COUNCIL OF THE CITY OF PHILADELPHIA PUBLIC HEARING BEFORE COUNCIL COMMITTEE ON FINANCE - - - Room 400, City Hall Philadelphia, Pennsylvania Thursday, May 18, 2000 2:55 p.m. - - - BILL 000280 - An ordinance approving the Fiscal Year 2000 Capital Budget providing for expenditures for the capital purposes of the Philadelphia Gas Works, including the supplying of funds to be obtained in connection with and rejecting the forecasts for Fiscal Years 2001 to 2005. PRESENT: COUNCILWOMAN JANNIE L. BLACKWELL, Chair COUNCILWOMAN MARIAN B. TASCO, Vice Chair COUNCILMAN FRANK DICICCO COUNCILMAN JAMES F. KENNEY COUNCILMAN MICHAEL A. NUTTER COUNCILMAN BRIAN J. O'NEILL - - - VINCENT VARALLO ASSOCIATES, INC. Registered Professional Reporters Eleven Penn Center, Suite 600 Philadelphia, PA 19103 (215) 561-2220 /00 FINANCE I N D E X PGW Witnesses: Kumar Kishinchand, Interim Pres. and CEO. . . Tom Knudsen, Interim Chief Financial Officer 17 Abby Pozefsky, Senior Vice President and. . . 32 General Counsel Dennis Stinson, Vice President of Operations 39 Other Witnesses: Joyce Wilkerson . . . . . . . . . . . . . . . 49 Secretary, Strategic Planning Steve Hershey, Esquire. . . . . . . . . . . . 51 Deregulatory Counsel, Consultant 3 /00 FINANCE P R O C E E D I N G S
Good afternoon thank you, everyone, for your patience. We would like to begin our committee hearing before the Finance Committee. We have a quorum, I do believe. To my left is Vice Chair Councilwoman Tasco; to my right, Councilman DiCicco and Councilman O'Neill. All right, we do have a quorum and, therefore, we will begin our hearing on Bill 12 000280, dealing with PGW. The title reads as follows: "An ordinance approving the Fiscal Year 2000 Capital Budget providing for expenditures for the capital purposes of the Philadelphia Gas Works, including the supplying of funds to be obtained in connection with and rejecting the forecasts for Fiscal Years 2001 to 2005. Thank you very much. (Witnesses come forward).
We will now recognize Commissioner Kishinchand and others who are here. We ask you to introduce yourselves for the record and begin your testimony. And thank you also for your patience. 4 /00 FINANCE COMMISSIONER KISHINCHAND: Thank you very much, Chairwoman Blackwell, and good afternoon, members of the Finance Committee. Thanks for giving us the opportunity to come before you to testify about our Capital 2000 Budget, our Fiscal Year 2000 Capital Budget. Before I get into the budget itself, I think I should perhaps tell you that, you know, I've been over there for about two months, and I've been working with Tom Knudsen, the Chief Financial Officer, who is on my left, and he has joined at the table to help me during this testimony, and Joyce Wilkerson, who is on the Philadelphia Facilities Management Board and is Secretary of Strategic Planning. She is here to help with this particular testimony. But before I get into the hard numbers on the Capital Program itself, I just want to let you know that we recognize the problems that exist over there at PGW. I think specifically there are issues that we deal with on the billing -- wrong bills, bills not going out. There are issues that we deal with on customer service, such as the call center, people not getting into the phones. And 5 /00 FINANCE then there are other issues that we need to deal with such as governance when PUC jurisdiction comes into place. In terms of billing, I am disappointed on how bad the system is. I need to tell you that at this juncture, there are about 30,000 of our customers that are not getting billed, and 20,000 of those happen to be the low-income customers that get some assistance from the outside also to pay their bills, but they are not being billed because of the customer responsibility program, which is not working on the billing system. And we are trying to address that issue on an automated basis, and we hope that perhaps by the end of June, we will get all of those customers back into the billing system. In addition to that, there are about 10,000 regular customers who are not getting billed at this time. Because of some exception that occurs in their billing, they get kicked out of the billing system and we can't bring them in, except