Yes. And, excuse me. When I say "relatively minimal," I'm looking at incremental from here on, the costs of that. As you know, the pilot terminates, or 290 BILL 970647 at least the sign-up period terminates, fairly soon. And then it is a case of really servicing the existing customers, which is not --
PGW, if the budget proposed by you is $276,000, is that a 50 percent --
The preliminary budget presented to us says that the total PGW budget -- I see. Your contribution is $222,000.
So the cost is $552,000, Mr. Hawes, for this pilot program, and QST is paying 222,000?
Okay. The question was the amount of the budget. And I said that the range was 498 to 951. And QST is responsible for one half of that.
Has QST participated in other pilot programs across the country?
Yes. QST has participated in not only Illinois, but is currently participating in Michigan, in California, and then elsewhere in Pennsylvania.
Have you joint-ventured with other companies, or are you doing it as a single entity?
Did you joint venture a partner with other companies? Have you entered into any other arrangements such as this?
We have entered into one other arrangement relative -- well, a couple of other arrangements relative to partnering, yes.
Have you done it 292 BILL 970647 with a municipally owned entity?
How much did it cost you to enter? What's the largest market you entered into in a pilot program, and what was the cost?
Pennsylvania is by far the largest market we have entered into. And I don't know what those costs are as I sit here, because a lot of them are being added up as we go.
So if you say the cost, the low is 495 and the high is 951, and if there is a deal-breaker, you are prepared to pay the 951 to stay in the market?
Councilwoman, so that I don't mislead you, I would be very disappointed to go it alone, on QST's behalf. We certainly want to do whatever we can to get this Council comfortable with the relationship that we're attempting to enter into. What I said was that we would be prepared to continue marketing on our own and, obviously, be responsible for costs from here on out 293 BILL 970647 relative to that marketing.
I don't have that number. Mr. Karachiwala has reminded me that certainly the out-of-pocket costs would be the cost of the postcards and the direct mail pieces. We sent somewhere in the neighborhood of 22,000 or so direct mail pieces. So 45,000 total pieces, some of which I believe were cents -- or 13 23 cents. Mr. Karachiwala has that listed as 50,000.
How do you pay for this? Do you give the money to PGW, or is some of the mailing done out of your facility? What is the financial arrangement?
Those are the details that still have to be worked out in terms of actual costs accounting, cost details.
Councilwoman Tasco, maybe I can assist Mr. Corwell on that.
Somebody paid for 294 BILL 970647 the postage of the stuff that went out.
We are keeping track of all that cost. In this instance the cost of the printing the postcards and the brochures were done by QST people. So whatever the cost would be, half of that would come to PGW. On the other hand, the postage and all that was paid by PGW. So we are tracking those costs, and half of them go back to them.
You stated that CILCO was a low-cost supplier of electricity. Would you explain how you became a low-cost supplier, including discuss your fuel mix versus PECO's fuel mix.
The fuel mix of CILCO is roughly 98 percent coal and 2 percent natural gas, primarily used for peaking. One of the reasons why CILCO has been successful is that it has cancelled plants that were previously planned, even though there was some expense to doing that, when it was clear to the 295 BILL 970647 company that those plants would not be needed. There was first deferrals of those plants, and then ultimately cancellations. And I think what differentiates CILCO from others that are higher costs is, others were not willing to cancel. They went ahead and built those plants, recognizing that they would be able to recover those from ratepayers. There has also been significant emphasis throughout the management ranks, throughout the employee ranks, towards cost cutting, cost savings, efficiencies, et cetera. There has been very much a focus from the top down on reducing the ultimate price to ratepayers.
How do you plan to transfer CILCO's lower rates to the Philadelphia market?
Councilwoman, you asked how we plan to transfer the lower rates to the Philadelphia market? 296 BILL 970647
First of all, the lower rates, or lower rates that exist today, are legally possible given the statutes enacted in Pennsylvania to allow for choice. That provides what I believe to be at least a small savings in the near term. There are, I believe, far greater savings on the horizon once you get by issues like stranded costs, once you get by issues like billing, et cetera. Our experience has been that even though CILCO is the lowest cost utility in Illinois, through Power Quest, customers were able to save up to 40 percent on the electricity that they went off system with. So that there are significant benefits. Furthermore, in terms of the actual supply, that we would move into PJM in the short run -- I'm sorry, the PECO service territory, on behalf of PGW, in the short run. Our power traders have experience with all of the major players out here. And when I say "players," I mean the generation suppliers. They have been to Valley Forge a 297 BILL 970647 number of times to see, to learn, to study the PJM pool, which if you are familiar -- I think you are familiar with the PJM pool, is one of the largest, if not the largest, electric trading grid in the country. We are fully prepared to bring the lowest cost power into Philadelphia that is available commercially.
