COUNCIL OF THE CITY OF PHILADELPHIA PUBLIC HEARING BEFORE THE COMMITTEE OF THE WHOLE - - - Room 400, City Hall Philadelphia, Pennsylvania Wednesday, 10/11/00 11:00 a.m. - - - BILL 000583 - Authorizing amendment of PFMC Agreement to provide for temporary change in amount of temporary financing that the City may provide to PGW. . . BILL No. 000590 - Making certain additional appropriations needed to meet unanticipated emergency created by a cash flow crisis at PGW. PRESENT: COUNCIL PRESIDENT ANNA C. VERNA, Chair COUNCILWOMAN JANNIE BLACKWELL, V. Chair COUNCILWOMAN BLONDELL REYNOLDS BROWN COUNCILMAN DARRELL L. CLARKE COUNCILMAN DAVID COHEN COUNCILMAN FRANK J. DICICCO COUNCILMAN W. WILSON GOODE, JR. COUNCILMAN JAMES F. KENNEY COUNCILWOMAN JOAN L. KRAJEWSKI COUNCILMAN W. THACHER LONGSTRETH COUNCILMAN RICHARD T. MARIANO COUNCILWOMAN DONNA REED MILLER COUNCILMAN MICHAEL A. NUTTER COUNCILMAN BRIAN J. O'NEILL COUNCILMAN ANGEL L. ORTIZ COUNCILMAN FRANK RIZZO COUNCILWOMAN MARIAN B. TASCO - - - VINCENT VARALLO ASSOCIATES, INC. Registered Professional Reporters Eleven Penn Center, Suite 600 Philadelphia, PA 19103 (215) 561-2220 2 10/11/00 - WHOLE COMM. - BILLS 583, 590 I N D E X Joyce Wilkerson, Mayor's Chief of Staff . . . Tom Knudsen, Interim PGW CFO. . . . . . . . . 6 Barbara Bisgaier, Public Financial Management 16 7 Joseph Bogdonavage, PGW Director of . . . . . 23 Budget and Financial Forecasting 8 Councilwoman Marian Tasco . . . . . . . . . . 30 9 Janet Parrish, Senior Hearing Examiner. . . . 31 10 Gas Commission Janice Davis, Phila. Director of Finance. . . 41 3 10/11/00 - WHOLE COMM. - BILLS 583, 590 P R O C E E D I N G S
Good morning, everyone. I do apologize for the delay. This is a continued public hearing of the Committee of the Whole regarding Bill No.'s 583 and 590. Mr. McPherson, would you please read the titles of the bills.
Bill No. 583, an ordinance authorizing the amendment of the Philadelphia Facility Management Corporation Agreement to provide for a temporary change in the amount of temporary financing that the City may provide to the Philadelphia Gas Works, under certain terms and conditions. Bill No. 590, an ordinance amending an ordinance approved April 11, 2000 (Bill No. 18 000005) adopting the Operating Budget for Fiscal Year 2001 by making, in accordance with Section 20 2-301(a) of the Philadelphia Home Rule Charter, certain additional appropriations needed to meet the unanticipated emergency created by a cash flow crisis at the Philadelphia Gas Works.
I think we ought to have members of the Administration 4 10/11/00 - WHOLE COMM. - BILLS 583, 590 approach the witness table, please. (Administration witnesses come forward.)
Good morning. Again, I apologize for the delay. Miss Wilkerson, is there anything that you would like to add to your previous testimony?
Over the course of the last several days, we've been meeting with a number of Councilmembers and have touched on many of the points that I would normally make today. I think that I would like to emphasize that the scrutiny that the company has come under in the course of the last couple of weeks has actually been a real positive step forward, I think, as difficult as it's been some of the time. The company has made enormous strides over the course of the last several months. We're very proud of the fact that we've managed to rebuild substantial portions of the IT system, that we have 30,000 customers -- most of our customers are now in the system for the first time in over 15 months, that we've hired additional employees for the Call Center, trained employees for the Call 5 10/11/00 - WHOLE COMM. - BILLS 583, 590 Center, got the parts and labor plan working for the first time in a year. We've already enrolled over 60,000, realizing over $5 million in cash to the company. We've begun making numerous strides in trying to restore the credibility of the company and welcome the kind of involvement that the company now has as we move forward in trying to transition through regulation, and so have been encouraged by the challenging scrutiny that the company's received. I think this winter is going to be very difficult for the company. We are facing enormous challenges, in part due to factors beyond our control. We have a proposal pending in front of the PUC that would increase our GCR by over $97 million. It's going to create hardship for many. We're putting together programs now to try to alleviate some of that hardship. We also have pending in front of the PUC requests for based-rate relief, and while it's difficult to even ask for that, it's something that is critical if the company's going to succeed in the years going forward. 6 10/11/00 - WHOLE COMM. - BILLS 583, 590 And I just want to, you know, reiterate that we appreciate, you know, the kind of involvement that the company's had. I think it's that kind of involvement that is going to sustain the company in the coming years. Yesterday, as people know, the company received a decision from the PGC, approving the $45 million loan request. There were recommendations to City Council that it impose a number of restrictions. The Administration embraces virtually all of those restrictions. They require that the Administration create segregated funds, that there be restrictions on how the money is withdrawn. It would require that the Finance Director certify to any request to withdraw from the segregated account. It would require monthly reports back to City Council, to the Finance Director and also the Gas Commission. We support that, as well as a more regular reporting mechanism on the progress that the company's making on some of its management goals. The one condition that the company and the Administration find troubling is the requirement that would link the draw of the second 7 10/11/00 - WHOLE COMM. - BILLS 583, 590 25 million to a submission and approval of a five-year strategic management and operating plan. It's our position that in the months going forward, the company's financial condition is, at best, precarious and that that kind of linkage creates a difficult burden. We support the goal of trying to -- of developing a five-year plan. I think it will focus the activity and the resources of the company in moving forward. It's just at this time, when the company is as pressed as it and operating on the kind of shoe string that it is with so many contingencies, we feel that it will be difficult to have that, you know, level of flexibility removed, and would ask that those two requirements be uncoupled. I think that, you know, we have been asked to provide additional information with respect to other kinds of financing mechanisms, and we're prepared to -- you know, we've done some communicating with Councilmembers.
