I think as a general policy we will do that and then we'll look at the exceptions depending upon the situation.
That is an issue that the board's taking a look at. I think the point is well raised that we could probably be more aggressive in how it is that we obtain all kinds of services. I wanted to add one thing about the Anderson contract. We actually had them -- the City approached Anderson. They offered to do it pro bono at a time when we had no idea what was going on with the computer system. There was a 106 BILL NOS. 000583 AND 000590, 9/27/00 point in time when we weren't sure that we were going to have to ditch the whole system and then bring in something new. Anderson came in, as Tom said, was very effective in helping us figure out what we were dealing with and then actually organize in PGW so that we could make the corrections that we've been able to make. There's also the KPMG contract. It's not a contract between PGW and KPMG. Do you want to follow up on that?
That contract is a contract the finance department funded because it's important to us at PGW, so we thought it essential that there be a controlled assessment. Additionally, the risk management was provided by our risk management department and there wasn't an outside consultant engaged.
One of the things that I raised early on when this issue first came to light, and it's probably one of the more symbolic problems with this agency, that over the last 30 years it has become a, I guess, a legal playground of some sort for outside legal firms and no-bid work. Could you give me an idea what 107 BILL NOS. 000583 AND 000590, 9/27/00 is being implemented? I heard rumors. A couple people told me off the record that there was some effort to eliminate entirely, if possible, the outside legal work that's being paid that agency had over the past years. 8
We are bringing 9 in-house most of the tort work that the company's 10 doing with the exception of the explosion cases. 11 The more serious explosion cases are still being 12 handled by private firms. We have hired one 13 attorney in order to handle most of those cases. 14 My overall strategy is to bring everything 15 in-house that we can. We are, nonetheless, 16 experiencing unusually high legal costs, and most 17 of those result from the deregulation process. 18 We have a whole series of negotiations that are 19 ongoing as we convert from the PGC governance to 20 PUC governance. And what we can do is provide 21 you with a detailed list of what our plan is, you 22 know, how we intend to bring cases in-house, you 23 know, those cases where we've actually hired 24 somebody, give you that information so that you 25 can even make the assessment. 108 BILL NOS. 000583 AND 000590, 9/27/00 This is a real opportunity area for us and we're serious about capitalizing on that. I think it's been interesting having Joe Rauscher on our board. And one of the things he said is that at the same time you go about asking the unions to give back and as we go about looking at some of their benefits, we've got to tackle in-house some of the other kind of patronage that goes on in the company, and he identified legal contracts and some of the other things, and so we are taking a look at that.
Would that take 10 percent of some of the firm's fees over the past 25 years and that will be able to fill the gap on our rate increase?
There has been a dramatic increase over the years, but it's still room for opportunity to cut some of those costs, but your point is well taken.
Thank you. With the permission of the committee, what I would like to do is call some of the witnesses that have been sitting here since early this 109 BILL NOS. 000583 AND 000590, 9/27/00 afternoon and maybe we can hear their testimony and then continue on with our business. Lance Haver. I really want to thank you for your patience. I know you've been sitting here since 2 o'clock. (Witness comes forward.)
Good evening, Madam President. Thank you very much. With me is Tina Nelson who is CEPA's executive director, but for those of you who know me over the years, I am the institutional memory for CEPA on PGW, so I will be very brief. My name is Lance Haver. I'm now a board member of CEPA, the Consumer Education Protective Association, and I'm an active party in PGW's rate hike case that is pending before the Public Utility Commission. I am here today to urge you to amend the ordinance before you pass it so that future payments from PGW to the City will be tied to performance. Unless you amend the ordinance first, you are in effect allowing the problems that created PGW's financial crisis to continue. There is no question that PGW is in a 110 BILL NOS. 000583 AND 000590, 9/27/00 financial crisis. The past management of the Gas Works wasted literally tens of millions of dollars. They bought a computer system that has failed to operate. This has cost tens of millions of dollars in overruns that has led to problems that have hampered billing and collections. In addition, past management abuses such as forcing consumers to pay contributions to private colleges, limousines, massages, and bath robes have added insult to injury. The major problem is the City and the Board of Directors of the Gas Works, the Philadelphia Facilities Management Corporation, have no economics incentive to run PGW well. As members of counseling know, every year the City collects $18 Million a year from PGW regardless of how well the Gas Works is run. This is unconscionable. The City should only be entitled to collect a payment from PGW if the Gas Works is well run. Like all owner of all other utilities, the City should only receive a dividend if the company is well run and profitable. All future payments from PGW to the City must be tied to PGW's production and 111 BILL NOS. 000583 AND 000590, 9/27/00 efficiency. The City is not entitled to a single cent from the Gas Works if it cannot adequately manage the utility. On top of PGW's internal problems, the rising price of natural gas at the well head is forcing PGW to seek a rate increase that will lead to thousands of people falling behind on their bills. I want to be very clear on this point. PGW is seeking a 30 percent rate hike. The rise in price of natural gas is responsible for percent of the 30 percent rate hike. In 13 other words, 66 percent of the total rate hike 14 PGW is seeking is being caused by the price of 15 natural gas at the well head. The doubling of 16 natural gas prices has been caused by the 17 nation's faulty energy policy that allows big 18 business to price gouge and act in collusion with 19 oil companies conspiring to raise prices as high 20 as they can. There is little, if anything, PGW can do to bring down the price of natural gas. At a time when President Clinton says he's concerned about the price of heating oil and released millions of barrels from the country's strategic reserve, he has been absolutely quiet 112 BILL NOS. 000583 AND 000590, 9/27/00 about the price of natural gas. I believe this Council could and should act as a body to ask the President and the Department of Energy to care as much about the people who heat with natural gas as they do about the people who heat with oil. In closing, I would like to state on the record that I have faith in the new management team of PGW, and I am very thrilled that Mayor Street has hired Mr. Knudsen and Mr. Hershey as they have for many years worked with consumers attempting to make utility bills affordable. I believe consumers will be well served by their tenure. In closing, I urge you not to pass this or any other ordinance having to do with rescuing PGW before amending the ordinance so that there is a link between PGW's performance and the payment to the City. I'll be happy to answer any questions.
