COUNCIL OF THE CITY OF PHILADELPHIA COMMITTEE ON TRANSPORTATION AND PUBLIC UTILITIES - - - Room 400, City Hall Philadelphia, Pennsylvania Tuesday, October 11, 2005 2:10 p.m. - - - RESOLUTION 050845 PRESENT: COUNCILMAN MICHAEL A. NUTTER, CHAIRMAN COUNCILMAN DARRELL L. CLARKE COUNCILMAN FRANK RIZZO COUNCILWOMAN DONNA REED MILLER COUNCILMAN JACK KELLY COUNCILMAN BRIAN O'NEILL COUNCILWOMAN JANNIE BLACKWELL Resolution No. 050845, Resolution authorizing City Council's Transportation and Public Utilities Committee to hold public hearings to discuss the impact of the proposed PGW 19.4 percent rate hike on the citizens... - - - V A R A L L O Incorporated Litigation Support Services Eleven Penn Center 1835 Market Street, Suite 600 Philadelphia, Pennsylvania 19103 215.561.2220 215.567.2670 2
Good afternoon, Ladies and Gentlemen. This is the Committee on Transportation and Public Utilities. We're going to take testimony regarding Resolution No. 7 050845. This is a resolution authorizing City Council's Transportation and Public Utilities Committee to hold public hearings to discuss the impact of the proposed PGW 19.4 percent rate hike on the citizens of Philadelphia and explore methods of providing resources and relief to those most severely affected by such a dramatic increase. I am Councilman Michael Nutter, Chair of the committee. Councilman Darrell Clarke is a member of the committee and is the sponsor of this resolution, which was introduced in Council on September 29, 2005. Participating and in attendance at today's hearing is Councilman Frank Rizzo. Councilman Clarke may have an 3 10/11/05 - TRANSPORTATION - RES. 050845 opening comment, and I may wish to make one comment myself, and then we will proceed with the testimony. Councilman Clarke.
Thank you, Mr. Chairman. Good afternoon. Mr. Chairman, first, I'd like to thank you for expediting this public hearing. We previously had scheduled to have it on Thursday, but because of the untimely demise of our colleague, we postponed it until today. This is actually a cause that I know where he's still with us. He will be right here asking some tough questions.
Councilman, one of the things that I was interested in today was, first of all, talking to representatives from PGW to talk about the basis for what I call, and I think most call, the dramatic increase in rates that subsequently was approved. We 4 10/11/05 - TRANSPORTATION - RES. 050845 anticipate that they will put on information that justifies that increase, but we will feel more comfortable having it in this particular public forum. Second, we have to figure out, I think, on a local basis. Although City Council has limited or no jurisdiction as it relates to rate increases, I think we have a responsibility to the citizens that we represent to talk about the impact and to come up with some solutions that help those of us in this ever-increasing or larger group of those of us who cannot afford to pay some of those exorbitant rates that are being thrust upon us, not only by PGW but some of the other utilities, some of the electric, some of the gas costs associated with vehicular situations. So we want to talk about some solutions today, and I think we have a pretty good group of people that can come up with some creative ideas. So with that, Mr. Chair, I pass 5 10/11/05 - TRANSPORTATION - RES. 050845 the mic back to you, sir.
Thank you, Councilman. My only opening comment is, there has certainly been a significant amount of attention, as appropriate, to the then-proposed and now approved 19.4 percent increase for PGW. I'm going to ask the first witnesses to come up to the table. I know there's what may have been a PowerPoint presentation. Mr. Hershey and Mr. Knudsen, is there written testimony? It's a part of the -- okay. Why don't you come up to the table. One of the issues I'm going to ask you to address in the course of your comments are to at least explain not only, as the Councilman's resolution 22 points out, why the significant size of increase, but also there have been press reports that indicate that at least one other utility, commonly known as PECO, 6 10/11/05 - TRANSPORTATION - RES. 050845 has proposed a gas cost hike but, at least as reported in the news accounts, of a significantly lesser amount, possibly I think I've read 3 percent. If you could please, in the course of your testimony, explain to us why PECO's proposed increase would be so much less than what PGW is proposing, in addition to everything else you want to tell us, that would be helpful. Please identify yourselves for the record.
Good afternoon, Councilmen. I'm Tom Knudsen. I'm President and CEO of the Philadelphia Gas Works, and we're pleased to be here today to testify before you as to our actions and why we felt they were necessary. I've passed out a set of charts and slides. I don't have prepared testimony in terms of written form, but we will talk to these slides, and I hope that will complete the picture for you. And to the point that you raised, we will 7 10/11/05 - TRANSPORTATION - RES. 050845 address the PECO question, as well as the fact that we have a substantial program at the ready, in fact starting this week, to address these concerns that we share with you about our customers' ability to pay. On of the handout, what we show there is the increase in the cost of gas as the commodity of gas, not our rates, but as the commodity of gas. And understand that this is a pass-through charge for us. We make no money. We make no profit on these amounts. But what this shows is that as little ago as August the 7th of 2002, we were paying $3.33 for a thousand cubic feet of gas, an MCF. Understand that the average home consumes about 100 MCF a year. So multiply that by 100. And the gas portion of someone's bill on average is about $333. Over the course of the last three years, this is how the commodity 8 10/11/05 - TRANSPORTATION - RES. 050845 charges that PGW is confronted with and has had to finance, this is the progression of those charges over this period of time.
Mr. Knudsen, let me mention one thing to you. And let me also take this moment to recognize another member of this committee, Councilwoman Donna Reed Miller. I don't mean to interrupt your testimony, but I think you're kind of doing it from a PowerPoint. And we're also joined by Councilman Jack Kelly. I have heard you in public and private sessions on any number of occasions try to explain that PGW does not make money from selling gas, and as much as I would certainly want to believe you and have no reason to doubt otherwise, you must understand that that could be a very difficult concept for any of the customers to understand. Since 9 10/11/05 - TRANSPORTATION - RES. 050845 you are Philadelphia Gas Works, the assumption is that you sell gas, and while you're a public utility, you may not, quote/unquote, make money, but certainly generate some additional revenues from it. So you don't necessarily need to explain it at the moment, but it would probably be helpful if we understood the businesses that you're in, what you actually make money from and what you don't, and why is it that you don't make any money from selling gas, because you must make some money from doing something.
We do. The reference to our not making money is with regard to the commodity portion of our bill. We have two pieces to the bill, the gas that flows through the pipes to the burner tip in everyone's home and then there is a series of charges that we have in our bills that pay for salaries, for interest on the debt, for supplies. That portion of the bill is essentially 10 10/11/05 - TRANSPORTATION - RES. 050845 then given a profit margin for most utilities. It is only on that portion of the bill that we essentially have a markup or a profit element. For these costs -- and that's why we have what's called a gas cost rate quarterly adjustment. These costs are essentially treated separately from all of our other charges, and it is on these costs that there is no markup, there is no profit made. So we're talking only about the gas flowing through the pipes.
So just to finish the thought on , what we see is a progression of charges to us by the pipelines by our suppliers for gas, and what we have is as late as September 28th, the cost per MCF, per thousand cubic feet, is $12.70. Now, these are wholesale natural gas prices in New York. What we have seen now is almost a 300 percent increase in the commodity charge that we are faced with. 11 10/11/05 - TRANSPORTATION - RES. 050845 Now, it's a very -- and I know we have Sonny Popowsky, who is from the Office of Consumer Advocate, is a recognized expert on these issues for Pennsylvania, having been in his position for many years, and I know he's going to speak to some of this, and there may be a slight amount of redundancy, but what I want to emphasize is that this is not a Philadelphia issue. This is not a Pennsylvania issue. This is a national issue. And what you see in the developments of particularly the last three bars on this chart are the consequences from the hurricanes of the last month or so.
Mr. Knudsen, hold on. I'm going to interrupt you. With respect to this being a national phenomenon, in terms of your purchase of commodities -- I want to ask the question as a lay person, because some of this I truly am in fact a lay 12 10/11/05 - TRANSPORTATION - RES. 050845 person -- are you saying that the cost of commodities is uniform across the board? Is there a process that allows PGW or other municipalities to purchase commodities at different levels, or are you saying the cost is regardless of whether there's spot purchasing or --
There are various ways that one can buy gas. This is not to suggest that the prices are uniform across the country, but the basic commodity cost, it is monitored at various places, and it is from a pool of gas that we buy our gas, and that basic cost is essentially the same. Now, if we buy gas more effectively, we may take advantage of a slight movement in prices if we purchase at that point versus another point. We take full advantage of whatever slight market conditions exist. But my point in this testimony is that the basic underlying cost of gas has been going up, and as best as we can, we have tried to 13 10/11/05 - TRANSPORTATION - RES. 050845 anticipate that and buy as effectively as we can, but ultimately we have to pay what the market is charging us. Now, one of the things I'd like to emphasize is that PGW has one of the best reputations of the eight local distribution companies in this state. We do one of the best jobs and have historically done one of the best jobs of buying gas economically. So these costs represent and these charges represent our very best effort, and amongst the best efforts in the state, to purchase gas.
Okay. And I only asked that question because you brought it to a national perspective. You're saying that PGW, and at least as it relates to the state in terms of comparables of your ability to purchase at a most effective rate, far surpass or is better than other municipalities or the eight -- what did you say?
Local 14 10/11/05 - TRANSPORTATION - RES. 050845 distribution companies.
Local distribution. What about on a tristate or multi-state area, or do you only compare with what's in Pennsylvania?
We only compare directly with our sister utilities in the State of Pennsylvania, because that's how we're regulated by the PUC. But I will assure you that we are quite competitive in terms of our purchasing around the area as well. I mean, we know generally what other people are paying for gas, and we're quite comfortable that we're doing a good job on that basis.
We can give you some comparative statistics on other utilities. 15 10/11/05 - TRANSPORTATION - RES. 050845
The national aspect of this, there are a number of reasons. Certainly the spike since August of this year when we were purchasing gas on the wholesale basis at something close to $8.61, the spike from $8 to $13 is a direct result of the supply interruption that came about as a result of both Katrina and Rita. There was a great deal of destruction of gas infrastructure in the Gulf region, and that is what we are now gradually -- and we'll see this over the next several months, prices will come down slowly as that infrastructure is repaired. So that spike from August until now is a direct result of those problems in the Gulf region. Prior to that, there is and has been a supply and demand imbalance over the last four, five years, since 2001 when prices really started to move up. 16 10/11/05 - TRANSPORTATION - RES. 050845 Let me be very brief about that and we'll go on to talk about the solution. The supply problem is that there are whole sections of the country that have gas reserves that are off limits for exploration and development, and those include both coasts, California and the Atlantic coast, the west coast of Florida, the Colorado Rockies or the Rocky Mountains and Alaska National Wildlife Reserve. It represents about 90 percent, I'm told, of what we think are available reserves in North America. Those fields are not being explored now for reasons of laws that were created and passed back in the '70s and '80s dealing with environmental issues. So we have a problem on the supply side with so much gas not being exploitable and not being explorable. On the demand side, what we have is an artificial, I believe, problem, and, that is, that in the 1990s, environmental laws were passed that 17 10/11/05 - TRANSPORTATION - RES. 050845 restricted the amount of pollution from electric generation. Well, the effect was that the utilities, the electric utilities, acting rationally could only use one source of fuel to meet the bulk of those requirements, and that was natural gas. So what you have is, since 1996 or '97, all of the incremental, the additional generation that's come on stream to supply electricity, has, by and large, been a gas requirement as opposed to oil or nuclear or anything else. That supply and demand problem is what has constrained the market, driven the prices up, and then we had Katrina and Rita on top of that. And I think Mr. Popowsky and other witnesses may address some of that. On , you asked for some comparatives, and let me address the PECO issue, Councilman Nutter. Utilities update their GCR's, their gas cost recovery, at various times during the 18 10/11/05 - TRANSPORTATION - RES. 050845 year. It happens to be that there are several of us in October, and you have the comparison of the filed-for rates in front of you there, PGW at $12.56 up to Equitable, which is $13.72. By the way, these four utilities represent Pittsburgh and Philadelphia. Now, to answer your question about PECO, PECO will file, I believe, next month or December 1st -- December 1st they will file for a substantial increase. They are on public record as saying so. So they will wait now until the 1st of December and then they will file. It happens to be that we are in the cycle where we are.
Can you explain then what the press reports mean when they say that PECO was only anticipating a 3 percent increase?
In most of the same stories that PGW was being 19 10/11/05 - TRANSPORTATION - RES. 050845 reported.
They filed on September 1st and that was a 3 percent increase.
