Northeast Times

Money talks

The Northeast Times takes a look at the projected sale of Philadelphia Gas Works and how it could affect your monthly bill.

If PGW’s sale to a New Eng­land for-profit com­pany goes through, ex­ist­ing cus­tom­ers could see ma­jor hikes in their bills.

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.”

ANY HIS­TORY?

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.

COUN­CIL’S PULSE

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. ••

You can reach at jloftus@bsmphilly.com.

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