Thank you. Are there any questions from members of the committee? (No questions.)
Thank you 113 BILL NOS. 000583 AND 000590, 9/27/00 very much.
Good afternoon, everyone. Madam President, I'll be very candid. I was not able to attend the hearing last month in reference to the 30 percent increase to be paid by the customers, so judging by what I'm going to say today, it will be very clear how I feel about the increase to pay for future purchases of gas. There was less trouble before PGW took over the Gas Works Company and ever since PGW has been financially oppressing the residents, the customers low income. PGW does not hesitate to cut off the customers' supply if they do not pay up. Now, after hiring someone to head the company who have mismanaged the money from PGW Company expect their customers to pay for that mismanagement. It's, again, putting their foot on the customers' necks to pay the current charges. I suggest that you legally 114 BILL NOS. 000583 AND 000590, 9/27/00 demand restitutions from the manager who mismanaged the company's money. Second, if you must penalize the customer, consider the 30 percent. You put all types of information in the monthly bills sent to the customers, therefore, state the exact amount that is paid each that will go towards making up the loss due to the mismanagement. Approximately seven years ago at a public hearing, I suggested to the Philadelphia Gas Works, Philadelphia Electric Company, Philadelphia Water Company that they should publish through the media at the end of each fiscal year their assets and liabilities and purchases. This will promote a better public relations in dealing with the customers. Thank you.
Thank you so very much. Thank you for your patience. Reverend Shine? Is Reverend Shine still here? (No response.)
He's out here. (Witness comes forward.) 115 BILL NOS. 000583 AND 000590, 9/27/00
Good evening, Reverend. Thank you for your patience. I appreciate your waiting this long to testify.
Madam President and Councilmembers, the PGW has made a very comprehensive and exhaustive case. I think it's time that John Q make their case. John Q. is represented here in the person of these elderly citizens, and I include myself in that number. Thank you for this opportunity. My name is Reverend Robert Shine, Vice President of Black Clergy of Philadelphia and Vicinity and a user of PGW's services. Ella Hendrix is a 75-year-old widow and a kidney dialysis patient with a very limited, extremely limited fixed income. And I'm not privy to the count of the spots on the roll of the dice for this rate increase, but I am privy to the Anna Hendrix in every Councilmatic District in this City because they are there, and every Councilman and woman has the Anna Hendrix 116 BILL NOS. 000583 AND 000590, 9/27/00 who could ill afford a significant rate increase. Whatever the weather conditions might be, it will not be in the best interests of our City to have the citizenry who are on fixed income, those who we applauded from welfare to work now being strapped with an additional financial burden and then to have the citizenry to have to pay for acts of God, whether the weather is inclement or whether the weather is very mild and then to have PGW services. Earlier this year we warned City Council about the fiasco the computer problems that they had and the millions of dollars, then the hiring of others with exorbitant salaries and the cost overruns when that problem existed. Then to come before City Council and to suggest that the citizenry pay the burden for their bad management, the utter catastrophe over there, the fiasco in financial management, and then to say that the elderly can afford it, to say that those from welfare to work on limited incomes can afford it, to say that the jobless can afford it, to say that many who are just eking out a bear existence can afford it. 117 BILL NOS. 000583 AND 000590, 9/27/00 Anna Hendrix lives in a six-room home on a dead-end Street, 58 East Earlham Street, where it is a home that has been there for centuries and the house does not have all of the proper weatherizing and so, therefore, she's doing the very best that she can, but the Anna Hendrix that I know is all over the City. The bottom line is in the comprehensive case stated by PGW is to passed on to the citizen, those who can and those who cannot and those who can least afford this rate increase are the significant one. Problems encountered by PGW must not be the burden of the citizens. If there is an appropriate management style there and the consultant fees paid to put that house in order, who's helping put the house in order of all of those who can least afford this and living in houses that need weatherizing year after year? In addition to that, the fiscal accountability if this chamber should decide -- this is one of the best chambers that I've ever had the privilege of coming before. But if this chamber should, then there should be some way by 118 BILL NOS. 000583 AND 000590, 9/27/00 which any rate increase, whether we speak of the million, the 45 million, whether we speak of 4 the combined amount needed to operate the PGW, 5 then there ought to be some kind of 6 accountability in the system by which City 7 Council holds PGW responsible for. Because 8 without this, this is a ten-year, perhaps even 9 longer, problem. And now to get out of the that 10 problem, let's give it to the citizens, let them 11 bail us out. Well, then let the citizens take 12 over the PGW, let them operate it, and let them 13 bring in management. 14 The gas crisis ought not to be the 15 consumers' responsibility. We have this problem 16 at the pump; now we're going to have it at the 17 meter. We're paying large amounts for gas at the 18 pump. Now you're suggesting the citizens to pay for it at the meter.