Yes. And the problem that we faced that PECO doesn't is that we don't have a deep pocket. What we were confronted with was looking ahead for our cash flow purposes and saying, We don't have the money to buy the gas to deliver to the customer before the customer pays. PECO has substantial resources in Exelon and they can absorb this kind of delay. We could not. That's why I made the decision to seek this interim rate relief that the PUC has approved.
How does that relate to same , Peoples, 20 10/11/05 - TRANSPORTATION - RES. 050845 Columbia and Equitable? What would they be showing in their jurisdictions in terms of overall --
As I recall the numbers, they're in the to 30 percent 7 increase as well. 8
If you 9 could get that information, that would be 10 helpful. 11
We can supply 12 that information for you as well. 13 Absolutely. 14 So the point on is that 15 when you compare us to the other 16 utilities in the state that are filing in 17 the same context, in the same time frame, 18 we're right up there with them. In fact, 19 we happen to be the lowest at this point. 20 we basically talked about in terms of gas costs not being a pass-through. Let me assure you, Councilmen and Councilwoman, that were prices to break and come down, we will file as quickly as we can to pass that 21 10/11/05 - TRANSPORTATION - RES. 050845 benefit along. We have no interest in sustaining these rates at these levels for any period of time. Understand, we don't want these rates at these levels because of the fact that at these levels, people are challenged to pay and we're assuredly going to have folks who can't pay their bill and we will have an increase of bad debt associated with these incremental and larger bills. We don't want them. So the faster we can bring them down, the better. And I think the other issues there or the other points we've already made. The PUC did review this filing and they do scrutinize our gas costs on a regular basis, and as I say, we will make that adjustment. On , I included some comments from the PUC proceeding that approved our order just to give you a sense of how Vice-Chairman Cawley at that time as he looked at our filing was 22 10/11/05 - TRANSPORTATION - RES. 050845 responding. I think the important point is in the middle quotation, "Delay would only serve to magnify the price increase that will otherwise occur on December 1st, 2005." We sought the interim increase in order to help the company for sure, because we needed the additional cash flow to buy the gas in November and December that we're going to deliver and then charge for in January and February, but it is also, we feel, a benefit to the customer. Although it's an increase, it is not the sizable increase that we would have anticipated bringing to you and bringing to the customers on December 1st. It's kind of a gradual slide into the problem as opposed to leaving it where it was and then a huge spike. The other problem that we have is, I have no working capital other than that which we get from our customers, and we needed to get an additional $20 or $30 million, which this rate increase will 23 10/11/05 - TRANSPORTATION - RES. 050845 provide to us in the next six to eight weeks, in order to have the money to buy the gas. We have no working capital in the same sense that an investor-owned utility has. On --
Mr. Knudsen, I'm sorry, before you go into that, I will need to leave these chambers to take care of another Council-related matter. In my absence, as it is Councilman Clarke's resolution, I will leave him in the Chair to conduct the rest of the hearing. I will return. So please continue. Thank you.
Mr. Chairman, you had asked for a discussion about what we were doing. We have a number of major initiatives underway, and I'm going to ask Steve Hershey, who previously is with Community Legal Services and served in that capacity and is now our Vice-President of Community Initiatives.
Excuse me. Before we proceed, we had a couple of questions of you.
Thank you. This is just a very quick question. Do you have to go back to the PUC to do a price reduction?
Yes, we will. We have to file formally and get their approval to reduce our rates. I assure you that it will not be a problem.
Thank you. Hello, sir. You said something that's very interesting. You referred to 25 10/11/05 - TRANSPORTATION - RES. 050845 the PECO situation, deep pockets, Exelon Corporation. You indicated that you don't have that luxury.
So are you saying that a municipally-owned company will never be in a good financial situation? Are you telling me as a member of City Council that this may not be the best for the City of Philadelphia, being municipally owned, and you did refer to publicly owned? So could you just go over that with me one more time, because I think I heard something that interests me.
Well, as Council is aware, and I met with many of you personally and presented the company's position, over the last few years, we have made a substantial turnaround in both the operations of the company and in the financial outlook for the company. And when we could buy a thousand cubic 10/11/05 - TRANSPORTATION - RES. 050845 feet at $5, $6, $7 and we looked forward in time, we had the wherewithal to run the company, have the cash we needed at the appropriate time during the year, and we were looking forward to both paying the $45 million loan back, which Council was gracious enough in 2001 to grant us, as well as the reinstatement of the $18 million City payment in 2008. What I am saying to you is that when the price of the commodity shoots up from $6 or $7 or $8 in MCF to $13 or $14, that we do not have as much financial flexibility in that circumstance as we need. All right? And that was one of the reasons that I filed for the interim increase, was in order to essentially more closely match our purchasing and our collection for the gas. Now, to answer the spirit, I think, of your question, there is no 23 question that this kind of an increase in the cost of gas represents a threat to this municipality, because PGW must 27 10/11/05 - TRANSPORTATION - RES. 050845 collect from its customers or we will have to come back to the City Council for financial help sometime during the winter. That's why this conversation, that is why my seeking the interim rate relief, that is why what you're about to hear in terms of our efforts to both reach out to our customers to help them pay their bills and as well as advertise for conservation, why that is important and then, most importantly, why the recent statement by the Governor last Thursday that he is actively considering a state contribution to LIHEAP. All of those elements are extraordinarily important now for the future of PGW. And I am doing nothing with my time other than to manage our efforts toward the end of collecting enough money and getting enough money in our coffers this winter to make sure that PGW remains financially viable.
I don't see that situation honestly changing 28 10/11/05 - TRANSPORTATION - RES. 050845 drastically.
It will change. If the price of gas comes back down, and it very well may -- we see some softening now, and there's no doubt that as these rigs in the Gulf of Mexico come back on, you'll see a readjustment in the price of gas. If we can get it back down to the point where in our own forecasts, again gas in the $5, $6, $7, $8 range, we can be okay. We will be all right. It's just that we have this spike in gas costs that PGW as a municipal utility doesn't have the reserves to underwrite.
I know this is a difficult question for you to answer, but I'm going to ask it anyway. For years we've been hearing based on what you just described today, that this company is on the block, that there are people interested. Is there an active effort right now? Do you have people looking at the purchase of PGW, of the utilities, Exelon and others? 29 10/11/05 - TRANSPORTATION - RES. 050845
I am not aware of any utility at the present time actively thinking about acquiring PGW.
Yes. Just a quick question. I was listening to news the other day and the Governor apparently was calling on PUC to reconsider its decision. I think I heard that. And I was just wondering, can they?
Can the PUC reserve itself? It can, but it would be very unusual and very unlikely at this 30 10/11/05 - TRANSPORTATION - RES. 050845 point.
That's all I want to know. I heard it and I said, Whoa. They make a decision and they -- is there a time period --
What the Governor said was that he kind of wanted a moratorium on the PUC taking any further action with any other utilities, exempting us at the time, with any other utilities. It was more of a general statement.
It appears not, because we took the action of putting the rates in place, and the Governor understood that that was something we had to do. But the spirit of what he said was, before utilities ask for more money 31 10/11/05 - TRANSPORTATION - RES. 050845 from the customers, let me, Governor, think about and propose to you ways of mitigating that impact before we raise rates. That's really the sum and substance. So I think there's --
But I think the Governor has a press conference or some sort of a conversation this week and there will be some further information coming forward.
I guess there's two questions, then. Since this is a pass-through, if you did not get the increase -- I'm sure you testified somewhat in this way at the PUC hearings -- would you be able to make it as a going concern without City help?
The answer is, it would be more difficult. We think right now with this increase and with some funds that are available as we sort of timed our cash flow, we think we'll be 32 10/11/05 - TRANSPORTATION - RES. 050845 all right, but it's going to be very tight, and the reason --
So without the increase, you don't want to really discuss?
If prices move further away from us, then I'm going to come back and talk to you, but right now, we think with the increase with the funds flows the way we're anticipating, I think we can get through the winter okay.
But you'd be in very dire straits without the increase?
I would feel very nervous without the increase, very nervous.
Councilman Kelly. 33 10/11/05 - TRANSPORTATION - RES. 050845
Mr. Knudsen, I just want to go back to what my colleague, Councilman Rizzo, was alluding to, and, that is, the comparison between, of course, a public utility and a privately-owned firm, such as PECO. I know this Council many years ago has put restrictions on your business. I just want to level out the playing field, if I might use that term. We put on a moratorium on shut-offs, which you had to live with for many years. We also have, of course, a 15 percent senior citizen discount, which is 16 still active today, and I don't think 17 that PECO has those same restrictions. I 18 don't think they have the same problems 19 that you had in running that PGW. 20 I just wanted to go on record as saying that there should be a level playing field somewhere along the line, if you're going to compare private versus public, and that's one of the things that we have to look at in this Council. 34 10/11/05 - TRANSPORTATION - RES. 050845 I was just wondering, if the price of gas goes down maybe more so than what you're contemplating over the next year or two years, whatever, would this perhaps give you the freedom or the level of at least thinking about putting decreases in rather than increases in your rates?
Oh, it will be more immediate than that, Councilman. I mean, if we see a break in the cost of gas that we think will apply for the next six or eight or 12 months, we will file 15 for a rate reduction immediately. I mean -- and I don't think I would get any objection from any of the regulators in doing that. To your other point of a longer term reduction, we will bring the price -- we will bring our rates down as the commodity comes down over time as well. This is not just this winter.
It doesn't happen too often, that's for sure. 35 10/11/05 - TRANSPORTATION - RES. 050845
It doesn't happen too often, when you see prices going down.
No. We can only hope that that's the case. Let me just respond to one thing you did say. Yes, when PGW was overseen by the Gas Commission and the City Council, we did have a moratorium put in. You should understand that the moratorium still applies, and it applies to all of the utilities in the state, not just us. So it is a part of what we call Chapter 56, which are the customer service regulations.
I just want to follow up on something again that you said earlier. You talked about some of the restrictions on exploration, the hurricanes. Do you believe that this is 36 10/11/05 - TRANSPORTATION - RES. 050845 all real or do you believe that there is some gouging going on in the industry? I mean, we've seen the price of gasoline, diesel fuel, and there was a lot of speculation that it was not real. In your industry, do you believe that some of that may exist also in this?
To your point, do I believe that these price increases are legitimately supply and demand driven? I have to believe. In the large majority of cases, there may be some manipulation. I can't go there, because I don't know, but the answer is yes. I've just come back from a meeting of the American Gas Association on which I sit as a Board member and we explored across the country what these issues are. For example, we had a lecture speaker from Dow Chemical and they are talking about what's known as demand destruction, which is to say that the price of gas has risen and has stayed so high that you have companies 37 10/11/05 - TRANSPORTATION - RES. 050845 essentially leaving the United States and starting chemical plants in places where natural gas is more affordable. Those are the issues that are very real and those aren't issues of price manipulation. Those are basic issues of supply and demand setting a price and that price being too high.
That's happened in the electric utility industry also where companies that are heavy electric users have located to regions where power is cheaper.
But, again, not to belabor this, but I don't believe the gas industry is just going to charge Philadelphia more. If they're going to pull some kind of a scam on the United States, they're going to do it everywhere. So you as a professional, you believe that the reason that gas is so expensive right now, what you're paying 38 10/11/05 - TRANSPORTATION - RES. 050845 from, what did you say, to -- 3
-- is 6 really -- the production in the Gulf 7 wasn't affected that long, but you 8 believe that that short interruption -- 9 because I read a report recently that 10 said it's all back, the natural gas 11 production. It's still affected? 12
Very much. We do 13 not have our sources of supply back to pre-hurricane levels. In other words, we cannot transport on the pipelines what we were bringing before.
So if that issue is fixed, that would be relief in itself?
Yes. I think that's what we're looking at. We're looking at forecasts that suggest somewhere by January, February, March, a lot of the destruction, the rigs that were affected, the gathering fields that 39 10/11/05 - TRANSPORTATION - RES. 050845 were affected, those will start to be corrected and we'll see the price come down. Now, let me make another plug here. What we have and what we're sensitive to as a nation is the concentration of all of this infrastructure and these resources in a very small and very highly vulnerable-to-weather area of the country; namely, the Gulf Coast and Texas. One of the reasons why we are proposing the liquefied natural gas project for Philadelphia, and I'll get my plug in --
-- is to diversify the ports of entry and ways of getting gas into the Northeast, and one of the lovely things about the LNG project is that were we to get that gas here, Philadelphia has first claim on the 40 10/11/05 - TRANSPORTATION - RES. 050845 gas. We would not have some of these supply uncertainty issues going into a winter period particularly. We would have a source of supply that we could count on.
