- - - COUNCIL OF THE CITY OF PHILADELPHIA PUBLIC HEARING - COMMITTEE ON FINANCE - - - Room 400, City Hall Philadelphia, Pennsylvania Wednesday, May 25, 2005, 10:45 a.m. - - - BILL 040876 - An Ordinance amending Section 9 19-2900 of Title 19 of The Philadelphia Code entitled "Senior Citizen Low Income Special Tax Provisions" by expanding the coverage of this Chapter to include senior citizens who are eligible to participate in the Commonwealth's Pharmaceutical Assistance Contract for the Elderly Needs Enhancement Tier ("PACENET") program. BILL 050454 - An Ordinance amending Bill No. 15 040765, entitled "An Ordinance Approving the Fiscal Year 2005 Capital Budget providing for expenditures for the capital purposes of the Philadelphia Gas Works (including the supplying of funds in connection therewith) subject to certain constraints and conditions, and acknowledging receipt of the Forecast of Capital Budgets for Fiscal Years 2006 through 2010," by approving a revised Capital Budget for Fiscal Year 2005. - - - V A R A L L O Incorporated Litigation Support Services 1835 Market Street, Suite 600 Philadelphia, Pennsylvania 19103 215.561.2220 215.567.2670 2 PRESENT: COUNCILWOMAN JANNIE L. BLACKWELL, Chair COUNCILWOMAN BLONDELL REYNOLDS-BROWN COUNCILMAN FRANK DiCICCO COUNCILMAN W. WILSON GOODE, JR. COUNCILMAN RICHARD T. MARIANO COUNCILMAN BRIAN J. O'NEILL COUNCILMAN JUAN F. RAMOS COUNCILMAN FRANK RIZZO COUNCILWOMAN MARIAN B. TASCO 3 Finance - 5/25/05 - - - P R O C E E D I N G S - - - CHAIRWOMAN BLACKWELL: Good morning. Thank you for your patience. The Committee on Finance is being called to order. To my left -- we have a quorum -- we have Councilman Juan Ramos, Councilman W. Wilson Goode; to my right, Councilman Frank DiCicco, and to his right we have Councilman Rick Mariano. Also in the room we have Councilman Frank Rizzo; and, of course, I'm Jannie Blackwell, Chair of the Committee. And we're happy to get started, so that we can have a million other hearings subsequent to this. Will the clerk please read the title of the bill? And as he does, would Mr. Craig White, Senior Vice President of P.G.W. come to the witness table. Thank you. CLERK: Bill Number 050454, an ordinance amending Bill No. 040765, entitled "An Ordinance Approving the Fiscal Year 2005 Capital Budget providing for expenditures for 4 Finance - 5/25/05 the capital purposes of the Philadelphia Gas Works (including the supplying of funds in connection therewith) subject to certain constraints and conditions, and acknowledging receipt of the Forecast of Capital Budgets for Fiscal Years 2006 through 2010," by approving a revised Capital Budget for Fiscal Year 2005. CHAIRWOMAN BLACKWELL: Thank you very much. Mr. White, please identify yourself for the record and begin your testimony.
Yes. Thank you, Chairwoman Blackwell. CHAIRWOMAN BLACKWELL: Thank you.
My name is Craig White. I'm the acting senior vice president and Chief Operating Officer for Philadelphia Gas Works. I want to thank the committee for giving us this opportunity. I know you have a very full agenda today. And my opening remarks are going to be very brief. CHAIRWOMAN BLACKWELL: Thank you. 5 Finance - 5/25/05
I do have one correction to my testimony. And it is on the last of the testimony. And it is in the second paragraph from the bottom. The sentence currently begins, P.G.W. is asking the Committee on Finance for a favorable report on amending Bill Number 050454. It should read, P.G.W. is asking the Committee on Finance for a favorable report on this bill, Number 050454 which is amending Bill 040765. And a parenthetical. 040765 is the approved capital budget. CHAIRWOMAN BLACKWELL: Okay.
