UIL agreed to contract terms that were important to the city: Keeping rates frozen for three years, maintaining PGW's discount programs for low-income families and seniors, and no layoffs for three years. It will assume all of PGW's environmental liabilities as well.
"This could be a triple win all around," Nutter said. "It's a significant moment for the city."
Nutter now must turn to perhaps a bigger challenge: Selling the deal to a public long accustomed to municipal ownership of its gas utility. The sale requires approval by City Council and the Pennsylvania Public Utility Commission.
Council approval is far from certain. Nutter's relations with Council are frayed, and Council members have questioned why the city should sell the Gas Works after it was restored to stability in the last decade. Council is hiring consultants to examine the deal.
Under UIL's agreement, PGW employee and retiree pensions will be fully paid up, though the new owners made no promises about maintaining a defined-benefit retirement plan after labor contracts expire next year.
"There is no way on this earth that this company is going to be able to sustain everything they are saying right now - the pensions, the subsidies," said Frank Keel, a spokesman for the Utility Workers Union of America Local 686, which represents 1,150 PGW employees.
At a City Hall news conference Monday, James P. Torgerson, UIL's chief executive, encouraged skeptics to suspend judgment.
"I know people initially said they were against it, but they haven't seen the terms of the deal," Torgerson said.
UIL, whose name surfaced publicly last week as the front-runner in the city's sale process, owns three natural gas utilities in New England and an electric company in New Haven. It would add PGW's 503,000 customers to a portfolio of 712,000 gas and electric customers.
UIL said it planned to operate dual corporate headquarters in Philadelphia and New Haven. It pledged to keep PGW's six neighborhood offices open.
Torgerson said the company expected the sale to close in the first quarter of 2015. It can exit the deal if Council takes no action by July 15.
Nutter and sale advocates say this is an opportune moment, with interest rates low and PGW on steady ground, for the city to unload an asset whose growth potential under municipal ownership is limited.
They say private owners will have more financial and legal capacity to transform PGW into a larger player in a regional energy network increasingly interconnected to production from the booming Marcellus Shale natural gas formation.
PGW's riverfront access and its underused Port Richmond plant, which produces liquefied natural gas (LNG) for winter storage, are also regarded as attractive assets.
"The marketplace was looking for a utility in play," said Nutter. "We were at the right place at the right time with really great people who knew what they were doing. That's how you get stuff done."
He called UIL a long-term investor that appears to want to integrate itself into the community. "They are a buy-and-hold company," he said.
UIL is paying a premium for PGW compared with the $1.3 billion it paid in 2010 for the three New England utilities.
The company's stock was hammered on the New York Stock Exchange Monday, where it closed at $36.97, down $1.75 or 4.5 percent.
Torgerson said he was unfazed by the negative market reaction.
He told analysts the transaction would not immediately boost earnings, but the long-term potential resides in boosting capital investment, from which regulators typically allow utilities to recover their investments from customers, along with rate of return.
"From our perspective, it's a rate-base opportunity with infrastructure," he said.
Lazard Freres & Co., the city's financial adviser, had calculated that PGW could command a price of $1.4 billion to $1.9 billion.
Nutter on Monday said the city expected to net between $424 million and $631 million from the sale.
Nutter said the injection of the sales proceeds into the underfunded pension system would more than cover the loss of the $18 million annual payment PGW now makes to the city.
Nutter said UIL agreed that all PGW employees will be offered jobs. Total employment, which now stands at 1,650, may not dip below 1,350 employees for at least three years.
"This is a huge win," said Gregory L. Seltzer, the Ballard Spahr partner who headed the city's negotiating team. He said UIL's bid was stronger than the competition and "exceeded expectations."
Monday's announcement capped a seven-month search by the city's brokers, JPMorgan Chase & Co. and Loop Capital Partners. The mayor said 33 entities expressed interest in buying PGW.
UIL, with a market value of about $2.2 billion, is a pure-play utility - almost all of its $115.3 million of profits in 2013 were earned in the highly regulated business of distributing energy.
UIL's principal business for much of its history was operating United Illuminating Co., an electric utility based in New Haven with 317,000 customers.
In 2010, it acquired the three gas utilities that serve about 395,000 customers: Southern Connecticut Gas Co., Connecticut Natural Gas Corp., and Berkshire Gas Co. in western Massachusetts.
UIL's gas utilities serve a different demographic than PGW, whose service territory is contiguous with Philadelphia and includes a large number of low-income customers. Though UIL's gas utilities serve older cities like Hartford, New Haven, and Bridgeport, their territories include extensive suburban populations where customers have traditionally used fuel oil.
Bolstered by a state government policy to encourage customers to switch from heating oil to natural gas, UIL's gas utilities have added 21,000 customers in the last three years.
UIL has secured $1.9 billion in short-term financing from Morgan Stanley Senior Funding Inc. The company said it intends to issue long-term debt and equity to finance the transaction.
Inquirer staff writer Troy Graham contributed to this article.