Councilwoman Miller, and then I want to follow up on the LNG issue. I was actually going to wait for a while to bring it up, but since you voluntarily brought it up, I'd like to go there.
Just a follow-up to the question Councilman Rizzo raised. You said that there are still moratoriums. You have a moratorium. Can you tell me exactly what it is? I thought actually they stopped the moratoriums.
No. No. Under the rules of servicing our customers, it's called Chapter 56 under the public 41 10/11/05 - TRANSPORTATION - RES. 050845 utility regulations, there are rules that deal with the winter period, from December 1st to March 31st. Essentially, we don't shut our customers off, except under the new modifications to those rules last year, we can shut people off for non-payment, but under very highly controlled circumstances. So a lot of it would require our going back to the PUC in some instances, and we would have to be very careful how that was done. But, by and large, the moratorium is in place to protect customers from having their gas discontinued for non-payment during the winter period.
There was a change, and it gave us some additional flexibility for those people who can 42 10/11/05 - TRANSPORTATION - RES. 050845 afford to pay and don't pay, we're able to take some action. And if you recall, a year and a half ago, I sat in this body and I asked for that right, and I was told very clearly that I had to go after the people who could afford to pay and make them pay. And that's what this law does for PGW. We will be very careful and very judicious in how we use those powers. We are not interested in having problems with our customers in that regard.
So basically it's based on income and ability to pay?
There are various parts of the rules that apply depending upon whether you're 150 percent of poverty or less, 150 to 250 percent of poverty, 250 percent or more. There are different aspects of the law that apply. 43 10/11/05 - TRANSPORTATION - RES. 050845
All right. I just wanted to be clear that I heard you say that there's still a moratorium, because I actually thought that the moratorium no longer existed.
No. It is very much with us, and we're very respectful of the need for it and the value of it. What we were concerned about last year was that people did take advantage of it, and we wanted to have the option to go after the folks who we knew could afford to pay and weren't and were essentially gaming the system, gaming PGW.
I have more questions around the low-income customers on that you haven't gotten to yet, but I'll wait, because I think the Councilman wants to --
Mr. Hershey, I would like him to go through our program so that you understand what we have in mind to help our folks who are having trouble paying these huge bills. He's 44 10/11/05 - TRANSPORTATION - RES. 050845 our expert on the low-income program, so let him speak to that.
Mr. Hershey, I understand you wanted to discuss your portion of the presentation. What I do want to get to to have a little time to think about it is, you talked about a somewhat limited geographical area where you're able to access this natural gas, and what I'm going to want to hear you talk to us about is what strategies that you have in place to give you other options. You talked about LNG that could potentially provide some additional support for your company, but I really would like to see you get a little creative in terms of where you're going to go as opposed to simply when there's a crisis, you raise the rates on the citizens to deal with the short-term need, and if in fact that crisis reduces, you decrease the rates. I'd like to see 45 10/11/05 - TRANSPORTATION - RES. 050845 us have a little more creativity, and you may have in fact had some discussions about that, and I can wait until after Mr. Hershey --
Well, let me just answer that, because you asked the question. The most direct opportunity PGW has to affect supply in this area is the LNG project. I mean, it can't be more direct than bringing the gas to our LNG tanks on the Delaware and immediately vaporizing that gas and putting it into our system. That's essentially what we're after.
For those of us who don't know the details, because we weren't privy to the presentation at the level that we would like to ultimately have, I know there were some meetings up in the Northeast. Can you just briefly go through the specifics of the proposal?
Well, it's built on the fact that we have two facilities 46 10/11/05 - TRANSPORTATION - RES. 050845 on the Delaware in Richmond, at Richmond Point. These are two tanks that hold two billion cubic feet of gas each in liquefied form, and they have been there for the last 35 years. And having those plants there in that form has allowed us to essentially buy less expensive gas in the summer, liquify it, which is to say freeze it, and it goes from a gaseous state to a liquid form at 325 degrees --
We bring it by pipeline to the facility. It then gets essentially frozen, it gets liquefied, and put into the tanks. And then we maintain it in the tanks until the winter, and then when the gas coming from the Gulf from our pipelines is the most expensive because there's the most demand for it, we then have less expensive gas in our tanks that we then vaporize, put into our pipes, and the customers have a financial benefit. And we have 47 10/11/05 - TRANSPORTATION - RES. 050845 quantified that benefit that since that plant went in 1970, it's been well over $2 billion of savings for our customers over that 30-plus-year period. What we're looking about with the LNG now is rather than bringing the gas up by pipeline and liquifying it, freezing it, super-cooling it, we will bring ships who already contain the gas in this liquefied form, and it might come from the Caribbean, it might come from Norway, it can come from a variety of places. The ship is then essentially emptied into our tanks, and then from the tanks, it again is just like it is now, it gets vaporized and put into our pipes.
Yes. Do you now not have to liquify the gas on site? Is that where the cost savings come in? 48 10/11/05 - TRANSPORTATION - RES. 050845
No. The cost savings -- yes, we will not have to liquify ourselves on site. We'll only vaporize on site. The savings come from the fact that right now we can only use the contents of the tanks once a year, because it's a very slow process for us to liquify our own gas and put it into the tanks. What the shipping will allow us to do is, twice or maybe three times a month, the ship will come, we will have emptied the tanks in the meantime, and what we essentially have now is a toll, that we will get money simply for sitting there with our tanks ready to receive liquefied natural gas several times a month. In other words, the value of the tanks is multiplied because we're going to be using them --
Continually 49 10/11/05 - TRANSPORTATION - RES. 050845 replenishing and using. And it's the gift that keeps on giving for us. It's a wonderful asset. And I would be remiss as the Chief Executive Officer for not bringing it to the attention of the Mayor and to the City Council to say this is an answer for Philadelphia going forward. This is a possibility for avoiding just the situation we have right now, where you have a substantial supply interruption because of all of the concentration of the infrastructure in the Gulf and we have the ability to answer part of that question right here in Philadelphia.
So the downside of this is what? Security? Volatile nature of the liquefied gas? I mean, why haven't we done this?
Right. What's 50 10/11/05 - TRANSPORTATION - RES. 050845 interesting is that the LNG facility at Richmond Point was designed as a terminal to receive liquefied natural gas from ships. It was never used in that way, because the price of natural gas in this country was less than $4 a thousand cubic feet. That is what's known in economic terms as the clearing price. It had to get above that $4 in order to be economic. At $13, this is a very economic project. At $8 or $7 or $6, it's a very attractive project for us.
Okay. What about the security issues, the safety issues? I mean, I don't live in the Northeast, but I've heard from some of the representatives and some of the people that don't feel that this particular process creates an environment that's conducive to living adjacent to.
Well, I think it's very important and we're reaching out to the folks who live along the river in that area particularly to say, We have 51 10/11/05 - TRANSPORTATION - RES. 050845 been there for 35 years, we have successfully operated this plant, there has never been an incident, and we have saved $2 billion for the City of Philadelphia. Isn't that a fairly good track record to look to in terms of this project? Now, the issue that's more relevant, I think, in the discussion is the new aspect of this, which are the ships coming up the river. Understand that we are only now at the beginning of a very detailed and somewhat lengthy process over the next year and a half wherein this project will be fully reviewed by the Federal Energy Regulatory Commission. There will be public hearings. You will have your opportunity for public hearings, we hope, in the early spring or late winter. There will be lots of opportunities to explore this project. What I'm concerned about is that there is a sense of rejection 52 10/11/05 - TRANSPORTATION - RES. 050845 building when the facts of this aren't even known yet. We are in the process of negotiating this deal. We don't even have something to present to you yet, and yet those who would kill this project are already out talking about it as something terrible. And the issue is that liquefied natural gas has been transported around the world for 50 years without incident and that many countries and several cities of this country, Boston being one, receive very regular shipments of LNG. Japan Harbor has something on the order of 15 of these facilities. I don't mean to go on about this.
That's why I wanted to wait. Councilman Rizzo had a quick follow-up question on that and then we'll proceed.
When the plant was built -- I think I remember when it was -- I think it was the '70s. 53 10/11/05 - TRANSPORTATION - RES. 050845
Right. Is there a way to get gas to that facility other than actually bringing the ship to the facility? Is there a pipeline further down river that that gas could come through to get to the plant?
Right. My other question, you're going to get a lot of community opposition, but I read a book recently that was talking about landfills, that people that live in the area of a landfill, there's something in it for them. They get tax breaks, they 54 10/11/05 - TRANSPORTATION - RES. 050845 get all kinds of things because they live near a landfill. There's one community that doesn't pay any real estate tax. The company pays the real estate tax. Could one of the concepts be that there is something in it for the people that would be near that facility or within an area? I know what's going to happen, the area is going to keep getting bigger and bigger, but could there be something in the plan that's in it for people that would have to live in an environment near that facility?
Well, there's certainly room in any negotiation to make something like that happen. I mean, this remains essentially our facility, and in terms of tax policy, you would be determining that anyhow, but in terms of creating some kind of amenity or something else for those folks --
-- that's very 55 10/11/05 - TRANSPORTATION - RES. 050845 much and can be very much a part of the conversation about this project.
It's been there for all these years. If you wanted to bring a ship up river tomorrow, legally can you do that today?
Why? What happened that changed? In other words, how was gas getting to that facility when it was designed and ever operational, or was it never operational?
As a terminal, it was never operational, and in the intervening 35 years, you have a whole layering of federal and state laws and regulations that were not in place in 1970 that are in place now that we would have to work our way through in order to bring --
If you had zero community opposition, how long would it take you to have a ship at the terminal? 56 10/11/05 - TRANSPORTATION - RES. 050845
Well, we're looking right now, assuming you all approved it, and I'm counting on that, in the spring we would look to bring ships in the 2009 period.
But obviously Council approved this place a long time ago.
What happened in 30 years? Did we let something slip? Is there a time line associated with it? What happened in 30 years that you need to do all this again if you were planning to basically operate it the same way it was designed? Unless you've changed something, I'm not getting it.
It was designed to be a terminal. It was never completed as a terminal. So there are lines that have to go underground, there has to be port facilities that have to be built, and there has to be a federal approval 57 10/11/05 - TRANSPORTATION - RES. 050845 process.
So for all these years, it's been just dormant, it's been mothballed, or whatever word you want to use?
But the economics weren't there. It made no economic sense to build it, because gas at $2 a thousand cubic feet didn't make it an economically viable project. It's only now that this makes sense economically. We would have been paying to have this facility as opposed to reaping the benefit.
Let me just clarify that point, if I may. The facility has been used to take gas from the pipelines, liquify that gas, store it and then return it to a gas state and send it to our customers since 1970. The only portion that has not been used as designed is the terminal portion, and that's the portion that we're seeking to utilize now, with your approval, with 58 10/11/05 - TRANSPORTATION - RES. 050845 the approval of FERC. And the FERC approval will also be a key piece, because that involves the regulation of shipping up the Delaware. So that's the difference. The plant has been used, used effectively and safely since 1970.
So basically what you're telling me is that if back in the '70s we completed the project, on occasion had a ship come up river once or twice a year, we would have been able to use it as a terminal?
I'm taking too much time with this. I'll ask you these questions maybe at a later time.
Councilman, it was never a terminal. It was designed to potentially be a terminal. We never completed that portion of the project, because it made no sense to do that.
Mr. 59 10/11/05 - TRANSPORTATION - RES. 050845 Hershey, I know you've been waiting. One last question, is the PUC the final arbiter of this rate increase request?
Not really, no. 10 I mean, they are the decider in this situation.
I mean, if you wanted to appeal this to the courts as a citizen, one could do that, but you're not going to prevail, because as an administrative agency, they have enormous latitude in making their determinations and it's highly unlikely that anybody would be able to overturn this. And I'm standing here and sitting here saying to you, I will turn it around myself as soon as I can.
Okay. I 60 10/11/05 - TRANSPORTATION - RES. 050845 just want to know the process. Thank you.
I want to go back to one point first. The bar graph on , which Mr. Knudsen referred to, you'll see at the bottom there's a tag that says "Pennsylvania Office of Consumer Advocate." I want to be very clear that that graph was produced by the Office of Consumer Advocate, except for the last bar dated September 28th. The graph was produced before September 28th. We received it, looked at it, then saw that the prices continued to increase. So the only portion -- we added the last line, and you can certainly ask Mr. Popowsky if he believes that it's accurate based on his position in our GCR filing. I believe that he'll concur, but I want to be very precise that he didn't do that last graph even though we've tagged it as his production.
