No. Let me be very clear. The company has done -- and this is a compliment to the managers who are at PGW and have 109 10/11/00 - WHOLE COMM. - BILLS 583, 590 remained so over the years, they have done a wonderful job of purchasing gas, and they're recognized for having done so and they saved the customers of the City of Philadelphia approximately 35 to $40 million in the manner in which they purchase gas. But to your point --
In purchasing it and in storing it and buying it at the right times, and we did better than --
We did better than any of the other local distribution companies in the State on that issue. Now, to your point, by and large, gas costs are a pass-through, and we do not make any money from that, and we don't have a lot of control over the national and international markets for the commodity.
That was the other request, the $52 million request that deals with the basic rates separate from the needs of the Gas 110 10/11/00 - WHOLE COMM. - BILLS 583, 590 Works other than as a result of the increased cost of the natural gas.
Now, is there any indication what the PUC plans to do with respect to the $97 million request?
We have no specific indication from the Public Utility Commission itself as to what it will do when it makes its judgments on both of these points on an interim basis on November 9th. We do have indication from the staff of the PUC that they are supportive of not only the 97 million but of something more than that.
They have taken view -- the staff itself has taken a view that we should only get at this time 27.5 of the 54.
Well, considering everything that the Gas Works has gone through and the litany of disaster, it does not seem to me to be basically as horrific a story as the headlines seem to indicate and as some of the testimony 111 10/11/00 - WHOLE COMM. - BILLS 583, 590 would seem to indicate.
Well, let me respond to that and maybe respond to some comments that some of the other Councilmen made. In June, we filed a five-year financial forecast that included $52 of base rate relief and $42 million of gas cost increases, which is what we had anticipated at that time. With the granting of those levels of rate relief, we were able to demonstrate in our projections with the $24 million of cost reduction that we would begin to pay down our short-term -- our $100 million short-term position somewhere in 2003 and that we would be generating a substantial amount of our own investment, which is what one wants to do in these situations. For long-term capital investments, we would be generating about half of that by 2004, 2005. That was the plan, that is the program. That was where we were going until two things happened. One, the gas costs escalated at rates that we hadn't anticipated in the April-May- June time frame. And consequently, it puts us at risk because we have to look at to writing off 112 10/11/00 - WHOLE COMM. - BILLS 583, 590 some portions of those gas costs over time, because people may not be able to pay them. And, secondly, we are less clear about what the regulatory environment in Harrisburg is going to allow us. So with those two concerns, we are less able to be definitive about our plan, but we clearly have a plan. It is now before the Gas Commission, it will be updated, and it will be addended and added to with the other considerations that the Commission wants. But from a financial point of view, it is very clear where we have to go and what we have to do, and a big part of that is to have the necessary rate relief from our customers that we have not gotten in ten years.
Well, I have great difficulty following that particular arithmetic. With respect to increased gas costs --
-- the likelihood is, from everything we know, that those pass-through --
Dollar for dollar. 113 10/11/00 - WHOLE COMM. - BILLS 583, 590
Because they may feel that you've been too conservative in your estimates of the potential increases. With respect to the rest, if you've got 27 in your rate increase and more from the City 12 yielding that amount of money, you've got 45 of 13 your $52 million? 14
I don't really 16 understand this litany that you're expressing to 17 get kind of unlimited borrowing capacity from the 18 City of Philadelphia.
Well, when you want to increase from 20 million to 65 million, I think that's increasing to an unlimited degree, particularly when the figures are so close. If the Mayor were to announce today 114 10/11/00 - WHOLE COMM. - BILLS 583, 590 that the $18 million a year is not going to be accepted for this year and in fact ought to be returned for the years from 1997 on, when the Gas Works was in a financially disadvantageous position, and that we were foregoing that $18 million a year until such time as the Gas Works, you know, resumed fiscal health, that would be the most important single step, and I think it's a step that ought to be taken. I think it borders -- I think it borders clearly on impropriety, I think maybe even on criminality for the owner of a business to take money out of a failing business. I think if this were all a private business, that the ownership of the business would be subject, if there were private stockholders, as there would be if it were a private company, I think those private stockholders would have a tremendously strong civil case, and the District Attorney or the U.S. Attorney would probably be looking into it as a criminal case if the ownership kept draining the money and the stockholders suffered thereby. So I just can't see any -- it seems to me totally morally and ethically wrong, at least 115 10/11/00 - WHOLE COMM. - BILLS 583, 590 those two. Whether or not it adds up to criminal culpability or civil liability, it seems to me ethically and morally wrong for the City to be draining these resources out of the Gas Works when the Gas Works is in a financially unstable position. And I think that the biggest single step that could be taken would be if the City acted in an appropriate ethical and moral manner and said we were wrong in taking anything from the Gas Works in those years in which it was losing money, and that would be a tremendous -- and we intend to return it, 'cause that's what would happen under civil law if this were a private company and the ownership drained those resources out of a losing year. Madam President, thank you. I think the Gas Commission's recommendations are most generous under all of these circumstances because I would add, had I my way, a further recommendation, and I would ask the Chair and the Gas Commission to consider it, and that is, there ought to be no action on this until the City agrees not to take the $18 million and to return 116 10/11/00 - WHOLE COMM. - BILLS 583, 590 it for the years 1997 and thereafter and to assert affirmatively that it will never seek that fund until the Gas Works shows fiscal solvency. Thank you, Madam Chair, Madam President.