With the other to 30 suppliers in the PJM pool, how do you plan 12 to be competitive? 13
One of the things that 14 we find as we go through these efforts is that, 15 while 20, 30, 40 suppliers ultimately sign up to get 16 a certificate, not all of those participate. 17 Certainly at the federal level, we're 18 probably one of 300 power suppliers, but a very 19 small percentage are real active. 20 We believe that we have as good a footing as anyone in the business at finding the best power deals. We have more experience doing that for residential customers than anyone in the country on an unregulated business, and we're confident that 298 BILL 970647 we can compete very well. And, in fact, based on our preliminary assessment, that the offer that we have put out on the table for residences and businesses, in Philadelphia, anyway, is the most competitive offer that we are aware of that is out there. So we believe we can back that up with the competitive power supply.
Thank you, Mr. President. I yield to Councilman Nutter. I think he had a question.
Thank you, Mr. President. Mr. Corwell, Councilwoman Tasco was asking you about this budget. And a quick run of the little calculator actually shows that in the base case budget, QST's contribution is 45 percent of the total of the $498,000. Would you be able to provide to us, as PGW has, some kind of break-out of what your 299 BILL 970647 expenses are in terms of participation in this program? And, secondly, on the sheet that we got today, that I think Bud provided to us, this sample bill that's not really a sample, I assume that your revenues come out of this portion of the bottom section that says "PGW's bill, electric generation charge, 500 kilowatt hours at 4.45 cents, $22.25." Is that correct? Is that where your revenues would come from in this venture, as a part of that $22.25?
So that's where your money is. And then what is the split of that $22.25? Who gets what out of that?
The way it is structured right now, the revenues would be split 300 BILL 970647 with PGW, if I understood you correctly.
Councilman Nutter, 6 if I can just interject on that. 7 The net bill in that example to the 8 customers would be $15.21. 9
The costs of the 11 electricity associated with that would be about $15.21.
All right. Because the $7.04 is coming off as a part of the 10 percent promotional savings. So are you now saying that the split is on the $15.21?
That's the revenue. From that we subtract the cost of goods, electricity. And then whatever the balance would be, that would be split 50/50, which, in this case, and our expectation is, will be zero. Just 301 BILL 970647 recovering the electricity.
Okay. Now, let me just ask this question. And, actually, fortunately for you guys I have to go somewhere. I'm not in the pilot. I either wasn't paying attention or, you know, I just missed it. But I'm not in the pilot. But I am a good PGW customer. I used to be better, but I got new windows. I'm not in the pilot. The company and QST have entered into this relationship. You start spending money, whether in the base case at 4.98, or in the stretch case at close to a million dollars. For whatever reason, things don't work, or they only work half as well as you would like, there is expense. The company ends up eating the expense, which at some level I assume gets passed on to somebody. But I am not in the pilot. What's the impact on me? Or, in a broader question, is there any impact on me, or should there be any impact on me, since I had nothing to do with this program? 302 BILL 970647
Councilman Nutter, I am going to try to address your question, even though in the organization I'm not responsible for the rate function of the company. In the very short term, let's say that PGW does expend this 276,000, or up to 500,000 dollars. And you being a non-participating customer, obviously, are not getting the 10 percent savings on the electric side that others that are participating are getting.
Excuse me. Can I ask you to incorporate in your answer a recognition of the fact that in the stretch case, Customer Incentives is listed at 150,000, Customer Switching Incentives is listed at 150,000, and contingencies at 220,000 dollars. So that a very significant part of a cost to this program to get electric customers will be having gas customers send checks to electric customers. In effect, money that I pay on my gas bill is going to be sent in the form of checks to electric customers, trying to get them to buy their 303 BILL 970647 electric from PGW. And I guess your bottom line is the same as mine, why should these gas customers -- and I just wanted to incorporate that, because that's what we see here. Why should that happen?
The expenses associated with this program, in the short term, does not change any of the rates or any pass-through costs to gas customers. Okay?