Now, Mr. Knudsen 61 10/11/05 - TRANSPORTATION - RES. 050845 said earlier that gas prices at current levels hurt PGW and hurt our customers. We know that. And even at lower levels, the same was true. We have tried very hard to find ways to mitigate the impact of gas prices and to make sure that in particular that vulnerable customers are as well protected as we can manage. We can't solve all the problems of poverty. We can't solve all the problems of those of our customers who are vulnerable, but we can work very hard to do our best and put in place some protection. And let me begin to address some of what we have done already. First, you've read in the papers that PGW does not want customers on our CRP program, which is our low-income program. We are the only utility in the state that has a low-income program approved by the PUC which does not have a maximum number of participants. That's the way it was when 62 10/11/05 - TRANSPORTATION - RES. 050845 I helped design that program in 1989. That's the way it remains today. It has been PGW policy to make sure that every customer who qualifies for CRP participates in that program. A year ago we went to DPW with assistance from Community Legal Services and we asked DPW to provide us with a list of every family in Pennsylvania -- I'm sorry; in Philadelphia who is receiving welfare benefits, and they provided us with an electronic listing of all of those families, and we matched that list against our own list of customers, and when we found a family that was receiving welfare benefits that was not in our CRP program, we reached out to them and said, There's a better deal for you. If you're not in CRP, you're struggling and you may not be paying your bill, if you get into CRP, you will do better. This Council has to understand that PGW is making every effort possible trying to be creative to make sure that 63 10/11/05 - TRANSPORTATION - RES. 050845 every eligible customer is in CRP. It's in their interest. It's in the interest of PGW. It's in the interest of this City. And that has been the company policy, and that policy has filtered down very directly in terms of articulation of policy, in terms of training our Customer Service Representatives to make sure that any time a customer contacts PGW, the Customer Service Representative is trained to ask when there's a payment problem, when there's a shut-off notice, what is your income? Because the PUC requires that we ask that question. And when there's an indication that that customer might be eligible for CRP, we pursue it and we tell them about CRP, because that is our policy. You may hear, you may already have heard anecdotally of stories of customers who they claim were not told about CRP. It's very important to understand that for some customers because of prior payment arrangements 64 10/11/05 - TRANSPORTATION - RES. 050845 that they entered into with us or because of what they've told us, we knew that they were not eligible for CRP, or maybe we did tell them and they forgot about it when they retold the story later on. But it is our policy, it is our intent to make sure that every customer who is eligible for CRP is in the program. And in addition to going to DPW, in addition to training our Customer Service Representatives to do that, we have distributed literature, pamphlets all over the City, in the School District, in every public agency, in every City agency, at shopping centers, every place we could think of to provide literature and information about CRP and other programs that I'm going to tell you about. We've tried to get the word out. We have gone to the City's Department of Human Services. We have helped to train their social workers to understand the CRP program, because their clients are almost certainly eligible for 65 10/11/05 - TRANSPORTATION - RES. 050845 CRP.
We have given them materials to train them, and we tell them, If you have customers who are non-CRP, please help them get into CRP, contact us, and we will get them in, if they are indeed eligible.
Excuse me. I just have one quick question. How many of your customers are in this CRP program?
It's roughly half of the customers who are eligible for CRP who are actually participating. And that is a statistic that is not a good one. We've been trying to get more people into it, but I'll tell you that in my 29 years 66 10/11/05 - TRANSPORTATION - RES. 050845 in Legal Services, it was my experience that every public benefits program, federal, state or city, was woefully undersubscribed, that no matter what federal agencies did, state agencies did, city agencies did, advocates did, you couldn't get everybody in those programs who was eligible who deserved to be in, and that goes not only for our CRP program, it goes for the LIHEAP program, it goes for WIC, it goes for Earned Income Tax Credit. Every program you can think of is not fully subscribed with people who are eligible. That's a bad thing.
And you can lay the burden of that at the agency that runs the program, at various social factors. It's a broad and complicated problem. Many factors go into it.
The one question I have is, if you did have 100 67 10/11/05 - TRANSPORTATION - RES. 050845 percent of the eligible people that should go on to that CRP program, would this be beneficial to PGW? Would it help you in any way? In other words, you have 65,000 current customers on the CRP program; is that right?
I just want to know, is it beneficial to you to have all of those people that are eligible to be on that program?
Yes and no. And the reason I answer that way is because it's beneficial to ensure that all customers who are vulnerable, low income, have difficulty paying a higher bill, be in a program that allows them the ability to pay. What everyone must understand is that that comes at a cost to other customers. We have a universal service 68 10/11/05 - TRANSPORTATION - RES. 050845 surcharge, and one component of that surcharge, which all of the other customers pay, is the difference between our full rate and the CRP rate. The CRP customer pays a percentage of income depending on where they are in the income.
Other customers make up the difference. And that is the primary reason why PGW rates are the highest in the state even though we are very good at buying cheap gas, usually at least as good or better than the other utilities, but the cost of these programs, as well as the cost of maintaining hundred-year-old cast iron mains, roughly 3,000 miles of them -- there are numerous factors, but the universal service programs are a key part of that. So you're very perceptive in noting that difference. It benefits us 69 10/11/05 - TRANSPORTATION - RES. 050845 because people will be able to pay to keep up, but it shifts a burden to other customers. And right now as things stand at current levels, there is roughly $160 million of burden shifted from customers who can't pay the full rate or don't pay it to all other customers.
Could I just follow up on that momentarily? The question is, can't at some point you just put people on CRP? If they owe you money and you have these thousands of people that are not in the program, why is it voluntary? Why can't you do what you have to do and put those people that aren't in in?
There are a couple of reasons. One is -- and I think Mr. Popowsky and Mr. Bertocci will agree with me -- that the PUC wouldn't allow us to do it without the customer's permission. And one of the reasons why we wouldn't be allowed to do it is 70 10/11/05 - TRANSPORTATION - RES. 050845 because there are some people who, while they are eligible for CRP, would not benefit. The formula is complicated, but there are some people who actually pay a lower rate when they pay the normal rate than they would if they were paying a percentage of their income even when they're below 150 percent of poverty, and that's particularly true of customers between roughly 125 and 150 percent of poverty. So as with many other things, it's never as simple as it appears.
Approximately 510,000, and of that number, roughly 485,000 are residential customers.
And how many are currently not receiving any gas for heat?
Non-heating 71 10/11/05 - TRANSPORTATION - RES. 050845 customers who use gas only for cooking, for example?
Well, both, I guess. Just for cooking and then those that have been shut off. Because if you just use it for cooking, you could be, I guess, heated by electric. You could be making that decision. Some people just heat with kerosene.
Let me try to answer your question. Of the 485,000 residential customers, about 425,000, if I'm correct, are heating customers; that is, they use the gas for heating and probably also for cooking and hot water. So there are a number of those customers whose gas has been terminated for non-payment or other reasons.
I think the heat has to be on by November 15th? October 15th? 72 10/11/05 - TRANSPORTATION - RES. 050845
As Mr. Knudsen said earlier, we're very restricted in our ability to terminate service for non-payment after December 1st. We are also obligated under the PUC rules to do what's called a Winter Survey of customers who have been terminated since April 1st and before the winter season have contact with them, find out if they're still in the building, if they need information about how to restore service, and we do that. PGW workers go out to contact the customers either by mail, telephone or in person by literally knocking on the doors, and we will continue to do that through December 15th. And in that process, we try to find out what has happened to those people whose service was shut off. And if they're there, if it looks as though the building is still occupied or if we actually talk to somebody, we give them information that would help them restore service, information about CRP, about 73 10/11/05 - TRANSPORTATION - RES. 050845 other payment arrangements, about LIHEAP, UESF, things like that.
If you're a landlord, you have to provide heat to your tenants by which date is that?
I believe that that's a matter that's regulated under the City Code.
That's what I thought. So how many people don't have heat because they haven't paid? I just 74 10/11/05 - TRANSPORTATION - RES. 050845 want to get a feel for what you're facing with your Winter Survey. How many people?
We will -- and this parallels very closely what happened last year. Between April 1st and the end of November, we will have turned off about 37,000 customers. By December 1st, we will most likely be down to 6,000 or 7,000 of those still off, and by the middle of January, it will be 3,500 to 4,000 customers. The new law, the Act 201, which is a modification of customer service regulations, we feel, has worked very effectively. We have not seen a substantially larger number of customers being shut off, and we anticipate that our experience would be very much as it was in prior years.
I'm glad to hear that from 37,000, hopefully it will drop to about 3,500.
By January. We have some constituents that just can't seem to get their gas on, and it mainly has to do with the turn-on fee, the cost of getting their gas turned back on. They're not on public assistance. They're a little bit above low income, so they don't qualify for most of these programs, and then they continue to live without heat. I know one that's been like that probably for two years or more. What do we do? I mean, how do we help them, other than to go in and help them personally budget their money? But that's who I'm concerned about.
Councilwoman, first, as you know, and we've worked together on a number of issues, this is not an easy -- there's no easy solution on this, but first let me tell you, of the people we have shut off this year for non-payment, a higher percentage have restored through making the appropriate 76 10/11/05 - TRANSPORTATION - RES. 050845 payments than restored last year. There are fewer people off at this point than who were off at the same date last year. Having said that, there are too many people who remain without service, will remain without service and don't have the resources to restore service. We have done a number of things to try to get information to them. Communications is never perfect, but as you know, we've tried to deliver that information and have delivered that information not only to every Council office each year, and we're about to deliver packages of that kind of information to you again, but there are some people whom we will not reach, and there are multiple reasons for that. We seek everybody's help in trying to identify those people and provide resources. Just this morning we were talking about not only an improved media campaign to get the word out, but also reaching out to various social 77 10/11/05 - TRANSPORTATION - RES. 050845 service agencies in a way that we never have before to try to, first of all, train them on these various rules and to help leverage other resources that might be available for people who are, as you said, just above 150 percent of poverty, might not qualify for LIHEAP or similar programs, but would qualify for resources that might be available through these other agencies. You'll see that roll out over the next four to six weeks in a very serious way. And the last page of our presentation gives you a chart that gives you a very rough picture of the components of that, but it doesn't tell you the detail. And whether today or another day, we can certainly go into that detail. And Doug Oliver is here, our Director of Communications, who is taking the lead on a lot of that, but I have to emphasize that Doug, while Director of Communications, don't be misled. This is not just a 78 10/11/05 - TRANSPORTATION - RES. 050845 communications issue, although that's a very important part of it. There's a lot of substance there, too. Delivering services, leveraging other services from other agencies. On the issue of leveraging other resources, last year we worked with the Mayor's office to create a new program in which the City provided grants of up to $300 for customers that were low-income customers who didn't have the resources even with a Crisis grant to restore service. What the City grant did was, it allowed that customer to leverage the Crisis grant, and together there would be enough to restore service. And we've talked with the City again this year. The Mayor's office has committed again to making money available for that program, and the hope is that it will be greatly expanded this year.
The fees to get the gas service turned back on is different now from what it used to be in 79 10/11/05 - TRANSPORTATION - RES. 050845 the past; is that not correct? For example, the cost is higher?
Is there some flexibility that could happen there for certain people?
It's very hard for us, Councilwoman, to make exceptions in some of these situations. We try to be flexible, but by and large, we don't charge what it costs us to disconnect. Particularly in a circumstance where we couldn't get access to the house and we had to dig up that service and replace that service to the curb, we don't charge enough. So that's the conflict that I'm in when we set pricing policy.
Councilwoman, I want to go back to a time when I was the public advocate and Mr. Knudsen was my main consultant. One of our objectives was to make sure that PGW then wasn't overcharging customers, was acting as efficiently as possible, but a part of 80 10/11/05 - TRANSPORTATION - RES. 050845 our advocacy was to make sure that PGW was there to provide safe and reliable service. We believed that it didn't do our clients any good if PGW couldn't provide safe and reliable service, and that goes to the adequacy of the money available to PGW then and now. And the question you raise, could you lower the fees required to restore service, goes to the very difficult and complicated issue of striking the right balance to make sure that PGW has the revenue it needs to maintain 3,000 miles of cast iron mains, 3,000 miles of services, pay the salaries, pay for all the supplies, buy the gas that we send to our customers and, at the same time, keep the rates as low as possible for all of our customers to make sure that they can pay. Now, as we discussed earlier, PGW has no deep pocket. And I did want to get back to the issue of municipal ownership as a factor, but we'll have to do that another day, because I don't 81 10/11/05 - TRANSPORTATION - RES. 050845 think municipal ownership per se is the problem. But when there is no deep pocket, the only way to run PGW is with the revenues it gets from our customers or through the good graces of this Council to provide us with a $45 million loan when we get in trouble. That's something you don't like to do. It's something that we don't like to do. So you still have to strike the balance from customer revenue, maintaining a safe and reliable system, and being fair to the customers. And when customers don't pay full freight, some other customer has to pick up the difference.
