suit in Chancery Court last week to block the proposed sale to CII. In the suit, which names Networx, MLGW and Memphis Broadband, the private partner in the fiber optics firm, AFS contends that council approval is legally required for the sale.

Chumney said if the judge rules in favor of lawsuit, the issue will be back on the table.

"We have another shot at it," she said.

-- Alex Doniach: 529-5231