Who from the company is responsible for overseeing that?
We have an executive whose expertise is in low-income and energy assistance programs, and she'll be heading up this program, and we have --
Christina Coltro. And we have a number of staff that we are pulling from other functions to give to her for the next 60 to 90 days as we move through this LIHEAP sign-up period.
Is there -- do you have projections? Assuming that you have these incremental increases in -- participants in these various programs, what from a fiscal perspective that would do to the company and its fiscal health? If we're able to access LIHEAP 57 10/11/00 - WHOLE COMM. - BILLS 583, 590 substantially and these other programs that will ultimately fund the company in some way, shape or form or the other?
Can you have, in terms of projections, can you give us a sense of -- and you may not be able to do that now, but --
Well, I think we can certainly talk in terms of orders of numbers. Last year, as a routine matter, we collected about 8 to $9 million in terms of the LIHEAP cash program, which is the fall program. And then last spring, I specifically undertook a very intense effort when the federal government made additional funds available to go after those very aggressively and we were able to garner another; $5 million. We have a -- we capture a good piece of the amount of money that's available for these programs in the State of Pennsylvania, and we will continue to do so.
And, also, the federal government has just made $400 million available 58 10/11/00 - WHOLE COMM. - BILLS 583, 590 now. I understand Pennsylvania has been allocated about 60 million of that, so we'll be looking for our share of that.
Can you provide specific information in terms of eligible customers to be able to participate in this fund. I know it may be marginal, but if it's $10 million that we can have an additional contribution to that to the company, I think that we would like to know that as we deliberate this process.
Thank you. The Chair recognizes Councilman Kenney.
Thank you, Madam Chair. There have been a number of things that have been suggested by myself and others relative to finding a more innovative way of providing the $45 million to the company rather than taking it from the fund balance. One of them obviously that has been batted around is the waiver of the $18 million City payment. That would do two 59 10/11/00 - WHOLE COMM. - BILLS 583, 590 things. Number one, it would get or keep cash in PGW's hands, as opposed to having it paid to the City. And at the same time, in my mind, it seemed a reasonable way to reduce the $45 million request by 18. That's one issue. The second was in lieu of just forbearing the amount of money was to look at the possibility from an accounting perspective and from a value perspective to accept some amount of existing PGW receivables in an effort to again to continue to try to whittle down the 45 million. The Finance Director has been kind in responding to that request and to a request that I made about a notion of swap of GO bonds, outstanding GO bonds, in an effort again to continue to whittle away. The response that the Finance Director gave me was appreciated. However, it attempted to respond to me as if I was asking for one of these solutions or recommendations to fund the entire $45 million request, which is not what I had in mind. And then, thirdly, there was also a suggestion of a forward purchase, which is a sale 60 10/11/00 - WHOLE COMM. - BILLS 583, 590 of what currently the City holds in fixed-rate instruments to be traded for or purchased by someone else and replaced with variable-rate instruments, which would also raise anywhere from maybe from 5, 6, 7, $8 million. Why are we not attempting to whittle down through these various ways the amount of money being requested from the fund balance? And before you answer, I'll tell you why. This fund balance has been talked about in a number of different areas that has grave concern for me. Number one is the $45 million removal of the fund balance to PGW. Second is a $20 million request that we have not seen yet for the School District coming from the fund balance and other areas of need, which are all reasonable needs, coming from the fund balance. I mean for -- I apologize for stealing this particular verbiage, but I'll steal from the Vice President of the United States. I think the fund balance should be put in a lock box, as opposed to being considered for every possibility where there is need. I don't necessarily believe we have enough in the fund balance yet of a 61 10/11/00 - WHOLE COMM. - BILLS 583, 590 surplus to give us the comfort level we need one, two, three, five years in the event the economy goes south on us, something tragic happens, we have some major problems. I mean, I don't think a surplus is a surplus unless it's about a half a billion dollars. And we keep on reverting back to the fund balance as a way to solve problems that have existed for many, many years and are now coming to bear. Why have we not been able to look at these various scenarios to try to reduce the $45 million down to 40 or 35 or 30 or 25?
To the first item, accepting PGW receivables for the million. PGW 16 does not generate sufficient cash flow until the 17 end of the year for the 18 million to come into 18 play. So even were we to accept the receivables, which are an option, even if we were to accept the receivables, it would not reduce the amount of advance that they need because their needs sort of precede the generation of the cash in the company.
But that's not $45 million worth of need at this moment.
It's and a combined 45 5 in June, and that's about the time that they repay 6 or they give us the 18. So we would reach that 7 point at just about the same time. 8 It is something that we can entertain. 9 It is a way to minimize our total exposure. It 10 does come with some difficulty in determining how 11 much of their receivables we take in payment and a 12 few other things, but it is an option. 13
Excuse me, just one 14 question on that regard. Does not the taking of 15 receivables of bad debt expense from the company 16 improve the company's financial position if we 17 were to accept some of their bad debt and reduce 18 the amount of their bad debt? 19
That doesn't prove because 20 we're assuming that we would be taking paper that 21 would have less than face value. So we would, in 22 essence, be reducing their bad debt exposure. 23
So the receivable 24 swap -- or the receivable arrangement would keep 25 cash in the hands of PGW, keep our books balanced 63 10/11/00 - WHOLE COMM. - BILLS 583, 590 from an accounting perspective, and also improve the position of the company vis-a-vis its bad debt.
