Banning, Electric Utility Under Scrutiny Amid $9 Million Shortfall

BANNING, CA — Electric rates may be going up soon for Banning residents following a lengthy review into a $9 million cash shortfall by the city’s utility. A forensic accounting firm brought in to review five years of Banning Electric Union’s books announced at Tuesday’s City Council meeting that the public utility failed to raise rates to cover the cost of improvement projects.

The missing $9 million was first identified in July of 2023. Ultimately, that led to then Banning Electric Union Director Thomas Miller being placed on administrative leave. One month later, Banning’s Administrative Services Director, Lincoln Bogard, and City Manager, Doug Schulze, suggested in a special council session that the city spend $9M in city funds to cover the utility’s shortfall.

The council then agreed to hire Green, Hasson, and Janks forensic accounting to review all aspects of the Banning-owned utility company. The fully completed report, revealed Tuesday to the city council in a closed session, came with a $153,000 price tag.

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During the open council session, Peter Brown, the spokesperson for GHJ, reviewed a pared-down version of the forensic accounting report for the council and those present. The report showed no financials, only a broad view of what led to the shortfall under Miller.

According to Brown, there was also no fraud or misconduct by Miller or any of the staff. The loss of funds was partly due to hefty pricetags for utility construction projects by the city-owned utility and a failure to raise customer prices over a lengthy period, he said.

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Among the key findings:

“We met with a lot of people, the council, city manager and finance director, and the people of the utility,” Brown said. “Monday morning quarterbacking shows they should have gotten a bond to cover (construction projects), customers’ rates should have been raised, and money set aside for future utility projects. But that was not the case.”

Another significant element identified in the report was a city utility plagued with issues ranging from a lack of a strategic plan for capital improvements and a lack of clear purchasing policies to dysfunction between employees at the utility and those at the city, according to the report.

Workers from the utility spoke at the meeting, all sharing unified praise for Miller’s leadership ability.

Jason Smith, a manager at the Banning Electric Union, suggested that the council should not read the report in a vacuum.

“The city council approved all of the capital improvements, and the Director of Finances and the City Manager should have been aware of any issues with cash flow much earlier than 2023,” he said. “Tom Miller deserves better than what is in this report.”

Acting Electric Utility Director Jim Steffens— brought in after Miller was sidelined— spoke on the margins and losses, which were not a linear drop but an “up and down” wave.

The Banning Electric Utility’s issues, according to Steffens, began with the recession and increased during the coronavirus pandemic in 2020 when the city offered discounts for those experiencing difficult times. Residents of Banning were paying less than almost 75 percent of all Southern California’s residential utility customers during the coronavirus pandemic, according to a report from the Record Gazette. After the pandemic, the utility was slow to raise rates and return to power shutoff policies as before covid, he added.

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“Yes, we should have raised rates. But we were told to do everything for our customers. There is a bigger picture here,” he said, noting that in June, they adjusted costs by one cent per kilowatt and have recouped “some margins, around $1.3 million.”

Two Banning residents spoke during public comments, each citing their discontent at what they described as the city’s mishandling of funds and poor accounting. One commenter suggested the mishandling of funds was likely due to a high turnover in finance directors at the city level.

“Ultimately, the responsibility is with the city manager, the city council’s budget approval, and completing ongoing projects,” said Schulze, the city manager.

Bogard, the city’s administrative service director, reminded the council that the review of finances found the $9 million cash shortfall, which led to the hiring of their forensic accounting firm.

“All in all, we did a good job and found what actually happened,” he said.

Councilwoman Sheri Lynn attempted to have the report they viewed in closed session, which included detailed accounting figures, revealed to the public. However, she stood alone in her request and ultimately voted to accept the document.

According to Councilman David Happe, the revolving door of finance directors hasn’t helped the tracking of projects or mismanaged funds.

“I look forward to an actionable plan, including finding a new head of the utility,” he said. “They’ll be stepping into some hot shoes.”

Miller, no longer with the city, did not appear at the meeting, and has not yet responded to Patch’s request for comment.


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