City Wants to Sell PGW for $1.86B, Fund Pensions

One of Philadelphia’s major utilities could soon be privately controlled because the city has reached a $1.86 billion deal to sell Philadelphia Gas Works after more than 175 years of city ownership.

"It's a very special day for PGW," said PGW President and CEO Craig White.

White joined Philadelphia Mayor Michael Nutter to officially announce Monday morning the proposed sale of PGW to New Haven, Conn.-based energy company UIL Holdings Corporation.

“When I announced nearly two years ago that the city would begin exploring the sale of PGW, I pledged that I would sign an agreement only if the terms benefited Philadelphia taxpayers and PGW customers,” said Nutter.  “This agreement accomplishes those goals and much more. UIL submitted the highest bid for PGW and agreed to contract terms that were important to the city.”

The deal -- earlier reported by content partner the Philadelphia Business Journal -- faces hurdles and must be approved by both city council and the Public Utility Commission prior to closing.

Currently Philadelphia is the largest American city to own a gas utility.

“Our company has made major strides over the past several years, but there are constraints as a city-owned utility that prevent us from realizing our full potential,” said White.

Nutter claims that customers won’t see much of a difference in the cost of natural gas.

“Our agreement keeps rates frozen for three years, maintains PGW’s discount programs for low-income families and seniors, safeguards PGW employee and retiree pensions and positions PGW to take full advantage of the abundant supply of natural gas in Pennsylvania to make our city and region a prime energy hub,” said Nutter.

Nutter sees lower rate increases beyond the three-year grace period.

"We strongly believe the size of future potential rate increases will likely be lower under a UIL ownership than they would under continued city ownership," Nutter said.

The administration said the contract requires that all PGW employees be offered employment at UIL, with total employment not to dip below 1,350 employees for at least three years.

"There are no layoffs for three years under this agreement," said Nutter.

PGW is the nation's largest municipally-owned gas utility with more than 500,000 residential, commercial and industrial customers and more than 1,600 employees, according to officials.

Hundreds of millions of dollars from the sale of PGW’s assets will be injected into the city’s struggling pension fund, Nutter said.

If the deal is approved, the city will use the sale money to pay off PGW’s bond obligations and liabilities – including fully funding the PGW pension plan. Nutter said he expects another $424 to $631 million to remain left over. That money would be put towards funding the city employee pension fund, which is currently less than 50 percent funded.

Nutter also said part of the deal includes replacing old metal pipe with safer modern pipe -- a process that should promote jobs.

UIL CEO James Torgerson hailed his company’s expertise as an energy provider while announcing his excitement of possibly obtaining PGW.

“Energy is our core business and UIL is well suited to operate the natural gas utility business in Philadelphia and make substantive investments in its infrastructure,” said Torgerson. "UIL has substantial experience running an urban natural gas utility and being an engaged civic partner in the communities we serve."

Nutter also trumpeted UIL's charitable contributions to the communities they serve.

The city launched a website to answer any questions about the deal.

Ironically, PGW also announced routine increases to its rates for the new quarter. PGW officials say the rate will be adjusted over the next three months from its current $1.39 per hundred cubic feet (Ccf) to $1.47 per Ccf for residential customers. According to officials, on an annualized basis, the average residential customer using 850 Ccf of natural gas will have to pay an additional $6.37 per month. They also say however that the rate is readjusted quarterly. The new rate began on March 1 and will stay in effect through May 31.

Copyright AP - Associated Press
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