If there are individual questions about those alternative mechanisms, we're prepared to answer those questions. 8 10/11/00 - WHOLE COMM. - BILLS 583, 590
When do you think a five-year plan would be available?
The company currently has the outlines of a three-year strategic plan. We have been focusing on the period that would lead us into deregulation, and that does two things: it takes us up to the point at which the company's way of doing business may be altered fundamentally also; it also enables us to focus on the problems that challenge the company right now. When this current administration took over, we encountered a company that was at the point of collapse. We had no way of generating financial statements for the company. We were unable to bill between 30 and 50 thousand of our customers. We had no way of logging in customer requests for the parts and labor plan. And at the same time, we had people leaving the company at an unusually high rate. We have been focused on trying to stabilize a company that was in crisis and finds itself close to the point of collapse. And so if you look at the outline of what it is that we want to do with our strategic plan, we are focused on getting the customer 9 10/11/00 - WHOLE COMM. - BILLS 583, 590 service up to an acceptable level. We are focused on trying to restore baseline financial condition of the company, and chose to limit our horizon -- our management and planning horizon to three years. The company has generated five-year financial plans. Those, I believe, were submitted to the Gas Commission at the time the FY 2001 budget was committed. But, you know, we expect to have a full, you know, plan. You know, we have a draft -- we can have a draft of our three-year plan circulated by the end of November. The full plan could be available, you know, with accurate information by June. As you know, the PUC will entertain a base-rate case from the company. We'll be filing that no later than January 1, 2001, expect a decision in the base-rate case by approximately June, I believe -- is it June? By June 2001. It would be at that point that the company will really know what its financial condition is likely to be in the years moving forward. Before that, there is a lot of speculation in our numbers. 10 10/11/00 - WHOLE COMM. - BILLS 583, 590
Thank you. Are there any questions from members of the committee? Are there any questions from members of the committee? Oh, I'm sorry. Councilwoman Krajewski's light is not on. There we go. Councilwoman Krajewski.
Thank you. Joyce, can you just state for the record where you came up with the amount of $45 million?
Pull that mike lower, the neck of your microphone. Just pull it down.
Yes, thank you. Can you just state for the record where the amount of 45 million originated?
Yes. My name is Tom Knudsen. I am Interim Chief Financial Officer for 11 10/11/00 - WHOLE COMM. - BILLS 583, 590 PGW. To respond to your question, Councilwoman, we have done any number of proforma projections of company operations. And under what we consider the most dire circumstances, the 45 million is an amount that meets our needs and gives us a slight cushion in the two critical periods of the coming fiscal period. So that 45 was a number that we determined based upon analysis.
Well, it all depends on what the cost of gas -- what the gas markets will require of us. But we have assumed, you know, a fairly pessimistic point of view in our projections, and the 45 million addresses those needs.
What exactly will the 45 million be used for? Will it be gas, will it be payroll or what?
Excuse me. Is 12 10/11/00 - WHOLE COMM. - BILLS 583, 590 there any limit as to the loan?
As to the use of the loan for particular purposes, I don't believe there is. But basically, we would use the loan to purchase gas. That's what we need it for.
Well, I don't want to say strictly for gas because cash is cash, and we may have a need that overlaps with our gas purchases, but that is principally the reason why we are here, is the need to finance our gas purchases.
Well, the big question is, how will the loan be paid back?
The loan will be paid back from the receipts from customers who we will be billing for the gas that they will be receiving at the higher -- at these higher costs. The problem that we have is that we must purchase the gas before we can bill and collect from our customers. So the loan will be 13 10/11/00 - WHOLE COMM. - BILLS 583, 590 paid back immediately -- or more accurately, we will be putting the funds back into this reserve or escrow account that we will be creating as we go forward.
I think there's also one other piece that we have in all of our documentation. The company has to get out of the commercial paper market for a five-day period in -- or show the capacity to get out of the commercial paper market for a five-day period in June. We will be drawing down funds from the loan in order to meet that test. But we anticipate that any use of the funds will go through the process that was recommended by the Gas Commission so that the company would have to file a certificate that would articulate the basis for the request. And that would have to be approved by the Finance Director before the funds would be made available to the company.