Okay. Secondly, I would ask for a suspension of the rules so that the first reading can occur at the next City Council -- next Finance Committee meeting. With respect to comments on my testimony, I will just indicate that the testimony, the written testimony, is here for your review, and I will certainly be available to take questions. I just had two comments to make. 6 Finance - 5/25/05 Number one, I want to report some very good news. And that is that Philadelphia Gas Works collection rates, less than three years ago we were collecting about 86.7 cents on the dollar. We're at a point now we're north of 94 cents on the dollar. And we anticipate and we estimate today that by the end of August we will be at 95.2 cents on the dollar, which is a significant improvement over the last few years. Second item I'd like to mention is that the company has been the beneficiary of the significant housing boom in the City of Philadelphia. And, of course, that's one of the purposes of this amendment. We have quite an increased level of new building in the City, and that has caused P.G.W. to reevaluate the amount of funds required to meet the needs of the building community. So, without any further ado, I would certainly take any questions that the committee may have. 7 Finance - 5/25/05 CHAIRWOMAN BLACKWELL: Thank you, Mr. White. Would you explain in a little more detail what... since the increases in distribution and field services, how that breaks down, what it means, what the amendment means.
I'd be happy to. There's actually two major components driving the need for that increase. The one is the item that I just described. We had anticipated new housing somewhere in the 900 to 1,000 level. And we're actually estimating now that we probably have new buildings in excess of 1,600. So, that's a significant increase. And as a result of that, we have additional capital requirements for mains and services. The other component of that is, obviously, as a component of our collections program, we also have to reconnect or reinitiate service or renew service for customers. 8 Finance - 5/25/05 And in a lot of cases we have new customers moving into homes that were previously shut off or customers that have restored service. And that has also increased the amount of capital requirement. So, they're the two major components requiring the capital budget amendment. CHAIRWOMAN BLACKWELL: So, the field services is certainly giving -- and this housing boom, giving more services to people. That's field services, correct?
Well, the field services component, Chairwoman, is obviously the need for additional meters. And we certainly are spending those dollars, as necessary, to make sure that we have working both A.M.R. devices which is your automatic meter reading device, and a working meter in compliance with the P.U.C. requirements. CHAIRWOMAN BLACKWELL: And distribution means what, again?
Distribution is primarily your mains and services. And of course, when we add new neighborhoods, we may 9 Finance - 5/25/05 have to increase the size of pipe in the neighborhood to keep the pressure at an appropriate level. We may -- We also have to run the service lines into the buildings. So, those are the two major components in the distribution area. CHAIRWOMAN BLACKWELL: Thank you very much. And as the committee sees, we're talking $5,295,000. The Chair recognizes that Councilwoman Tasco is here as is Councilwoman Blondell Reynolds-Brown, Vice Chair. Are there any questions from members of the committee? And Councilwoman Tasco, Chair of the Commission, assures me that things are in order, and that they are supportive. She said it the other day. Councilman DiCicco. COUNCILMAN DiCICCO: Thank you, Madam Chair. And good morning.
Good morning. 10 Finance - 5/25/05 COUNCILMAN DiCICCO: Our success as a City in attracting new residents and new development, it actually costs us money. Go figure, right? It's kind of ironic that we've turned the corner on attracting new residents and yet P.G.W. has to bear some of the cost of doing that. Is there any... When it comes to new construction, is P.G.W. reimbursed by the developer for any of the work that is being done?
Yes; absolutely. We have a requirement in our tariff which is very similar to other utilities. And that is, we provide an allowance for a certain amount of capital investment. And for residential developments or residential homes, we look at what they call the non-fuel revenue. In other words, the revenue that we received. It has nothing to do with the gas cost. And we look at that over a five-year period. And we look at the anticipated 11 Finance - 5/25/05 usage. And the combination of those two variables enable us to determine how much money we will allow a consumer towards the payment of those extra facilities. So, for example, Councilman, if we have a $2500 installation, and that allowance is a $1500 allowance, we would charge the customer $1,000 and the company would pick up $1500 in accordance with its tariff. COUNCILMAN DiCICCO: I guess I was wondering if there was a way of... I certainly don't want to penalize development or developers... if there was a way in which you could prorate some of the costs to the developer, so that when the project is complete, the collections for the usage or whatever could be drawn down from that, some sort of like an escrow account, which would relieve some of the financial capital cost to P.G.W. up front.