manually. But what we've done is, we are addressing those issues, the last 10,000 that I mentioned, addressing them manually. We've got 2 6 /00 FINANCE teams of 10 people each addressing this, and we hope to get them back into the system by the end of June also and start billing with them. This is not to say that the billing system will be as it had been projected to operate when it was first installed, but at least we hope that we will be able to get the system to work to do the minimum as far as billing our correctly is customers concerned. We, as I mentioned earlier, have a problem with the customer-service issues, particularly the call center. I do want to stress that as far as the emergency responses concerned on the telephones, we answer 99-plus percent within 30 seconds, so I think you should rest assured that the at least our emergency responses are on time and adequate. However, on the issues dealing with billing, our response time is not very good, our rate of response is not very good. It's unacceptable, to put it bluntly. We accept approximately 35 percent of the calls that come in. The rest are abandoned. These, again, I want to stress, are billing issues, not emergency 7 /00 FINANCE issues. We are trying to address that. We've got a consultant on board who's going to help us address many of these issues, using the technology, the latest technology. In fact, a couple of weeks ago, we had focus groups, and I attended one of those focus groups and I watched them talk about it -- I was behind a mirror so they couldn't see me, to see what the reaction of the customers is as far as their relationship with PGW is concerned.
The major concern was, of course, that they can not get through to get their questions answered. But the positive thing was that they felt that, you know, it has been -- it's been an asset to the City that they value extremely but what they would like to do is get some respect from us. They would like at least, on the minimum, be told how long they're going to be waiting on the line before anybody answers the question. It's a wait time, and I know that many companies have that, and we are going to be installing that, a system where we can at least get them estimated time so that nobody's hanging 8 /00 FINANCE on for 15 or 25 minutes before they get an answer. So those are some of the things that we are going to be doing. We are going to be using essentially technology to be able to get some of those questions answered. The other issue we've been struggling with is -- as you know, PUC takes jurisdiction over PGW starting July 1st so that they will be responsible for rates and tariffs as well as customer-complaint resolutions. We need to start to develop an governance structure at that point for PGW. And, in fact, the Mayor's Office has established a task force to address that particular issue. At the moment, the task force is looking at the transition report what was submitted to the Mayor seeing what options might be available, and they'll be reconvening in the next couple of weeks to discuss what options there are. So there are quite a few issues and the financing issues, the cash-flow issues that we're dealing with at that time. I don't have any specific answers for you other than to say that we 9 /00 FINANCE do have a plan that we are proceeding on, we have folks on board that are going to help us improve the customer service, we have folks on board that are going to help us fix the billing system to the point that it will do the billings correctly. So that's what I can at least tell you. And I recognize -- I think all of you, as well as those of us at PGW, are agonizing over providing a better service, how to provide that better service to the public, and we appreciate that. And I just want to let you know -- give you some progress report as to what's been happening over the last two months. And today, of course, we are here with a request that you give a favorable approval to the Capital Budget for Fiscal Year 2000, which is about three-quarters over almost right now. I have provided a written testimony to Council. If you would prefer that I just summarize that testimony so than then you can answer the questions, I can do that.