I'm going to ask the Gas Commission members to consider that further amendment.
I'm hoping the Gas Commission would consider adding an additional term to their recommendations. I support what the Gas Commission has done thus far and suggest that they consider adding an additional consideration that the City not take 18 million for the current year, return 18 million for each year in which the Gas Works was fiscally insolvent, and that seems to be from 1997 on, and to announce that it will not seek that 18 million in any year in the future unless the Gas Works is fiscally solvent. And I would ask the members of the Gas Commission to 117 10/11/00 - WHOLE COMM. - BILLS 583, 590 consider that proposal as an additional proposal. Thank you, Madam President.
Thank you. Any other Councilmembers that have any questions? (No further questions.)
Do we have anyone else that would like to testify? (No response.)
Seeing none, this will conclude our public hearing. Excuse me, I have been asked to call for a five-minute recess. (Short recess taken: ) (Proceedings presume.)
Council is now back in session. Would all Councilmembers please take their seats. The Chair recognizes Councilwoman Tasco.
Madam President, I offer an amendment to Bill 583. And it has been circulated to members of Council.
Does the 118 10/11/00 - WHOLE COMM. - BILLS 583, 590 stenographer have a copy of the amendment?
A proposed amendment to Bill 583, Section 2, pursuant to Section 4.3 of the Philadelphia Facilities Management Corporation (which is PFMC agreement), as amended above, the City is hereby authorized to make a temporary advance to the Philadelphia Gas Works (hereinafter PGW) in the amount of $45 million or such lesser amount as may be approved by the Director of Finance and the Gas Commission; provided, however, that total temporary advances authorized by this ordinance 20 and any other ordinance or resolution shall not exceed $45 million at any one time; and provided further that: A. Such advance will be placed in a restricted account against which PGW can draw in any month when PGW and the Director of Finance 119 10/11/00 - WHOLE COMM. - BILLS 583, 590 certify that its cash flow is insufficient to meet operating requirements, and which shall be repaid on an ongoing basis as soon as PGW's cash flow is sufficient to remit its repayment; and B. Interest on the account shall accrue to the City; and C. PGW is hereby limited to drawing no 9 more than $25 million from this restricted account until such time as the Gas Commission has informed City Council and the City Council has concurred by resolution that PGW has submitted an adequate five-year financial and management plan; and D. During the term of the temporary advance, PGW shall file with the City Council, the Gas Commission, and the Director of Finance: (i) no later than the fifth business day of each month an update of its budget of cash receipts and disbursements report covering the preceding month; and (ii) monthly status reports regarding achievement of interim PGW's management goals for productive/cost savings and collection of billed revenues. The outstanding principal balance due 120 10/11/00 - WHOLE COMM. - BILLS 583, 590 by the Gas Works on such temporary advances shall be repaid no later than months following the 4 date of PGW's first draw of the full amount of the 5 temporary advances authorized pursuant to this 6 ordinance, but in any event, no later than June 7 30, 2003. 8 And that's the end of my proposed 9 amendment, Madam President. I move for the 10 adoption of the amendment. 11 (Duly seconded.) 12
It has been 13 moved and properly seconded that the amendment be 14 adopted. 15 All in favor -- excuse me, sorry. 16
I don't think 19 your microphone's on. Now it is. 20
In the event -- it 21 says last -- PGW (unintelligible) made pursuant to 22 this ordinance, but in any event, no later than 23 June 30, 2003. What happens if that is not repaid 24 by 2003?
We'll have to take 121 10/11/00 - WHOLE COMM. - BILLS 583, 590 it up in 2003?
Excuse me, Councilman Ortiz. The Chair recognizes Councilman Nutter.
Point of order, Madam President. Two questions. One, are we still in the public hearing as opposed to the public meeting?
We had 122 10/11/00 - WHOLE COMM. - PUBLIC MEETING started to go into our public meeting but never really completed it.
So I don't know whether it's really anybody's understanding that we went into a public meeting.
So at this point in time, if Council so prefers, I will say that our hearing has been concluded and we are now in our public meeting.
If I could ask, Madam President, before do you that, because of the question raised by Councilman Ortiz, it seems that we may need an answer to that particular question, which we might not be able to get in a public meeting, and so if we are in a public hearing --
That's why I thought that we would stay in a public hearing.
Because if there were any questions that people have 123 10/11/00 - WHOLE COMM. - PUBLIC MEETING concerning the amendment, they could certainly be responded to. So we are presently in our public hearing.
Because, Madam Chair, I just wanted for the record, because Morgan Guarantee -- Morgan Guarantee and First Union would have a clause that says if repayment is not paid by such and such date, such and such things would happen. I think it just makes sense that something follows that phrase.