One thing I could ask, would PGW, without being cold and callus about the rate increase they seek, be as humane and considerate and as compassionate for the elderly and give them some relief? Why must they bear the same rate increase as others who can well afford it? 119 BILL NOS. 000583 AND 000590, 9/27/00 Why not give them some relief? Why across the board of every spectrum of age should everyone be responsible for their mess-up? That's what we have. So we urge this body not to support, as is, this significant increase until City Council in its majority are satisfied that how they plan to do this and not to place this burden on every citizen. We know what we have in our City. Our churches have all these members, whether in the synagogue, the mosque, or whether in our churches. At times during the winter, pastors such as myself have to go to the church's treasury to pay the gas bill for some of our members. And having to do that means with an additional increase, how many more will suffer from that? So then with these exorbitant salaries, this extravagant wasted computerized system that was installed over there and the litigations and all of that that was going around this thing, then it is our good judgment that some consideration be given, that PGW just not 120 BILL NOS. 000583 AND 000590, 9/27/00 give comprehensive data and fill our heads with a lot of information that maybe John Q. does not really truly understand at all anyway. But they do know when they've got to take out of their check that they get monthly and pay an additional cost, they do know what that means to them. They, too -- we hear about the mental care expenses and the health care for the employees and union in support of this. , they're on fixed income, they've got Medicare, they've got food, they've got other incidentals, they have the regular day-to-day operations, the doctor bills, the hospital bills, they have all of those things above; and yet we're asking them to pay for the mistakes and problems from PGW. Before we entertain the idea of a rate increase passed on to the public, why not come up with some other alternative ways of managing that. Could it be more downsizing? Could it be more other passing on? The federal government will at some point in time, I'm sure, provide more money to the cities if the weather becomes so severe and 121 BILL NOS. 000583 AND 000590, 9/27/00 inclement. And how will that money be spent? Will it go toward large salaries that were earlier this year paid out? Would it go to some other expenses for renovations for capital expenses? There needs to be more accountability brought before this chamber, and the public needs to be the last and the least ones to have to bear this out. The public must pay? What must the public pay, for what, for whose mistake? Who pays for my mistakes? Will PGW come and pay for my mistakes? Who pays for the mistakes? This is a utility. It has a management. Unfortunately, it was a bad management. Everyone has admitted to that. So the way we get out is to put it on John Q. You cannot expect these elderly to keep bailing out. When I retired, I had hoped to live happily ever after. And everyone who does retire does not want to have additional expenses. And now after all of the working years and we're going to say to these people, "Ma'am, too bad. Pay up or we'll shut you off. Then we'll give you a period of time if the weather's too bad, 122 BILL NOS. " Incredible thinking. Let's be more sensitive and compassionate toward the people who you are asking to bear this responsibility. Madam President, I think there can be, because of this office, the Chambers of City Council, and the wisdom that comes from here in the past year, I am certain that together with PGW you can find together an alternative, perhaps maybe putting it on a referendum and let the citizens of the City vote on it, perhaps doing that may be the result. Thank you, Madam President.
Thank you so much, Reverend. Are there any questions or comments from members of the committee to Reverend Shine? (No comments or questions.)
Thank you so much. I believe we have one last witness that I'm aware of, and that is someone from Action Alliance for Senior Citizens. I believe we have a representative. 123 BILL NOS. 000583 AND 000590, 9/27/00 (Witness comes forward.) UNIDENTIFIED SPEAKER: Madam Chairperson, could I get a minute after this lady?
Yes, if you'll just be patient. ACTION ALLIANCE REPRESENTATIVE: Thank you very much.
Good evening. ACTION ALLIANCE REPRESENTATIVE: I have patience after all these years. Good afternoon, good evening, or whatever it is by now, Madam President. Congratulations on your elevation.