That will be fine. COMMISSIONER KISHINCHAND: Thank you. 10 /00 FINANCE Essentially, the Capital Budget for Fiscal Year 2000 that we presented to you requests $59,618,000, and this is for a number of initiatives and programs that we have at PGW. $14.2 million is going to be for the liquefaction plant for our natural gas liquification process. This is one of the jewels of an asset that PGW has. It permits us to liquefy gas to the summertime, when the gas prices are so low and then utilize it during the winter, when the gas prices are high. And it also serves a second service of shaving off any peak demands that we have, and it permits to sort of limit the capacity that we provide from the distribution companies. The savings by utilizing this particular process is about $70 million a year. The $14.2 million that we are requesting are for Fiscal Year 2000 will provide us adequate funding for Phase I. There are two phases to this particular project. The second phase will be for Fiscal Year 2001. In addition to that, we have requests for $28.4 million -- I'm rounding off these numbers, the exact numbers are in my testimony -- 11 /00 FINANCE and that's for our distribution system, and that's primarily to rehabilitate and replace our existing infrastructure, particularly the underground infrastructure, the pipes and the service lines and to buy some regulators and corrosion-control facilities. And this also includes any additional new lines that we have to install in order to serve new customers. We have a request before you for $6.5 million for field services, and this includes the funding for additional AMRs, automatic meter-reading devices. This will give us the ability to put in an additional 16,000 AMRs in residential properties, and that will bring us to about 496,000 AMRs that will have been installed. Next year, we'll be coming to you for some more, and I think we expect to get up to at least 516,000 next fiscal year. That will bring us fairly close to saturating; there may be some pockets here that we will not have filled in; we'll do that on an ongoing basis. We have before you almost $4.1 million for transportation. This is for replacement of vehicles, primarily for replacement of vehicles. 12 /00 FINANCE Many of them are have old, and we haven't purchased vehicles for three, four years at this point. And there are quite a few of them that are well in excess of 100,000 miles. And the maintenance costs on those particular vehicles are getting to be rather high, and I think that this will help us put our fleet back in order. And in addition to that, it will provide us some funding for buying mobile equipment, such as mobile radios, etc. We have request in for $2.1 million for building services. In fact, I'll combine the rest -- approximately $6 million for building services, for customers affairs, and other departments. And some of the examples of the projects on which we will be utilizing this funding is construction of compressed natural gas; we have an increasingly large fleet of compressed natural gas vehicles for which we need a station. There are a couple of applications, computer applications, that we should be purchasing. One of them is for management for materials management. It's called "MAPS" -- Materials And Purchasing System. 13 /00 FINANCE Another one is for human-resources information system. Our human-resources information system is inadequate at this point. We don't even have an inventory of skills that we have at that facility -- not at least in a fashion in which we can easily access that information. So those are some of the projects for which we requested this funding. You will notice that this is the minimum we should be doing to keep our infrastructure in good shape and to provide safe and reliable gas service to our customers. I think that pretty much covers our Capital Program for this next year, and I am prepared to answer any questions that you might have.
Thank you, Commissioner. Thank you also, Mr. Knudsen -- or I should say interim president and CEO, as opposed to "Commissioner." Mr. Knudsen, and certainly a special thanks to Joyce Wilkerson, Secretary of Strategic Planning and Initiatives for her involvement and work on this issue. Frankly, you anticipated many of the 14 /00 FINANCE questions that we had and concerns we have when you talked about customer service and billing and those who haven't been billed and governance and what happens from here, etc., etc. They are issues that have concerned us very, very much in the past, and we're glad that you addressed them. We realize it has been just a short period that you have been here, and we certainly look forward to meeting with you again to get those issues resolved. Having said that, does anyone else this want to testify? (No response.)
All right, then I will entertain questions from members of the panel. Are there any questions? Councilman Kenney.
Thank you, Madam Chair. 15 /00 FINANCE Good afternoon, everyone. The issue of -- I know there's a briefing this afternoon prior -- post-Council session and prior to this hearing, and I do apologize that I was not able to attend, and some of these questions may have been answered at that particular venue. The annual payment to the City of Philadelphia has traditionally been -- was it 10 -- I think 18 million or $19 million is what has 11 been normally turned over annually to the City 12 from the Gas Works; is that correct? 13 COMMISSIONER KISHINCHAND: It's $18 14 million. 15
It's 18 million. 16 COMMISSIONER KISHINCHAND: Mm-hmm. 17
What is the status 18 of that payment, as we sit here today, as far as it being made to the City for this fiscal year? COMMISSIONER KISHINCHAND: For this fiscal year? It will be paid.
It will be paid. How about next fiscal year? COMMISSIONER KISHINCHAND: Next fiscal year? Our projections are that we will pay it. 16 /00 FINANCE
Okay. COMMISSIONER KISHINCHAND: In fact, all of the assumptions that we are putting into our budget planning process is that --
That payment. COMMISSIONER KISHINCHAND: That payment is included at this juncture. We have not submitted a Fiscal Year 2001 Budget to the Gas Commission at this point, so it's just a draft, an in-house draft at this point.