I'm not talking about all customers. We're sitting here looking at a whole list of programs that customers can qualify for, 82 10/11/05 - TRANSPORTATION - RES. 050845 low-income customers. I'm talking more about the customer that's a little bit above and doesn't qualify for LIHEAP, Crisis, the City assistance or any other dollars. I'm just trying to figure out a way that perhaps these people can get back on.
Mr. Hershey, hold on for a second, if you will. I first want to recognize the presence and participation by Councilwoman Jannie Blackwell. And when Councilwoman Miller concludes, Councilman Kelly has a question. I'm going to be out of the room for a second. Go ahead, Councilwoman.
Thank you. I'm just trying to strike some type of way that those people that are a little bit above can get back on. Right now you're not getting anything from them. I'm just trying to figure it out. Maybe this is something you can't answer 83 10/11/05 - TRANSPORTATION - RES. 050845 today. However, your rules are a little stricter. Your cost is going up. I'm just trying to figure out a way that people that are a little bit above low income can get back on.
And there's no 11 straight-forward solution, and, Councilwoman, we'd be pleased to continue this conversation with you. I don't think there's a straight-forward answer. It is something that keeps me awake at night.
Gentlemen, let me just change the subject for a minute. I know, of course, your efforts are to make PGW at least improve the bottom line, and one of the things you did to do that, you discontinued selling appliances and whatnot quite a few years 84 10/11/05 - TRANSPORTATION - RES. 050845 ago. Presently you're still in the business of providing yearly maintenance agreements for heating systems and whatnot. Is this a profitable area for PGW to continue?
It is. It is, and we're monitoring that, and when it's not profitable, we will think to discontinue it, but right now it does pay and contributes to the bottom line.
I understand that we need to speed things up a bit. Let me go quickly through the remaining points on as quickly as I can. We've mentioned the DPW effort to get people into CRP. There's a Winter Survey, which we've described. The DHS training. CRP is one program that's available specifically for low-income 85 10/11/05 - TRANSPORTATION - RES. 050845 customers. We also have a Budget Billing program that is available to help smooth out the winter peaks of the bills for people who are not low income, and that is a very effective tool. We have a Low-Income Weatherization program. Last year we also conducted weatherization workshops. We were able to obtain donations of what we'll call do-it-yourself weatherization material, such as caulk, plastic window covering, weather stripping, things like that, from manufacturers and suppliers of that material. We took those donations and conducted six weatherization workshops around the City to teach people the benefits of using that material and then how to do it, and then we gave away the donations for free. The plan is to do that again this winter. This time we're going to do at least ten in various neighborhoods in the City. And if you know any manufacturers or suppliers of that kind 86 10/11/05 - TRANSPORTATION - RES. 050845 of material, we would welcome the donations. There's enough competition from victims of Katrina that there's a lot of competition for donations right now and we're having trouble getting it. Last year -- two winters in a row, actually, we hired ACORN for the very specific purpose of going out during the cold of the winter to customers who had been shut off and had not restored service. We asked them to knock on doors, to provide information specifically in the cold of winter. It was not intended to be a long-term program, but it was to meet the emergency of that cold weather period.
On the media campaign, I want to make two points that are very important. One is, you are going to see a lot from PGW about conservation. It is essential that people conserve this winter. If you have a large house, shut down some rooms. If you need to caulk, caulk now, cover 87 10/11/05 - TRANSPORTATION - RES. 050845 windows. This is going to be terribly expensive for people who are not paying attention, and that first bill, when it comes, is going to be a real shock. So what you'll see on buses and what you'll hear on the radio and what you'll see in the newspapers will be techniques for conservation. My hope would be that we would educate every household in the City as to how to preserve heat within the building so that they're not paying to heat the out of doors. That's point one. Point two, I had a brief conversation with Councilman Kelly before coming in. There is a very important movement of foot in Harrisburg right now that the Governor will be taking the lead on, which is for the first time for the State of Pennsylvania to contribute to LIHEAP funding. We're one of the few Northeast states that does not do this. I would be presumptuous to ask, but I 88 10/11/05 - TRANSPORTATION - RES. 050845 will, that maybe there could be a sense of the Council to endorse this initiative. I think the Governor would be appreciative of whatever political support could come his way, and I would ask that from your body.
Councilwoman Tasco and I did a resolution 10 on that matter last session, and all the Councilmembers signed it. We do need that state money from LIHEAP.
Well, then what we want to do is advertise that you did this, because I think right now the time is --
Could I just jump in here momentarily? I heard something in a media campaign from another utility that really got my attention. Just lowering a 89 10/11/05 - TRANSPORTATION - RES. 050845 thermostat a few degrees can reduce your gas consumption by ten percent.
That's significant, and I hope you're going to get that out there, because I heard that from another utility company. So I hope that's part of your media campaign.
If that's accurate, just a couple degrees reduction in your temperature can bring it down ten percent, that's a big deal.
It is a big deal. Those are the kinds of messages that we want out. I mean, this is a time for sweaters and long johns. That's the problem that we have.
Another area, like in some of the bigger homes in some of the areas of the City that have fireplaces that aren't used, but if that flue is not shut, the heat goes right out the chimney. 90 10/11/05 - TRANSPORTATION - RES. 050845
That's correct as well. We have a brochure that we're going to identify all of these ways in which the heat leaks from the house and ask people to take the steps that they need in the meantime.
Thank you. I'm Janet Parrish, the Executive Director of the Philadelphia Gas Commission, and I 91 10/11/05 - TRANSPORTATION - RES. 050845 will try to be brief, given the hour and the fact that many of the points that I would have made I think have already been touched on. I would just like to note that Councilwoman Tasco, who, of course, is the Chair of the Gas Commission, could not be present today, but I do thank Councilman Clarke for inviting my participation. Commissioners, of course, share the concerns that have been discussed here today and commend Council for its effort to explore what resources can be brought to bear to deal with what will undoubtedly be a devastating winter. Just so you know, we've talked about the fact that the PUC has the final say with respect to PGW's gas costs. The Gas Commission is currently completing its review of PGW's Operating Budget for Fiscal Year 2006 and does continue to take a careful look at and try to encourage the downward pressure on the 92 10/11/05 - TRANSPORTATION - RES. 050845 non-fuel operating expenses that, of course, are a significant part of PGW's budget. They're not as significant as they once were. I have not provided written testimony per se, but I have provided some data that actually responds to a number of the questions that you raised earlier. Perhaps I anticipated some of those. And I will not go through these in great detail, but we've talked about the fact that this is not just a Philadelphia or a PGW problem. Clearly, that's the case. Mr. Knudsen talked a little bit about the national trend and Mr. Popowsky's data, and just for your information, I'll give you a sense of some of the benchmarks that folks are looking at every day. Some data from just today's Wall Street Journal that shows you that $13 plus unit price for gas that's being looked at in the future picture for the market today. And to 93 10/11/05 - TRANSPORTATION - RES. 050845 Mr. Knudsen's point, it appears that right now, the future projections don't see a significant reduction until April of 2006. Hopefully that situation, however, will improve a little more rapidly. Also, you've talked about PGW in comparison to the other Pennsylvania utilities, and I happen to have included for you the most current comparison that has been prepared by the PUC, which illustrates the gas cost rates for the various PUC-regulated utilities and also some documentation that gets filed with the Gas Commission as part of our monitoring and oversight of PGW that does support the discussion earlier that PGW generally compares quite favorably with the other companies in the rest of the state. And it's a moving target, as we often talk about. It is a dynamic situation where companies' rates are adjusted at different months of the year, 94 10/11/05 - TRANSPORTATION - RES. 050845 and so you will see a little bit of a lag, but over time they generally should be more or less in the same ballpark. Also, I think this data contains some of the detail you requested earlier about the previous rates in effect for the three Pittsburgh utilities that were discussed, Peoples, Columbia and Equitable, and does demonstrate the similarity of the percentage increase that they've experienced compared to PGW. But we are, of course, still concerned because we're here in Philadelphia and the problem is here, and PGW's rates, as have been discussed, are still the highest in the state, notwithstanding the fact that the gas portion is relatively comparable and the fact that we have such a large population of folks on low and limited incomes, as Councilwoman Miller has also alluded to. I've also included some of the background data that you've been discussing with respect to service 95 10/11/05 - TRANSPORTATION - RES.
050845 terminations, and it looks to me that looking at the most current data that was filed with the Gas Commission a little bit less than a month ago, that as we sit here today, there's probably about 17,000 customers, would be my best estimate, who were terminated since April 1 and still have service off. As was pointed out by, I believe, Mr. Hershey, it is interesting to note that even under the more stringent provisions of the new state law, a higher percentage of customers are having service restored than was the case last year at the same time. So I think we all know what the issues are. I don't think we've talked about, but everyone recognizes, the need for a vastly increased federal LIHEAP appropriation, and we have put on the record previously the fact that it would take approximately three and a half billion dollars today to equate to the level of assistance available in this 96 10/11/05 - TRANSPORTATION - RES. 050845 program in its heyday, which was years ago, at the $2 billion level, and we just don't seem to be able to crack $2 billion again. You've talked pretty extensively about the need for a state supplemental appropriation. I'd just like to make one last point about the increasing participation in the low-income CRP program and I think underscore Mr. Hershey's acknowledgment that this is really a double-edged sword, because the more and more and more PGW customers who do participate in this program, the greater the burden on the non-CRP customers. The data about how much of today's rate reflects costs for the various universal service programs is also included in my materials. It's approaching $2 a thousand cubic feet. Better than a dollar of that dollar, a dollar and a quarter or so, is CRP related. So, again, back of the 97 10/11/05 - TRANSPORTATION - RES. 050845 envelope, you're talking $100, $150 a year out of that average residential heating bill that is solely subsidizing the cost of the CRP program, and that will only go up as gas prices increase. So that is the problem. One last note. You talked a little bit about the moratorium during the wintertime and winter shut-offs, and I would just like to expand on the record just a little bit. The Gas Commission actually did loosen its rules vis-a-vis the moratorium back in 1994, '95 -- so we're talking ten years ago now -- where a procedure was created that PGW could terminate service to those who were not the lowest income vulnerable households by making a petition to the Gas Commission and receiving permission. Very similar to the PUC process that existed before the changes to the state law recently. That tool was not actually effectively utilized by PGW, 98 10/11/05 - TRANSPORTATION - RES. 050845 unfortunately, but that was the case ten years ago. The issue, of course, is the shut-offs that occur throughout the rest of the year and, as you've discussed, the need to get people's service restored now as we're going into a winter. So those are just a few more remarks to share with you. If there are any questions, I'd be happy to answer them, or if there's additional data and information that you need, we, of course, would be happy to try to work with you to make that available to you. And, again, I thank Councilman Clarke.
In the essence of time, we would like to call up a panel, the next three witnesses. Ms. Liz Robinson, the Executive Director of ECA; Mr. Lance Haver, Mayor's Office of Consumer Affairs; and Mr. Irwin 99 10/11/05 - TRANSPORTATION - RES. 050845 Popowsky from the Office of Consumer Advocate.