Well, why isn't the option being pursued here today prior to the request for a $45 million loan?
And, again, I think it's a timing thing because of when they need their cash, and I'm assuming you need it at the beginning of June, and we normally take delivery right before the very end of June.
I think the additional consideration, Councilman, is what the Finance Director referred to as the difficulty in quantifying what paper we give the-- you know, what paper would be transferred, what that would be worth. All of that will require a great deal of analysis that we haven't undertaken yet.
But we just not that long ago took a large amount of lien paper 64 10/11/00 - WHOLE COMM. - BILLS 583, 590 that had not been collected for years and years and years, that had problem in valuating the asset that we were selling, but people seem to want to step to the plate and buy some of our real-estate tax liens that were 15, years old. 7
We are in the position 8 right now of doing something similar and that is, 9 one of the problems with the computer system over 10 the last year is that we had not gotten until very 11 recently, the last week or two, a full grasp on 12 our accounts receivable, and we are now in a 13 position of taking the oldest paper and 14 essentially distributing it -- we will be in a 15 short while able to distribute that and get 16 something back for that, but that's the very 17 oldest paper that we have. 18
What about the 19 issue of the swap and what it could raise, not to 20 fully fund the request of 45 million but perhaps to whittle away, eat the $10 million off of the request and give some relief to the fund balance?
Those items look directly to the City's tool box, if you will, our financing tool box. If the City were strapped for cash at 65 10/11/00 - WHOLE COMM. - BILLS 583, 590 this point, those would be options. At this point, those are expensive ways to bring more cash into the City that have a potential downside in the future, should the City then really need to engage in creative financing to fund our way out of what could be a cash crunch for the City. If we were going to do something like that, it would be preferable to wait till such time as we had that need than to pull the trigger now, when the need doesn't exist.
And while I accept that answer and I think it's thoughtful, does not the $45 million taken out of the fund balance, with a possibility -- maybe not a distinct possibility, but a possibility of it not being repaid, is not putting the City in a similar situation?
It's a risk that the City is taking, and should we get into the life of the loan and see that PGW is unable to repay us, at that point, the swap, the forward, would be things that the City might use at that point. But to incur the expense and the downside risk at this point is premature. 66 10/11/00 - WHOLE COMM. - BILLS 583, 590
I mean I appreciate your answer, but I am not willing at this point to take that risk with $45 million. I will not support this request. In the event that this request is approved, I would support Councilmember Tasco's amendments for some oversight because, again, as I've said before, this situation that we are in now is a cumulative effect of abuse after abuse after abuse from administration after administration after administration. And, again, the last place I think we should be going for to solve this problem is the pocket of some housecoat, of some old lady's housecoat in Philadelphia or the pocket of a working family who's trying to put their two kids through college. It's just to me unconscionable and obnoxious that we're even in this situation, and this information had been known for years, and no one in any administration has brought this thing forward. Let me go to one other issue as far as controversy. What's your thoughts and deliberations and analyses relative to the 20 percent discount program and what we can do to 67 10/11/00 - WHOLE COMM. - BILLS 583, 590 make it a more fair situation for working families throughout the City? I mean, I understand that the Water Department has a means test for its discount program, it has an extensive poor person's program, and I recognize that we're trying to expand the LIHEAP Program and get more people involved in it. But is it fair for some -- was it ever fair to institute a program of a percent 11 discount regardless of means? And is it fair to 12 working families in the City to have them pay for 13 some political largesse of 30 years ago to this 14 day? And what could we do and how much would we 15 save by instituting a reasonable means test? 16
The Administration 17 supports in theory means-testing the senior 18 citizens discount. That is -- you know, as a 19 result of the deregulation legislation and the 20 July 1st trigger date for its implementation, that is a decision that has to be made by City Council through ordinance in order to make any kind of modification in the senior citizen discount. I think there are concerns that because it's not means-tested, individuals who don't need 68 10/11/00 - WHOLE COMM. - BILLS 583, 590 the support are receiving the support. We don't know exactly how much, you know, we give away by not means-testing the program but, you know, the Administration, I think, in part of trying to straighten out some of the long-term problems that the company would support means-testing the senior citizens discount. I know the gas company uses a 200 percent of the poverty index as the measure, and I don't know whether that would also be the point of that but, you know, we would urge that the company adopt that and means-testing is something that we think is appropriate.
