PUC members renew pressure for city to sell PGW

Posted: January 26, 2012

Members of the Pennsylvania Public Utility Commission, citing concerns over Philadelphia's aging natural gas pipelines, have expressed frustration at the slow pace of a city study about privatizing Philadelphia Gas Works.

Some members of the commission, who met Tuesday with The Inquirer's editorial board, want to renew pressure on the city to sell the utility, saying a private buyer could draw on greater resources to replace the 1,500 miles of brittle cast-iron mains that will take the cash-strapped utility 85 years to replace at its current pace.

Commissioner James H. Cawley said the commission wanted to avoid a repeat of last year's gas-main explosion in Tacony, which killed a PGW worker.

"It is another disaster waiting to happen," Cawley said about PGW's aging infrastructure, which was a subject of an Inquirer investigative series published in December.

"We're talking about the health and safety of the public," he said. "It's that serious."

Commissioner Wayne E. Gardner said that Cawley's assessment did not necessarily represent the opinion of the entire five-member panel. But he and Chairman Robert F. Powelson indicated that the idea of selling the utility had appeal.

The PUC members expressed frustration that the city has not completed a study of PGW's privatization that it promised after state regulators granted a rate increase in 2009.

The city entered into a $200,000 contract with Lazard Freres & Co. L.L.C. in 2010 for an "in-depth assessment" of the feasibility of selling PGW compared to retaining ownership.

Suzanne Biemiller, Mayor Nutter's first deputy chief of staff, said Wednesday the Lazard's report was still in draft form and needed more work before its release.

Some commissioners expressed concern that the city was dragging its feet.

"Other than hiring a financial adviser, we haven't heard anything more about it being sold," said Cawley. "We have here an untenable situation."

Powelson noted that PGW resumed annual $18 million dividend payments to the city last year that had been suspended because of the utility's financial fragility. He said the resumption of income to the city might have reduced its incentive to sell.

Craig White, PGW's chief executive, on Wednesday said the utility was systematically replacing its aging cast-iron mains at a rate of 18 miles per year.

"I don't believe we're in a situation where you can make the statement that there's going to be a higher propensity for failure in the future," he said.

The PUC's concerns rekindle a debate that has confronted city administrations for three decades about whether the city would be better served by selling or retaining the 175-year-old utility.

"This is a classic case of a company that needs to be acquired in order to work out its financial and operational problems," Wendell F. Holland, then PUC chairman, said in 2007.

PGW, which serves about 500,000 customers, is burdened by a large number of low-income customers whose bills are subsidized by other customers, leading to the highest rates in the state.

A 2008 study by the Economy League of Greater Philadelphia valued the utility at $1.3 billion to $1.5 billion, less than its long-term debt and employee retirement obligations. The study said the city would "likely have to pay another entity to take PGW off its hands."

The study said that inaction was worse, causing a continued erosion of the utility's value and ever-higher gas bills.

"Truly transformational change is needed to reverse a never-ending cycle of increasing costs," the report's authors said.

In recent years, PGW's finances have improved. White, the chief executive, said that legislation allowing utilities to apply a surcharge to bills to pay for infrastructure would allow PGW to replace 12 miles more of gas mains a year at a cost of $3 more a month per customer.


Contact staff writer Andrew Maykuth at 215-854-2947, @Maykuth on Twitter or amaykuth@phillynews.com.

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