Thank you. ACTION ALLIANCE REPRESENTATIVE: I have seen you since that day. I have been coming here representing Action Alliance for Senior Citizens for over 20 years. I'm still here. And I see new faces. I see new people at the gas company. Some of those that we knew have gone. And these are new fresh faces, but they have the same problems. I see my friend over here, 124 BILL NOS. 000583 AND 000590, 9/27/00 Councilman Cohen. He's by my side all the time. He's been with us and we appreciate it. So to get back to -- not to reiterate and not to repeat the problems that have come up, but it is going to be a great problem with the increase of gas for us seniors. We know, as they say that this is has been going on for years. 9 We know it. With the new management and old 10 management we knew it. We're still fighting it 11 and we're still not getting anything any better. 12 Now they tell us to turn our heat 13 down to save our bill. I've got osteo, I've got 14 arthritic legs. I cannot walk around my house 15 with a cold house. I should not have to. I'm 16 four score and more, I should not have to, and 17 every other older person in this City should not 18 have to keep their house cold to save their money 19 so that they can pay their heat. And some of 20 them can't eat. They have to figure it out, "Should I get my medicine, should I have something to eat, or should I live in a cold house?" This is obscene. This is not necessary. This is a old city, we know. Some of these people have not been here. I was born 125 BILL NOS. 000583 AND 000590, 9/27/00 here. My father was born here. I know what the gas business was. When I was little, we didn't have gas heat, we had the little incandescent light, you know, and if they'd run out you'd have to run to the corner and get a quarter and put it back on. These people don't know this history. I can give you the history of this City. And then later on we had coal. And then as we progressed, we got gas. And we should not have to suffer because we can't pay our gas bill. And, of course, going along with our Councilperson Krajewski, I got bills for a thousand and some dollars. Some of my members of Action Alliance got a thousand and some dollar gas bill. For what? They were paying their gas all winter. Now getting back to the mild winter as they want to excuse it. We had a mild winter. But they reduce their production is that we're supposed to have so much cold weather that's why they didn't get the heat, they didn't get the money in. Well, that's too bad. God gave us a break. We had a mild winter. But we had a hot 126 BILL NOS. 000583 AND 000590, 9/27/00 summer. We had hot a summer. We didn't have one last summer, but the summer before and going all the way back to '93, we had a hot summer and we lost people due to heat. And we were still paying the gas bill. The heat in the summer, we lost 90-some people in August because of the heat and we lost 113 people in September because of the heat and we were paying the gas bill. This is outrageous and nobody in this City should condone it and no gas company should condone it and this is unnecessary. And I certainly believe that something should be done and we insist that it be done. Action Alliance has over 300 clubs and centers, and we should insist upon it being done. We have to live, too, and we have lived through three wars and we have brought our children up who are paying taxes. No thanks, we do not want that today. Thank you very much.
Thank you, I'd like to have you on my side when I'm in a real battle. Thank you so much. (Applause.)
Mr. Hershey, would you mind approaching the witness 127 BILL NOS. 000583 AND 000590, 9/27/00 table and addressing the concerns as we just heard from Action Alliance and how this would in fact affect seniors? (Witness comes forward.)
Thank you, Madam President. My name is Steven Hershey. I represent the City of Philadelphia in matters related to PGW. As you all know, I also spent 29 years as a legal services lawyer representing low-income people and many of those years were involved in fighting PGW with Tom Knudsen as my chief consultant. We were lucky enough to create with the assistance, with the more than assistance of Gas Commission chaired by Lucien Blackwell and Marion Tasco, in particular to create regulations which protected poor people during the winter. With the current Gas Commission regulations and the current PUC regulations, it is almost impossible to shut a residential customer off during the wintertime. The regulations are so difficult that the utility has to apply to the regulating commission and 128 BILL NOS. 000583 AND 000590, 9/27/00 approval to shut off a customer is almost never granted. In addition, it should be very clear that regulations that are currently in place at the Gas Commission and at the Public Utility Commission are such that low income customers will not feel the burden of the proposed rate increases. Customers at or below 135 percent of poverty pay their gas bill as a percentage of their income regardless of how much the rate increases are in the tariff. They will pay a fixed amount. Between 135 and 150 percent of poverty, they will be on a budget plan with additional protections. The people who are obviously the most vulnerable to the kind of rate increase that we're discussing here are people above 150 percent of poverty. And I don't mean to minimize the exposure of the burdens that they will endure. But there are protections in place for the most vulnerable people in our society. I also have to say that in all of the time that I've been in Philadelphia working as a legal services lawyer or an attorney now in private practice, no City Administration has been 129 BILL NOS. 000583 AND 000590, 9/27/00 as sensitive to making PGW run right as the current Administration. This Administration has for the first time that I know of put the $18 million City payment in play. They've gone to ask for this loan. And I must tell you that we have looked for every alternative that we can find and we have -- we have budgeted in cost savings, we've done everything possible to minimize the burden. The problem is that we inherited a very, very difficult mess. I think everyone understands that. Your question is, what are we going to do now? No one's going to be shut off in the winter. Are we going to fix this utility and do it right or are we going to throw up our hands and say it shouldn't be the customers' burden? I think everybody has to share the burden. That is the only way this utility will survive, and that's all that we're asking.
Thank you very much. Sir, would you mind pushing the button and identifying yourself for the record.