Unless you guys are now taking over some functions of the Treasury Office, and you are printing money up at Montgomery Avenue, there is a limited pool of dollars, and you are a publicly owned entity. Whatever you spend comes from somewhere. And it either comes from a person who is paying the bill or it comes from the citizens of this city who are paying taxes. You don't have unlimited resources at 304 BILL 970647 your disposal. So, I mean, we'd have to suspend reality to think that somebody somewhere else, either in Montgomery County or Camden, is picking up the cost here.
Someone who lives in Philadelphia, in the program, out of the program, has got to eat potentially $276,000 or $503,000 if the whole thing just crashes and burns. Now, that money came from somewhere. It didn't come out of your pockets.
It did not come out of Mr. Corwell's pockets. It is coming out of the collective pockets. I am asking the question if I was not, apparently, smart enough to sign up and get the 10 percent, and I just want to keep paying a high rate somewhere, or I don't feel like having multiple bills, or I don't want to talk to anybody, or I don't want to be in a family circle, or whatever promotion comes along next, I am just minding my 305 BILL 970647 business, and you go out for the right intention and spend money in order to make some money, or to keep market share, or to be competitive, or whatever the reasons are, and it fails, why do I have to pay for it, when I wasn't involved in it?
To answer your question as to where the money would come from to pay for that, the revenues that are collected by the gas company already pays for expenses associated with a variety of things, including marketing activities associated with new product launches and so on. So that is what I meant, Councilman Nutter. That, in the short term, there is no 16 difference at all in the costs that you as a gas customer would pay as a result of this pilot project.
But I guess that policy, or that budgeting, has always been based on PGW providing its core business or anything around the core business. I mean, if you go off into a venture and try to sell the latest high-tech gas range that comes out, then that's related to gas. And that 306 BILL 970647 either works or it doesn't, but that's your business. This is now something different. Yesterday we got into a whole discussion that you are not setting up a separate entity, because you don't want to do that for whatever the reasons are. Now we have a Memorandum of Understanding and a Venture Agreement with a private entity company. But the people who have gas service and the people who pay taxes to the city who own this business, you want to go into a different venture than they have any experience with, and they may not be a part of it. If you lose money on the gas business, I guess people come to understand that. If you lose money because you decide that now you are going to go into electric or phone service, or you want to start opening video stores, or whatever it is that you want to do that's legal, the question becomes, why do the broad base of customers have to pay for it, when they didn't participate in it? That's just the question I am asking. I mean, whether as a member of City 307 BILL 970647 Council or as a person that gets a gas bill every month.
Absolutely. And I am feeling inadequate in articulating an answer to your question. But that goes back to Mr. Hawes' statement that there are several things that we have to do today that is going to result in revenues two or three years down the road, which is indeed going to help the gas customers. And while you may not be directly benefitting from the pilot program today, as a result of what things were done, and the additional revenues that would come from new products and services, two years from now you and other gas customers of Philadelphia Gas Works would indeed benefit. But we can't wait until the second year without doing something today. So I am struggling to articulate the answer. And I feel that I'm not sure that I am properly articulating it. But that is --
You gave it your best shot. That's okay. Thank you. 308 BILL 970647 Thank you, Mr. President.
See, that's not good enough for me. Because you have to tell me why we should be using gas revenues to send people who are going to buy electric from us checks. We're sending them checks. You know what I mean? It is not just like we are offsetting. We are sending them checks. You now sign up with us to buy electricity, we are going to send you a check. And it is a big, big policy problem. I mean, do we think as a matter of public policy -- we are now discussing public policy. Maybe we get to get Mr. Hayllar and the City Solicitor and the board of PFMC up here. Is there anybody here from the board of PFMC? Maybe we need to get them here. Because I raised this earlier, and it is a matter of continuing concern. Why should we be taking the money that people pay in their gas bills and send them checks to entice people to become electric 309 BILL 970647 partners? And if we really were going to do this, why wouldn't we figure out a way to do it that doesn't further disadvantage people who are paying high gas bills? I mean, we are not proud of our gas rates today.
