Turf battles break out over who would pay the cost if the city sold off Philadelphia Gas Works

Posted: May 07, 2012

The city is moving forward to hire a team of advisers to help it sell Philadelphia Gas Works, but already City Hall turf battles are breaking out about who should pay the costs.

A week after the city requested proposals from financial advisers to guide it through a sale of PGW, it issued a request for law firms last Monday to bid on a broad range of work related to the potential $1.85 billion divestiture.

Later, the city will hire a broker to manage the sale process and review proposals.

The blizzard of professional services contracts has already begun. The Nutter administration in March hired the law firm Kleinbard, Bell & Brecker as a lobbyist and Ceisler Media as communications consultant, each to receive $30,000 through the end of June, when the contracts will need to be renewed in the new fiscal year.

How much all the advisory contracts will cost is unknown. But the mayor wants PGW to foot the bill, while the Philadelphia Gas Commission and Community Legal Services (CLS), which acts as consumer advocate, say that city government rather than the utility’s customers should pay.

“We have grave reservations about the wisdom and appropriateness of such expenditures and how they would be of benefit to PGW’s customers,” Councilwoman Marian B. Tasco, chairwoman of the gas commission, wrote to Nutter in March.

“I think it is entirely appropriate that PGW pay such costs,” the mayor wrote in an April 10 letter to CLS lawyers Robert W. Ballenger and Thu B. Tran, who had sought assurances that the city would not ask PGW to pay.

The debate is more than a billing dispute. It serves as a proxy for an impending battle over whether the city should sell the utility, which it has owned for 176 years. Though several mayors and blue-ribbon panels have advocated the sale, saying that private investors could run the utility more efficiently, some strong constituencies — members of City Council, PGW employees and advocates for low-income customers — contend that public ownership gives the city a powerful tool to implement social policy.

“The proposed sale of PGW is a boondoggle in the making that will only end up costing the city money,” said Frank Keel, a spokesman for the Utility Workers Union of America Local Union 686, which represents PGW employees.

For now the Nutter administration is pushing for the sale — as long as the price is right — against the mostly understated objections. The consumer advocates, in their letter to the mayor, were careful to note that they were not passing judgment on the wisdom of the city’s pursuit of a sale, “although we do have our reservations.”

Tasco and the consumer advocates argue that PGW can charge customers only for the costs of operating the utility and that the sale is unrelated to operations. If an investor-owned utility were being sold, they say, regulators would force its owners to pay the costs and not allow them to be passed on to customers.

Tasco’s objections are also jurisdictional. The gas commission, which shares oversight of PGW with the Pennsylvania Public Utility Commission, controls PGW’s budget. Tasco says the commission has given no spending authority for the advisory fees in PGW’s budget.

But the mayor’s office had already forced PGW to pick up the $200,000 cost of a study by Lazard Freres & Co. L.L.C. that told the city in February that 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.

Nutter, citing the opinion of City Solicitor Shelley R. Smith, argued in his letter to the CLS lawyers that the cost of investigating and completing a sale is a legitimate PGW operating cost.

“I further believe, as does the solicitor, that the sales process is in the interest of PGW ratepayers as well as city taxpayers, which, as you are aware, are one and the same,” Nutter said.

The mayor said customers would not be asked to pay for the costs directly in higher rates. But if the utility absorbs the costs, he said, “any costs incurred would largely reduce the city’s equity, and thus the potential return to the city in the event of a sale.”

The mayor’s office is moving forward as if the legal argument is finished. “When the city solicitor opines, that pretty well takes care of it,” said Mark McDonald, Nutter’s spokesman.

It remains to be seen whether Tasco or other Council members will challenge the mayor when the gas commission takes up PGW’s operating budget next month or when Council votes on the budget as part of the city’s spending plan.

A sale of PGW will involve many legal complications — the resolution of some environmental issues, underfunded pensions, the retirement of tax-exempt bonds and the unraveling of PGW’s real estate titles (some of its easements predate the Civil War).

But the biggest complication, given the possible loss of a political asset, may be getting City Council on board.

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

comments powered by Disqus
|
|
|
|
|