On PGW sale, what's true and what isn't?

Posted: June 18, 2014

MAYOR NUTTER'S proposal to sell Philadelphia Gas Works has sparked a lot of debate and some heated criticism.

Privatizing the nation's largest municipally owned gas utility is a complicated issue, and critics say it could hurt PGW workers and customers.

The People Paper will help you sort through what's true and what isn't about Nutter's proposed sale to UIL Holdings Corp., of New Haven, Conn., for $1.8 billion:  

Q: Will gas rates increase under a private owner?  

A:  Probably - but they also are expected to go up if the city does not sell PGW. The utility already plans to seek state approval for a $50 million rate-base increase in 2017. UIL would ask the state for rate increases in 2018. PGW customers already pay the highest rates in the state, in part to cover the cost of the utility's many delinquent accounts and to subsidize relief programs for low-income customers.  

Q: Will those programs for the poor and elderly be cut if PGW is privatized? 

A: That's a tricky one. Gas Workers Union Local 686's claim that those communities would be "thrown out in the cold" - which can be heard blaring from a truck circling City Hall on Thursday mornings - is likely an exaggeration, because changes to those programs must be approved by state regulators. But the city's tentative agreement only requires UIL to include those programs, or ones like it, in its initial filings with the state and doesn't guarantee them to be permanent.  

Q: Will PGW workers be laid off?  

A: Not for three years. After that? Possibly. UIL has pledged not to lay anybody off until 2018. During that time, it can only reduce the 1,650-member workforce through attrition, and overall employment cannot dip below 1,350. After that, however, there is no layoff protection.

Q: Can a private owner do a better job of improving PGW's infrastructure?  

A: Yes. The state gives more freedom to private utilities seeking to finance infrastructure improvements, and UIL has pledged to vastly increase the pace of replacing the city's aging and increasingly dangerous network of cast-iron gas pipes. It's safe to assume that UIL would follow through on this promise, because it's a key reason the company believes it can make a long-term profit by purchasing PGW. The state allows utilities to raise rates in part based on the value of its assets. So if UIL invests in PGW infrastructure, its physical assets grow and it can ask the state for a bigger rate increase - a double-edged sword for PGW customers.

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