Ben Hayllar, Director of Finance, and also member of the PFMC board. The world of utilities in Pennsylvania is changing. The gas industry will be deregulated, there will be a competitive environment, in a couple of years. This pilot program, even if we do not go any further after the 14th month, gives the 1994 employees of PGW an opportunity to experience that new world. It is an opportunity we don't want to pass up, because they have to learn this competitive world. Everybody in the utility industry is improvising right now, which is why this is so hectic. The advantage --
And that's 310 BILL 970647 all right, right then. Because that's a noble thought, and it is probably a reasonable objective. Well, why aren't we taking economic stimulus money to do it? We are getting ready to spend $400 million to create 700 to 1,000, you know, immediate jobs and a whole bunch of other jobs at the Navy Yard. And people think that's a great expenditure. And we will talk about it a little bit, and it may well be a great expenditure. But, in this case, see, I think part of the reason why the analysis is faulty, because we are, in effect, punishing people for getting gas service from us, and then we are benefitting people who decide to buy electric from us and we're taking the money from the people who are buying gas. Now, I would probably have a lot less problem with this if we said, the Administration came in here and said, "We want to do this project over at this pilot over here. And we don't think it is fair that we should take this money off of ratepayers. This is going to be the investment that's required." Right? Because these are ratepayer assets -- 311 BILL 970647 I mean, these are taxpayer assets; they're not ratepayer assets. And these taxpayer assets, if we are going to invest in them -- and that's what this is, an investment in our assets, which are the physical assets, the pipes, the buildings, and all of that, and the employees. All together they represent PGW. Now, if we decided that we were going to do this, we thought it was a good idea, and if we decided that we were going to pump a million dollars of some of our economic development money in here, maybe that would make more sense. But that's not what we're doing. What we're saying is that we're going to form a joint venture with a for-profit, and we are a not-for-profit. And I understand exactly why QST is doing this. QST is in the business to make money. We're not in the business to make money. We are in the business to provide service at cost, service at cost. They're into something else, which they have a right to be. Whether or not we have a right to 312 BILL 970647 partner with them under these circumstances is what we spent the first five hours talking about. Now the question is even if we have a right, whether or not it is good policy, which is what Councilman Cohen talked about. Is it good policy? Is it fair and does it make sense? And when I look here and I see we're talking about spending $150,000 stretch case on customer incentives initial, and then $150,000 customer switching incentives, $63,000 bad debt expense, 32,000 customer surveys, $220,000 contingencies, that's a little piece of change to take out of the customer base. And a rational for that, in my judgment, is appropriate.
We have always taken the position that PGW stands on its own. The city does not subsidize PGW. And other than the money we as owners take from PGW as a revenue source, we do not contemplate subsidizing PGW. This is to the advantage, this pilot is to the advantage, of PGW as a company and to its customers. 313 BILL 970647 Because the world is changing, and you don't want to lose an opportunity to experience that changed world that will be here and up until now we have been ill prepared to deal with.
When is the deadline for the sign-up? Was it today, yesterday?
To show an interest in participating in PECO's pilot program, the deadline was September 29.
How many people applied to PGW's pilot program? You have mailed out how many, you 314 BILL 970647 just testified, thousand direct mail pieces?
In the city, folks in the city, almost 24,000 eligible customers.
To date we have received about 1,200 sign-up cards that have been returned to PGW. We will probably be receiving some more today. And that was through yesterday. I stand corrected. We will receive some cards today and tomorrow.
Of those people that signed up to take on PGW's offer, has anyone received a check as an incentive, part of the deal, received a check for signing up?
Of the 1,200 or so people, maybe 1,500 by the time the day is through, have we done an analysis of those individuals and their current state of payment with 315 BILL 970647 PGW? For example, are those people that we know are up-to-date with their gas payments and/or have any existing valid agreement on any arrearage that they made?
Part of my concern, Council President says it is a decent sum of change. And, I mean, I guess relative to all types of deals we do around here, it may not be as big a sum of change. But one of the problems I might have is sending a $15 check to somebody who owes us four or five hundred dollars in gas. And I would like to have some assurance that we're not going to be sending out $15 checks to people who owe us money. And do we want to sign up people for electric service that owe us money on gas? I mean, 316 BILL 970647 it is not necessarily the best customer we can be looking for.
Wouldn't that be an irony. If you have a gas problem, you sign up for electric, and then you get a check.
One concern that I would have, Councilman, is that the rules of the pilot program are dictated by the PUC. And the PUC requires that once a supplier has got an offer out, that the supplier is required to deliver on that offer. So I am hesitating because I am not sure that if you have a gas side of our business, whether the PUC rules would legally allow PGW/QST to withhold that part of the offer because they are behind on the gas bill.
Even though we may be prohibited from withholding the offer, I think it would be interesting to see -- and I don't have an idea of what that percentage is. It maybe zero, it may be half. And I would be interested, just for information's sake, in knowing just what the status 317 BILL 970647 of the people who have signed up are in their current payment of gas bills.
