CITY COUNCIL ISSUES RECOMMENDATIONS ON PHILADELPHIA GAS WORKS

Hearings to Be Held to Explore Opportunities to Enhance PGW’s Performance & Make Philadelphia a Regional Energy Hub

Philadelphia, Oct. 27, 2014 – Following an exhaustive review of the Nutter Administration’s effort to privatize the Philadelphia Gas Works (PGW), City Council on Monday informed Mayor Michael A. Nutter that the financial and public policy risks associated with the sale proposal outweighed the stated benefits to the City of Philadelphia and PGW customers.

Council’s conclusion was based on analysis provided by independent consultant Concentric Energy Advisors, which on Council’s behalf conducted two separate but related studies: 1) a financial and business review of the sale to Connecticut-based UIL Holdings Corporation as proposed by the Administration, or the Asset Purchase Agreement (APA), and 2) an assessment of higher and better uses of PGW as a municipal entity.

In reviewing the Administration’s proposed sale to UIL, City Council found that the permanent loss of PGW’s annual $18 million payment to the City substantially drops the net benefit of the proposed transaction down to the $200-400 million range, rather than $400-600 million as stated by the Administration.

In addition, Concentric found a number of considerations and objectives important to City Council and the public it represents were not addressed by the APA, including but not limited to:

No commitment to keep rate and bill increases at reasonably affordable levels beyond three years of corporate ownership
No contractual commitments on income-based assistance programs after the initial tariff filing for programs other than the Senior Citizen Discount
No commitment to or details of potential acceleration of the cast iron main replacement program
No commitment to a minimum number of PGW employees beyond three years of corporate ownership
No commitments on employee wages and benefits beyond the expiration date of the current Collective Bargaining Agreement (CBA) on May 15, 2015
No commitment to ensure or prioritize the hiring of Philadelphia residents
No commitment by UIL to retain ownership of all or some of PGW’s assets for any period of time after the sale
No Economic Opportunity Plan to ensure equal employment opportunities for women, minorities and the disabled or to include Disadvantaged Business Enterprises in UIL’s procurement of goods and services
No commitment by UIL to maintain a local presence beyond its guarantee to keep PGW headquarters in Philadelphia for three years

Moreover, Concentric’s review of the APA revealed the potential for negative impacts on the citizens of Philadelphia, including:

The possibility that household and business bills could increase despite UIL’s commitment to a three-year base rate freeze. Because the base rate accounts for approximately 50 percent of the total consumer bill, UIL could raise consumer payments through mechanisms such as automatic rate adjustment riders, charges and surcharges.
Under corporate ownership, UIL could depart from PGW policy and foreclose on liens or sell liens to a third party for collection, setting the stage for crisis among residents or businesses who cannot afford to pay due to hardship or other circumstances.
City government would no longer have input into base rate hikes linked to PGW budgetary and spending priorities because of the removal of municipal oversight.

“I would like to thank all of the parties invested in this sale as proposed – including the Administration, UIL and PGW – for their patience as Council performed its due diligence on what would have been the largest municipal privatization in Philadelphia’s history. I also thank the team from Concentric Energy Advisors for its expertise and assistance throughout Council’s review,” Council President Darrell L. Clarke said.

“While Council concludes that the terms of this sale proposal are insufficiently favorable for Philadelphians and pose an unacceptable degree of risk to consumers, we readily acknowledge opportunities for the enhancement and possible expansion of PGW’s operations,” Council President Clarke added. “To that end, City Council has submitted to Mayor Nutter recommendations for PGW moving forward, and will hold public hearings on how Philadelphia can leverage its considerable assets, including PGW, toward a future as a regional energy hub.”

Councilwoman Marian Tasco (9th District), chair of the Philadelphia Gas Commission, said, “I would like to add my thanks to our hard-working staff for the long hours and great energy they put into Council’s thorough review of the Administration’s proposal. It is Council’s duty to advocate for and protect our citizens by gathering the information that would enable us to arrive at an informed decision. In the end, the terms of this particular proposal do not adequately address the many risks privatization would pose to the public.

“City government has little authority over how major corporations treat consumers,” Councilwoman Tasco continued, “and this proposal simply does not include to our satisfaction adequate safeguards against negative short- and long-term impacts on households and businesses in Philadelphia that a transition to corporate ownership might bring.”

A resolution authorizing hearings to explore opportunities to establish the Philadelphia region as an energy hub will be introduced on Thursday, Oct. 30, 2014. City Council’s recommendations on PGW’s next steps; Concentric’s reports on the financial terms of the sale as proposed by the Administration as well as higher and better uses of PGW; and comparative information on high risk main in Pennsylvania and elsewhere is below