But the intention is that it's -- our expectation is that it's going to be made. COMMISSIONER KISHINCHAND: That's correct, our expectation is we will continue to pay that, yes.
The computer problems that have created this, I guess, amazing or large amount of backlog both in customers service requests and in billing and all kinds of problems, that computer system was purchased when? COMMISSIONER KISHINCHAND: It's my understanding it was three years ago? 17 /00 FINANCE
Yes. The initial investments were made about three years ago.
Would you identify yourself for the record, please.
I'm sorry. This is Tom Knudsen, and I am Interim Chief Financial Officer of PGW.
That computer system was purchased, or the process was begun three years ago or it was purchased three years ago, actually put on line three years ago? COMMISSIONER KISHINCHAND: No. It was put on line July 1st of 1999. It was purchased then and I think they were doing modifications and installations, etc.
What was the company that provided the services? COMMISSIONER KISHINCHAND: SBL.
And there was a decision made, as I understand, to stop the use of that computer and basically start somewhat over?
The essential issue was that the software on the new equipment that we had purchased, the software was not complete at this time last year, and the then-management determined, for whatever reasons, to begin the new system without really dropping parallel with what we call the "legacy system," which was the old system. There was only a 10-day period of overlap. And not having the ability to essentially perfect the new while we kept doing business on our core business with the old, that was essentially the important decision that was made.
Were we receiving at the time professional consulting services? 'Cause I'm sure -- I mean, if you're running a company, I'm sure you need that -- that you don't have that innate expertise as to computer systems and interface and compatibility. Were we receiving advice from computer consultants or anyone as to those decisions?
The prior management made the decision to go live with the new system with ten days of parallel running.
I don't know if they had any in-house advice at that time. I know that there were a number of parties on the outside, including the Gas Commission, making -- you know making serious requests for them to not do it.
So there was outside consultants or outside experts that were advising the prior management not to enter into this?
Yes. And internally, the software developer itself, which was inside the company, it's our understanding, was also advising them.
And who made the decision to run the system against advice? COMMISSIONER KISHINCHAND: Well, I don't -- I don't know who specifically the individual might have been 'cause there was a number of folks at the time in the company, but it was the CIO or the COO or the CEO who made the 20 /00 FINANCE decision. At least, I'm not aware of it.
Were there meetings that took place? Are there minutes of meetings or, I mean, did somebody just say, Flip the switch? I mean, there's got to be some process that to have been --
Well, I think the best record that we have is -- we have no internal records of those decisions, but the best record I think that exists is that testimony of the then-management before the Gas Commission, when this was thoroughly explored and the clear indication was given that they were, in fact, going to exactly do what they did do.
We entered and are continuing to pursue the billing process -- meter-reading process by automated means; is that correct? COMMISSIONER KISHINCHAND: (Nods.)
My understanding is -- and it may be incorrect -- that there is a large number of people who are still receiving estimated bills, which would seem not compatible with the efforts we've made to read these 21 /00 FINANCE automatically. And part of what was sold to us, and is continuing to be sold to us, is that the purpose of buying this equipment was to get the meter-readings to be both accurate and automated, and I understand that there's still large numbers of people still receiving estimate bills; is that -- COMMISSIONER KISHINCHAND: That is correct. In my case, I don't know whether that's the AMR system that's not working or there's something in the billing system that is causing that, 'cause I can tell you from my personal experience that this last bill that I got a week ago was an estimated bill, and my two neighbors had an actual bill and I have an AMR in my system. So it's -- you know, it's hard to say. We need to sort of do a little bit more work on that system, the billing system, and also see what happened, let's say, in my case to be able to separate out the bills, the AMRs that are not working. As you know, the AMRs that are installed are similar to the ones that the Water Department has, so --
So do you think 22 /00 FINANCE it's more computer-related than AMR-related? COMMISSIONER KISHINCHAND: It could be. I think premature for me at this point to say, but we can get back to you when we find out and let you know what it is.
