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Pennsylvania Audit Finds Up to $10.5M in Savings For Philly Gas Works

The Pennsylvania Public Utility Commission (PUC) on Thursday released an operations audit of Philadelphia Gas Works -- the nation's largest municipally-owned gas utility -- with recommendations it said could generate up to $10.5 million in savings for the underfunded company.

The audit put forth 76 recommendations for improvement. It also acknowledged the positive steps PGW has taken since a previous review in 2008 found that the company needed significant improvement.

In an implementation plan that was also made public Thursday, PGW said it would fully accept and act on 62 of the recommendations and partially act on 13 others. In April, after months of review, the PUC issued a report that recommended PGW raise more cash, consolidate facilities and cut management to accelerate the replacement of its aging pipeline infrastructure (see Daily GPIApril 22).

The state has found that PGW has the highest percentage of at-risk pipeline of any Pennsylvania gas utility by a factor of two. The company also remains underfunded. A deal for UIL Holdings Corp. to purchase the utility for $1.86 billion fell through last year after the city council rejected it for fear of losing PGW's annual $18 million payment to the city and local jobs (see Daily GPINov. 3, 2014March 3, 2014).

In its audit, the PUC continued to push for the replacement of high-risk mains, specifically cast iron ones. It recommended that any leaks be fixed quicker by outsourcing excavation work and using PGW crews to make the repairs. The audit also recommended more quickly resolving customer disputes and PUC complaints. It said more attention should be given to decreasing the amount of overdue customer accounts and repeated the need for PGW to monetize some of its gas supply assets.

The audit recommended that PGW could save millions annually by sourcing more than half of its gas supply from the Marcellus Shale. Just four years ago, most of PGW’s supply came from Louisiana and Texas. The Marcellus accounted for about 33% of its supply last year.

PGW rejected a recommendation to reorganize its governance structure. The audit found "overlapping and unclear roles and responsibilities" of the company's two governing boards. PGW said any restructuring is beyond its abilities because the mayor and city council are charged with those decisions.

PGW's efforts to reduce costs could become more imperative if current forward price curves come to fruition. According to NGI’s Forward Look data, the average price of gas along TETCO M-3, which serves the Philadelphia area, rises from $2.50/MMBtu and a 25-cent negative basis to the Henry Hub in 2016, to $3.53/MMBtu and a 66-cent positive basis to Henry in 2021. PGW serves 500,000 customers in the city. The audit was conducted by Michigan-based consulting firm Schumaker & Co. Inc. on behalf of the commission.

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