PUC blasts City Council for spiking sale of PGW

An exasperated Pennsylvania Public Utility Commission signaled there may be serious repercussions as a consequence of City Council's failure to consider a proposed $1.86 billion privatization of Philadelphia Gas Works.

Two PUC members suggested the commission, the state body responsible for setting rates, could force the city to give up the $18 million annual fee it now receives from PGW and spend the money instead on speeding up gas-main replacement.

PUC Commissioner James H. Cawley also suggested the legislature should consider removing City Council and its gas agency from any regulatory oversight of the municipal utility, eliminating a vexing jurisdictional overlap.

"If they can't act responsibly, then their role should be eliminated," said Cawley, a former chairman and a Democrat on a powerful five-member bipartisan body.

Cawley's assessment of the city's role was the harshest of the four commissioners who attended a special hearing the PUC held Friday at Drexel University to explore a path for the city-owned utility in the aftermath of the scuttled sale process.

The commissioners expressed disbelief that City Council was not conducting hearings on the sale proposal. Cawley said that in 15 years on the PUC, he had never seen more generous sale terms for a utility than UIL Holdings Corp. of Connecticut had offered the city.

"For financial and safety reasons, this sale needs to be done now," he said. UIL has promised to speed up PGW's 88-year replacement rate of its aging gas mains.

The PUC called the hearing after City Council President Darrell L. Clarke on Oct. 27 halted consideration of the proposed sale to UIL. Council must approve or deny the deal by year's end.

Clarke responded to the PUC by scheduling two days of Council hearings on PGW that overlapped with the PUC event. Clarke did not appear at the PUC hearing Friday.

PGW's awkward role serving two regulatory masters was evident Friday when the utility's managers had to rush between the competing hearings. PGW chief executive Craig White, who testified at Council's hearing on Thursday, was set to testify to the PUC on Friday when Council summoned him to return to City Hall for more questioning.

David W. Seltzer, chairman of PGW's unpaid board, said the city utility was hampered by "top-heavy, cumbersome, and redundant" governance that drives up costs.

He said even routine spending required approval of the Philadelphia Gas Commission, a city agency with a $955,000 budget that is chaired by City Councilwoman Marian B. Tasco.

"This overlapping governance structure needlessly consumes management's time, drives up PGW's operating costs, and complicates every attempt at corporate transformation," Seltzer said.

Under city ownership, Seltzer said, PGW is unable to enter into leases longer than four years, has limited access to capital, and can't enter into corporate joint ventures.

Seltzer's comments were timely because less than two miles away, City Council was hearing testimony from two entrepreneurs who suggested PGW engage in a public-private partnership - the type of venture the Nutter administration says is impermissible under Pennsylvania law.

Two businessmen behind Liberty Energy Trust L.L.C. said a partnership could conceivably generate a greater economic benefit for the city than a direct sale.

Boris Brevnov, founder of Liberty Energy Trust, and Charles E. Ryan, his partner, said private partners could invest in an expansion of PGW's liquefied natural gas plant in Port Richmond and tap into an emerging market for LNG as a motor fuel.

According to Ryan, a public-private partnership would give the city "a voice in governance and veto to protect critical community programs."

Brevnov said the key to any partnership was community involvement every step of the way, something Council contends did not happen with Mayor Nutter's plan to sell PGW.

"You have to be sure you bring everybody to the table before the deal is done," he said. "People want to be at the table, not on the menu."

Nutter is irked with Council's interest in Liberty Energy Trust, a losing bidder in the auction to sell PGW. Liberty has lined up much political support and has positioned itself as an alternative should the UIL deal fail.

At the PUC hearing, Nutter described the UIL sale as a "winner," that would infuse the utility with private capital, speed gas-main replacement, boost the city's pension fund, and trigger economic growth by putting a debt-ridden city asset into private hands.

The commissioners praised Nutter for seeking the sale, which the PUC sought as PGW has repeatedly returned to the commission with hat in hand.

The state legislature directed the PUC to assume jurisdiction over the city utility only in 2000, after years of spiraling financial emergencies.

PUC Chairman Robert F. Powelson noted the PUC had granted $180 million in rate increases to PGW since taking control, including an emergency rate increase in 2008 when the utility's cash reserves were so low it was uncertain whether PGW could buy gas for its customers in the winter.

The commissioners gave high praise to PGW's managers and employees for dramatic improvements in efficiency and collections in the last decade. "You do a fabulous job with what you have," said vice chairman John F. Coleman Jr.

If Council fails to vote on the UIL sale, the commissioners wondered aloud about what the PUC might do next.

Commissioner Pam Witmer asked Nutter whether he thought the PUC should return control of PGW to the city. Nutter, after a long pause, discouraged that thought.

He said control would revert to pre-2000 conditions, which would have "dire consequences" for PGW, city government, and taxpayers.

Cawley later suggested the PUC might be less generous with rate increases and force the city to relinquish the $18 million in annual income it derives from the utility. "This commission sets rates," he said.

Coleman suggested the $18 million might be redirected to gas-main replacement.

"If you're really serious about this, is that not a resource available for pipeline replacement?" he asked PGW's managers.

Council spokeswoman Jane Roh, who did not attend the hearing, said the commissioners had communicated nothing directly to Council and declined to comment.

215-854-2947 @maykuth