Even if the means test was artificially high, even if the means test represented the average income of working families in Philadelphia, I think that would be a fairer situation than we have today. And considering the company's dire financial and cash situation, would that not be something that should be pursued over the next year or two, as opposed to kind of waiting? What's the timetable on coming to Council with some recommendations from the Administration on making this a fairer program? 69 10/11/00 - WHOLE COMM. - BILLS 583, 590
We don't have a specific timetable for that. It is something we support in concept. I --
How much money a year is not realized by the percent across-the- 7 board discount? 8
Within that 14 universe of people, there are some that would be 15 eligible for the LIHEAP Program that are not 16 taking advantage of it now? 17
And there's also a 19 cohort of people in there that are probably 20 earning above what the average working family in the City makes, they're also taking advantage of it?
Is that a priority? I mean, it seems a $13 million number 70 10/11/00 - WHOLE COMM. - BILLS 583, 590 in a company with these kind of problems would be something that's being pursued vigorously.
I think there are a number of considerations. One, we don't have a good handle on exactly what we're talking about dollar-wise, how many people would fall above. And then there's, you know, the count -- it is a judgment call. Is now the time to, you know, the time we're looking at rate increases, you know, to raise the political issue, you know, to come to City Council asking City Council to get rid of, you know, any part of the senior citizens' discount.
But the thing, again, that's frustrating is political issues are exactly what put us in the condition that we are in today, talking about $45 million out of the general fund, talking about all kinds of other things that we need to do. I mean, if people had had the courage to take the political issues in 71 10/11/00 - WHOLE COMM. - BILLS 583, 590 the past, for the last three decades, this company may be flush with money and be able to absorb the amazing cost of gas purchases throughout this -- which has created this international crisis of gas, as opposed to coming back again to, I guess, the dumb guy who pays his bills. I mean, that's what happens. I mean, if you're poor and you don't pay your bills, fine, we'll take care of you. If you're wealthy, we'll give you a discount, but if you're middle class and struggling, we're just going to raise your rates, and that's how we solve our problems. You don't need to comment. Thank you.
Thank you. The Chair recognizes Councilman O'Neill.
Thank you, Madam President. Before I ask the question I was going to start with, on the senior citizen discount, just for the record, I would like to make some historical reference clear. When the Water Department put in the means-testing in 1983, the 72 10/11/00 - WHOLE COMM. - BILLS 583, 590 discount for senior citizens was, I believe, 67 percent; it was a discount and then it 4 missed two rate increases, so it was effectively 5 67 percent. 6 So, even though it was water and the 7 bills are smaller, what the commissioner did at 8 that time was, he grandfathered in everyone who 9 was already on the program and started it for new 10 people coming of age to get the program. And the 11 Water Department has increased that means-testing 12 a few times, I believe, in the last 17 years. 13 But the simplest way to do this would 14 be to grandfather those that are here -- it 15 doesn't give you the $13 million in savings, but I 16 think it's the fairest way to deal with those 17 people that have been getting it, and also to look 18 at the Water Department's program so that we don't 19 have people wandering around, whether they got it, 20 they don't have it, why it's higher or lower than 21 the Water Department, just a City agency, it's a 22 City utility. 23 And the last thing is, if the seniors 24 have to declare their income to get it, we 25 certainly could deal fairly easily with the LIHEAP 73 10/11/00 - WHOLE COMM. - BILLS 583, 590 issue for those that declare an income that would make them eligible. And that could be factored also into the savings up front as to what that would be. But getting to the question that I was going to ask, two different statements I heard today really kind of shook me up a little bit, and I've heard them before, but it wasn't with a $45 million in front of me. One is that this administration took over a company that was at the point of collapse, and I think that's a tough situation to have to walk into, with all of the other thing going on in the City. And the other statement was that for the last three and a half years, we've been financing -- PGW has been financing a deficit with bank loans. And I say it's troubling because during that time, the three and a half years or so leading up to this collapse scenario, as we're being asked today as Councilmembers to make judgments that are, I think, beyond our level of expertise to some extent, we've had a Gas Commission in place, we've had a consumer advocate in place, we've had a fiscally responsible, I 74 10/11/00 - WHOLE COMM. - BILLS 583, 590 think everyone would agree Rendell Administration with its Finance Director riding herd over this company in place, and the City Controller, who's fairly fiscally conservative as well, sitting on the board and being the controller of this City. So with all of that going on, we find ourselves in this situation. And that's why I'm looking at this not as a question of and 20 or 10 45 all at once, but that there's not a third 11 scenario, which is we don't do anything. 12 And when I say we don't do anything, I 13 really think we are bailing out -- see I left out 14 one group after the controller, and that is banks 15 and financial institutions that have been feeding 16 this company financially while all of this is 17 going on that we're hearing about -- this 18 collapsed scenario, these bar links to meet 19 working capital needs, those kind of things. 20 We've got the finest financial institutions in the 21 world -- Morgan Guarantee and the rest of them -- 22 lending money, when we kind of think they're the 23 most responsible financial people out there, and 24 it makes you wonder if that's the case. 25 So who are we bailing out here? Are we 75 10/11/00 - WHOLE COMM. - BILLS 583, 590 bailing out the company? And if we're bailing out the company, are we really bailing out financial institutions who are at risk, that don't seem to want to risk anymore?