Oh, no, no, no, not a PGW truck. I'm Liz Robinson. I direct the Energy Coordinating Agency of Philadelphia, and thank you for hosting these hearings today. I have copies of my testimony, if you'd like them. I'm going to summarize these written comments for you, and I just will add a little bit to what Mr. Knudsen said about the price of gas and why it's 100 10/11/05 - TRANSPORTATION - RES. 050845 rising. The news is really not good news. Gas prices had doubled in Philadelphia prior to the hurricanes. They had doubled over the last four years, and the underlying reason that fossil prices are rising, whether it's oil or natural gas, is not in fact weather related. It's not the hurricanes. It is in fact the fact that the world is at what's known as peak oil. So we are at the point in the world's natural resource supply of oil and natural gas where essentially half of the resource is used up, and that's the cheap half. So the era of cheap oil upon which we've all grown accustomed to our life-style and our way of living is really drawing to a close and we're entering the era of expensive fossil fuels. So whether it's oil or natural gas, these prices will continue to rise. World demand for energy has never been higher, and it is rapidly 101 10/11/05 - TRANSPORTATION - RES. 050845 climbing. So the principal problem that we've got is not a short-term problem, and while there might be a little bit of an easing back on price in the spring as the Gulf refineries are restored to full operation, the basic problem is here to stay. So please don't think of this as a one-year problem or a short-term problem. This is a new era of expensive energy and it is here to stay. So with that, let me just kind of frame the problem in Philadelphia a little bit more. Councilwoman Miller asked some questions about terminations. We have set a new record in Philadelphia this year. We've currently got 105,000 utility accounts terminated in the City. 38,000 of those are PECO electric accounts, about 36,000 are PGW gas accounts and 31,000 are Water Department accounts. These are new highs for all three utilities. Contrary to what people are implying earlier today, at our 102 10/11/05 - TRANSPORTATION - RES. 050845 neighborhood energy centers, we are not seeing a lot of people getting restored. We are unable to assist a number of these customers who have very high bills get restored because of the higher fees that are now associated with service restoration. So we expect to see a higher number of people entering the winter without getting their service restored. We expect that number will reach an all-time high. That's a very dangerous situation for Philadelphia. On of my testimony, I've tried to summarize for you the available resources that we have in the City to address the energy poverty problem. We have about $128 million annually going into bill payment assistance that comes from the federal government, from LIHEAP and Crisis, it comes from all three utilities, PECO, PGW and the Water Department, and a tiny bit of it is coming from the private sector. ECA received a grant this year 103 10/11/05 - TRANSPORTATION - RES. 050845 of half a million dollars from Sunoco, the first time an oil refining company has ever given a gift of that size. That's a half a million dollars in free oil to low-income customers. And there's a little bit of other private money available. So the total for bill payment assistance is $128 million every year. It's a considerable sum of money. For energy conservation, the amount available is less.
Excuse me. I do have a question on that. The 128 million, is that for next year, or you said --
Yes. That number does vary from year to year, but I'm giving you the figures from last 104 10/11/05 - TRANSPORTATION - RES. 050845 year. So last year in Philadelphia, about $128.4 million went into fuel assistance, and, again, that is --
And this comes basically from federal, state and city funding?
There is no 9 state money. There's not a dime, not one dime of state money in that mix. This is coming from the federal government in the form of LIHEAP and Crisis grants. It's coming from the utilities, all three, that's PECO, PGW and Water Department, and it is also coming -- there's a tiny bit of City money, which, again --
Water Department, right. The Water Department also has a bill payment assistance program they called RAP. And there's a little tiny bit of City money, about a half a million dollars of CDBG, community block grant money, goes to UESF, and 105 10/11/05 - TRANSPORTATION - RES. 050845 that's given in the form of grants to utility customers. So if you'd like more detail, I'd be happy to furnish that to you. But on the conservation side, the total available every year is less than $10 million, and it comes from the same sources. It comes from the federal government and from the utilities. Again, there's not a single dime of state funding that goes to energy conservation, and, unfortunately, there's not a single dime of City funding that goes to energy conservation. So all of the conservation funding is supported either by the federal level or by the local utilities. I'm going to move to recommendations, but before I do, I just want to say that one of the most effective ways to conserve energy is to educate people. Public education and energy education is extraordinarily effective. It's one of the most cost-effective ways to reduce 106 10/11/05 - TRANSPORTATION - RES. 050845 consumption, and there is no funding for energy education on any large scale. The only energy education that is done in Philadelphia is done as a part of the delivered conservation programs in homes. There is no other funding for it. So let me just kind of move to the recommendations. The most effective thing we can do this winter and every winter moving forward is to reduce demand. If we can cut our consumption, we will immediately reduce bills for customers and we will immediately reduce the pressure, the upward pressure, on rates. So energy conservation is the principal response that we need to take now to permanently reduce the size of this problem. So our recommendations are that the City would launch a City-wide Energy Education Campaign. There is such a campaign that has been very successful in other cities, and it requires a corporate sponsor. It requires the City's 107 10/11/05 - TRANSPORTATION - RES. 050845 endorsement, but with a single corporate sponsor, it could take off and meet the needs of not only low-income people but, frankly, moderate-income people. Low- and moderate-income people are now finding themselves equally hard hit. They are not protected by any of the universal service programs that we talk about for low-income people. So if your income is 151 percent of the federal poverty level, you qualify for absolutely nothing. And at current prices, working poor and low- and low-moderate income people are very, very much at risk. Commercial customers, small businesses, are very, very much at risk. Terminations have been rising among commercial customers as well. So a public education campaign, which would essentially hit everyone, would be probably the most cost-effective way to address this problem this winter and every winter. Increasing energy efficiency of 108 10/11/05 - TRANSPORTATION - RES. 050845 all new affordable housing, this is essentially -- Philadelphia has taken the lead in this area, but there are some additional agencies that need to get on board. The Office of Housing and Community Development, OHCD, does require that all new affordable housing meet or exceed the Energy Star Home standard. However, PHDC, the Philadelphia Housing Development Corporation, does not follow that standard. PHA's units, PHA is extremely interested in moving up to that standard, and they need some support to get there. PHFA, Pennsylvania Housing Finance Agency, has been moving toward that standard, but still has not accepted it. So there is -- public standards for energy efficiency, again, are extremely cost effective, and making sure that all new affordable housing is built to high levels of energy efficiency is extremely important. 109 10/11/05 - TRANSPORTATION - RES.
050845 Likewise, all home repair programs that the City supports should have an energy efficiency standard. Currently none of these programs are paying attention to energy efficiency. Existing energy conservation programs can be redesigned to increase the energy savings that they produce, and these programs need to be evaluated every year. New programs, which can deliver much higher savings, need to be supported. Currently the conservation programs that exist in the City save anywhere from 10 to 20 percent, depending on the program. These programs can be redesigned to save 40 and even 50 percent. So conservation programs do need to be redesigned to produce deeper savings in a time of much higher prices, and ECA has developed a couple of different pilot designs that we'd be happy to talk with you about in more detail. Conservation funding does need 110 10/11/05 - TRANSPORTATION - RES. 050845 to be expanded. The LIHEAP funding at the state level certainly does need to be expanded and, frankly, the funding for the Neighborhood Energy Centers in the City of Philadelphia. The Neighborhood Energy Centers are the front line of service to the low-income community. Those agencies were cut last year by the Office of Housing and Community Development in CDBG cuts. That cannot happen again. Those funds need to be restored and, frankly, increased. The Neighborhood Energy Centers are the best defense against the kinds of problems that we're facing. They are in a position to directly serve and deliver service at an unbelievably cost-effective level in low-income communities City-wide. So thank you very much for your attention. If you have any questions, I'd be happy to answer them.
Thank you. 111 10/11/05 - TRANSPORTATION - RES. 050845 Very good presentation. Prior to your presentation, I was actually thinking about asking a question as it relates to the coordination of all of these various services, conservation programs that support low-income individuals in terms of paying some of the utility bills. There are a broad number of things that I know about prior to this hearing and during the course of this hearing, and I'm not really sure who or if there is anyone's responsibility to kind of coordinate all of those activities. I mean, personally I'd like to see like some sort of book or something that you can just go pick up at the library at one of the energy centers that talks about all the various things that are provided that people just don't know about and take advantage of.
We do produce an Energy Services Directory every year and we do send them to all the Councilpeople. 112 10/11/05 - TRANSPORTATION - RES. 050845
Somewhere in your office there is one, or five. We usually send several of them. And we do support a conference, an Energy Services Conference, which is coming up on November 4th, and a lot of Council staff attend every year. The Energy Coordinating Agency is the agency that coordinates all these programs, and we deliver them through the Neighborhood Energy Centers. So every district has one.
Okay. So the Neighborhood Energy Centers, that runs through OHCD?
Yes. They are funded by OHCD. That is, core funding comes from the City, actually.
The City? I mean, the ones that I know of in my district, they are primarily intake centers. 113 10/11/05 - TRANSPORTATION - RES. 050845
Should they be more proactive in terms of having forms? Because I'm sitting here thinking, and I was talking to my colleague, Councilman Kelly, and we're reading this kind of like a blueprint to some things that we need to be doing.
Absolutely. More education is in fact the most effective thing to do. This country is very ill-prepared for, frankly, the situation that we're in, and it's going to get worse. So we need to do a very heavy-duty public education at all levels. People don't understand energy. They don't know what's hit them and they are not prepared for it. So public education is desperately needed. And, frankly, our Energy Centers will do a lot more if they had more funding. It's all about the 114 10/11/05 - TRANSPORTATION - RES. 050845 funding. You know, I know you hear that every day, but we can't do the job. These centers -- we already do twice as much work as we pay for them. So they just can't -- you know, you can't get blood out of a stone.
Ms. Parrish (sic), I'm just intrigued by your presentation here with energy conservation. It seems to me that people can save up to 10 percent of their bills, and this is under the present guidelines of almost not being promoted adequately anyway, and they don't have the public education as what we need. And one of the things that we can do, of course, in this Council and everywhere is try to put out really a notice on how people can conserve energy. And I think if we can get the state to help out in the funding of this, I think it would be a step in the right direction.
I think your 115 10/11/05 - TRANSPORTATION - RES. 050845 outline here is very good. It's very enlightening to me anyway and I'm sure to my colleague, Councilman Clarke. But you've given us some things to work on.
Thank you, Councilman Clarke, Councilman Kelly, thank you for inviting me here today, and I appreciate your resolution on this matter. I think it's a very important one. My name is Sonny Popowsky. I'm the Consumer Advocate of Pennsylvania. I've been the Consumer Advocate since 1990 and I've worked at the Office of Consumer Advocate since I left Philadelphia in 1979 and moved to Harrisburg. Our office is a state office 116 10/11/05 - TRANSPORTATION - RES. 050845 and our job is to represent the consumers of Pennsylvania in matters involving their utility service, and for the last few years at least, that has included customers of PGW. Since PGW came under the jurisdiction of the Public Utility Commission, our office has the job of representing those consumers before the PUC. Let me just start by saying I have been doing this for years now, 13 and this really is the worst I've ever 14 seen in terms of -- certainly in terms of 15 natural gas prices and the effect on 16 consumers, particularly low-income 17 consumers. 18 I wish I could say that here we 19 are in Philadelphia and this is something 20 that we can address as a PGW matter, that 21 there was something that I said, Gee, if 22 we could just change something about PGW, 23 we could solve this problem, but I can't 24 say that. This is a national problem. 25 In fact, in my testimony, I say I think 117 10/11/05 - TRANSPORTATION - RES. 050845 it's a national crisis, the kind of price increases we're seeing at the wholesale level; that is, not the price that the retail consumer necessarily pays to PGW initially but it's the price that PGW and PECO and UGI, Columbia, Equitable, our Pennsylvania utilities, are paying in the wholesale market. On the second page of my testimony -- I think you should have copies of my testimony -- there is that chart that Mr. Knudsen also used, which my office prepared, to give you some idea of what's happened in the wholesale natural gas market. I have some additional copies here if you need that, Councilman Clarke.
I was just on the second page of the testimony. 61 in this 118 10/11/05 - TRANSPORTATION - RES. 050845 past August, that's bad enough. 61. So as Ms. Robinson suggested, we've had an endemic problem here in terms of natural gas prices and oil prices that have occurred over the last few years. 83, which I think is the reason we had these interim increases, these substantial interim increases. Now, if you look on the next page of my testimony, there's a chart that shows what the impact of these kind of increases have been on PGW customers. In 2002, your constituents, the average PGW customer who uses 100 MCF of gas, that's 100,000 cubic feet of gas per year, was paying $870 over the course of 119 10/11/05 - TRANSPORTATION - RES. 050845 a year for gas. By last year for 100 MCF, the average price was $1,628, which is already double the price from just two to three years ago. And this year if the price stays the same as was just filed, we're talking about $2,046 for natural gas. Now, you know better than I do how difficult it has been for many of your constituents to pay the price of natural gas when it was a thousand dollars a year, 870, but think about a $2,000 gas bill for someone who is earning, let's say, $10,000 or $20,000 a year. You're talking 10 or 20 percent of their total annual family income just to pay the gas bill. And, again, I have to concede that these prices are not out of line, because I see these prices across the state, and the prices for Equitable, Peoples, Columbia all came in at actually a higher level than the gas price that PGW is charging. 120 10/11/05 - TRANSPORTATION - RES. 050845 Having said that, this is a national problem, but we have to do something. We have to do something, I think, in Philadelphia and we have to do something in Harrisburg. The most important thing, in my mind, in addition to those matters that were addressed by Ms. Robinson, is to get the state and federal government truly awake on these issues. I wrote a letter last week to each member of the Pennsylvania Congressional Delegation asking them to support substantial increases in LIHEAP, the Low-Income Home Energy Assistance Program. We spend about $2 billion nationally on LIHEAP. That number should at least be doubled. One of the things I said in my letter was that not all of the victims of Hurricane Katrina and Hurricane Rita lived in the Gulf states. Many of them live right here in Philadelphia and across Pennsylvania, because those 121 10/11/05 - TRANSPORTATION - RES. 050845 victims are being hit by the natural gas price increases that have been caused, in part, by that hurricane. So what I suggested in my letter is at a time when we're as a nation talking about spending tens of billions, even hundreds of billions of dollars, rightfully so, to provide relief for the people in those states that were hit directly by Hurricane Katrina, we should at least put aside $2 billion out of that $200 billion perhaps to provide funds for the rest of the nation for low-income customers across the nation to make it possible for them to get through this winter and pay their heating bills. Also, as Mr. Knudsen said, I think for the first time, we are seriously seeing interest in Harrisburg in developing a state LIHEAP supplement, and I can't impress upon you the importance of that. I participated in a press conference with Senator Vincent Hughes 122 10/11/05 - TRANSPORTATION - RES. 050845 two weeks ago. He was one of several Senators pushing for a state LIHEAP fund, and I think that's just essential. Among the other programs or things that have already been talked about by both Ms. Robinson and by Mr. Hershey, the utility programs. We have good programs. We just need to make sure that everyone who is eligible for those programs finds out about them, both in terms of customer assistance; that is, reduce bills, and in terms of customer weatherization.
