PGW eyes 14% rate boost

Posted: January 07, 2010

Late on a Friday afternoon in December, the Philadelphia Gas Works announced that it was seeking a rate increase that would leave customers paying about 6.5 percent more for gas service, about $8.50 a month on the average heating customer's bill.

But there's more to the story.

PGW is actually seeking a 14 percent boost in the base rate it charges for its own operations, and that comes on top of base-rate increases totaling 33 percent since 2006.

There's more than one element to a PGW bill. The largest part is the pass-through cost of natural gas, which dilutes the overall impact of the 14 percent rate hike on customer's bills.

Because natural-gas prices have been falling, PGW bills have been declining despite the base-rate increases that the company has gotten in recent years.

PGW chartSo even if the state Public Utility Commission approves PGW's rate request, gas bills will still be 18 percent lower than they were in 2005 (see chart at right). The question for regulators is whether PGW really needs the base-rate increase it's seeking.

"In the last rate case, we felt they got more than they should have," said Sonny Popowsky, the Pennsylvania consumer advocate. "We'll look carefully [at the current request] to see if they're entitled to the rate increase they want."

Every expert contacted by the Daily News agreed that PGW's leadership team has worked hard to professionalize the company's operations.

PGW is the country's largest municipally owned utility, and it suffers from aging pipes, a poor customer base and a history of neglect. In the 1990s, political pressure kept rates artificially low, and several top managers resigned amid allegations of mismanagement and corruption. Two executives pleaded guilty to stealing from the company.

Current Chief Executive Officer Tom Knudsen is a former consultant for consumers in utility cases, and vice president Steve Hershey spent years as a consumer lawyer battling PGW in rate cases.

"They've done a much better job than some [managers] we've seen in the past," Popowsky said. "They've made progress and they're in a difficult situation, but their rates are getting high and difficult [for customers] to deal with."

PGW is asking the PUC to make permanent a $60 million temporary rate boost it granted last year, and to grant further increases to fund two special initiatives.

One would create a fund to pay for mandated health benefits for retired PGW employees. PGW has been paying those costs on a year-to-year basis, and company officials say that building up a reserve akin to a pension fund would save money in the long run.

PGW also wants a rate bump to fund special conservation programs, such as increased weatherization for poor customers.

Hershey said that such programs would save ratepayers money, as those on PGW's customer-assistance programs use less gas.

"These are investments in doing things smarter that will save money in the long run," Hershey said, adding that the utility plans to gradually lower rates in future years as those savings kick in.

Community Legal Services attorney Philip Bertocci said that the PUC will have to decide whether it's fair for PGW to charge current customers for future retirees' health benefits, and whether the costs of the planned conservation efforts are properly allocated in the rate request.

Bertocci said that PGW management has made important improvements, and notes that they're burdened with the heavy cost of providing service to tens of thousands of poor customers.

But he said that he would carefully scrutinize their rate request.

"We shouldn't allow them to do whatever they want," Bertocci said. "They still need continued monitoring and pressuring."

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