My name is David 130 BILL NOS. 000583 AND 000590, 9/27/00 Swanson. I'm just a concerned taxpayer here in the City. And I thank the Reverend. That was a very good talk that he had there. The train is running toward the wall and I don't know if Council is -- I'm sure they're aware. I don't know what they can do, but I'm seriously thinking about leaving the City. It's just these quality-of-life issues and they just keep mounting. The Gas Commission has been a boondoggle for a very long time, and I can't fault the people here although some of them have been around for a while. But how it got in this disrepair, I'm not sure, but there are people like me that will be leaving and when I leave you'll only have the older folks here to tax and I'm not sure how many of those folks will be left after a while so... It's not just this issue, it's all of the issues in the City here, and this is just one of them. But I can relate to constituents in Miss Krajewski's district. I had a bill, what, last year I think it was, for like 15 or $1800. I was trying to get a loan, a refinance loan for 131 BILL NOS. 000583 AND 000590, 9/27/00 my apartment and being that I got this 2,000 or $1800 bill, it held up my getting the loan. I wasn't too happy about that. When I tried to pay it, the person that I called -- well, first of all, it takes a half hour to get through. You know, if this were a regular business, these people would have been out of business a long time ago. It takes a half hour to get through and then the lady was almost like clueless, you know who I have to come down to pay and it would have to be a certified check. Fortunately, two months later after I got this problem taken care of, I was able to get my mortgage, but it held it up for a while. Then I had another problem. When my apartment was being refurnished downstairs, I set the heat on 60 degrees so the pipes wouldn't freeze and the gas bill I got throughout that winter was the same almost as what I had for my apartment. So when I called the gas company to get some kind of answers, how the bottom floor apartment could be the same almost as the top floor, the lady said, "Well, when you set the heat at 60 degrees, it cost almost as much as 132 BILL NOS. " Now, I'm not a rocket scientist, but it doesn't take a lot of intelligence to figure out that when you have your heat set 75 degrees versus 60 degrees, the bill should not be the same, but I wound up paying that. It's situations like that that people, the taxpayers don't have any faith in the gas company at all. So if you're going to pass this bill, I will be very careful about how you disburse the money. And I heard these other folks talking earlier about the City's going to try and help them and whatever. That may all be good, but unless there's some major reconstruction at the gas company -- I think you should just probably sell it if you can because I don't know if it can be fixed even with the new people there in place now. And I'm sure Council is concerned about that. I know you were talking about going to the PUC and getting a rate request. Well, I'm sure that part of this when Harrisburg when you go there asking them for money and they look down 133 BILL NOS. 000583 AND 000590, 9/27/00 at Philadelphia and say, "Well, gee, you know, they cost them $200,000 to move the new manager in and they waste money doing this, that, and the other thing," I can understand their frustration; and if I was in Harrisburg, I would probably be concerned, too. So I don't want to take up a whole time of time, but I just trying and ask the Council to be very, very cautious. And maybe with the money going up for the gas increase try and take care of that problem. As far as any other money problems, I would not try and bail them out. And if you do loan them the money, to be honest, I don't think you should say, we're not going to get this money back because and I think you realize that Mr.
Ortiz was basically going down that street, too, that you're not going to get that money back. And as far as I think it was Councilman Clarke there saying that he was trying to understand how they keep incurring all of these costs every year. Well, I mean, if I was in the gas business, I will try and forecast -- I'm sure other people do, they use long-range 134 BILL NOS. 000583 AND 000590, 9/27/00 weather forecasting. I'm sure other people use that if they're in that type of business. And why the Gas Commission doesn't or why the gas company doesn't do that is beyond me. Also, what does the Gas Commission -- how come they haven't foreseen all of these problems that we're in now. I don't know if that needs to be taken under the Mayor's Office or what. Is that possible or how do they sit back and see all of these problems coming, the Gas Commission? Can anybody answer that? Do they really have any authority or what do they do?
Well, I mean, there is a board, the PFMC board who has the contract with the City to manage PGW, and you can hear from the testimony today that those people who were here prior to this Administration are no 21 longer a part of the board. And it is a question of accountability and authority which we will be looking at because there is no accountability.
That's true. The Gas Commission, that's different than this PMC Board 135 BILL NOS. 000583 AND 000590, 9/27/00 or something, right?
The Gas Commission was the regulatory body prior to any set rates and tariffs. That responsible now rests with the State PUC. The Gas Commission now has the budget oversight, but there's no one entity in the City that has teeth to hold PGW accountable. While we have this interim team here, we still have to look at what mechanism we put in place to hold the company accountable.
Was Mayor Rendell, was he aware that the Gas Commission train was heading toward the wall?
Thank you. Is there anyone else who would like to testify? (No response.)
If we don't 136 BILL NOS. 000583 AND 000590, 9/27/00 have anyone else, I would invite the members of the Administration back to the witness table. (Witnesses come forward.)
Thank you, Madam Chair. I want to make sure I understand the comments of the person in front of us. Mr. Knudsen. (Witness comes forward.) In terms of the potential involvement by the City in the Gas Works present financial difficulties, is it my understanding that you are seeking, not only upwards of a $45 million loan from the City, forgiveness of the $18 million payment that you normally make to the City, and somewhat less discussed, potential $5 million backstop for debt service coverage ratio if you have the need; is that correct?