In my testimony, I say we should also support organizations like the Energy Coordinating Agency and the Utility Emergency Services Fund that provide essential emergency services and consumer education for people here in Philadelphia. We should increase budget billing, and I think we also need to take a look at some of these utility shut-off rules, either in terms of possible 123 10/11/05 - TRANSPORTATION - RES. 050845 amendments to that bill or at least insisting that our utilities like PGW and PECO enter this season recognizing that this is a catastrophic situation already and we shouldn't make it worse by Draconian enforcement of certain rules regarding shut-offs and reconnections. So in closing, I just say, there's no question that this will be a harsh winter for PGW customers and people across Pennsylvania, and I appreciate the fact that the Council is having this hearing and I look forward to working with you, and I certainly would pledge my office's efforts in working with your office and the City in trying to address this catastrophic issue this year. Thank you.
Thank you so much for your testimony. Thank you. Mr. Haver.
Yes. I'll be even briefer. My name is Lance Haver. I'm the Director of Consumer Affairs. 124 10/11/05 - TRANSPORTATION - RES. 050845
Ms. Robinson, I owe you an apology. I think I addressed you as Parrish before.
I just want to correct that for the record. Thank you. Sorry, Mr. Haver.
That's okay. I'm Lance Haver, Director of Consumer Affairs for the City. I want to add my voice to what's already been said. It's not PGW. It's not Pennsylvania. It's our federal energy policy. Most of the programs have already been spoken about. I do want to call attention to the Council that we have a couple of wonderful low-cost loan programs that should be made available 125 10/11/05 - TRANSPORTATION - RES. 050845 for people to put in new heaters. The problem is that our programs are not set up for that. So as you start thinking about what we can do, I hope you'll put on your radar screen perhaps we can find a way of using the PHIL Loan program and the Mini-PHIL Loan program to help people replace their heaters and put in new windows and use other weather conservation. Right now the programs are not designed for that. They would have to be streamlined. They would have to be marketed, and we'd have to call attention to it, but we do have lots of money to help people fix up their home at three and five percent, no points, over 20 years. This is for middle-class people, not for low income. This should be appropriate for many of your constituents, and we simply have to make sure that people know about it and the program actually works. 126 10/11/05 - TRANSPORTATION - RES. 050845
It's very lengthy. So, for instance, if your heater broke tomorrow, the plumber comes out to your house and the plumber says, Well, you have a choice, you can either go into a predatory loan or you can go through the City's Mini-PHIL Loan program, which means that you have to call a housing counselor and wait about a week and a half for an appointment, and then after that, they'll be sent to somebody else, who will then say whether you should get it or not, and then it will go to the bank. So in about six weeks after you've been sitting here in the freezing cold, we'll give you the money. All we have to do is say that anyone who takes out a loan to weatherize their home could have that loan swapped out for a low-cost Mini-PHIL Loan. That would solve the problem.
Do we have 127 10/11/05 - TRANSPORTATION - RES. 050845 the ability locally? Because I know a lot of these programs are federally funded with certain guidelines.
No. That's us, and that's done through the Greater Urban Affairs Coalition, Greater Philadelphia Urban Affairs Coalition. We're meeting with them sometime next week to try and work out the kinks, but I think there's a recognition of what you've been very generous with your time and calling to everyone's attention what a serious crisis it is. But that as your constituents call you, we do have these programs in place. If we use them, then they will work, but we need your staff time to make sure that the programs are apropos.
Thank you. Thank you all very much for your testimony. Please expect a phone call for a follow-up.
I'd like to 128 10/11/05 - TRANSPORTATION - RES. 050845 bring up the next panel. Mr. Phil Bertocci and Jonathan Stein from CLS; Brady Russell from ACORN; John Dodds from the Philadelphia Unemployment Project; and we might as well round it out by Ms. Laverne Jones, Executive Director of PCCA.
Thank you. Please state your name for the record and proceed with your testimony.
I'm Philip Bertocci. I'm the Managing Attorney of the Energy Unit at Community Legal Services. I've given you, I think, a copy of my testimony. Would you like me to proceed right now?
Just present your testimony. We'll go down 129 10/11/05 - TRANSPORTATION - RES. 050845 the line.
You have my testimony, but I think many of the topics have been covered to some degree, so what I'm going to do is kind of give comments on the testimony as it relates to the testimony that you've already heard. At Community Legal Services, we aren't looking to next year. What we are really concerned about right now is what's happened to the 15,000 or so customers that we know that were terminated for non-payment this year and who haven't got service back on. Every week we see people coming in who essentially have been on the low-income program, who are in default and who are unable to pay the amount that PGW is asking to have service restored. We don't see, just as Ms. Robinson pointed out for the Neighborhood Energy Centers, we don't see very many resources being made available to those customers, and we, frankly, don't know how they're 130 10/11/05 - TRANSPORTATION - RES. 050845 going to be able to get their service back on again. We anticipate that it won't be another 5,000 people without service as of December 1st. We think it's going to be more like 10,000 people without service as of December 1st, and, frankly, 5,000 people without service as of December 1st is really unacceptable. I really don't know how we can talk about people being without service on December 1st and even perhaps getting some service back by the middle of January. How do people get from December 1st to January 15th if they don't have any heat? Indubitably they must be sending their children to their grandparents', breaking up their families. It just is not a situation which is acceptable to contemplate. The first topic on my list of topics was really the Customer Responsibility Program, because this is 131 10/11/05 - TRANSPORTATION - RES. 050845 one of the havens for those customers that are out there right now who may not have been on CRP, the Customer Assistance Program before, but who could get on to CRP now and protect themselves from the spike in rates that everyone is going to experience. PGW has said, Well, we made every reasonable effort to get people on. Unfortunately, I think the key figure is that only about 50 percent of the eligible people actually are on CRP. And if you look at the publications that PGW has put out in the last year, if you look at the bill stuffers, you very rarely will see CRP even mentioned. You very rarely will hear -- in fact, I don't think you will hear on the radio anything that mentions the Customer Responsibility Program and mentions it as a program which will lower your bill, a program in which there are discounts at best. There are kind of "call us if you need assistance," but I think that's not 132 10/11/05 - TRANSPORTATION - RES. 050845 really a specific enough outreach to qualify as doing everything that you can. So that our view is that, and we recommended, that PGW essentially step up its outreach. We recognize there are problems of outreach always, but, for instance, a shut-off notice should have some mention of CRP and that it can help lower your bills, that eligibility for CRP may get you the shelter that you need from the spikes in energy costs. A bill in default could have a mention of a CRP on it. You won't find any mention of CRP on any of PGW's bills, as far as I know. PGW has said, Well, our Customer Service Representatives are trained to mention CRP to everybody that calls that seems to be in a situation where they need energy assistance, where they need customer assistance, some kind of a lower bill, but the fact of the matter is that PUC's statistics seem to show that there are substantial numbers 133 10/11/05 - TRANSPORTATION - RES. 050845 of people that PGW knows to be low income who aren't on CRP.
And, again, this is a question of are they doing enough, and I think when you look at the statistics and when you just listen to the advertisements that PGW puts out, you're not hearing very much about the program that would probably mean the most to a low-income customer who is not presently on CRP that would really protect that particular customer, get that customer sheltered from the spikes that we're experiencing at this time.
Do you suggest that -- or maybe you're not suggesting. Let me ask the question. Do you think that beyond PGW adequately informing people of this program there should be some other mechanisms? Because I think I kind of heard PGW say if everyone got involved in that program, it was good and bad. So if that being the case, I would expect that maybe the bad 134 10/11/05 - TRANSPORTATION - RES. 050845 side of it would encourage them not to be as proactive in terms of their advertisement.
I would welcome a letter from every Councilman to every constituent talking about CRP, for instance, but I do point out to you that PGW communicates with its customers once a month, sends out a bill, has a platform on which to do more. I think everybody else can do more also, but I don't think that's a substitute for PGW not doing more, because they're the folks that are in the position to -- they already have the system. If we got 5,000 more people on CRP between now and December 1st, that would be a great accomplishment. That would probably get quite a lot of service back on for folks and, at the same time, that would probably prevent some shut-offs in the future. So I think that publicity is very important, electronic media. You 135 10/11/05 - TRANSPORTATION - RES. 050845 can talk all you want about conservation, but if you don't have your service on, there's really nothing to conserve, and if your service is going to be shut off because you can't afford to pay now, all the conservation in the future is not going to protect you going into this winter.
We've talked also a little bit about LIHEAP, Crisis, the LIHEAP programs. There are really two parts to the LIHEAP program. One is a cash part and one a crisis part. PGW has made efforts in the past to increase its LIHEAP participation. You hear ads involving LIHEAP. But we've had this experience in Philadelphia the last couple of years where, as you get into November and early December, PGW is refusing to accept Crisis grants from certain customers because they deem it not sufficient to 136 10/11/05 - TRANSPORTATION - RES. 050845 avoid the crisis. They say this customer owes us a thousand dollars, we're not going to accept $300, even if it's a low-income customer, to put their service back on. As a result, the customer essentially doesn't get the service back on. Perhaps by scraping together by mid January, in the best of cases, they've got their service back on again. But I think where you have the customer making the effort to get federal funds, to go outside and get federal funds, $300, a lot for a customer that only has an income of 135 percent of poverty or less, that that should be enough of a sign that the customer has made the effort so that service should be restored, not in mid January but in December. And if shut-off is contemplated in November, that should be enough to cancel the termination. You can't just say, Well, we believe this customer won't pay through the winter months and, therefore, we're not going to 137 10/11/05 - TRANSPORTATION - RES. 050845 put them on to CRP for the winter months. To my mind, that is a self-defeating kind of policy, and I think that PGW should discontinue it. There are better ways to do things. Thirdly, looking at the effect of -- and this is coming back to, I think, Councilwoman Miller's comments. Basically she was saying, you know, we're experiencing a lot of situations where people are coming to us and where they just simply can't afford the demands that PGW is making in order to restore service or in order to avoid termination of service. Well, what are these demands and why is PGW making them? They're demands for a deposit, at least one monthly bill up front before service is restored, plus the agreement to pay another monthly bill in two installments going forward 30 days and 60 days later. 23. And PGW is asking for substantial amounts 138 10/11/05 - TRANSPORTATION - RES. 050845 also up front before service will be restored. If you've broken two payment agreements under the new law, PGW has the right to say, We won't turn you on unless you give us the total outstanding balance that you owe. We don't care whether it's $2,000 or $3,000 or $1,500, a month's income or not. We have the right to demand it. This is for people that in that area are over 150 percent of poverty. Now, PGW does not have to do that. The new law does not require PGW to do it. The effect of the new law, generally speaking, was to give PGW and every utility in this state much more discretion in dealing with customers whose service was turned off or with customers who were threatened with terminations, and the utilities, in particular PGW, have interpreted that as the ability to go for the max, to demand the max before service will be turned on. 139 10/11/05 - TRANSPORTATION - RES. 050845 This is a matter that's within their discretion. Customers can no longer go to the Bureau of Consumer Services at the PUC and get a substantial adjustment to the demands being made by PGW, and that really is the problem, from the point of view of PGW customers and the kinds of customers now who are shut off or are facing shut-off and are trying to figure out how they possibly are going to get service on by December. We probably can't get into all the details of just exactly what the requirements are for restoral of service or for cancellation of a shut-off notice that you receive at this time of year, but I do want to stress that I think it's appropriate for Council at this point to have brought about these hearings.