And are we lending money that we're going to have to lend more money later to protect our interest because of this loan, that doesn't exist before this loan, when banks are unwilling right now to protect their interests, which is much greater than $45 million? It's hundreds of millions in the long-term borrowing and nearly a hundred in the short term that they seem unwilling to protect their interests on. And, you know, I look at -- not that reelection is important to any of us, but two and a half years from now, this may be, rather than stadiums or anything else, what we might have to explain to voters, 'cause I know what that ballot question would probably result in: it would make the charter seem like a small victory for the opponents. If a ballot question on this kind of transaction went before the voters, it would be so overwhelmingly defeated. And so my question, for starters, is: 76 10/11/00 - WHOLE COMM. - BILLS 583, 590 Does PGW have a structural deficit? And I don't know how I understand the structural deficit 'cause we went through it with the City when we were at about a quarter billion of structural deficit. Without any PUC rate increases, without this loan, does PGW have a structural deficit right now?
And how much is it approximately? I know you can't put an exact dollar figure, but give me a range of what that deficit is.
If we can increase our prices, I would say the structural deficit for fiscal 2001 is 15 to $20 million.
Warm weather scenario, okay. 'Cause that was another question. If we have a cold winter, it would help PGW?
There's no question. 77 10/11/00 - WHOLE COMM. - BILLS 583, 590
Okay. And you're assuming you get full relief for what you're asking from the PUC in the to $20 million -- 5
I'm sorry. Full 8 relief gets you past the 15 to 20 and into some 9 level of comfort above that? 10
Okay. Now, I have 12 a terrible time dealing with the Morgan Guarantees 13 of the world, and one of the reasons is that I sat 14 here when the City was on its back financially 15 about ten years ago and needed a short-term loan to get over a hump before we could get the full relief from PICA and what we were trying to do with Harrisburg. And we asked the local bank, one of whom is now First Union -- it was CoreStates -- and we needed a short-term loan and we had done all of our banking with them, we had the full faith and credit of the City backing up the request. Because of our dire straits, they said yes, but it was a 27 percent loan. Hard to forget. And we were at their mercy, and they 78 10/11/00 - WHOLE COMM. - BILLS 583, 590 treated us just like that. And I just wonder if we aren't treating Morgan Guarantee a lot better than maybe Morgan Guarantee would -- and I use them not just as the only bank, but would be treating us. They have $97 million exposed, they don't have a rate increased that's involved in that $97 million obligation of ours and commitment of theirs. Why wouldn't they enter into the additional security of a rate increase, which brings several million dollars into the coffers, if they were willing without the rate increase to engage in what looked like a risk-free loan if they have the security of PGW revenues to guarantee the current 97 million. And I'm really grappling with this. I don't want to be not only bailing out a bank, but maybe bailing them out several times. Because once I'm in, I'm in. And then I start protecting my own investment. And where do we stop? And what if somebody wants to buys this company in a year, and the first thing they'll say -- 'cause I would -- is, Well, to consider buying this, I want the City to do X, Y and Z, and X, Y and Z will include forgiving the outstanding debt of PGW. 79 10/11/00 - WHOLE COMM. - BILLS 583, 590 Please. Why wouldn't they -- it seemed like, if I understood the answer earlier to Councilman Nutter, they've become a secured creditor, Morgan. They will have not some that has to be sold to PGW, like a building or a facility, to get their money, but they have an up-front agreement to certain revenue streams. Why can't, to protect their only 97 million, if the PUC increase is upon us, why wouldn't they just increase the security that they already have by an additional amount and lend the additional money that's needed? And I have trouble grappling with that. 'Cause it seems to me they're the ones in trouble. The -- I just hate to see rate payers or taxpayers bailing out banks and large, giant financial institutions. They made the judgments that got us here; they could have prevented any one of these loans from happening.
Well, I'm not sure, Councilman, that they would share your view.
They made a loan to PGW 80 10/11/00 - WHOLE COMM. - BILLS 583, 590 effectively a year and a half ago, the $100 million. And they did that based on a promise that PGW would repay that loan in June of 2001 out of the revenues of the Gas Works, and that was the risk that they were willing to take, that the Gas Works generated sufficient revenues. There are extensive legal covenants and so on that protect that investment. If they were facing a situation where they knew PGW could not repay or there was a substantial risk that they could not repay that loan, they would be, from their own perspective, not ours, but from their perspective, remiss in lending more money. They are -- the bank is regulated by the controller of the currency, who looks at every loan they make and requires them to set aside reserves against the loan, depending on the likelihood that the loan will repay. If they had a situation where they were making an additional loan to bail out somebody who had not been able to pay them back or was at high risk of not being able to pay them back, that would be a very costly reserving requirement for 81 10/11/00 - WHOLE COMM. - BILLS 583, 590 them, and they would be most unwilling to do that. They're frankly concerned right now, as you know, about getting the $100 million back.