You know, PGW's argument that it needs the 45 million right now in case an emergency rises when Council is out of session, what kind of emergency would cost 14 10/11/00 - WHOLE COMM. - BILLS 583, 590 $20 million in weeks in the amount of time that Council is out of session?
It isn't that it 5 necessarily would be 20 million, but the restriction right now is that we would get 25 million prior to the filing of a five-year plan and $20 million after it was judged acceptable by the Gas Commission. At the present time, we will have a substantial need for funds in January. We have two requirements in January: one, we must pay our December gas bill; and, two, we have a very large $25 million payment that is due as a debt service payment. We pay interest and principle on our debt in January. The issue, then, is to what extent, if we were to experience substantial run-up in the cost of gas in the November and December time frames. We might not have -- or the $25 million might not be sufficient to meet that need. So it isn't that we necessarily would need the full 45, but we may need well in excess of 25, maybe 30, maybe $35 million. That would be the circumstance and the uncertainty that we're 15 10/11/00 - WHOLE COMM. - BILLS 583, 590 dealing with.
I just have one more question. If the City waives the $18 payment, how would this affect your request for rate increases? Will PGW then request less of an increase, or will the company still be requesting the same amount?
It's our intention to request the same amount. We view the $18 as a contingency, as a -- (Interruption; sound system failure.)
Excuse me, excuse me, please. The stenographer could not hear you.
We consider the $18 million as a contingency provision only. We are asking for the full amount that we need to operate the company in our filings before the PUC.
You're welcome. The Chair recognizes Councilman Ortiz.
I -- I don't have -- I just have a gut feeling about all of this, that 16 10/11/00 - WHOLE COMM. - BILLS 583, 590 $45 million, this is taxpayers' money. And there are really no assurances that it's going to get paid back. When a bank gives a loan, there are usually penalties that are included in the loan repayment plan, that if you don't meet the scheduled payment, you will get penalized. The ratepayer here gets a huge rate increase, the taxpayer has to give up $45 million, so the taxpayer's getting it from every side, without any reassurances. And we all -- I think everybody on this floor here understands that PGW has been mismanaged and needs some money. I just have not yet been convinced that City Council and the taxpayers have to be the source of the bailout. I just have not been convinced because I have not been presented with any documentation that will give me the reassurances that we should be the bailout banking resource for PGW. I have not seen anything yet, I have not been told anything that is convincing that we're not just putting good money down a black hole. I think we're in a situation in which nothing has changed from the 17 10/11/00 - WHOLE COMM. - BILLS 583, 590 last time you were before us. And at this time, I just do not know, I have not been convinced why should we enter into the loan business. I leave that to First Union and Mellon and those other banking institutions. A plan has not been presented that is convincing, a management plan has not been presented, a priority, a repayment plan, nothing has been presented to this Council to give this Council and the taxpayers of the City any confidence that any action we take here is going to have any effect upon changing the culture of PGW and any effect in bringing better service to the rate payers of the City. So I -- I wait to be convinced during the next hour or so, Madam President, but right now, I am not convinced at all that we should be the banking resource for $45 million.
Councilman, may I respond to your point with two statements or two comments. One is that we have gone to the banks, or PGW has gone to the banks historically. They had a $100 million -- or we had a $100 million 18 10/11/00 - WHOLE COMM. - BILLS 583, 590 line of credit. As few as three years ago or four years ago, we had only 0 to $15 million in that account; in other words, we had $85 million to draw upon and operate the company. The problem is that over the last three years, three and a half years, we've experienced substantially warmer-than-normal winters, and we have financed the deficits of the company with borrowings from the short-term debt instrument that we had available to us. So we find ourselves essentially out of the banks at this point, without recourse, for a variety of reasons of which we've --
I didn't ask that question. Are you saying that banks are right now denying you loans? (Witness comes forward.)
Speak into the 19 10/11/00 - WHOLE COMM. - BILLS 583, 590 microphone.
Sorry. The principal lender to the bank right now is Morgan Guarantee Trust Company, and they will not extend further loans to the company without some other assurance that it could be paid back.
So the bank wants assurances that it could be paid back. The City doesn't want any assurances that it can be paid back, we just take it on faith.
And we can give $45 million without really no assurance that it can be paid back.
Well, the bank has already loaned $100 million. (Unintelligible, parties talking over each other.)
I'd just like the (unintelligible) that the bank use that they don't want to lend any money because there's no 20 10/11/00 - WHOLE COMM. - BILLS 583, 590 assurances that it can be paid back. This is the taxpayers of the City of Philadelphia who are loaning $45 million, not City Council. It is the taxpayers of Philadelphia who are going to get hit with a huge rate increase. And the banks are asking for assurance and you cannot give the bank assurances, but we've got to take your word.