I have also received anecdotal information from employees, and I guess always take some of that with a grain of salt, but there's some concerns about wasted downtime on repair crews, not emergency repair crews, but service repair crews, where they claim to me that there are periods of an hour or two hours, sometimes three hours, between time they finish a job and the next time that they're sent out on a particular call. Do we have any kind of information about complaints regarding that or any information from management that there are lengthy delays and service people waiting in trucks to be dispatched and places that it takes them two and three hours to get notice of? COMMISSIONER KISHINCHAND: I've heard those complaints. In fact, the union did come to me and said that, you know, they do, when they 23 /00 FINANCE have an extra hour, we tend not to send them to any jobs because it may take them into overtime, and management -- and we have, in fact, you know, tried to control overtime. I have looked into it and I'm assured that that's not the case but I have asked -- in fact, I met with the union and the management at the same table and asked them to put a team together to see how this can be worked around. I think the issue is that the work-order system, which goes to the PCCS also may not be working very well, so we are going to put a team together of both the union folks as well as the management to see what kind of arrangements they can make, so that if, for instance, they are not getting the work orders from the headquarters, that there is some other means of fully occupying the --
So that's not been confirmed or denied; it's just being investigated at this point? COMMISSIONER KISHINCHAND: That is correct. I mean, there may be occasions, I'm assured -- even the management tells me that there 24 /00 FINANCE may be an occasion when somebody's finished on the jobs before the time is up and doesn't have anybody. Then what we are looking at is to see if we are supplying adequate number of jobs for those folks to cover the full day.
And I know, Mr. Kishinchand, Commissioner, that you've just gotten there. I think, as a matter of fact, the last time we were here, I mentioned something about --
-- did you ever lay on the couch and dream that maybe you'd run them both. And at the time, you said No, I never did. And about a week or so later, you were there. So I'm sorry if I jinxed you in any way. At some point in time, and I know everybody's working very hard to kind of get this thing back into some semblance of order and sense and -- and sense. At some point in time, do we have to look at, or are we looking at, a private management company, similar-- and I'm not picking them out in particular, but a PECO or a PECO-like operation to come in and actually just, you know, hire them as a contractor, have them come in, and 25 /00 FINANCE just kind of run this place, as they would a public utility, which is basically privately run? COMMISSIONER KISHINCHAND: I think that's an option that we should definitely look at. There are a number of options that can, you know, that should be on the table, that the Council and the Administration ought to look at, and that's one of those, whether we recreate a UGI model or have an O&M model, you know, contract, or do we first straighten this thing out, you know, get it on the right track, and then hire folks who really know how to run the gas business, and then have that CEO appointed on a permanent basis and let him or her choose who the CFO and COO are going to be so that at least they can work together. There will be that choice.
I recognize the long-term history of the Gas Works as a public utility, a municipal public utility. But, I mean, we do certain things well and certain things we don't do so well, and I'm wondering whether or not we've just at some point in time just stretched our ability to really perform in areas that traditionally we just don't have the expertise to /00 FINANCE do, and that the expertise is out there in the private sector, and our customers will be better served and -- safer and better served if, in fact, we kind of just kind of eased out of this a little bit or altogether and had some oversight and some function in some fashion but let the professionals really kind of run this place. COMMISSIONER KISHINCHAND: I hear you, but I think, you know, there are other examples where you will find that the public utilities can run just as efficiently. I think, if you recall, back in 1991, we essentially tried to privatize the (unintelligible) recycling center in the Water Department, where our costs were very high, we had 228 people over there, and I was ready -- in fact, we hired a consultant, a consulting engineering firm, to take a look at it and see how much a private organization, if it took over its operations and maintenance, would save. They came back with a number of 30 percent. I challenged the folks there and told them, This is what the consultants said, what can you do? They formed -- they worked out the processes, they changed their work processes and 27 /00 FINANCE whatnot. They reduced their budget within two years from about $31 million to about $15.7 million, if I remember the numbers correctly. They reduced the number of people that were working there from 228 to about 128. And at that juncture, all of the privateers disappeared because there was nothing left for them to really do much, okay? So that -- I'm giving you that as an example because that's where my experience has been. I have not had enough experience with PGW to say that that can be done over here also. But I think the principle is there, I think the government can operate efficiently. We do need to keep in mind that part of the service that PGW provides is a social service. There are folks that are essentially are being subsidized to some degree. So it's a fabric of society that it's holding together also, and that is a function that a private company, if you were to sell it, would not necessarily be obligated to do.