I understand. The other point that I would like to make is that QST is the one that actually has the license under the Pennsylvania PUC and is the one that actually has the contract. And, therefore, if they withhold the $15 because they are associated with us, and we have a gas side of their business, whether that puts them at risk for sanctions at the Pennsylvania PUC.
I'm not suggesting eliminating those individuals or not sending them their check. I just, for information sake, would like to know if we're potentially sending checks to people who owe us money. A general question about PGW. Hypothetically -- and this may be for Mr. Hawes -- if PGW were for sale today, do you have a number in your head as to what you think the current value of that utility is on the market today?
I do not. I would only say, as a businessman, 318 BILL 970647 that if you evaluate a company, one way to do it would be to say, how much is the debt, because you have to pay for the debt. And that's $770 million. There is another number that comprises the equity. I think the sales price would be a function of how much the current buyer today tried to discount the equity. What we're trying to do is make the company strong enough so that the question of the equity won't be a discount, but what kind of premium would we want to get. You were not here yesterday, but I think yesterday we talked about, we have some work started in that area. I don't remember the name of the company.
Have we entered into this analysis, the scenarios of this new venture, both positively and negatively perspectively?
In terms of the value, short term, I think it is so small, it wouldn't affect it. I think it would affect it big time if, to a purchaser who was interested in our 319 BILL 970647 distribution channels for gas and electricity, it would bring about a premium.
And you're telling me that the company is in the process of doing that evaluation now?
Well, yes. I am saying that we have some work going on in terms of how we would be valued. I'm not sure -- Ray talked about it yesterday. I'm not sure where it is. But we do have that in progress.
And I would be interested in knowing when you would expect that to be available and what the results of that investigation are. And let me go back to one more issue on the PGW offer besides the $15 check. The one month free electricity, is there a dollar value or a dollar cost associated with the one month free electricity?
Yes, there is. $15. And it is based on the fact that it is free electricity in the 15th month. And, on the average, it is 500 kilowatt hours, and a purchase price at about 3 cents a kilowatt hours. So that equates to 320 BILL 970647 $15.
So in addition to the percent proposed rate reduction, this is 5 really a $30 package? 6
Yes. In addition 7 to the 10 percent, that is correct. 8
My first 9 question, would the results of that be available 10 prior to our vote on this issue? I don't need to know names and addresses of people who haven't paid their gas bill, but a percentage of those that are in that condition. And I want to make sure I preface my question properly. And that is, not only up to date, but those who have active and valid payment agreements. Because I don't think it is fair that people who are making an effort to pay their bill, to put them in a separate category. I would like to know who are active up-to-date and those who have active agreements.
To the QST representatives, but first I was going to ask Councilman Kenney earlier to yield and ask him whether he was suggesting that PGW and QST put an advertisement out that starts with, "Bad debt," question mark, "Credit risk. No credit," just like the used cars, "Please," you know, "we are going to offer you free electricity for a month and send you a check. Bad credit doesn't make any difference, or no credit at all doesn't make a difference." I think something has to be done, or you are going to look very strange if you send checks, whether PGW or QST sends a check, to a customer heavily in debt. You see these used cars sales, bad credit, no credit doesn't make any difference, we are ready to sell you, and that's what it began to sound like. Tell me, why didn't QST come in on its own? Why do you need PGW?
As indicated, we were 322 BILL 970647 going to be here anyway. And at about the time we had started having discussions with PGW, they had an interest in learning more about electric choice and how it would work, and getting prepared for the future. And it was almost a question of why not. We both have common interests. We have the experience, they're looking to get experience. They have relationships with customers, we certainly want to get relationships with customers. So there were just a lot of synergies.
But the bottom line is that you are a company that's looking for a profit, and they are a company that's not. I mean, everything I read in the finance pages says that the important thing is the bottom line. And I'm wondering what really brings you together, or why QST. I have gone through some of the material that was distributed. The parent company and all the subsidiaries seem like a pretty strong and powerful body. And they're apparently doing well on the profit side. It would seem to me you 323 BILL 970647 have enough strength to come in. And the reason I raise this question is, I wondered why, from QST's point of view, what do you see that QST is going to gain by its association with PGW. We have heard what PGW expects to gain from QST.