But why aren't they in there with a restructuring, where we don't have to worry about whether reports are going to be made later, whether we're going to start getting information that we were promised years ago for the Gas Commission or whoever we are out there that's been frustrated. They could be restructuring this and making those demands and having all kinds of security in the flow of money. If it's so bad -- and this is really where I'm really winding up here today. If this is such a substantial risk of not being repaid, that Morgan Guarantee or any other large bank refuses to make a loan at any interest rate with any amount of security, why are we? I mean, we're not -- this isn't our business and we certainly don't have the kind of systems and expertise that they would have. And they're the ones that are at risk if there is -- I'm not sure they're at risk; you mentioned that they have a pretty good -- could you detail that a 82 10/11/00 - WHOLE COMM. - BILLS 583, 590 little more. What is their security?
They have an interest in the stream of revenues that PGW produces, just as the long-term bondholders do. They are in a subordinate position to the long-term bondholders. So if there's a limited amount of money, first the bondholders get paid their principal and interest, and to the extent that there's money left at that point, Morgan gets paid, and the City gets paid after those two groups have been paid.
Does anybody get paid before the long-term and the short-term lenders?
Yes. The bond ordinance 21 allows PGW to pay its operating expenses first. Bondholders are willing to wait to get paid till the operating expenses are paid to ensure themselves that a viable entity is up and running. Obviously, if got paid first and PGW 83 10/11/00 - WHOLE COMM. - BILLS 583, 590 couldn't buy gas, there would be no revenues. So PGW is allowed to buy gas and pay the cost of operating the company first. Then it pays the bondholders, then it pays the loan to Morgan.
Well, is it -- it seems to me that the -- and, again, I'm not sure I'm totally clear on this, but it seems to me what PGW doesn't have enough money possibly to pay is the financial institutions, because bondholders are financial institutions in the institutional level that we deal in and banks like Morgan. So we were hearing a couple weeks back, worried whether we were going to be able to pay the suppliers of our gas and our employees. And it seems to me there are two different levels of numbers here. One is while this borrowing has gotten crazy in the last couple of years, from 5, 600 million, 700 million to almost a billion, somebody has been guaranteeing to bondholders that everything's cool back at PGW and you should, you know, buy these bonds. And, apparently, it wasn't. I mean, we're hearing that this isn't 84 10/11/00 - WHOLE COMM. - BILLS 583, 590 something that started last month or two months ago. It's been going on a downhill slide for some time. And it seems to be that they should bear some responsibility in this. And we absolve them of all responsibility and start adding our own, when we've had no level of oversight in this, we haven't been the financial experts certifying that everything's cool at PGW. And yet now we're going to walk into something where we create our own monster and let their monster out of their cage and put it in ours. I'm just not willing to do that, and I can't seem to find a more rational approach. And I know it sounds radical, but to me, the more I think about it, it sounds rational rather than radical. For instance, a bank would be in there if they had some risk, looking at what kind of belt-tightening is going on at PGW at the highest level. I mean, a company that's ready to go out of business possibly starts streamlining like crazy. Can someone from the executive staff-- and I'm talking about just at the executive level; I'm not even talking about in the company. What kind 85 10/11/00 - WHOLE COMM. - BILLS 583, 590 of streamlining, belt-tightening has been going on? And I'll use an example. If you had 5 cars and you've got 2 now, that's, you know, 6 90 percent of your vehicles have been cut out 7 during this severe -- if you've got a membership 8 in an association that's very expensive, you know, 9 we've gotten out of that. I mean, it may be 10 several things, but I don't know if there's -- 11 there's got to be some documentation where there's 12 been meetings of executive staff that have said, 13 Before we come into City Council or Morgan, 14 whoever gives us the money -- 'cause I hope we're 15 not a guaranteed guarantee at this point, we're 16 still thinking about it -- this is what we're 17 doing, and we're doing it at the highest level of 18 the company. 19 So maybe you could start there. 20
'Cause I just find this very troubling. I'm sorry. I went to bed last night thinking it was to 45, and today I'm 24 wondering if 0 wasn't the best number. 25
Let me respond in two 86 10/11/00 - WHOLE COMM. - BILLS 583, 590 ways. One is, every gas distribution company on the East Coast and most likely across the country right now is having difficulty with this same issue. We know that the financial markets are looking more and more critically at gas distribution companies and that every owner has got to come up with the means to finance this inventory problem, which is to say that the gas that you have to buy before you can bill and collect from customers. Everyone is looking at this problem, and they are doing one of two things: they are either selling equity to raise the necessary funding, or they are borrowing to raise the necessary funding. The only reason that we are here is that we are not in a position to borrow because we had to use the flexibility and the instruments that we had to finance the deficits that are weather-related for the last three years. In other words, the customers have gotten a substantial break as a result of the weather, as a result of other circumstances at the company. My own position is that we should have 87 10/11/00 - WHOLE COMM. - BILLS 583, 590 raised rates first in '95 and certainly no later than 1998. Those were my recommendations when I was on the other side of the dock, and they continue to be my view. So we are where we are, and owners are stepping up across the country to do what we are asking essentially the City administration and you all to do today. That being said, in terms of your immediate question about cutting costs, we have cut every discretionary account that we can lay our hands on right now. There is no traveling, we have no club dues. We have cut out all credit card use. Any possibility of spending money that is just not for core purposes has been eliminated. And there is really nothing more we can do in that regard. I can't say there's nothing more we can do. We have committed to reducing our costs by up to $22 million over the next months, and we 22 have started down that by renegotiating contracts, 23 by not hiring people who have left as a result of 24 attrition. All of these measures are being taken 88 10/11/00 - WHOLE COMM. - BILLS 583, 590 to force the company into higher levels of efficiency. We can't do it overnight. We have started the process, and the process is continuing. So in terms of what senior management can do and the board can do, you know, senior management has very clear directives from PFMC to deliver well within the guidelines that PFMC mandated, which was this to $24 million cost 11 reduction over a two-year period, so that's where 12 we started and that's where we're continuing right 13 now. 14
Are you still a 15 member of the American Gas Association, PGW? 16
We are and we're 17 considering not being. At one point in the past, 18 the company suspended its membership and we're 19 looking to do that again. 20
Quarterly? 89 10/11/00 - WHOLE COMM. - BILLS 583, 590
We're looking -- still want to get the benefits of what the American Gas Association has to offer without paying the full freight. That's what we've done in the past.
