Council approval of PGW deal uncertain

Posted: March 05, 2014

IN ANNOUNCING his choice for the buyer of Philadelphia Gas Works yesterday, Mayor Nutter said his administration got many of the guarantees it was seeking from the winning bidder and a price tag on par with the city's highest expectations.

Now comes the hard part.

The proposed $1.86 billion deal with UIL Holdings Corp., of New Haven, Conn., requires approval from City Council and state regulators.

Depending on whom you ask, a supermajority of Council members is already dead set against the sale, or else there is only one true opponent - Councilwoman Marian Tasco - and the rest are paying her lip service.

Council President Darrell Clarke, known for keeping his cards close to the vest, is doing just that. But he's also making it clear that he won't lose any sleep if the deal falls through.

"I don't necessarily think it needs to be privatized, but if somehow this particular agreement didn't conclude, it's not like nobody else is interested in the potential purchase of the facility," said Clarke, who wants to explore the potential for public-private partnerships or other arrangements that would expand PGW without selling it.

He criticized the administration's opaque process in selecting UIL over 32 other interested firms and said it would take time for Council to vet the proposal.

"They essentially hand you the end product and say, 'I want you to approve this,' not necessarily asking you what it was you would like to see," Clarke said. "Let's just say I would have done things differently."

Nutter spokesman Mark McDonald said the administration "conducted this process with the highest standards."

"The mayor has made clear that he will provide Council with the full details of this proposal and how the administration got to it," McDonald said. "Council questions will be answered."

Nutter told reporters yesterday that the time had come to sell PGW, the largest municipally owned gas utility, which recovered in recent years from the brink of insolvency.

"The city has owned PGW for 176 years," Nutter said. "There was a time when city ownership of a gas company made sense. I believe that time has now long past. We are now perfectly positioned to join our peer cities that all have privately owned gas companies."

Along with commitments on meeting minority-participation requirements and establishing a corporate headquarters in Philadelphia, UIL agreed to a three-year moratorium on layoffs and rate increases.

Its $1.86 billion bid was the highest among finalists and came close to reaching the $1.9 billion ceiling that a city-hired consultant said the sale could fetch. Nutter said the city would profit by at least $422 million, which he said should go to the city's distressed pension fund.

In fact, the price is so high that many Wall Street analysts are saying that the firm overpaid and would have to make up for the loss by cutting jobs or raising rates once the handcuffs come off in 2017. UIL's stock price fell yesterday, despite an announcement that the company soon may double its assets.

That 2017 scenario is exactly what Gas Workers Union Local 686 fears. A truck with the union's logo has been driving around City Hall for months, urging through a bullhorn for Nutter and Council to abandon privatization.

UIL is "going to be under such severe pressure from their shareholders to turn a profit after this gargantuan deal that they're simply going to have to find cost saving, to find cuts, and unfortunately we think the first targets will be our members," union spokesman Frank Keel said.

Councilwoman Tasco, who chairs the PGW oversight commission and has openly opposed privatization, did not respond to a request for comment.

Still, the proposed sale's chances in Council are far from slim. Many members will be reluctant to pass up such a large injection into the pension system, which is only 48 percent funded and has been eating away at the operating budget for years.

And the mayor has an unlikely ally on the issue: John "Johnny Doc" Dougherty, the electricians-union boss who has considerable influence in Council - influence that he usually uses to antagonize Nutter.

The construction-trade unions, including Dougherty's International Brotherhood of Electrical Workers Local 98, stand to benefit from an uptick in infrastructure investment expected from corporate ownership.

"I've been a longtime proponent of the privatization of PGW as long as both the mayor and City Council were on the same page," said Dougherty, adding that he wants to see protections for Local 686 workers.


On Twitter: @SeanWalshDN

Blog: ph.ly/PhillyClout

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