I think QST expects to gain the relationship with customers, access to the market, valuable management experience, understanding of the local market. One of the things that we have consistently found in every pilot we have been to is that people like to buy from the local provider, they want someone that is there, that they can talk to if they need to talk to, that if they have a question or concern, they are people that they can go to. And certainly that is of real value to us, that PGW has a very good presence in the community, has several district offices that certainly we would like to have help them turn those into, quote, energy stores, where customers could come in and really buy energy there, they can deal 324 BILL 970647 with issues that they have, et cetera.
And you think as a result of that, your bottom line will show improvement?
I think, right, over the long haul, that's the intent, is to be positioned to deal with energy choices.
What is the intent beyond the trial period? I am talking QST.
Yes. From QST's perspective, we certainly would love to grow the relationship. We're entering it, just as Mr. Hawes indicated, it is a courtship. It is to see if we can work together to benefit the consumers here in Philadelphia. And to the extent that the market opens up even on a greater scale, certainly we see even that much more potential, certainly. And I think over time the market is even more attractive to -- for customers to participate because the education level of understanding all this -- and you saw the story boards -- the whole educational level, the more 325 BILL 970647 education there is toward energy choice, the easier it is for customers to feel like they can go and save money by choosing an alternate supplier.
Councilman Cohen, can I interrupt you for a second? I would like to take where you are sitting just one step further.
The street is full of information on this. I got several phone calls, "What's going on here." And there are some people who believe that what QST really is about is getting a foothold into PGW, because QST really is anticipating gas deregulation and intends to go after PGW gas customers. Because you would have already established a relationship with them, you already have your foot in the door, you already know a little bit about the company, what's going on, and that gas deregulation is right around the corner, you already have PGW electric customers. Right? 326 BILL 970647 You are free to do whatever you want to do. You know you already have customer name recognition. I mean, you now are a partner with PGW. There is nothing PGW could do to stop you competing for its own gas customers, is there?
And you intend to compete in the gas market, also, in Pennsylvania, whenever it comes.
Well, can you answer the question yes or no, and then address it.
The question is, you intend to compete in Pennsylvania for gas and electric?
Only to the extent that the electric comes along with it. We are not 327 BILL 970647 interested in just coming into Pennsylvania to participate in gas pilots.
I understand that. But that's not what you are about. You are about gas and electric.
And if gas and electric is deregulated in Pennsylvania, you will be interested in doing gas and electric.
Same customer base. Could be PGW's customer base. You are already going to be in electric all over the state.
So, now, if that's the case, then your interests in PGW aren't just limited to what we have in front of us. You have a much, much broader picture in mind based on where your company is trying to go.
The question is whether we have a broader interest beyond -- 328 BILL 970647
You have a Memorandum of Understanding that kind of is limited right now to the pilot. And that's just fine. Maybe you might do something in the future with PGW, maybe you might not. But, in any event, if gas deregulation comes, you are going to be in a position to be competing with PGW then for both gas and electric customers.
Yes. And the converse is true, Mr. President, that we are, essentially, providing experience to PGW that then they can then use to ultimately compete against QST.
But there is a difference. 329 BILL 970647 PGW has a base of a half a million gas customers. As far as I know, you have very little, if anything, in Philadelphia. So that the competition is not an equal competition by any means. If there is bad faith here, or if circumstances develop so that something entered into in good faith, but circumstances occur so that you become opponents of each other, isn't it true that PGW has much more at stake than you do if you get into a fight over customers? If you are fighting for gas and electric customers, you have a wonderful target in PGW.
Let me just speak to the issue of competition from PGW's perspective. I can't speak for QST. I think in this trial, any one of the suppliers who is in this trial will have the same options that you just mentioned relative to QST. They all have gas and electricity, and this is competition. So it doesn't much matter whether it is QST or whether it is the Southern Company or 330 BILL 970647 whether it is Energy One or whether it is PECO or whether it is DelMarVa. It doesn't really much matter. They all are going to be out fighting for the same customers. Now, in the structure of our deal with QST -- and of course we recognize, certainly, the pros and cons -- and I think in our minds, certainly, we have benefited up front from QST's perspective in terms of designing our business plan. But what I want to be clear with, that we probably haven't made this point clear --
I would like you to come back to those cons that you just mentioned right there. You said there were pros and cons. Earlier when I asked you what are the negatives about all of this, you said there were none. I just want you to clarify that.
