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July 13, 2014, 6:59 am

Who foots the bill for PGW transfer?

Debate over fees totaling $2.7 million, the topic of discussion at a gas commission meeting Tuesday Dec. 11, has paralyzed the possible sale of the Philadelphia Gas Works — generating opposition from community advocates and the utility workers union who contend PGW customers should not be footing the bill.

“Should customers have to pay?” asked Robert W. Ballenger, an attorney with Community Legal Services, the city’s public advocate. “We think the city should ultimately pay for the costs of exploring whether to divest itself of its own asset.”

Gas commissioners meet Tuesday to discuss the matter. Mayor Michael Nutter, in February, suggested selling the 176-year-old utility.

Commission chair City Councilwoman Marian Tasco said she has not yet formed an opinion.

“My role tomorrow is listening,” she said. “It’s a hearing. I’m trying to be a facilitator in this discussion.”

She emphasized that the hearing will not deal with the idea of the sale, but merely who should pay the fees.

The utility workers union, Local 686, also opposes PGW payment of the fees. Union president Keith Holmes did not return phone calls Monday, but union attorneys have publicly expressed their concerns.

Administration officials argue that PGW should fund the study into any sale.

“The city solicitor … has determined that it is appropriate for it to come from PGW,” said Mark McDonald, a spokesman for the mayor.

He quoted an April 4 letter Solicitor Shelley Smith sent to Ballenger and the gas commission.

“It is only prudent and in the interests of rate-payers for any owner to consider from time to time whether the enterprise would be better served by different ownership,” he said. “I conclude that PGW may pay for contracts related to the potential sale of PGW, if it has the budget authority to do so.”

The fees have been included in the PGW’s $697 million budget, said executive director Janet Parrish.

Questions about who should pay have stalled PGW’s entire budget process, and it could be early next year until the issue is resolved.

Parrish said a final vote on the expenses — not the pending sale — may not come until mid-January or later.

“Commissioners will have to decide if they’ve gathered all the information they need,” Parrish said.

In a summary of the process to date, Parrish questioned a number of proposed expenses.

Her primary concern was the $750,000 agreement with the international bank Lazard Freres, and more than $400,000 earmarked for public relations consultants and lobbyists.

For the sale to be feasible it would have to generate between $1.5 and $1.85 billion for the city. A majority of those proceeds would be used to cover PGW’s liabilities – approximately $1 billion in debt and about $500 million in other liabilities.

The remainder, as much as $496 million, would go to the city’s coffers.

Administration officials contend that, if done properly, the sale can benefit customers through lower rates, and provide the city with an infusion of cash.

“A private buyer was not likely to need a rate increase as soon as a city-owned PGW,” said budget director Rebecca Rhynhart. “And, probably the level of service would be maintained.”

Gas rates in Philadelphia have historically been high.

“The typical resident in Philadelphia pays significantly more for gas service than other customers in Pennsylvania,” Nutter said when he announced his proposal. “PGW has the unenviable distinction of generally leading the list of the highest cost of service in the state.”

Administration officials hope to have a broker by Jan. 21.

If the concept is approved, city officials hope that a sale could be cemented over the next year. Approval of the Public Utilities Commission could take another year.

 

To comment, contact staff writer Eric Mayes at 215-893-5742 or This email address is being protected from spambots. You need JavaScript enabled to view it. .