Critics see loopholes in PGW-sale deal

Mayor Nutter stands behind James P. Torgerson, president of UIL Holding Corp.
Mayor Nutter stands behind James P. Torgerson, president of UIL Holding Corp. (ALEJANDRO A. ALVAREZ / Staff Photographer)
Posted: March 06, 2014

The ink is barely dry on the city's agreement to sell Philadelphia Gas Works for $1.86 billion to a Connecticut energy company, and critics are already seeing loopholes in promised customer protections.

Under the purchase agreement announced Monday, UIL Holdings Corp. is required to maintain a three-year rate freeze and continue PGW's low-income subsidies.

But advocates who have read the 87-page agreement say it appears to contain provisions that would allow the new owners to hedge those commitments.

Critics also say that UIL is taking over municipal liens that PGW placed on properties of nonpaying customers, triggering fears that the utility could foreclose on homeowners to extract long-standing debts.

The Philadelphia Gas Commission estimates that PGW has placed 90,000 liens worth about $126 million - some properties contain more than one lien. The city recovers about $30 million a year through the legal devices, which are a collection tool available only to a government-owned utility.

"I'm deeply troubled," said Robert W. Ballenger, staff lawyer for Community Legal Services, which acts as the consumer advocate on PGW matters before the Gas Commission.

A city spokesman said the fears were exaggerated. No rate hikes are envisioned, he said, and the Pennsylvania Public Utility Commission would have to approve any changes to PGW's low-income programs.

"We have been advised that a private utility company cannot force foreclosure on a property over a utility debt," said Kirk Dorn, a city spokesman.

The concerns reflect a level of public anxiety over the privatization of PGW that sale opponents are likely to exploit as the process advances.

City Council, whose members regard the divestiture skeptically, must approve the sale. The PUC also needs to approve the deal. It can place conditions on the sale.

Nutter is framing the sale as a way to relieve the government of a noncore asset that has been a long-term drag on city finances until recent years, when a new management team restored stability.

The sale could inject more than $424 million into the city's ailing pension fund after PGW's debt is retired. UIL has pledged to dramatically increase the rate at which PGW replaces its aging infrastructure.

Nutter's agreement will be fiercely debated when City Council considers an ordinance approving the sale, which was worked out during a confidential auction process over the last seven months. Thirty-three firms filed initial bids for the utility.

City Council is hiring consultants to analyze the deal with UIL, which owns three gas utilities and an electric utility in New England.

Critics began lining up even before the terms of the deal were announced Monday.

Utility Workers Union of America Local 686, which represents 1,150 PGW employees, denounced the agreement on Friday after UIL's name became public. The union is opposed to any privatization.

A coalition of advocacy groups, including Food and Water Watch, the Delaware Riverkeeper Network, the Green Party of Philadelphia, and Neighborhood Networks issued a fill-in-the-blank news release Friday to protest "Mayor Nutter's selection of (CORP) as the winning bidder for the utility."

Now that a name and details have become public in a filing with the U.S. Securities and Exchange Commission, critics are poring over the documents.

The language maintaining the price freeze until 2018 allows PGW to seek rate relief for "new taxes or governmental charges."

"I'm putting air quotes around 'rate freeze,' " said Ballenger. "We know that a private owner would have to pay new taxes that PGW doesn't now pay."

PGW's new owners would pay combined federal and state income taxes in excess of 40 percent, along with other taxes from which the municipally owned utility is now exempt.

Dorn said the city's negotiators doubt UIL will file for a rate increase. "Paying those taxes is a conversion cost that UIL expected," he said.

Low-income advocates also fear that PGW's subsidies for the poor, which are based on a percentage of household income, would be eroded under private ownership.

The agreement requires UIL to use "commercially reasonable efforts" to maintain low-income subsidies, which are mandated by the PUC. But it appears to allow the new owners to pursue "other support programs similar in purpose to such PUC-mandated discount programs."

"It's certainly not a commitment to maintain the current terms," said Ballenger.

The cost of PGW's social programs has long been controversial - about 20 cents on every dollar a PGW customer pays goes to social programs. PGW has a high proportion of low-income customers, and the subsidies are largely why PGW customers pay the highest rates in the state.

Another social program that may come under scrutiny is PGW's 20 percent discount for senior citizens.

The senior discount is unique in the state, and a vestige of PGW's political past. The utility stopped accepting new customers for the program after 2003 as a cost-cutting measure, but 22,000 customers are grandfathered under the old program. Their discounts cost $7 million a year.

The sale agreement requires UIL to ask regulators to maintain the senior discount. But there is no guarantee that the PUC will agree to keep it.

The legislation allowing PGW to give out the senior discount specifically grants that authority to a municipally owned utility. If PGW is sold to a private company, the authorizing legislation may no longer apply.

215-854-2947 @Maykuth

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