In competition, by definition, some of it, President Street, you lose some and you win some in a competitive battle. So when I said pros and cons, what I was referring to is the fact that, in our 331 BILL 970647 relationship with QST, they are in the deal with us, but QST will have very little or no contact with our customers. All of the customer interfaces in our relationship with QST in Philadelphia are managed by PGW. The telephones, the bills, every part of the relationship where we have a contact with our customer is a PGW contact with a customer, no 11 different than it is today. QST doesn't even have any proprietary information, other than, I believe, the information that came to them through the PUC because of the fact that they were the licensed supplier. QST has very minimal involvement with our customers. Other than them hearing QST and PGW, I don't think there is any contact with our customers.
And nor does PGW have much contact with what QST does. Because QST purchases the electric, supplies the electric, does everything that it does. You do what you do; it does what it does. And that's one of my concerns about 332 BILL 970647 it. Because I have been asking myself, what are we learning from all of this?
What are we learning? If we have our proprietary stuff over here, and QST has it, and QST is the one who goes out and buys all the electricity and makes all the arrangements and does all the negotiating, how does that help PGW?
Here is the way I think it helps, President Street. The things that -- where QST has been very helpful for us up front -- and we talked about the compression of the time yesterday -- where QST was very helpful to us up front is structuring the business plan and the deal and giving us the advantage of how you participate. Because they have been in four or five electric trials, and I think had the first electric trial some time ago. So we got the advantage of not making mistakes on trial and error based on their experience up front. 333 BILL 970647 We don't know anything about electric supply. They are doing it, but we are right there with them learning how it is done. So I think it comes out to us about 50/50. And I don't see very much risk in terms of our customers with QST.
Let me follow on that for just one moment. QST will have one advantage in competition for PGW customers that no other company would have. You can call Enron all kinds of names for what they may have done in another country or in another part of the United States. You can fight with PECO, call them names, do that with everybody else. But you have given an endorsement to QST. You can't call them names because PGW said, "This is a company that we want to be associated with." And if you attack QST at any time 334 BILL 970647 thereafter, you are hurting PGW, showing what bad judgment PGW had, you know, in developing your relationship with the company you later attacked. So they do have an advantage. I'm not saying that's bad. What I'm concerned about is that you have a clash --
Councilman Cohen, I need to interrupt you for just a second to make an announcement. I would like to announce that the Council session for today, and the one that we recessed until 3 o'clock today, will stand in recess until 9 o'clock tomorrow morning. That Council session, the Council session of today at 10/23, will stand in recess until 9 o'clock in the morning. So if there is anyone here waiting for us to reconvene this Council session, we will see you in the morning. The Chair recognizes Councilman Cohen. Afterwards, Councilwoman Blackwell has some comments that she would like to make. I'm sorry, Councilman. I thought I better get that on the record soon. 335 BILL 970647
I am going to yield to Councilwoman Blackwell and get the floor back.
Thank you, Councilman Cohen, for yielding to me. On this matter I would only like to say, Mr. President, that I am really disappointed, after missing hearings, to come to hear all of this. But my specific concern, one of my colleagues mentioned the customer who might owe the company $15. But my question would be in reverse. What about the customer who is on an agreement, may be paying $15 with their bill; what happens to that customer? I am concerned about that. But I have to leave Council chambers, and I am glad we will continue this tomorrow. I wanted to say that I am going back to a school. I have been at Bryant School at 60th and Cedar, where we had a demonstration about crossing guards, where we now have a demonstration about heat. 336 BILL 970647 I also left during our break and went to the Belmont School, which is at 41st and Brown, that also has no heat. Last week when a young lady was attacked, the 17-year-old who was going to school and left early, I understand that that school doesn't have the proper program or people to help her. So my concern is, in my district, and certainly citywide as Education Chair, that we have a program, a pre-active program, that deals with heat in schools. And I must admit that I am very, very angry, irate, and upset with these problems -- in one school they have been applying for a part for eight months -- that there isn't some way that the school district deals with emergencies so that little children have the opportunity to go to a school in a safe environment and one that has heat. We knew the winter was coming. It has to come. I have no idea why the school district does not react, does not have a plan for these areas. I have been to two schools already 337 BILL 970647 today without heat in my district. And they tell me it is widespread, many schools throughout the city. And I will be introducing legislation next week to hold public hearings on this matter. Thank you and forgive me for making that statement before I leave. So there is no need for me to leave a --
If you will be here in the morning -- I understand you will be able to be around in the morning -- it is not necessary that you leave any votes. We appreciate your coming back, Councilwoman. We know how busy you were. And we would appreciate it if you could make arrangements to be here in the morning. The Chair recognizes Councilman Cohen, thanking him for yielding to Councilwoman Blackwell.