I think that -- if I can respond. First of all, I don't think that we're simply asking you go take our word. We are trying to work with the City Council, with the Gas Commission, with the Controller's office, and also with the Administration to set up a mechanism that limits the disbursement of the funds, you know. As a first point, the company does not have the option of simply coming to, you know, and tapping into the $45 million every time it wants. There is a process set up that would require that a reason be articulated, that it satisfy the Director of Finance, that there is in fact a legitimate need for the funds, and there will have to be a representation about how the funds will be 21 10/11/00 - WHOLE COMM. - BILLS 583, 590 repaid. We have circulated to members of City Council cash flows that make fairly pessimistic assumptions about what's likely to happen. We assume an interim rate increase, I believe, of $25 million. We assume the cost of gas going up to $160 million higher than what it is currently. And we also have cash flows that assume warmer-than-normal winter. And under all of those scenarios, we indicate that the company will be paid back, you know, depending on exactly what scenario you look at. Sometimes the company is, you know, shows balances at the end of the year, but there is no 16 scenario that we've run that show the City or the taxpayers being left high and dry. And we, you know, pursuant to the requests that have been made, we've also gone to lending institutions and asked, are there any conditions under which you would loan money to the company? We've been told yes, there are conditions, but they require that the City guarantee the debt. You know, the condition of the company 22 10/11/00 - WHOLE COMM. - BILLS 583, 590 is dire and unfortunate. We find ourselves in a position of not having a lot of alternatives. What we are going through now is the result of years of improper management of the company. It's not a situation anybody wants to find themselves in.
Thank you. We were having some trouble with our screen. All Councilmembers that want to be recognized, please press your button again so that we will know who wants to be recognized. Thank you. Councilman Goode.
Thank you, Madam President. Under Bill 583, it's my understanding that we are amending the Philadelphia Facilities Management Corporation agreement to -- for them to borrow up to $45 million. That is a changing amount from 20 million, I believe?
What is the process in the past for allowing for that financing of up to million? Was there a requirement for a 5 five-year financial plan, was there a loan 6 proposal? What sort of mechanism was used to 7 provide accountability, or is used under the 8 current agreement? 9 (Witness comes forward.) 10
Good 11 morning. Kindly identify yourself for the 12 record. 13
I'm Joseph 14 Bogdonavage. I'm the Director of the Gas Works. 15 Councilman, to respond to your 16 question, I'm not real clear on all of the 17 particulars, but in the early '80s, the Gas 18 Commission, along with the Director of Finance, 19 was able to loan, with a City Council resolution, 20 the $20 million loan to the Gas Works, which, again, was in lieu of some working capital problems that we had in the early '80s.
And what sort of financial documentation was submitted to Council? Was there a loan financing proposal, was there a 24 10/11/00 - WHOLE COMM. - BILLS 583, 590 five-year financial plan? What sort of documentation was submitted in order to enable Council to make a decision on up to $20 million?
I don't know the particulars at hand, but I think it was basically a City Council resolution.
Okay. So in other words, in the past, it's reasonable to say that City Council went along with the financial need expressed by the Gas Works.
And it's reasonable to say that if we were to approve $25 million today as an initial advance in financing, that we would be approving that without a five-year financial plan, we'd be approving that without a loan proposal, we'd be approving that essentially without any requirements that you can state that's needed to approve that $25 million.
The mechanism that we would anticipate would have the company articulating a need for the money. The Finance Director would review to verify that there is that need, you know, would review the cash flow 25 10/11/00 - WHOLE COMM. - BILLS 583, 590 situation to determine whether or not, you know, what the likelihood of repayment is. So, you know, we would anticipate setting up a mechanism that would have more checks and balances than previously.
So exactly City Council, that is, recommending that we have a mechanism for the second million but not for 10 the first 25. 11
No. I think there is 12 broad support for checks on the disbursement of 13 the entire amount. In talking with people, you 14 know, from the Administration, in talking with the 15 City Controller and most of the Councilmembers 16 here, nobody is in favor of simply writing a check 17 in the amount of 45 million to the Philadelphia 18 Gas Works. 19 I think that all of the money -- you 20 know, everybody wants to see all of the money disbursed pursuant to a very intentional and thoughtful process that would require that the financial officer of the Gas Works submit a certificate for review by the Finance Director, you know, and that, you know, tat she would have 10/11/00 - WHOLE COMM. - BILLS 583, 590 to be satisfied with the proposed use of the funds, would review the repayment proposal. We have been asked to provide reports back on a monthly basis so that members of City Council, the Gas Commission, the Controller, and the City can all track, you know what's going on not just the $45 million loan but with the City finances overall so that at any point, you know, funds are disbursed, you know, folk have their eyes wide open and understand the transaction and the context for it.
I understanding the discussions have taken place, I understand the $45 million is definitely needed, I understand that there probably is an overwhelming majority of Council that's ready to support $45 million. What I'm saying is that under the current agreement, we're already allowed to advance the 20 million --
-- without any of the financing mechanism in place other than City Council resolution. In the past, it seems this Council prepared to do at least 25 million, 27 10/11/00 - WHOLE COMM. - BILLS 583, 590 without any new financial mechanism today.
