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Pennsylvania PUC Floats Financial Remedies For PGW's Aging NatGas Infrastructure

After nearly four months of review, the Pennsylvania Public Utility Commission released a report Tuesday recommending that Philadelphia Gas Works (PGW) raise more cash, consolidate facilities and cut management to accelerate the replacement of its aging pipeline infrastructure.

PGW, the nation's largest municipally-owned natural gas utility, has the highest percentage of at-risk pipeline of any Pennsylvania gas utility "by at least a factor of two," the PUC said. The company serves more than 500,000 residential and commercial customers.

Work on the report began in January, after a hearing late last year in which concerns were voiced about more than 1,000 miles of aging cast iron pipelines and the decades it would take to replace them (see Daily GPIJan. 13).

About two-thirds of PGW's pipelines, or 1,994 miles, are considered at risk and in need of replacement. The PUC said that assuming if PGW was to continue replacing those pipes at the rate it did last year, it would take 66 years to make the necessary repairs and upgrades to its distribution system.

PGW remains underfunded. A deal for UIL Holdings Corp. to purchase the utility for $1.86 billion fell through last year. The city council rejected the UIL deal, citing a review that found the permanent loss of PGW's annual $18 million payment to the city would reduce its net benefit and risk local jobs if the utility was privatized (see Daily GPI, Nov. 3, 2014March 3, 2014).

In its report, the PUC said the city should waive all or a portion of that $18 million payment so the funds could be used for upgrades. It also suggested that PGW issue new debt to invest in additional infrastructure improvements and sell between $75-100 million of its assets to free up more cash. Other recommendations included streamlining PGW's corporate governance structure and consolidating warehouses, meter shops and fleet operations to reduce costs.

The PUC also said PGW could request a waiver that would allow the utility to increase distribution charges above the current 5% cap for investment in its systems. It could also adjust rates on an annual basis rather than a quarterly basis to minimize volatility.

PGW said it would review the report, adding that it was committed to safety and recognizes the need to accelerate its pipeline improvement plans.

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