That's not going broke. But when you're going broke, these kinds of dues things --
This should be gone already, but that's my own opinion. What I have trouble with is two things. One is weather-related. All of our problems are weather-related. The last three winters have been mild, and some of them have been mild for a lot of other companies that are not ready to go belly-up. 90 10/11/00 - WHOLE COMM. - BILLS 583, 590 And I have because one thing I know is happening with this company that nobody's talking about -- my gut tells me it's been going on for years, particularly the last three or four, and there's an end in sight because we can't borrow any more, and that is that we have been taking huge capital borrowings and doing things that other companies are doing with operating funds. Now, I'm not saying we broke any laws; I'm just saying that in the regular course of business, if we were the Water Department, we wouldn't be doing it. And so what happens is, not only do we run into different weather that might be happening, but there will still be bond issues that can go on this year. We're not going to have a 100 or $200 million borrowing to increase capital funding that's going to go for what a lot of people would describe as "normal operating maintenance expenses." And maybe that's why Morgan won't look at any more loans, or anybody else. And if that's the case, then we're really being foolish as we sit here, bailing out the banks. 91 10/11/00 - WHOLE COMM. - BILLS 583, 590 And I think the revenue stream is going to be different for a couple of reasons, and one of them is going to be no more big capital borrowings. On that sheet that I received today is just scary in terms of what we borrow, don't have anything to show for in the capital -- because we had testimony months ago where we had the capital budget, that our infrastructure's terrible, we haven't been keeping it up, and that's what capital money's for, unless you're moving over and doing the old operating thing, and I don't want to put the Commissioner on the spot because the Water Department is very strict about what they use capital dollars for as opposed to operating, even though they could use them. And I -- my gut tells me that is going to hurt us and haunt us more as we go into the next couple of years than anything out there. And weather -- you're in the weather business and good weather, bad weather, the one-third increase, if we have a cold winter, could become a 50 percent increase for the average gas payer. It will help PGW, it will be terrific; it will pay the loan back faster and all that and then see if the 92 10/11/00 - WHOLE COMM. - BILLS 583, 590 winter is cold the following year. I think this black hole is so deep that it's the reason that the Morgans and the First Unions one touch it, even with security. And I'm not sure we should, either. Thank you.
Thank you. The Chair recognizes Councilman Rizzo.
Thank you, Madam President. I also have much difficulty with this request based on the fact that I've been talking to other gas utility companies. And what surprises me is the lack of interest or the lack of wanting to involve themselves in any type of a relationship with PGW, doing purchases of fuel, of gas, even a management contract. And it continually surfaces, when I talk to other utility companies, the lack of a recovery plan, the lack of a business plan. And I hear today that we really don't have one. Maybe one's on the way, maybe there's one on the drawing board. I wouldn't lend my best friend 20 bucks 93 10/11/00 - WHOLE COMM. - BILLS 583, 590 if I didn't have an idea what they needed the money for. And you're asking us to --
I don't know if anybody else can hear you, but do you mind repeating because I think we're having difficulty hearing you. I'm sorry.
Our old system seemed to be working much better than our new system.
I'm not, either. The point that I'm trying to make, and I'll repeat it, is the fact that I've had conversations with other utility companies, and they just cannot believe that this company -- and the perception, and I've been told in a private conversation, a briefing, that it is a perception, but I don't believe it's a perception, that this 94 10/11/00 - WHOLE COMM. - BILLS 583, 590 company has no plan, they're asking for $45 million, and we will be back in the same situation maybe not a year from now, but maybe two years from now, because I'm not confident that we really have a plan in place on the drawing board that will show the recovery of this company. I just heard that they've restricted travel, and then in the same breath, I hear that they are considering not supporting the American Gas Association. Well, how do you belong to the American Gas Association when no one's allowed to travel? So we've spent $240,000 on a membership where we're not participating? That's great management. Thank you, Madam Chair.
