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Philadelphia City Council Nixes Plan to Sell Philly Gas Works

The Philadelphia City Council, after what it called an "exhaustive review," has ruled out a nearly $2 billion sale of the Philadelphia Gas Works (PGW) to Connecticut-based UIL Holdings Corp., announcing last week that it would forgo a vote on the matter and not introduce a bill to sell the city-owned utility.

In a statement, the council said "the financial and public policy risks associated with the sale proposal outweighed the stated benefits to the city of Philadelphia and PGW customers." Its conclusion was based on an analysis provided by the independent consulting firm Concentric Energy Advisors that found a sale would result in significant drawbacks for the city.

Earlier this year, Philadelphia Mayor Michael A. Nutter announced a deal to sell PGW for $1.86 billion in cash to UIL, which has more than 700,000 electric and natural gas utility customers in Connecticut and Massachusetts (see Daily GPIMarch 3). Nutter's administration said the sale of PGW, the nation's largest municipally-owned gas utility, would inject at least $424 million into the underfunded city pension system.

Founded in 1836, PGW manages a distribution system of about 6,000 miles of gas mains and service pipes that supply roughly 500,000 customers in the city. At the time the sale was announced, UIL CEO James Torgerson said it would upgrade PGW's infrastructure, expand services, increase capital investments and freeze rates through 2017. The deal, however, needed the approval of city council before it could move forward.

In its review of the sale, however, the city council said the permanent loss of PGW's annual $18 million payment to the city "substantially drops the net benefit of the proposed transaction" down to the $200-$400 million range, rather than the $400-$600 million range the administration had estimated.

"While council concludes that the terms of this sale proposal are insufficiently favorable for Philadelphians, and pose an unacceptable degree of risk to consumers, we readily acknowledge opportunities for the enhancement and possible expansion of PGW's operations," Council President Darrell Clarke said. "To that end, city council has submitted to Mayor Nutter recommendations for PGW moving forward and will hold public hearings on how Philadelphia can leverage its considerable assets, including PGW, toward a future as a regional energy hub."

Among Concentric's findings highlighted by city council were uncertainties surrounding UIL's commitment to keep rates and bill increases affordable; income-based assistance programs and infrastructure improvements in addition to a lack of clarity about hiring locally, among other things.

"City government has little authority over how major corporations treat consumers and this proposal simply does not include, to our satisfaction, adequate safeguards against negative short- and long-term impacts on households and businesses in Philadelphia that a transition to corporate ownership might bring," said Councilwoman Marian Tasco in a statement.

The Greater Philadelphia Chamber of Commerce said in a press release that "most experts believe the city will never again be as well positioned as it is today to reap the benefits of this proposed sale of the city-owned gas utility," adding that it stood little chance of receiving a similar offer for PGW.

In an op-ed piece in the local newspaper, published shortly after the council's announcement, Nutter wrote that city residents "should be upset and disappointed with Council President Darrell Clarke's stance opposing the mere introduction of a bill to sell the Philadelphia Gas Works and public hearings where the proposed purchaser, UIL Holdings Corp., could make its case and answer months of rumors, lies and innuendo with facts."

A UIL spokesman also told local news media that the company was disappointed and said it had received no notification of the council's decision prior to last week's announcement. No hearings have been set to discuss PGW's future.

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