But it wants to require a new financing mechanism proposal, a five-year financial plan for the additional million. 8
What would be your 10 recommendation in terms of what is needed for the 11 25/20 or 45 million? 12
I think it is 13 appropriate to have oversight of the disbursement 14 of funds. I think it's appropriate for the 15 company to have to articulate a specific reasoning 16 for the funding. I think it's appropriate for the 17 Finance Director to control the disbursement of 18 the funds. 19 I think, you know, as difficult as some 20 of the, you know, some of the discourse and the scrutiny is, I think it is appropriate for the City to pay close attention to what's going on with the company and to ask the difficult questions. I think that, you know, we got, you know, into the situation we are in because there 28 10/11/00 - WHOLE COMM. - BILLS 583, 590 hasn't, you know, in part, because, you know, the oversight hasn't been what it ought to be, you know, and when you call for the oversight, you know, you got to deal with the, you know, with the fact that it makes life more difficult. But I think in the long run, we will be a better operated company. In the long run, the City will have more confidence in how the company is operated. And in the long run, some of these controls, you know, will inure to the benefit of all sides. I think that the challenge and the question is, you know at, what point are there so many hurdles imposed that you really do limit the company's ability to respond flexibly and aggressively at a time when the market is less predictable than it's ever, you know, been in the last years, at a time when the company has less 20 resources to draw upon perhaps than ever before, at a time when the company is being stretched. Last week, we were testifying in Harrisburg, the Gas Commission, City Council; at the same time, we're trying to fix the computer system, you know, work on the Call Center operations. That's just 29 10/11/00 - WHOLE COMM. - BILLS 583, 590 the reality of running PGW, you know, because of the state in which we encountered it. So I think that reporting and monitoring and supervision is good and constructive. I think that there's a point at which you jeopardize the company's ability to function and respond in a very unpredictable environment.
So this bill 11 actually just amends the amount that we can finance, and the request is for 45 million. Is it your understanding that Council, through informal conversation, is going to approve that 45 million? Or is it based upon the financial documentation submitted to Council?
That would be my hope. You know, the Administration's request is for the approval of the 45. The Gas Commission has approved it. My understanding is that there's some support for the loan to the company, that there is concern about the kind of control over the disbursement of the funds and about the reporting that takes place.
Madam President, can 30 10/11/00 - WHOLE COMM. - BILLS 583, 590 I ask a request of the Gas Commission? Or should I wait till after people question the Administration?
I just want to know where the 25/20 figure came rather than doing 30/15 or a 35/10. What is the rationale behind the 25/20?
The hearing examiner came up with the recommendation. Janet Parrish is the Hearing Examiner for the Gas Commission who took the testimony and made the recommendation to the Commission, which the Commission adopted. And a point of information for the Councilmember. The agreement requires that the request for money to City Council or from the City alone has to be approved by the Gas Commission. So when they loaned the $20 million last time, we don't know what the conditions were or --
My question is really, why a 25/20 rather than 30/15 or 35/10? 31 10/11/00 - WHOLE COMM. - BILLS 583, 590
It's a simple question: where did the number come from?
All right. Janet Parrish come forward to the table. (Witness comes forward.)
I'm Janet Parrish, Senior Hearing Examiner for the Philadelphia Gas Commission. Councilman, to respond to your question, the million came directly from PGW's 16 cash flow scenarios, which we had requested that 17 they run in order to prepare ourselves to review 18 the request. And in their worst-case scenarios, 19 what was shown that $25 million was the amount 20 that would be needed in the month of January 21 2001. As Mr. Knudsen has previously indicated, a 22 large debt service payment of about $25 million is 23 due on January 1, 2001. They would need 24 negligible amounts, if anything, in the months of 25 November based on their own scenario. 32 10/11/00 - WHOLE COMM. - BILLS 583, 590 So that's the basis for the $25 million figure. It was something that appeared to us would be a prudent amount that would get the company through the initial period. And the 45 million, according to their own scenarios, is not required until June 2001, at which time the commercial paper must be paid down, as was indicated.
So is it your opinion that they need $25 million and an additional million when? 13
$25 million as of January 14 2001, or, as I stated in my recommendation, no 15 later than December 31 of this year, and 16 $45 million in the month of June 2001. 17 And that is based on -- let me just add 18 if I may a worst-case scenario. A worst-case 19 scenario means they only receive $25 million of 20 the 52 million they've requested from the PUC in interim base rate relief. It assumes a worst-case scenario on increased gas costs that's an increase of $167 million in the gas cost rate, not the 97 million which the company has actually filed for to date. And it also assumes a 10 percent 33 10/11/00 - WHOLE COMM. - BILLS 583, 590 warmer-than-normal winter. So those were some pretty key assumptions that we thought gave us pretty much of an outside margin on what the company's needs would be.
So is it your opinion that they need million by December 31st 9 or January and 20 million by June, that they do 10 not need 45 million -- 11
No, they need 45 million 12 in June. In other words, what they've indicated 13 to us is once they draw down the $25 million in 14 January, that that amount of money would 15 subsequently be repaid to the fund over the next 16 several months as the cash flow started to turn 17 positive. And Mr. Bogdonavage, I think, can 18 confirm that. 19 So by the time you got to June, you 20 would be again in the position of having the 21 45 million in the restricted account available to 22 be drawn down. 23
So if we're 24 providing 25 million by December 31st, we really 25 don't need any other authorization to provide the 34 10/11/00 - WHOLE COMM. - BILLS 583, 590 20 million under the current agreement; is that correct?
The only thing that would have to happen is you'd have to have the five-year plan filed and approved as --
I'm not sure I understand what you mean by "the current agreement."