What we're seeking is a loan of up to $45 million to address cash flow problems. The City is in conversations with the PUC and may end up recommending that the City place on the table $18 million. 137 BILL NOS. 000583 AND 000590, 9/27/00 On just-ended fiscal year there some question about the company making debt coverage, and the City is prepared to stand behind the company to assure that we don't violate the covenants. The fiscal condition at PGW is perilous, and the City is prepared to stand by the company to prevent a collapse. We have been advised that if the company begins to fall apart, that eventually it will end up the impacting the City's credit rating. We do not want to start down that path and so the City has committed up to $5 million to assure that debt coverage is achieved this year. We are prepared to -- we are making a request for the $45 million loan to assure that we can continue in business past mid-November. We are involved in negotiations with the PUC. We are trying to minimize risks as we go forward and have a whole host of issues on the table and conversations with the PUC. The PUC views the kind of commitment, the kind of potential loan commitment from the City as being extremely significant in its discussions with the company. We use it as a move in the right direction, and that is one of 138 BILL NOS. 000583 AND 000590, 9/27/00 the reasons that we're urging the passage, the timely passage of this bill is that those negotiations are ongoing right now.
The negotiations with the PUC over the interim rate. When the PUC first took jurisdiction, the City asked for a number of things. We asked for the PUC to give us an emergency rate increase. The PUC indicated to us that that was not available. We have begun talking with them about an interim rate increase that will be in place while they could mount a full-blown base rate case.
Let me go back to that. You said that they said it was not available. Now, in earlier questioning I believe I asked Mr. Knudsen what happens if you don't get the $45 million. I thought his answer was we would then pursue emergency rate relief --
-- which we believe the law allows us to get because the PUC 139 BILL NOS. 000583 AND 000590, 9/27/00 has to ensure that we have the money to operate. Now, have we taken that particular step?
There is a difference between interim rate relief and emergency rate relief, and you're going to pursue emergency rate relief from the Gas Commission?
The PUC has different regulations regarding permanent base rates and what they call emergency rates. We have asked for interim rate relief because the rules on that allow for faster proceeding that are more suited to the needs of the company right now although the parties participating and the PUC have agreed to allow that.
Have agreed to what? I'm sorry? Both parties have agreed to what?
They have agreed to this procedure but only on the condition that it be followed immediately by the longer process base rate case which would lead to a so-called permanent order, more permanent than the interim 140 BILL NOS. 000583 AND 000590, 9/27/00 order. Now, having said that, we've argued at the PUC that under the current statute, the PUC obligated to follow the practices and procedures that exist at the Gas Commission. And if we are successful in persuading them to do that, then the final base rate case would be completed somewhere around May. There has not --
Talk to me about this emergency rate relief issue. I'm trying to understand that.
I would not use the word "emergency" because it's not called that. That's a different animal of the Public Utility Commission. It's the interim rate case which we are in the middle of now.
I understand what you're in the middle of. I'm not talking about that. Mr. Knudsen said if you don't get the $45 million, your next move would be, I thought the phrase was "emergency rate relief" to which you believe you are entitle by the law. Now, Mr. Knudsen, did you say that or did you not say that? 141 BILL NOS. 000583 AND 000590, 9/27/00
There is provision in the Public Utility Code for this emergent kind of proceeding.
Well, it means that if our backs were absolutely to the wall and there was no alternative, that's what we would have to do because the law requires the PUC, not the PUC Code as it applies to the utilities, but to this municipality they have to provide us rates and we would prevail on them to do that.
We weren't in a situation that -- an alternative was available and that is the interim proceeding as they have defined the process. They wanted -- there were certain restrictions --
But the interim procedure, it seems to me, is going to take too long for your cash flow problem.
The interim procedure will be over by the 9th of November. We asked 142 BILL NOS. 000583 AND 000590, 9/27/00 initially that the litigation and the decision be over and rendered by the 1st of November. Their first meeting after the 1st of November is the 8th or the 9th, so that's what they have committed to giving us. That will get us into getting our buildings in position by the beginning the winter season.
The other half of your question, you said you thought that the rate increase would come too late to meet the cash flow problem, and that is correct. That's exactly why we're here because even if we are completely --
That's the point where I want to be. I guess I'm trying to figure out if you have another avenue, if you have another step which is this emergency process, if for some reason you did not have access to the City resources but you have already assumed that you have access to City resources. But if for some reason you had no access to City resources, wouldn't you be pursuing that particular track simultaneous to the interim rate increase process? 143 BILL NOS. 000583 AND 000590, 9/27/00
You made an assumption in there which I think was not accurate, and that was that we assumed that this loan would be available before we went to the PUC. We went to the PUC and were successful in obtaining the fastest process that we could get from the PUC. After that was underway, the impact of the increase in gas costs became larger and clearer. And as the testimony that's been filed here says, for the months of July and August we ran up costs that were $17 million above budget. That has continued during the month of September, and it's clear that it's getting worse by the month. And it is with that information it becomes clear to us that a PUC decision on November 9th will not remedy this problem because even with the decision on November 9th, you change the rates, you send out the bills over the next, you know, beginning immediately, and the cash doesn't start coming in in response to that billing for 45, 60 days, and it takes a long time to capture the benefit of that. And so that's what has put us in the process of coming to this Council to ask for a loan. 144 BILL NOS. 000583 AND 000590, 9/27/00
Now, the document that was handed out earlier in support of the bill Mr. Knudsen was going through earlier, this is your projection on your revenues through August of next year; is that correct?