Well, Councilman Ortiz, that was not an issue that -- the Commission did not address. . .
Is there a -- I mean, is the original question to this whole -- I mean, this, I guess, goes back to the original concept of the whole transaction. I mean, is there anyone from PGW that can answer that question?
This is an unsecured transaction. I think that we have not discussed what the remedies might be, you know, and we'd be 124 10/11/00 - WHOLE COMM. - PUBLIC MEETING willing to explore that. It is in essence, though, an unsecured transaction. You know, there are creditors who would have priority over the City in any event. I mean, we could get together and negotiate potential more specific terms and provisions, but that has not been addressed at this point. I've been advised that the kind of remedy Morgan has is to impose an interest rate. This is at this point an interest-free loan. You know, the question is whether that makes sense or is a real remedy, but that is how the commercial paper instrument is structured.
I know the Chief of Staff is looking at me. It was not my question; I was just trying to help out the Councilman with his question. (Laughter.)
But if you just want to look at me, I'm honored, I'm thrilled, I am totally flattered. But, I mean, I guess the follow-up to the questions I did not ask is, I'm assuming that there's nothing to preclude us at a future point 125 10/11/00 - WHOLE COMM. - PUBLIC MEETING in time, pending subsequent information, one-year plan, three-year plan, five-year plan, or any other plan, or another hearing that would preclude us from adding, if we wanted, that kind of remedy or penalty, whether it be an interest payment or a lump-sum payment. I understand -- I mean if PGW was, you know, at that point on life support, it's like, you know, what else do you want to do to me? But, I mean, from a technical standpoint and for your answer today, there would be nothing preventing us from imposing subsequent penalties if there were no complete repayment by June 30, 2000.
Well, I think that, you know, this anticipates that there will be loan documents. I mean, this is not the sum total of the transaction, and it could be subject to terms and conditions approved by, you know, the Council President as a way of, you know, anticipating a more structured transaction that might provide for things like remedies.
So, I mean, do I understand your response to say that there is 126 10/11/00 - WHOLE COMM. - PUBLIC MEETING another document still to come to us which lays out the actual terms and conditions of the $45 million loan, or, as earlier characterized, each loan as a separate individual loan, anticipating more documents?
I mean, I would anticipate more documents than simply this that would reflect, you know, we're talking about setting up escrow accounts and, you know, and who the signatories are, that it would be, you know --
No, no. I didn't anticipate that, quite frankly. (Laughter.)
But that a lot of times we come here and there are not all of the actual documents that are going to be executed that, you know, that the ordinance has set out the 127 10/11/00 - WHOLE COMM. - PUBLIC MEETING parameters of the transaction. It will be subject to somebody's, you know, review and approval. And as a way of, you know, closing the loop, I would propose that it could be the office of the Council -- you know, subject to the, you know, the review and the approval of the office of the Council President as a way of trying to get, you know, final Council signoff.
(Inaudible) Councilman Nutter, who was responding to the question by Councilman Ortiz to the Chief of Staff about when we come to the point in time when we may have to deal with the issue of the $20 million, I would assume that a five-year plan, any kind of plan, would have some repayment of debts included in that plan, so we can probably deal with it then. Thank you.
Thank you. Councilwoman Brown, your light is on. Okay, are there any other questions 128 10/11/00 - WHOLE COMM. - PUBLIC MEETING from members of the committee? (No further questions.)
The Chair recognizes Councilwoman Tasco regarding the amendment of Bill No. 583. It really doesn't matter, I am told, whether we accept -- I have our attorney to my left, who tells me that it doesn't matter whether we approve these in our meeting. So, therefore, again, I recognize Councilwoman Tasco regarding the amendment she submitted on Bill 583.
Madam President, I move that the amendments be adopted as presented. (Duly seconded.)
It has been moved and properly seconded that the amendments to the Bill No. 583 be adopted. All in favor will signify by saying aye. Those opposed? I'm sorry?
The record 129 10/11/00 - WHOLE COMM. - PUBLIC MEETING will indicate that Councilman Goode voted nay. And the amendment has been adopted. Does the Administration have any amendments to Bill 590 or to Bill 583? Okay, I am told that there's a possibility that on the second bill, 590 -- oh, it's not needed? I was just told that they have an amendment, okay. Council will stand in recess until tomorrow morning at 9:30.
Madam Chair, is there any action at all being taken on 590? Or is that --
There are no 16 amendments. We will come back tomorrow.
Okay. (Adjourned at 1:50 p.m.) - - - 130 C E R T I F I C A T E I HEREBY CERTIFY that the foregoing proceedings of the Council of the City of Philadelphia of Wednesday, October 2000, were 8 reported fully and accurately by me, and that this 9 is a correct transcript of same. 10 11 RE: COUNCIL COMMITTEE OF THE WHOLE BILL 000583, 000590 __________________________________, JOSEPHINE CARDILLO, Registered Professional Reporter