Well, I guess the problem is that the private company is not obligated to do it; it's the ratepayer and the 28 /00 FINANCE taxpayer that are obligated to do it. And I think part of the problem is that -- I don't know whether or not a utility should have a social mission. I think that the social mission should have social missions, and there should be ways for nonprofit entities to provide the dollars necessary to provide for people's well-being and for their health and safety, but I don't necessarily believe that the average taxpaying family of four or five should be paying the freight for those who cannot afford, or not willing, to pay for that. So I think that part of the long-term problem, I guess, with this facility is that it's kind of a -- it's got a social mission it may not need to have, or should not have. I mean, electric is, to me, as important, I guess, a product, a utility product, as gas is, but it seems that, you know, we get electric service without a social mission, or water. I mean, the Water Department is privately -- it's a publicly, municipally-run facility but without that social mission. And, water, I guess is just as critical to life and safety as gas. 29 /00 FINANCE COMMISSIONER KISHINCHAND: Yeah, to some extent, even water has that social mission. We have the senior citizen discount program, except that we - it's income-tested; whereas, at PGW, it's not. And we're looking at those kinds of changes that we can provide. You know, are they necessary, will they be acceptable? We provide discounts to nonprofit organizations in the Water Department -- the hospital, for instance, and educational facilities. So there is a component of social services there. Now, whether it should or should not be, I don't think the management of PGW is the right folks to make a determination; I think that lies outside.
Maybe it's the only folks who can make a determination and do it in an independent way. But, okay, I appreciate your answers. Thank you.
Thank you very much. The Chair notes that all members of the Finance Committee are here because that was 30 /00 FINANCE Councilman Kenney just speaking, and Councilman Nutter is here and is sitting to my right. But let me know that I'm glad, Mr. Interim President and CEO, that you mentioned a social mission, because, certainly, we who deal with all the residents in the City who elect us, people we represent expect those can who pay to pay, and those who can't pay have to receive some kind of consideration. So the City should always maintain a social mission in every respect. And in this day of out-sourcing and -- it used to be privatization, now it's out-sourcing, and I'm glad to her you say that government can do it as well, because it's important some of us try to hold out, because we realize when we're involved that John and Jane Q. Public have a better opportunity to receive service, they have somebody who is accountable to them. And so we thank you for your comments. Having said that, Councilman O'Neill had a few questions.
Thank you, Madam Chair. 31 /00 FINANCE Kumar, the Capital Budget that's before us, and those that have preceded it in recent years, I understand that they're, by law, line- item budgets, in that -- I mean, to make sure we understand what I mean by line item, that when a line item is approved as part of the budget, that any change can't just be made administratively, but has to come back for approval. Could I have an explanation of that from a legal standpoint? COMMISSIONER KISHINCHAND: Okay. I'll have to defer because within the City, I think we can change the line item by up to 10 percent without having to come back to Council, 'cause that's the authorization that Council has given us. But in PGW, I'll have to defer to someone who knows --
I'm thinking more like if there's a $2 million line item for a warehouse and you spend 1.2 million on office remodeling, that that's something that has to come back for approval, that kind of thing, not something where there's just a percentage change in the amount. 32 /00 FINANCE Could I get an answer on that? (Witness comes forward.) COMMISSIONER KISHINCHAND: This is Abby Pozefsky, who's she's our counsel, and I'll ask her to respond.
Good afternoon. I'm Abby Pozefsky, and I'm the general counsel for the Gas Works.