Yes. As I indicated, this our worst-case scenario. Right now we're pursuing an additional $70 million beyond what applied for with the PUC.
It's included in the revenue projections and in the receipts projections on the third page. It's in these numbers.
Well, it would be on the third page, the additional receipts associated with $70 million would be under the gas line and on the fourth page, which is the state of income, it would be throughout the first 145 BILL NOS. 000583 AND 000590, 9/27/00 section of numbers there for total operating revenues of 764 million. It would be in those numbers.
No, the 45 is not reflected here. I wanted to demonstrate to you, as I did with our earlier discussion, where in the year and for what reasons we would need to call upon that $45 million.
We are proposing to pay it back within the months as the PFMC 16 agreement allows us. 17
I understand 18 that. Where in this first year of expenses, 19 revenues and expenses would you be able to show 20 that you would be making payments? You're going 21 to make monthly payments? Do you anticipate 22 making any in the first year? All in the second 23 year? 24
Well, the only place that it would appear would be on the cash flow 146 BILL NOS. 000583 AND 000590, 9/27/00 statement. Frankly, Councilman, it's hard for me to say specifically because we don't know what the interim rate relief is associated with all of this. So think it would depend on when we got it, first in the fall and then again in the April-May period, as Mr. Hershey indicated. Depending upon that, it would affect when we could reduce the outstanding balance. But as I indicated earlier, it is our intent right now, it is being purchased essentially to fund gas purchases when we recapture those purchases in rates and those rates are paid, we would presumably have the funds at that time.
Well, do you have one of these documents that goes out for the two years and shows how you would be able to repay the $45 million? I mean, is there a document among anything that you have given us that shows a repayment of the $45 million?
For the second year we don't have that. I don't have it with this additional 70. I do have it with the 97.
So then what is the basis upon which your testimony is that you'd 147 BILL NOS. 000583 AND 000590, 9/27/00 like 45 million and that you intend to pay it back? What to we have that demonstrate that? What is that commitment based upon?
We have the requirement under law of the PUC. We are having difficulties right now being between jurisdictions and not having had time to work all of these things out, and that's why we're here.
Let me just add that the difference between the $97 million request for the increased gas cost which is currently on the table at the PUC and the $70 million additional cost will be reflected at the PUC timely so that to the extent that we believe that those forecasts are accurate, we have the right to file and get recovery from the PUC for those costs. In fact, some of the parties at the PUC have already urged us to increase the amount of our request to reflect what every other utility in the State is experiencing and so we are confident that when it is clear that we will actually experience costs at those levels we can ask for it again and so that provides reassurance on the cash flow which in turn provides 148 BILL NOS. 000583 AND 000590, 9/27/00 reassurance that we'll be able to repay the loan.
Regarding an issue with executive director (inaudible) raised an issue with regard to PGW. Knowing PGW's created a situation independent for the City and asked the City to be at risk for all five years of the plan there is thus strong a likelihood that the City never realize the $90 million of revenue it presently anticipates over the five years. (Inaudible) had the payment not been made the City faces a net loss of about $17 million. Whether it's the $45 million loan or the $18 million forgiveness of PGW payment to the City, what does that do to the City's budget and its present five-year plan?
Because we're funding the 45 million from the fund balance, the fund balance that was not anticipated when we originally budgeted, at this point it does not create a problem. The 45 million does not create a problem at this point. The 18 million is more of an issue, but one that we feel we will be able to address as time goes on.
Madam Finance 149 BILL NOS. 000583 AND 000590, 9/27/00 Director, you expertly preface your comments by saying "at this point."
We're looking at our revenue projections and where those are, and provided we have no other catastrophes, if we should need to forego that $18 million, we could make sufficient adjustments to accomplish that.
Is it accurate to say that at an earlier point in time in the year you did not necessarily feel that way about the $18 million?
You actually opposed the forgiveness of the $18 million and expressed very strong views that the City needed the $18 million and you expected to get it.
I still feel that way and we did, in fact, get it in our Fiscal Year 2000. It is not something that I relish giving up. It's something that is essential and a very important part of the City's continued financial strength so I don't relish the thought of foregoing it, but I think the alternative if PGW 150 BILL NOS. 000583 AND 000590, 9/27/00 needs it, allowing PGW to fail is not an option that this City has. There's too much that's riding on it. The City is the owner of the gas company and we would be the deepest pockets around under any circumstances. I don't think there's a way we can absent ourselves from this situation.
I understand that. All I'm saying is a month ago, you said or was quoted as saying, "I can only say that it is required. We cannot make up for the sins of the past by punishing the City. The City requires that $18 million and it's a part of the City's five-year plan and it's part of what's keeping the City's solvent." Has there been a change in your position?