City Council is part of the government system of PGW. PGW is a municipally-owned utility. That municipally-owned utility is exercising 140 10/11/05 - TRANSPORTATION - RES. 050845 discretion. The City Council has something to say on how this municipal utility exercises that discretion. I don't think that that's something that should be decided at PGW management, in the PGW Collection Department, in the Mayor's office, in PFMC. City Council has a role to play in looking at this situation and in trying to determine what kind of discretion is reasonable for PGW to exercise given the needs of the citizens of Philadelphia for our service during the winter. Most PGW customers, you've heard it, are heating customers. Most of the gas that they consume is consumed between November 1st and the middle of April. So this is where the rubber hits the road and this is the crisis that we're looking at at this time, and so I'm focused really on the immediate.
Thank you. Sir, are the specifics of your statements referenced in your written 141 10/11/05 - TRANSPORTATION - RES. 050845 testimony?
Okay. Because I need to follow, because you were going kind of fast. I didn't catch them all. Okay. Thank you. Any questions? (No response.)
Brady Russell, Pennsylvania ACORN. I actually was speaking on something else, though. John Dodds is listed on there at the Philadelphia Employment Project. I don't think they've taken up this issue. Could that have been John Rowe with --
I'm sorry. Say that again. 142 10/11/05 - TRANSPORTATION - RES. 050845
Philadelphia Employment Project doesn't do utility stuff. Last time I talked to them, they didn't. So I just wondered if that was actually John Rowe, who is also here and meant to be on the list.
I don't know if you heard directly from Mr. Dodds. Last time I talked to them, they weren't doing utility issues. That's why I was wondering.
I'm reading the script. We're only listing people that called to testify, but if there is a John Rowe that wishes to testify, he will be given that opportunity.
We didn't make him up. He called and asked to be a part of the testimony.
All right. 143 10/11/05 - TRANSPORTATION - RES. 050845 So my name is Brady Russell. I'm here with Pennsylvania ACORN. Donald Stokes, one of our local members --
We just wanted to present our platform on the utilities issue. Donald was one of the members of the committee that helped us put the platform together. This is an issue that our members across the state actually have been talking about since the summer when the community organizations are sort of out in the forefront of it. Our members really see this echoing a lot of the things Mr. Bertocci said as a state level issue. The four planks of our platform going into this fall and winter are as follows: Protect vulnerable 144 10/11/05 - TRANSPORTATION - RES. 050845 Pennsylvanians from losing heat in the winter. As you all probably know, the legislature passed Act 201 last year and made it a lot easier to shut folks off in the winter. And a lot of that momentum came from out of Philadelphia, from PGW and from the Philadelphia delegation. So we're going back to them and asking them to reconsider. We also are pretty concerned about the way payment plans are structured, as Mr. Bertocci mentioned. The second plank is create additional emergency assistance programs for families, especially the many low-income families who do not qualify now for LIHEAP. The legislature could put more money into LIHEAP, raising the eligibility from 135 percent of poverty to 150 where it currently stands, leaving that last 15 percent out. The Pennsylvania legislature 145 10/11/05 - TRANSPORTATION - RES. 050845 could also look into other strategies. New Jersey just created a new trust fund for emergency utility support for folks simply using unspent property money; for example, uncollected deposits out of utilities and things like that. So that's an area that could be looked into. The third plank is create fair policies to allow shut-off families to get turned back on. I think Mr. Bertocci spoke to this pretty well. We're just really concerned about the fact that very poor people who are having a hard time paying their bills have to pay $123 for their gas turned back on. And I think the fourth thing that's most relevant to PGW and our experience on this issue echoes the other community groups that have spoken so far. Make sure eligible families know about the universal discount programs. I've talked to a lot of people myself personally, I'm not even an 146 10/11/05 - TRANSPORTATION - RES. 050845 organizer, about their problems with PGW, and many of them have told me that they had never heard about CRP even though they had called repeatedly saying, We're having a hard time paying our bills, what can we do. So that's the structure of our platform. It is largely state oriented, and it would be great if Council would help us in some of the lobbying and advocacy we have to do with the state. A lot of the momentum for these laws came from the Philadelphia delegation. So Philadelphia speaking about changes on these things would really help. We'll be working on this, but we'll also probably be coming to you on some other particular issues within the platform. If any of you would like to sign on to our platform, if you think these four planks are good and like to see it happen, we'd certainly love to have you do that, and I'll probably send 147 10/11/05 - TRANSPORTATION - RES. 050845 you a sign-on form sometime soon.
Thank you for your testimony. Any questions? (No response.)
Thank you very much for your testimony, gentlemen. Mr. John Rowe and Reverend Barry J. Williams. Before we proceed, are there any other individuals who are interested in testifying on this resolution? (No response.)
Thank you. Good afternoon. Please state your name for the record and proceed with your testimony.
Good afternoon. My name is John Rowe. I'm sorry for the mix-up. Probably my name fell through the cracks or I'm now known as John Dodds. I'm not sure. I have copies of written testimony, if you want them. I'll leave 148 10/11/05 - TRANSPORTATION - RES. 050845 them here.
I am the coordinator of the Coalition of Neighborhood Energy Centers, that Neighborhood Energy Centers are positioned within the following neighborhood-based organizations which offer a full array of services: ACORN Housing, Belmont Improvement Association, Carroll Park Community Council, Congreso, Diversified Community Services, Friends Neighborhood Guild, Germantown Settlement, Greater Philadelphia Asian Social Services Center, New Kensington Community Development Corporation, Southwest Community Development Corporation, and United Communities of Southeast Philadelphia. For the sake of brevity, I omitted a lot of the testimony which has already been covered and what I want to do is to talk about outreach. The Coalition emphatically 149 10/11/05 - TRANSPORTATION - RES. 050845 agrees that low-income customers are unaware of available programs or do not take advantage of them. Outreach and education is severely lacking. As we had heard numerous times through other testimonies, half of those eligible do partake of the program and the other half does not. The Coalition of Neighborhood Energy Centers are absolutely positioned to reach low-income customers. During the last program year, July 1, '04 to June 30, '05, the Coalition of Neighborhood Energy Centers provided energy solutions for over 12,000 low-income families. The Coalition reached low-income families who reside in every zip code in the City of Philadelphia. In the written testimony, I'm providing a map which shows that the most energy solutions are provided in those neighborhoods which are the poorest. There's not one zip code we don't cover. 150 10/11/05 - TRANSPORTATION - RES. 050845 The Coalition also provided over 42,000 energy services during the program year. Now, these 42,000 energy services produce value to customers which is equivalent to over $6 million last year. By that, for example, we provided almost 6,000 LIHEAP grants, intake for LIHEAP grants, at a value of $250 each. Another example would be Crisis grants, over 3,000 of those at an average value of about $280. Weatherization assistance is another example. We provide assistance to over 400 households at a long-term value of just under $5,000. All told, this provides monetary assistance to low-income families to the tune of about $6.8 million, and this is necessary, now especially, in light of the impending catastrophe. A solid solution is for PGW to partner with the Coalition of Neighborhood Energy Centers to expand the Coalition's work to those who need it. 151 10/11/05 - TRANSPORTATION - RES. 050845 The Coalition can reach at the community level those not presently reached. We can reach them with not a complex approach, we can do it at the community level. We need funding, though, to expand our work. Each year the Coalition delivers much more services, as testified by Liz Robinson, more services than are funded. And that concludes my testimony.
Thank you. As the coordinator of the Neighborhood Energy Centers, are you funded by the City to provide that service or are you funded by the energy centers?
I'm funded by the organizations which house the energy centers in order to expand the work that they do. I mean, most pertinently, there's a variety of statistics that float around, but over the last six or seven years, the centers have produced over 50 percent more services than they are paid for to deliver specifically 152 10/11/05 - TRANSPORTATION - RES. 050845 those services and yet they do not reach everyone that they can. And so the mission of this Coalition is to expand to those households that need service, and what we see here with those who are not being reached now through the outreach by PGW, we think that at the community level we could do a real good job at reaching them.
North Philadelphia would be Friends Neighborhood Guild located at 8th and Fairmount; Congreso, which is up a little bit farther; and GPASS is way farther up on North 5th Street. Over to the east would be --
I'm 153 10/11/05 - TRANSPORTATION - RES. 050845 thinking about my particular district, because the overwhelming majority of the residents that live in my portion of North Philadelphia west of Broad --
Germantown is a little bit farther north of there. Belmont Improvement Association is also --
That's West Philly. Who represents North Philly west of Broad?
There was one organization in that area that -- none is the answer. Let me answer the question first. And the reason for it is that there's a competitive process through the Energy Coordinating Agency as to --
I'm sorry. I didn't hear that last part. The reason was? 154 10/11/05 - TRANSPORTATION - RES. 050845
There is a competitive process, a competitive RFP process, that is run through the Energy Coordinating Agency by which the Neighborhood Energy Centers are selected, and this was the result of their most recent round of proposals.
But if you're saying that they're represented in geographical areas, how can you not have a whole section of the City not represented?
I agree. I agree. We represent the population of each zip code, but not the community-based organizations. You're absolutely right.
I'm just a little concerned, because that's probably an area where there are a lot of people that would qualify for services.
And if you don't have an agency representing them, particularly given what's likely to come 155 10/11/05 - TRANSPORTATION - RES. 050845 down this particular winter, I mean, what should I tell the folks in my district?
I am not responsible for it, but that's not a reason why that area should not be represented.
Is that the lady that was here earlier, Ms. Robinson's organization?
I wish I had this information prior to you testifying.
As I said, there was an organization in that area that was not again selected this --
Okay. Not your fault. Thank you. 156 10/11/05 - TRANSPORTATION - RES. 050845
Mr. Rowe, I just have one question. You find no 5 necessity to put anything up in the Northeast then, according to your chart here?
I have to be clear. I don't pick the agencies. I see a necessity in the Northeast, but what the energy -- and I don't want to speak for ECA, but ECA picked certain organizations that contained NECs based upon their criteria, and these are the ones that they picked. Now, after they were selected, what they desire to do was to expand what they do and also to reach more people and also to get more funding for what they do. The organizations themselves subsidize the good work of the energy departments.
I just want to thank you for your very thorough presentation here. It's very good. 157 10/11/05 - TRANSPORTATION - RES. 050845
Thank you. Please proceed, sir. State your name for the record.
My name is Pastor Barry J. Williams, Sr. I am here today to represent our organization, which is called the Citizens Congress of Philadelphia and Vicinity, which I am the newly elected President. It's an organization presenting itself for the champion of the poor and the disadvantaged, handicapped. We are forming a coalition of other organizations who work with us or we work with them, such as Black Clergy, ACORN and many other groups in the City of Philadelphia and its vicinity. My main purpose in being here today is to plead with you, our representatives in the political spectrum, as to the gas rates, that we would like to have more information sent 158 10/11/05 - TRANSPORTATION - RES. 050845 to our various churches and community organizations and to work with the Councilpersons, the Gas Commission and PGW itself in forming a relationship that would benefit all people in our communities in the City of Philadelphia. We do hope that you will consider and study the matter closely over the thousands of people who are handicapped, sick and shut in, those persons who are poor and disadvantaged of low income that will face the oncoming winter. For some of them to have gas increase or shut-offs, it would be devastating. We would like to work with you to do all that we can to bring about some type of resolution in helping our people, all people of all creed, race and colors. Thank you.
Thank you so much for your testimony, sir. Any questions? (No response.) 159 10/11/05 - TRANSPORTATION - RES. 050845
Anyone else to testify on this resolution? (No response.)
There being none, we would like to recess the Committee on Transportation and Public Utilities on Resolution 050845 to the call of the Chair. Thank you all very much. (Committee on Transportation and Public Utilities adjourned at 4:50 p.m.) - - - 160 CERTIFICATE I HEREBY CERTIFY that the proceedings, evidence and objections are contained fully and accurately in the stenographic notes taken by me upon the foregoing matter on October 11, 2005, and that this is a true and correct transcript of same. ______________________________ MICHELE L. MURPHY RPR-Notary Public (The foregoing certification of this transcript does not apply to any reproduction of the same by any means, unless under the direct control and/or supervision of the certifying reporter.)