Good afternoon. I know that that was an issue that Council has raised with us. In response to that, we've prepared a reconciliation of what the capital spending had been for the past three years -- the budgeted versus the actual spending. And we submitted that the to the Gas Commission, which, I believe, at this point will incorporate that into their review process of the next year's budget. So to be responsive to that issue for Council, we did, in fact, prepare a reconciliation which, we understand, will be in the Gas 33 /00 FINANCE Commission's process and then submitted to Council.
Okay. Well, that's not exactly responsive, although I do appreciate the response. My question was, is a Gas Works PGW budget in any given year a line-item budget that should come back for approval if something other than what was approved is going to be spent?
I'm not sure of the legality of that because I think that's sort of a City Solicitor question, and I don't know whether in practice each of those line items needs to come back before Council. I do know that it's been PGW's practice in the past years to adhere to spending limits in the aggregate but not necessarily with respect to each of the individualized line items.
Well, it's been my understanding for years that this was, and is, a line item budget clearly, not probably, not some gray area. And I would -- I would ask if on behalf of the Administration if Miss Wilkerson could get me -- I'm sure there's -- not a new 34 /00 FINANCE opinion would be necessary. I'm sure this has been -- it's in the original agreement, the facilities agreement with the Gas Works, and I don't think it is in the least subject to interpretation, in any way ambiguous. What I do believe is that the gas company has been violating it for years. In fact, is it, something -- maybe you can clarify it. If there's a three-year reconciliation of what was approved as opposed to what was spent, is that done every three years, or is usually done every year, or was it something that was never done before? I mean, that would be helpful.
My understanding of this is that for some period of time in the past, that reconciliations were sought on an annual basis, and that process was discontinued under prior management. Council having brought that to --
To do this, I think we need a better historian than I am because I've been with the Gas Works for just short of two years, and since I've been there, the 35 /00 FINANCE reconciliation did not occur until Council brought it to the attention of management in November, at which point, the --
So within two years, you still don't know, from a legal standpoint, whether you have a line-item budget or an aggregate budget, and you're the attorney for the Gas Works.
What I do know is that to be responsive to that, we did do the reconciliation, and we attempted --
Right, but there's a basic question, as lawyer for the Gas Works, of whether, from a legal standpoint, you've got an aggregate budget or a line-item budget, and you're telling me that we need a City Solicitor's opinion today to tell us that, which means that you don't know.
It means that we're attempting to bring back to Council a reconciliation on a --
Right, but you're evading the question enormously. You, the lawyer of the Gas Works, does not know whether there's a 36 /00 FINANCE line-item budget that has to come back for approval or whether it's an aggregate budget that can be done as a courtesy, letting the Gas Commission know what you spent and what you didn't spend. I think it's a threshold question when you're dealing with a capital budget, and my understanding has always been that it is a line-item budget. So we won't dwell on that anymore 'cause there's other issues here. Kumar, back in the end of last year, we approved a fairly controversial issue that many of us were reluctant to vote for 'cause it was new and unusual and cutting-edge, but Mr. Hayllar convinced us that if we were to vote for the swap, the famous swap, that $8 million was going to go -- or roughly 8 million, whatever came into the Gas Works, was going to go to the most critical safety issue, which is main replacement. Now, can you tell me if the $8 million ever came in or anything close to it and if it has been spent on main replacement? I see main replacement in the Capital Budget of $20 million or so, but I'm really referring to the swap money 37 /00 FINANCE that was really -- the linchpin was the main replacement in terms of, I believe, the support, the overwhelming support of Council. COMMISSIONER KISHINCHAND: Okay. Tom Knudsen has been looking at the financials a little bit more closely. Tom, do you know?
Yeah. The swap transaction did occur and the company realized a net benefit of about a little over $8 million, so the original estimate was correct. I think prior management may have intended that it be spent for prudent main replacement, which is your reference. I can report to you that it has not been spent that way. It was taken into the company's books as project revenue, as is appropriate. And because of the operating deficits that we're going to experience this year, one should infer that, in fact, that money has been used to offset operating deficits. If it had not been for that money, we would have had a more -- we are projecting losses for this year, and we would have had a more severe loss. 38 /00 FINANCE
The main replacement program, I mean, that's -- when I think of the Capital Budget, that's the first thing that comes to mind, and there's a whole lot of things that you have described very well.