Given what we've seen in our year-end, there has been growth in the surplus from where we budgeted. We are better able to absorb it for one time. We cannot make it an ongoing commitment. An ongoing commitment forgiving that $18 million on an ongoing basis would be devastating to the City. 151 BILL NOS. 000583 AND 000590, 9/27/00
What's to prevent the company -- once you do it one time, what's to prevent the company from asking for it again under distressed conditions?
We're trying to put in place a rate structure that will protect against that. That is why we're here, in part, asking for the 45 million. It enables us to have negotiations with the PUC that will help us try to avoid that.
I can't overemphasize how closely linked the various pieces are. This is, you know, this is a negotiation that's ongoing. Having the City come to the table prepared to make a $45 million loan is critical, the discussion about the $18 million is critical, and it is our judgment that, you know, that if we're able to lock down a negotiated firm rate increase, it is very much in the company's interest and also in the City's interest to do that.
If I can just emphasize 152 BILL NOS. 000583 AND 000590, 9/27/00 one point that Miss Wilkerson made about the rate increase that we're likely to get from Harrisburg being linked directly to anything that the City is willing to pay, that has been made painfully clear to us from every party participating at the Public Utility Commission, and that is that our chances of getting the rate increase that we need in order to stabilize the company are just about zero unless the City makes a commitment to share the responsibility. That has been made clear time after time, and it's linked.
By whom and under what authority and jurisdiction? I know you're saying that. I guess, if you went back and the PUC said, you know, is not enough and we think 17 the number should be 50 or we think the number 18 should be 100; I mean, where does the PUC have 19 any jurisdiction whatsoever to demand anything 20 from the City for loans or anything else to this company? And who said it?
We've heard it from every consumer party, meaning specifically the Office of Consumer Advocate. We've heard it from the Philadelphia consumer groups being 153 BILL NOS. 000583 AND 000590, 9/27/00 represented by Community Legal Services. We've heard it from the Office of Trial Staff of the Public Utility Commission. We've heard it from the commercial industrial groups. And we've heard it, shall I say, informally.
Councilman Kenney's question was where did we hear that the City -- that from their perspective they didn't want to agree or testify to a rate increase without the City sharing the responsibility, that's what we heard. And we've also heard that --
Part of what the City's challenge is, is at least to get the interim rate case nailed down. I think there are a lot of issues that are ripening that the City may challenge, but that is a long-term proposition and the City has very short-term emergency needs. We are interested in trying to negotiate some kind of interim rate relief while we explore the fuller rate case where we intend 154 BILL NOS. 000583 AND 000590, 9/27/00 to protect our rights under the State statute. We think that it's very clear that the rates are supposed to be set based on the budget that is adopted by the Gas Commission, you know, and those are issues that we'll be raising an pursuing in the base rate case.
But that budget historically never included any particular loan, contribution, or anything else from the City.
That's right, because the company wasn't in need of that kind of assistance, that's right. What has happened is anomalous. The company is end up being caught between jurisdictions. One of the questions you applied was why there was this, you know, people identified and the need for rate relief. What we ended up doing was falling into a no man's land where not enough time left for the Gas Commission to provide relief and at the same time there was no 22 jurisdiction on part of the PUC. And so this has been a very difficult period of time for the company. It's come at a time when gas costs have gone through the roof creating all kinds of cash 155 BILL NOS. 000583 AND 000590, 9/27/00 demands for the company that were unprecedented. There is no clear course. The PUC is reluctant to being aggressive because it doesn't understand the company. And so in a lot of respects, we are charting new ground trying to nail down as much as we can so minimize the risks, both for the company and the City.
As you know, the Mayor is going to be on in about three minutes. Would it be appropriate to make a suggestion that we either continue this hearing to a date certain so that we can view the very important words of Mayor in relation to the School District?
I'll raise the question to the president. Madam President.
President Verna, we have a point of order on the table. Councilman Kenney request that we recess to hear 156 BILL NOS. 000583 AND 000590, 9/27/00 the Mayor or recess until tomorrow.
Or to a date certain. The Mayor is on in two minutes. I'd like to see it. I don't know about anybody else. We could recess to a date certain.
I think the Mayor has indicated it's only going to be seven and a half minutes.
Seven and a half minutes is an important length of time. I'd be willing to come back another day and discuss this with more information. I don't see the reason why we need to do it today.
This committee will stand in recess for ten minutes, please. - - -
The Committee of the Whole will stand in recess until tomorrow morning at 9:30. Thank you. (Adjourned at 8:15 p.m.) - - - 157 C E R T I F I C A T E I HEREBY CERTIFY that the foregoing proceedings of the Council of the City of Philadelphia of Wednesday, September 27, 2000, were reported fully and accurately by me, and that this is a correct transcript of same. RE: COUNCIL COMMITTEE OF THE WHOLE BILL NOS. 000583 and 000590 __________________________________, JOSEPHINE CARDILLO, Registered Professional Reporter