You're welcome. The Chair recognizes Councilman DiCicco. All right, the Chair recognizes Councilman Cohen.
Thank you, Madam President. 95 10/11/00 - WHOLE COMM. - BILLS 583, 590 First, to the Finance Director probably. The $20 million that is currently authorized, has that been repaid by the Gas Works? Have they borrowed the money? And if they borrowed it, when did they borrow it? And did they repay it? And if so, when?
'84, and it has been paid a long time ago, probably in that same year.
I didn't get what you said after you said they borrowed in 1984, I did not get the rest of your comment.
It was probably paid within that same year or closely thereafter, but it has been paid for quite some time.
So that they have an outstanding ability to borrow $20 million now, under the old contract?
And have they sought to have such a resolution adopted by City 96 10/11/00 - WHOLE COMM. - BILLS 583, 590 Council? I know of none, but --
Could I ask the representative of the City's Gas Works why they have not asked that, if that's been available?
I believe that we tried to take a longer view of what it is that the company is going to need. We were able to look ahead two years and understand that, you know, we needed to borrow money in January, we need money for June. We were trying to forecast a bit and create some flexibility for the company. And I think that's why we've chosen the approach of amending the ordinance to increase the amount and go for two-year borrowings as opposed to the one-year borrowing that I think you're referring to.
And is the Administration proposal a replacement for what exists now?
No, it -- there are different provisions. I think one is a one-year borrowing. There's a second piece that we're attempting to amend that permits two-year 97 10/11/00 - WHOLE COMM. - BILLS 583, 590 borrowings, and I think the third piece is the commercial paper provisions.
-- what would be the result if we passed either the City, the Mayor's proposal, or the Gas Commission's proposal? What would that do to the current $20 million borrowing authority that's been given to the Gas Works to borrow from the City based soley on a resolution 13 of Council?
Well, I don't understand. Does that mean it adds to the 45 million or that when the million is 18 borrowed, does that eliminate that 20 million? 19 Are we talking about 65 million potentially that 20 can be borrowed from the City or 45 million? 21
It would be 65. So 24 you're asking -- you haven't used the 20 million 25 and -- 98 10/11/00 - WHOLE COMM. - BILLS 583, 590
We were looking for a two-year borrowing in order to -- I mean, part of what we're trying to do is stabilize at least some components of the company's operation. We know today that the company's going to have cash-flow needs over the next two years, and rather than -- you know, we also know that we have a need to restructure rates. We're trying to put in place certain components so we can begin stabilizing the operation of the company so that we're not reeling from crisis to crisis. It is extraordinarily difficult to operate the company when we're always in a crisis mode. We were trying to set up a mechanism, you know, where the company would have access to --
I don't know what you're talking about when you're talking about a company because the City of Philadelphia is really the --
Well, isn't it the City of Philadelphia when we talk about the Water Department? Would you, say call the Water 99 10/11/00 - WHOLE COMM. - BILLS 583, 590 Department a separate company?
What's the purpose of emphasizing a company? It's all owned by the City, the City has responsibility, it has. . .
You're correct. It is simply a collection of assets, it's not an independent company with any kind of corporate integrity.
If for some reason the so-called company goes kaput, doesn't the City of Philadelphia have a responsibility to see that its citizens have heat in their homes?
So it's a City responsibility. And so you're basically saying, let's increase the current $20 million to an allowable borrowing limit of 65 million, even in the face of the Gas Commission's recommendation that under the worst of all cases, the most that's additionally going to be needed by the Gas Works is $5 million through the end of this year.
The company is not interested in accessing, you know, the 100 10/11/00 - WHOLE COMM. - BILLS 583, 590 $20 million; the company is interested in a two-year loan, setting up a two-year loan mechanism. You know, it has no current plans to request the one-year loan.
Well, would the City be prepared to amend the agreement to eliminate the $20 million loan authorization?
You mean the present plan is to seek $45 million in additional borrowing ability from the City of Philadelphia?
That's right, in the form of a two-year loan. That is what the company's interested in.
Has any study been made as to when it was that the Gas Works, or the Gas Department, went into financial insolvency in a sense, in the commercial sense of losing money? How long has that been going on?
Councilman, we -- the issue started in 1997 and has rolled forward since then.
And up until 1997 -- 101 10/11/00 - WHOLE COMM. - BILLS 583, 590
The company was meeting all obligations and had most of its $100 million credit line available to it. The reason the credit line disappeared -- and let me reemphasize that -- is that we had several years, three years, of warmer-than-normal weather that required operating funds. And management at that time, rather than seeking rate relief, which was absolutely essential, in my view 'cause I testified on the other side of the dock for it at that point, did not occur. So the only option that management did have was to use the short-term position and draw that line of credit down.