If we were to approve the million that is needed by December 13 31st, another 20 million could be authorized under 14 the current agreement without -- 15
Right. I suppose 16 theoretically, you could authorize it separately, 17 but that's a little different -- 18
Not back room 22 maneuvering and discussions taking place among a 23 number of different people and separate different 24 processes that have taken place. I'm here asking 25 a technical question about the bill. 35 10/11/00 - WHOLE COMM. - BILLS 583, 590 The bill here really is just actually upping the amount of money to $45 million, but there is some proposal on the table to do and 5 20. Under the current agreement, we are 6 authorized just by City Council resolution to do 7 20. If we're going to do 25 today, is there 8 really anything else needed under the current 9 agreement to do an additional 20 at any point 10 other than a City Council agreement? 11
I tried to answer 16 your question. 17 Even on the 20 million that Council 18 would approve by resolution, the request has to be 19 made through the Gas Commission. The Gas 20 Commission, during that course of discussion, 21 could still put restrictions on the 20 million. 22 It doesn't stop you from adding restrictions to 23 it. Just because you have the ability to loan the 24 PGW the money from the City, the request has to go 25 through the Gas Commission. 36 10/11/00 - WHOLE COMM. - BILLS 583, 590
But there are not current restrictions under the current agreement.
The restriction is 10 on the dollar amount. 11 (Inaudible, parties talking over each 12 other.) 13
The restriction is 14 on the dollar amount. It doesn't mean that we 15 couldn't have amended it to -- 16
We could, but I'm 17 saying, under the current agreement, the only 18 restriction is dollar amount. 19
Thank you very much. 37 10/11/00 - WHOLE COMM. - BILLS 583, 590
Thank you. The Chair recognizes Councilman Nutter.
Thank you, Madam Chair. I wanted to go through a couple of items. There was discussion when we were together last week about alternative funding proposals, and I'd like to at least get on the record some finality to at least one of the ideas. Last week, we ended up in some discussion after we had recessed, and I wanted to get the final details on the alternative idea, which was increasing the commercial paper program cap amount and having the City provide its full faith and credit to give greater reassurance, whether to the Morgan Guarantee or to any other bank. And I'd just like to basically put a period at the end of that sentence and have you put on the record what you found out, what you came up with, what some of the pluses and minuses are, and what your final recommendation is with regard to that particular proposal.
Councilman, we had a preliminary discussion with Morgan Guarantee Bank 38 10/11/00 - WHOLE COMM. - BILLS 583, 590 about their willingness to extend the amount of their letter of credit by approximately $50 million, which they were willing to do. If the City guaranteed it, that would allow the increase in the commercial paper program that PGW currently operates. When we reviewed that concept with the Law Department, they have informed us that because PGW is part of -- is the City and there's not a distinction between PGW and the City, the City cannot guarantee, and I'm speaking for the Law Department here, so forgive me for not being totally technical about it, but the City cannot guarantee its own debt, and the commercial paper would be considered debt of the City in that scenario. Without the formal action of Council to incur a general obligation liability, and it's the preliminary opinion of the Law Department that that would rise to the level of a ballot question before that guarantee could be placed on the commercial paper. So while it's technically doable, it's certainly not timely doable.
And what would such 39 10/11/00 - WHOLE COMM. - BILLS 583, 590 a question say?
"Shall the voters authorize the City to enter into a general obligation pledge for $50 million of a loan taken out by PGW?"
Other than that, how did you like the (inaudible). All right, so you have a -- basically what you've gone through is, you approach the banks, they said, yes, under these certain conditions, the City could do that, and now we've run into this new fairly significant hurdle of, Oh, and by the way, you have to get a ballot question approved by the voters in order to provide the support.
Okay. And what did Morgan Guarantee have to hang its hat on for the upwards of $97 million that's outstanding the debt? Suppose the company doesn't pay, what to they get, what happens? 40 10/11/00 - WHOLE COMM. - BILLS 583, 590
If the company doesn't pay Morgan, Morgan becomes a secured creditor of the company, and they're entitled to be repaid on a schedule that's been already bargained ahead of time with them out of the revenues of PGW. The only source of repayment to Morgan is PGW revenues.
And so under that payment schedule or that kind of workout schedule, they're not willing, short of a City guarantee, to extend any more commercial paper to PGW?
Thank you. Tell me a little bit about the repayment schedule for the 45. It was not crystal-clear to me as to -- the amendment in the bill, the section of the management agreement that's being amended talks about, Provided further, however, that during the period June 30, 1981 through June 30, 1983, and now the new language, and the period September 1, 2000 through August 31, 2002, such advances may exceed $20 million in an amount that shall not exceed $45 million in amount. 41 10/11/00 - WHOLE COMM. - BILLS 583, 590 Does that mean that whatever loans are made, you have the $45 million, and whenever they're drawn down, that the final repayment of any drawn-down loan has to be by August 31, 2001? Or does it mean that you get to draw down during that time period and you get to repay for any two years' amount of time from the day of the draw-down? Don't everybody jump to the microphone at once.
