Selling the Philadelphia Gas Works to a for-profit New England company is being touted by Mayor Michael Nutter’s administration as good financial sense, and condemned by sale opponents as fiscally unsound.
But what would unloading the nation’s largest municipally owned gas company mean to the people who pay monthly PGW bills? When they write their checks to a utility that’s in business to make money, will they be paying more, or much more?
The city’s controller doubts the sale will go through, but he said there’s no doubt rates will rise if it does. And, if one of the few public-to-private utility sales in Pennsylvania in the last two decades is any indication, rate increases won’t be slight.
Mayor Michael Nutter’s administration on March 3 announced an agreement to sell PGW’s assets to UIL Holdings Corp. of New Haven, Conn., for $1.86 billion. The sale, the administration said, would push $424 million into the city’s pension fund. City Council must OK the deal for it to move on to the next step, approval by the state’s Public Utility Commission. Neither is guaranteed.
In announcing the sale agreement March 3, Nutter said UIL had the highest bid for PGW and agreed to keep the utility’s discount programs for low-income families and seniors, safeguard employee pensions and keeps rates frozen for three years.
What about after the three years are up? Are rates likely to get shoved up?
“In four years, we could get hit with a whopper,” City Controller Alan Butkovitz said last week. “There’s no question rates will go up” if PGW is sold, he said.
The controller told members of the Greater Bustleton Civic League on March 26 that, if UIL upgrades PGW’s infrastructure, it could recoup the costs of the improvements plus 10 percent, further pushing up rates.
In a phone conversation before that meeting, Butkovitz said Philadelphia might be trying to sell off its gas utility just when it would be very fortunate to own one. Currently, natural gas from Pennsylvania’s Marcellus Shale area is being pumped to Texas and back to Pennsylvania. That trip through the pipeline raises costs for consumers, the controller said. If a pipeline is built from Marcellus Shale to Philadelphia’s port, it could mean not only lower rates, but an expansion of the port and more jobs.
Would the city be in a better position to accomplish this than UIL, Butkovitz asked. The city’s credit rating is better than UIL’s, he said.
“Once the city sells PGW,” he said, “it gives up the power to develop the biggest opportunity that’s come along in a while.”
In Pennsylvania, there really hasn’t been anything done on the scale of selling the nation’s largest publicly owned gas utility. According to the PUC, only Chambersburg, Pa., has a municipally owned gas company, and it has nowhere near PGW’s half-million customers.
Publicly owned utilities have been sold off in Pennsylvania, according to the PUC, but they were small water companies. Viewing the results of their sales can give us a taste of what happens.
In late 1996, for example, the 4,400-customer Hatboro Borough Authority was sold for $10.5 million, according to Donna Alston, a spokeswoman for Aqua PA, the new owner.
The sale to Philadelphia Suburban Water, which became Aqua PA, worked out well financially for the small Montgomery County municipality, according to Borough Manager Fred Zoller.
“Once all debts were paid that Hatboro Water owed, I think Hatboro netted about $5 million, which was put in trust for capital projects in Hatboro,” Zoller said in a March 24 email to the Northeast Times. “Through the years, the interest earned on the money has been spent on projects like road paving, and the principal remains intact.”
For the borough’s water customers, however, the sale has meant higher bills.
According to Alston, Hatboro Borough Authority customers paid about $16 per 4,000 gallons of water. They now pay more than $54 for the same usage. That means they now pay more than triple what they paid a little more than 17 years ago.
“Rates are a good bit higher than they were when the water company was sold,” said John Zygmont, president of the Montgomery County community’s Borough Council. “But I’ve also seen massive amounts of funds being spent on replacing the delivery system (pipes in the ground),” Zygmont stated in a March 20 email to the Northeast Times.
According to figures supplied by Alston, Aqua invested an additional $12 million in Hatboro through 2013. Likewise, since Aqua acquired the 488-customer Mifflin Township Water Authority in April 2012, it has invested almost a half-million more than the $1.11 million purchase price.
Death and taxes may be certainties, but that prices go up seems a pretty sure thing, too.
Councilwoman Maria Quinones Sanchez (D-7th dist.) said in an early March phone interview that PGW rates are set to rise in 2017 even if PGW remains city property.
PGW rates will go up even if PGW stays a city-owned utility, agreed Chris Robinson, a member of the Green Party of Philadelphia’s City Committee. They’ll go up more if it is a for-profit corporation, he said. When the Public Utility Commission looks at gas rates, it will take profit into account, he said.
City Council currently is analyzing a PGW sales impact. Last month, the Northeast Times asked all 16 Council members if they would support the sale. Only a handful of members responded, but all of those said it was too soon to make a decision without some more information.
“City Council is in the process of commissioning analyses of the potential sale of PGW and higher and better uses of PGW,” Jane Roh, Council President Darrell Clarke’s spokeswoman, said in a March 24 email to the Northeast Times. “Until such analyses are complete along with recommendations made to Council, Council President Clarke will probably not take a position on the sale of PGW.”
On Monday, Clarke announced Council has hired Concentric Energy Advisors of Marlborough, Mass., to look over the sale. The company’s base contract is for $225,000, which will be shared by Council and the city administration.
Councilwoman Blondell Reynolds Brown is “undecided at the moment,” according to her chief of staff, David Forde Jr. “Councilwoman Reynolds Brown feels it is irresponsible to pick one side until she has received and then reviewed the documentation associated with the potential sale,” Forde stated in a March 20 email to the paper.
It’s too early to have an opinion on the details of the proposal before it’s fully reviewed, according to Eric Horvath, an aide to Councilman Bobby Henon (D-6th dist.) “The councilman is personally concerned about the impact of the proposal on the PGW workforce, which is what makes PGW such a valuable asset. Company infrastructure is more than pipes and wires, it’s workers, too. Any deal must have their interests at the top.”
Councilman Brian O’Neill (R-10 dist.) also told the paper he doesn’t think there’s enough information right now, but stated March 20, “If the vote were today, I would vote no.” Councilman Mark Squilla (D-1st dist.) wants more data, too, but stated March 18, “At this point, I would not vote to sell PGW.”
Quinones Sanchez said she understands the city has a huge pension issue, but said she wants to learn more about the sale’s impact before making a decision. “This would have to be a really good deal” for it to get approved, she said. ••