Philadelphia seeks adviser on proposal to sell PGW

Posted: April 23, 2012

The City of Philadelphia on Monday moved a step closer to divesting Philadelphia Gas Works by issuing a request for proposals from financial advisers to guide the city through a sale.

The request sets a deadline of May 21 for proposals and anticipates that a contract would be signed by July 1 with a financial adviser.

The move was anticipated after Lazard Freres & Co. L.L.C. told the city in February that the 176-year-old utility, the nation’s largest municipal natural-gas utility, might sell for as much as $1.85 billion and net the city as much as $496 million.

“It’s not a surprise,” said Douglas Oliver, a PGW senior vice president. “We fully expected this was the next step.

The city has been under pressure for decades to sell PGW, which has more than 1,600 employees and 500,000 customers, including 150,000 who are considered low-income. In the past, Mayor Nutter has indicated that the city would sell only if it were guaranteed a “substantial” profit.

A sale also would have to overcome likely political inertia from unionized employees and elected officials reluctant to part with a business that generates an $18 million dividend for the city’s treasury each year.

A 2008 study by the Economy League of Greater Philadelphia said the city would “likely have to pay another entity to take PGW off its hands” because the projected sale price would be insufficient to cover the utility’s long-term debt and employee-retirement obligations.

But Lazard Freres said PGW’s financial condition has improved substantially in the last decade as the utility has improved collection rates, cut expenses, and restructured its debt.

A financial adviser would assist the city in writing a proposal to hire a broker that would manage the sale process and would assist the city in reviewing bids. Ultimately, any sale would require the approval of the Pennsylvania Public Utility Commission and the City Council.

More details about the city’s request are available by searching for “opportunity 21120420133725” on the city’s eContract website, https://secure.phila.gov/eContract/.

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

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