Thank you, Mr. President. What I am concerned about is the clash of cultures. Because you have to make profits, you have to satisfy your shareholders on the profit basis. 338 BILL 970647 That is not the concern of PGW. They have to satisfy the taxpayers and the ratepayers with respect to the service they render. For you to write checks to people, whether they owe you money or not, is one thing. You, as a private company, have absolutely the right to do that. And if a shareholder doesn't like that, he can take you to court for waste of company assets. But a government body is in a different position for ratepayers to be charged, or taxpayers to be charged, for this venture, into a different field, at a time when it is felt they are already paying too much for, you know, the commodity that they are being given and the service they are being given raises serious governmental implications. And that's the reason I say, any relationship between the two of you, somehow you have to have involvement or policy considerations at all times. It cannot be, sir, that all you are interested in is in helping the consumer. I mean, that's good to have that, also. But you have got to 339 BILL 970647 operate on a for-profit basis. That's not the concern of the Gas Works. So I wanted to make those concerns. I have heard other rumors, Mr. President, about QST, and I don't know whether they have the slightest degree of truth. Some people say you are interested because, as you look at the crystal ball, you see at some point PGW being sold, and you would like to get to know about it and decide whether, if that does happen, you want to be ready for it, and you want to know should you be one of those seeking to purchase it, or will you have some inside information, or can you help direct movement, you know, if you decide it is a worthwhile objective to have. So there are all kinds of rumors out on the street. Whether they are true or not, no one knows. You may not know. So that's the reason we are so concerned. And, you know, you bring this to us, all of you bring this to us, when we haven't had any time before to think about any of this. So for many of us, we are looking at this for the first time. If this goes through, if you get 340 BILL 970647 approval and move ahead on this pilot, we will all wish you well. But we do hope that QST will keep in mind that the other half of this partnership is a governmental body that has different kinds of problems. And I think it may require you to accept additional burdens in some areas, because the public body cannot accept them. Thank you, Mr. President.
Thank you very much. Is there any member of Council who has any other questions? I can't believe that no one has any other questions. Councilwoman Clark is saying no, no, no. 20 By tomorrow morning we probably will get refreshed. We will get refreshed. We can start looking over this information and these documents and making notes. I did have one last question. And I will tell you where it is. 341 BILL 970647 Councilman Cohen, I understand you are using this just to get warmed up for the PGW tax lien sale.
It might be helpful if somebody could put something in writing on what these contingencies are in the tax rente, the preliminary budget.
President Street, I don't have any specifics on that. Generally in projects like this, my experience is that the contingencies tend to be 5 to 10 percent of known and identified items. Here I threw in 30 percent because of the newness of the project.
Okay. Business Reasons for PGW's 342 BILL 970647 Participation. How can PGW use its current resources to expand into new businesses? What new businesses? I mean, what new businesses are we talking about, other than are we talking about businesses other than gas or electric? Business Reasons for PGW's Participation.
No. I think that was just referring to strategically, if we chose to go further after the pilot.
Well, we keep hearing that PGW wants to do other businesses, maybe phones or something. I have heard that. But does PGW have any other plans to do any other businesses that we might need to know about right now?
No, President Street. Where I think that comes from is I explained, in terms of the vision, the point that we were intentionally putting as much breadth as we could, and that we put as many things on the table as we think we can make money in the long-term in the expansion side. But, at this point, telephone service 343 BILL 970647 is one that everybody is looking at because of federal regulation and deregulation of telephone service and the fact that, at the local level, you have to be provided access. But I think at this point, clearly, we won't be able to do anything in that in the very near future. So the answer to your question is no, not to my knowledge.
Okay. Thank you very much. If there is nothing further right now. Is there anyone else in the chamber who wishes to testify on this matter, someone other than a representative of the companies involved or an Administration official? If not, this Committee will stand in recess until 9 o'clock tomorrow morning. Thank you. (Hearing adjourned at 4:10 p.m.) - - - 344 C E R T I F I C A T I O N I HEREBY CERTIFY that the foregoing proceedings of the Council of the City of Philadelphia of Thursday, October 23, 1997, were reported fully and accurately by me, and that this is a correct transcript of same. RE: COMMITTEE OF THE WHOLE _____________________________________ DEBRA A. WHITEHEAD, RPR