We're anticipating, Councilman, that it would be drawn down during the period to August 31st, with the repayment 15 months from the point of the draw-down. 16
I'm sorry, Madam 17 Finance Director, I was slightly distracted by 18 another party. Could you give me the beginning 19 again? 20
We're anticipating that the 21 draw-down will be until the August 31st date, but 22 the repayment would be 24 months from the date of 23 draw-down. 24
Well, couldn't that then take you past August 31, 2002, depending on 42 10/11/00 - WHOLE COMM. - BILLS 583, 590 when the first, second, third, fifth draw-down was made? I mean, I thought I heard you saying basically two things. You expect it to be August 31, 2000 m, but it is two years from when you draw it down. I mean, it sounds like you want to have it --
Yes, there's a 24-month clock on each initial draw on each time there is a draw.
I understand. So let's say they take the million that they need 13 for January in January 3 million of 01. You get 14 two years, and it takes you to January of '03. 15
And if we took 19 another -- if we took the balance sometime in '02, 20 June, you get to pay that back in June of '04, right?
All right? This was -- I mean, I know a lot of things have possibly changed since we were last together. The 43 10/11/00 - WHOLE COMM. - BILLS 583, 590 concept as presented was, it's a two-year payback. We've now, by this very simplistic example, gone into a four-year payback. Which is it?
It is a 24-month draw-down. In your example where there would be a draw sometime in '02, I think at that point, given what we have -- the mechanisms we have for reviewing the company's position, if it requires -- if they did not require a draw in that long a period, I would have to question their need at that point for that draw and those circumstances, because we are addressing a short-term problem of the company; we are not here to address a two-year problem of the company. So if the company is still making draws in '02, then we have not gotten the kinds of rate relief, and there are other issues that the company will be dealing with at that point.
We're anticipating that by June of '91, the company would have drawn the full 45 million from the City. 44 10/11/00 - WHOLE COMM. - BILLS 583, 590
Which means that no 3 matter when it's drawn or how many times -- or two transactions, five transactions, under that scenario, you expect that all payback would be by June of '03.
Okay. So, I mean, to kind of keep it all in a tighter box, does it maybe make some sense to set in this ordinance a final date by which either all funds must be paid back or all funds must be borrowed and to get -- I mean, I understand your position on, Well, if they're doing that and if they haven't drawn down, if that doesn't make any sense, blah-blah-blah -- (to the stenographer) and I don't know how you're going to take that last statement down. But, I mean, does it make sense to make the box either smaller, tighter, more firm so that certain things have to happen in a defined period of time and the paybacks have to be within a defined period of time and any draws have to be within a defined period of time, as opposed to, you know, something that could extend for a four-year period? 45 10/11/00 - WHOLE COMM. - BILLS 583, 590
Councilman, I don't think that that would be a bad way of tightening it, to put a final draw date, as long as we adhere to what their scheduled draw-down is, and if it's a June 2001, then have a date certain, a June 2003 as the final pay date.
So you would -- in this broader discussion, you would give some consideration to that, you might have some language to go with that, and we could go with that as --
Thank you. Let me go back to the earlier question. The concept -- and I don't continue to push for this because of any particular pride in authorship or anything, I'm still learning. My only experience with ballot questions usually involve capital expenditures, which usually involve 30-year repayment schedules. We put our -- I mean, we have -- just the other week, we had the wonderful opportunity to talk about, you know, a small recreation center down at Broad and Patterson. And so the voters 46 10/11/00 - WHOLE COMM. - BILLS 583, 590 will be faced with $162 million ballot question. We've done these questions from time to time. I have no familiarity with a general obligation short-term debt being a ballot question.
If we borrowed under that scenario, there is something else that would be triggered. In that instance, it would become working capital instead of a capital borrowing, and we couldn't borrow on a tax-exempt basis for working capital. It would then come out of the realm of capital, as you explained, and it would be an operating loan. And operating loans don't usually qualify for tax exemption. So in that scenario --
But I thought we weren't making the loan, just providing the guarantee. PGW's getting the loan.
But it would become our loan because we could not guarantee our own debt. At least that's the explanation we've gotten from the Law Department.
Councilman, I'd like to have the Law Department give you something more 47 10/11/00 - WHOLE COMM. - BILLS 583, 590 formal in writing that addresses in detail, you know, the rationale, you know, and refers you to the appropriate statutory requirements so that we can track it through.
Okay, all right. With regard to -- I read in the testimony from last week's Gas Commission hearing, certain statements were made with regard to who will be in control of $45 million, $25 million, some significant sum of money in the short term here and this draw-down issue. I thought I heard in the briefing yesterday, and possibly even in some testimony this morning, that the Finance Director would have some approval role in this process, but in the testimony at last week's Gas Commission hearing, the record was made clear that the company -- I'm sorry, Councilman Cohen -- that PGW management would soley be in control of the draw-down of the money, that the account would be a PGW account, and that the City's primary role in that would be to get the interest from that account, in that it wasn't a financial opportunity or bonanza for the company. 48 10/11/00 - WHOLE COMM. - BILLS 583, 590 It was further explained on the record last week that PGW management -- I'm sorry, the board would not be involved, I'm assuming making reference to the PFMC board, would not be involved in the decision-making process either. And lastly, what is the mechanism for the Finance Director to have that particular role in the bill, as laid out before us? Can you provide clarification, Madam Finance Director?