Well, we typically enter into a number of different types of agreements, but... I don't know whether this is helpful, but there are developers in the 12 Finance - 5/25/05 City that may indicate that they're going to build 750 homes, and there may be three phases to that. And what we will do is, we will make sure that the company is covered in the event that those other 500 homes, say Phase II and III are not built. So, we insure, through our contracting requirements, that dollars are recovered. I'm not sure I'm answering your question. But certainly I want you to be aware of the fact that we are very diligent in making sure that we provide as much flexibility to the developing community, but at the same time we protect our firm customers by not picking up costs that we shouldn't. COUNCILMAN DiCICCO: Very good. Thank you. No further questions. Thank you. CHAIRWOMAN BLACKWELL: Thank you very much. The Chair notes that Councilman O'Neill is here. So, all members of the 13 Finance - 5/25/05 Finance Committee are present. Are there further questions from members of the committee? The Chair recognizes Councilman O'Neill.
Just a question on an initiative that you discussed earlier, a month or so ago, about trying to get developers to use gas when they're getting government city -- particularly city subsidies.
Could you elaborate on that a little bit, first of all, the initiative or the issue, and the initiative you'd like to undertake and where you are with it.
Certainly. We look at it from a very fair standpoint, we believe. And that is, we are not asking developers to put in a fuel source that is at the end of the day inefficient or more costly. We are looking for a fair bite of the apple or our piece of the pie, so to 14 Finance - 5/25/05 speak. And we believe that if the city is providing tax incentives, that there's an opportunity that gas should be considered. And what we are looking at is what they use in the financial community as a life-cycle analysis. And right now that has not been totally incorporated in any type of legal documents, as I understand it.
Craig, could you explain right now what goes on where the developer, by bypassing P.G.W. or gas service, does it cheaper, but the end user, the business that moves into the space, winds up paying more. Could you just give us a background on that?
Absolutely. Absolutely. If I use steam as an example, or even if I use electric as an example, the first cost is very small, and the ongoing operating costs are extremely high. So what we have is, we have a developer, who could be a Philadelphia developer but in many cases is not a Philadelphia developer. Could be a company 15 Finance - 5/25/05 out of Chicago. They come in. They build a building. They receive tax incentives from the city. And they put in the cheapest cost first -- the cheapest first cost. And then, of course, our residents or our businesses then occupy the space and have to pay the operating and maintenance costs which include the cost of the fuel. So, if any of those fuels are more expensive than natural gas, in essence the developer has left town, sold his property or otherwise, and our residents or our commercial properties are paying the higher fees associated with a fuel that may be much more expensive than natural gas. The benefit to that developer is, he did not have to spend the initial dollars to put in gas-fired equipment. And that's where the difference comes in. And what we do as a company, we provide incentives, but the incentives have to be justified by the revenues that we're going to receive from that customer. But we cannot -- We would like to 16 Finance - 5/25/05 see added assistance on that front, in that if the city is providing tax incentives, and if it is cheaper to use natural gas, that developer should be putting in natural gas.
Now, where are you with the Commerce Department, if you are anywhere with the Commerce Department?
There's been a number of discussions. I would have to get back to the committee on specifically where that is. We believe we're getting much closer on this entire issue. And we believe, as I indicated in my opening remarks, it's a fair and equitable way to look at what fuel source should be used by a developer.
What's the benefit to the company? You mentioned the benefit to the end user, if they get the cheaper product in the long run after the developer has left or just left them with a long-term lease. But what is the benefit to 17 Finance - 5/25/05 P.G.W. and its other customers, if any?
There's a huge benefit to Philadelphia Gas Works. First of all, we make the dollars that cover our operating capital expenses by the gas that moves through the pipe. We don't make a margin on the gas itself. We make the margin on what they call the through-put. So, when we meter at your location a cubic foot of gas moving through that meter, that's what we're charging for. So, any new customer that comes into the city and uses natural gas, that's that many more dollars that we have to support all the things that P.G.W. has to cover, not only its own operating and maintenance, not only its own capital, but obviously there's a portion of bad debt embedded in our rates, and we also have a lot of customers that are challenged in their ability to pay bills. So, what this would do is, it would reduce some of the cost shifting to those customers who can afford to pay their bill.