Well, would it be possible to establish how much money was lost in the normal commercial sense by the Gas Works in 1997, in 1998, in 1999, and in the year 2000? Have there been such figures?
Cumulatively in the four years? 102 10/11/00 - WHOLE COMM. - BILLS 583, 590
Due to -- for '98, '99 and fiscal 2000 and part of '97, we lost somewhere around $70 million, largely a function of warmer- than-normal weather. We could not recover from our customers. Because of the way we structure our rates and our charges, we could not recover from them enough money to keep the company going and not experience deficits.
During that period of time, when the $70 million loss was recorded, how much did the Gas Works pay to the City of Philadelphia in these $18 million installments?
All right. Now, using old math, I would say 3 times is 54? 18
And if you subtract 54 from 70, the loss in those years totally is $16 million, exclusive -- or averaging million a year, exclusive of what was paid to the City?
It doesn't sound to 103 10/11/00 - WHOLE COMM. - BILLS 583, 590 me like a terrible shape to be in with the explanation you gave of these terribly warm -- I'm using the word "terribly" in an economic sense because I think the people like the warm weather, but for the gas company, it represents a crisis.
But it does not seem to me that the litany of all the terrible things that happened to the Gas Works was really that bad. It seems to me the worst loss was the payment of $54 million to the City. And if we had not paid it, it would not have been a crisis situation at all; it would have been something that called for a little additional remedy. Doesn't that make sense?
I'm not trying to embarrass you because I know that you don't have any right to disagree with the Mayor, so I'm not asking you to disagree with the Mayor. (Laughter.)
You have to say what he authorizes you to say. 104 10/11/00 - WHOLE COMM. - BILLS 583, 590
It still stands, doesn't it? The whole crisis is that in three terribly bad years, because of the weather, because of the all of the mismanagement problems we've had, because we failed to ask for rate increases when we should have done so, the company actually lost $16 million.
Were we not to have paid -- we have to be careful here. Were we not to have paid 3 years of $18 million, we would have $54 million of cash available to us now.
Right. And as a matter of fact, and now to Miss Davis, could you tell me what we say the City surplus is?
Our preliminary numbers put it in the 220, $230 million range at this point.
220, 230 million at this point. Those are preliminary, subject to audit.
And back in 1969 or 1970, the payments by the Gas Works to the City were then $15 million. And Councilman Longstreth 105 10/11/00 - WHOLE COMM. - BILLS 583, 590 is the only one who's going to be in a position to have an opinion on this from personal knowledge. The City Council was in a caucus session trying to solve a $3 million deficit in the budget for the forthcoming year, and the then-Council President said, "Excuse me," to the members of the caucus, "I'll be back in a minute, I have to make a phone call." He came back two or three minutes later and said, "We've solved the problem. PGW has agreed to increase its annual contribution from million to $18 million." And 13 since that time, in the late '60s or early '70s -- 14 I don't know whether it was 1969 or 1970 -- the 15 payment was 18 million. It seems to me that the City has drained since 1970, that's 30 years ago -- 30 times 18 is kind of, as I add it up, isn't it $480 million?
And had the City not drained that money, the situation would be entirely different? And, you know, maybe that's a rhetorical kind of a question. But of that 106 10/11/00 - WHOLE COMM. - BILLS 583, 590 surplus, it seems to me clear that the surplus of the City is a paper surplus, a fictitious surplus obtained by taking $18 million a year steadily from the Gas Works, when that money should have remained with the Gas Works so it could have dealt with the infrastructure of the needs. I'm very concerned about the whole question of rate increases. I think what has happened is that the City has used the Gas Works as a means of balancing the City's budget and that now we have this problem because the Gas Works has just been a convenient target. And as long as the Gas Works kept on turning over $18 million a year, the City didn't care how it was operated or what its condition was. Would that appear to be a pretty fair statement?
Councilman I don't think I can respond to that. I think certainly, under all circumstances, PGW made its payment to the City, as it was required to do by ordinance.
Let me ask you, the enormous increases in oil and in natural gas throughout the country, has it caused the City of 107 10/11/00 - WHOLE COMM. - BILLS 583, 590 Philadelphia to seek specific assistance for a municipal utility from either the federal or the State government? Are we seeking additional funds for the operation? I'm not talking about increases in the, you know, to the consumers.
LIHEAP, I know that the State is going to increase some funding for the LIHEAP.
To funnel funds to PGW from Washington on that, specifically for payment for these increased costs.
Have we asked for additional funding for the utilities in order to make it easier on the rate payers?
There has been no 21 specific application nor do I know of a mechanism for such to Washington, except through the Congressional delegation. We have not done that.
Would that seem to make sense? 108 10/11/00 - WHOLE COMM. - BILLS 583, 590
Why should the State or the federal government be silent when our rate payers face the threat that Councilman Kenney spoke about maybe a half hour or so ago of?
On the rate increase request, there are two separate requests, one for increasing the --
That's the 52 million, and one for gas costs, which is presently at $97 million.
Now, the gas increases, you have nothing whatsoever to do with; is that right?