The Gas Commission's recommendation has been that there be a review and signoff by the Finance Director, and we embrace that recommendation. And so we would maintain --
Well, let me just -- that was the Gas Commission recommendation yesterday. Let's talk about last week first. I mean, I'd like to walk it through chronologically. Last week your testimony was that this money would be under the sole jurisdiction of PGW management, not the board, not anyone else, and they would draw it down and use it how they best saw fit, and the City would be the beneficiary of the interest; is that correct?
Okay. So under that scenario, the Finance Director had no role in that; is that correct?
Yesterday, the Gas Commission made its recommendation. Your testimony today is, you embrace that recommendation. My question is, what is there before us that implements and ensures that level of recommendation and that level of involvement by either the Finance Director or any other parties? Because I don't see anything in front of us today that says anybody is doing anything other than extending the time period and authorizing the $45 million.
A document has been prepared amending the bill that I've just learned hasn't been distributed to include that --
Is it still wet? What do they have, PC's in the back of the room? Madam Finance Director, you know, it's Wednesday, it's the middle of the week, I'm usually pretty nice by midweek. Why don't I pass 50 10/11/00 - WHOLE COMM. - BILLS 583, 590 because you obviously have some people who want to talk to you about the document that you keep waving, and you can kind of figure that out and get back to us.
Thank you. The Chair recognizes Councilman Clarke.
Thank you, Madam Chair. I have a question. I need some clarity on this draw-down process. I don't know who could speak to that.
Both? Okay. Assuming that there's $45 million in the account, how does that draw-down process happen. Is it invoiced, is it as needed? I mean, what has to happen, explain that to me if you can, please.
According to our 51 10/11/00 - WHOLE COMM. - BILLS 583, 590 understanding of both what we need and as well as the Gas Commission's recommendations, I would certify -- let's assume this is the 15th of December and we needed $20 million to get over the January requirement. I would certify to the Finance Director that $20 million was necessary. It would be required for specific disbursements, and I would submit it to her. She would then, in turn, review that, probably we would discuss the matter, and she would, in turn, certify that it was required. At that point, the anticipation is that she would then forward the funds to this escrow account, this independent --
To an account in the -- that is in PGW's name, and that those funds would then be available to management, this $20 million advance from the City to this account would then be available to management to use as is required to meet these disbursements, as indicated.
To what level of detail is that request? Is it a line item for 52 10/11/00 - WHOLE COMM. - BILLS 583, 590 salaries, for various operating expenses? Is it, like, we need $20 million for --
I think we don't anticipate that it would be a line item kind of review; that it would identify categories of expenditures that we would anticipate as needed. But, presumably, it would be fairly specific but not to the line item detail.
Well, for example, right now, I would anticipate a certification saying these funds would be used for salaries, for debt service payment, and for gas costs payments. I mean, it would be that kind of a level of detail that we would anticipate.
There was question about the interest accrued on the account. Does that, in fact, go to the City?
Okay. I have a question on the low-income customers. My understanding, in talking to several people, there 53 10/11/00 - WHOLE COMM. - BILLS 583, 590 was an issue about eligible customers that, we were reaching approximately 40 percent of them. We have had to in the past, under LIHEAP, had to extend the period for applications. I understand under the gas company's CRP Program, we're only reaching around 40 percent of income-eligible customers. What is it that PGW plans to do to increase that percentage? 'Cause substantially, I mean, both for the customer and for the company, 'cause I'm assuming if you get this money out, the people with the ability to pay into the company would benefit both parties.
Councilman, we've very sensitive that -- in fact, this morning, we presented to the Chief of Staff the company's program for LIHEAP outreach, that we are asking the Mayor's Office to join us with in a kind of concerted effort that has not been undertaken in the City, I would anticipate, in some period of time. 54 10/11/00 - WHOLE COMM. - BILLS 583, 590
Excuse me, excuse me, Madam President? Madam President? I'm having difficulty hearing. I think the volume --
We're having a very difficult time hearing what's being said, so if people are having private conversations, maybe they could move out of the room to do that. Thank you.
Yes. We are anticipating a very aggressive outreach campaign, and it's multimedia, that would involve our employees being in various places throughout the City in a way they haven't been in the past. We are intent on enrolling the maximum number of people that we can reach. Your point about 40 percent, what that statistic is is that we have never been able to get more than 40 percent of those eligible to enroll in the program up until now. It is our 55 10/11/00 - WHOLE COMM. - BILLS 583, 590 intention to extend that percentage as far as we can this year.
What are you going to do to increase that percentage, specifically?
Well, as I say, specifically, we will have a multimedia approach that will be in the newspapers, probably radio. We will meet with various clergy groups, community groups; we have a program already in place to do that. We'll build upon our experience in the past in this regard. We'll have assemblies in churches in mosques, and in synagogues. Whatever we can do in the affected communities specifically, we will be doing this fall, and we have a 60-day period.
First of all, it the company and its employees, and we are structuring that program right now, and we have asked the Mayor's Office to participate with us in this, and all of those discussions have just started as of, 56 10/11/00 - WHOLE COMM. - BILLS 583, 590 in fact, this morning, when I gave Miss Wilkerson our proposal for how to proceed with this program.
Can that proposal be shared with anyone else other than the Mayor's Office?