Thank you. 18 Finance - 5/25/05 CHAIRWOMAN BLACKWELL: Thank you very much, Councilman. Are there any questions from members of the committee? (No response.) CHAIRWOMAN BLACKWELL: Is there anyone else would like to testify with regard to this bill? (No response.) CHAIRWOMAN BLACKWELL: Seeing none, this completes the hearing. (Public hearing concluded at 11:01 a.m.) 19 Finance - 5/25/05 - - - COUNCIL OF THE CITY OF PHILADELPHIA PUBLIC MEETING - COMMITTEE ON FINANCE - - - Room 400, City Hall Philadelphia, Pennsylvania Wednesday, May 25, 2005, 11:01 a.m. - - - BILL 040876 - An Ordinance amending Section 9 19-2900 of Title 19 of The Philadelphia Code entitled "Senior Citizen Low Income Special Tax Provisions" by expanding the coverage of this Chapter to include senior citizens who are eligible to participate in the Commonwealth's Pharmaceutical Assistance Contract for the Elderly Needs Enhancement Tier ("PACENET") program. BILL 050454 - An Ordinance amending Bill No. 15 040765, entitled "An Ordinance Approving the Fiscal Year 2005 Capital Budget providing for expenditures for the capital purposes of the Philadelphia Gas Works (including the supplying of funds in connection therewith) subject to certain constraints and conditions, and acknowledging receipt of the Forecast of Capital Budgets for Fiscal Years 2006 through 2010," by approving a revised Capital Budget for Fiscal Year 2005. - - - V A R A L L O Incorporated Litigation Support Services 1835 Market Street, Suite 600 Philadelphia, Pennsylvania 19103 215.561.2220 215.567.2670 20 Finance - 5/25/05 PRESENT: COUNCILWOMAN JANNIE L. BLACKWELL, Chair COUNCILWOMAN BLONDELL REYNOLDS-BROWN COUNCILMAN FRANK DiCICCO COUNCILMAN W. WILSON GOODE, JR. COUNCILMAN RICHARD T. MARIANO COUNCILMAN BRIAN J. O'NEILL COUNCILMAN JUAN F. RAMOS COUNCILMAN FRANK RIZZO COUNCILWOMAN MARIAN B. TASCO 21 Finance - 5/25/05 - - - P R O C E E D I N G S - - - CHAIRWOMAN BLACKWELL: And we will enter the stated meeting. The Chair recognizes Councilwoman Tasco for a motion with a suspension of the rules, with regard to Bill Number 050454.
Madam Chair, I move that Bill 050454 be reported out of committee with a favorable recommendation, and with a recommendation of a suspension of the rules so this bill could be read at the next calendar. UNIDENTIFIED COUNCIL PERSON: Second. CHAIRWOMAN BLACKWELL: It has been moved and seconded that Bill Number 050454 be reported out of committee with a favorable recommendation; and furthermore, that the rules be suspended so as to permit first reading at our next session of Council. All in favor? (Chorus of "ayes.") 22 Finance - 5/25/05 CHAIRWOMAN BLACKWELL: Opposed? (No response.) CHAIRWOMAN BLACKWELL: The ayes have it. The bill passes and is reported out of committee. That completes our business. Thank you very much. We may also note there was another bill to be heard today, Bill Number 040876. It is being held at the call of the Chair, at the request of the sponsor. Again, we thank everyone for coming. And all of those who are here for the Committee of the Whole, we will begin shortly. Thank you very much.
Thank you. (Public meeting concluded at 11:02 a.m.) 23 CERTIFICATE I HEREBY CERTIFY that the proceedings and evidence are contained fully and accurately in the stenographic notes taken by me upon the public hearing and public meeting of The Philadelphia City Council, taken on May 25, 2005, and that this is a true and correct transcript of same. _____________________________ DAVID A. DEIK, RPR and Commissioner of Deeds (The foregoing certification of this transcript does not apply to any reproduction of the same by any means, unless under the direct control and/or supervision of the certifying reporter.)