How do you determine your most critical mains? In other words, on a priority list, starting with number one? I think I know how you do it, but I'm not positive. COMMISSIONER KISHINCHAND: There was an engineering study conducted, and it was done by --
Navigant (ph.). COMMISSIONER KISHINCHAND: Navigant, and perhaps I can ask our senior Vice president of operations to come forward and --
Mr. Kumar, let me stop you. I don't need to know about the consultant; I read about that. COMMISSIONER KISHINCHAND: Okay.
I'm talking about, outside of a consultant's report, isn't there a system within the company for establishing a 39 /00 FINANCE priority list for gas main replacement that is fairly simplified in terms of reported gas leaks? COMMISSIONER KISHINCHAND: I believe there is.
Could I hear about that one? I don't want to hear about the consultants. COMMISSIONER KISHINCHAND: Okay. I think Denis Stinson, who's senior vice president of operations, might be able to give you a more detailed response than that. I know that there is a system that exists. Exactly how it works, I don't know at this point. (Witness comes forward.)
I'm Dennis Stinson, Vice President of Operations. PGW has always had -- even if it wasn't on the computer, has always had a system for prioritizing main replacement. In 1995, with the help of a consultant, we managed to get this on the computer and expedite this prioritization and perhaps make it a bit more efficient. This past year, we had someone else help us -- basically an outgrowth of the same guy 40 /00 FINANCE from 1995 but working for a different firm -- help us improve that a bit more and gear it more towards prudent replacement rather than just general replacement.
Right, prudent replacement as opposed to general replacement would be targeting --
The other replacement, for the most part, is what they call "enforced replacement," and that's driven by water and sewer and street reconstruction projects.
But to get down to brass tacks, you prioritized based on reported gas leaks on a block; isn't that correct?
There's about six or seven different categories, which includes the leak history and main breaks, yes, sir.
Are they -- the two that you just mentioned, are they of the five, six, seven --
A lot of cast-iron main has got a joint every 12 foot in every City street, and those joints may have a whisper leak on them. We characterize those leaks, as far as classification 1, 2 or 3, and they either end up being repaired or they get re-checked on some periodic basis. Many of those leaks don't have a history or a problem with infecting any other part of the structures in the City or the safety of the City.
It depends upon where the 42 /00 FINANCE leak is. There's a couple of the streets in the City that -- where there is no longer any houses or businesses or anything on that the street, and while it may have some leaks, there's nothing that's endangered.
Okay, I appreciate that, but I'm talking about a residential street with people living on it.
If you have a joint leak that's out in the street, if you have multiple leaks or the leak reaches a level where it infects other structures like sewer or water manholes or the shutoff box or the curb box for the individual residences, then we work that leak. It depends upon the level of the leak.
Dig it up and replace whatever's leaking, or repair whatever is leaking.
All right. Now, how many -- worst-case scenario, I'm looking at your 100 highest prioritized main replacements that are to be done.
What would be the highest number of gas leaks on a block that I would find in any one of those 100 reported gas leaks?
Since broken mains is our main listing, the worst one, I believe, has 8 broken mains. 9
Over the life of that 11 main. That main may have been there for. So for 12 over 100 years, you've had 13 breaks. 13
If you were able to do what you believe is best, meaning financial, at what point, for instance, of that 13 break main would want to replace it?
That particular one is up on Flat Rock Road. It basically serves one customer; there are no other customers on this piece of main.
What's your worst one in my situation where I've got people living on both sides of the street?
You probably have eight breaks, something like that, six or seven or eight 44 /00 FINANCE breaks.
Okay. And, again, when would you want to replace that?
If it's within the top 50, 75. It depends upon, obviously, the cost per block to replace. They ought to be done this summer. And we've increased the budgeting for prudent cast-iron replacement rather dramatically in the last couple of years.
On that particular case that we just described that you're saying will be done this year.
Having your druthers, when would you replace it in the cycle of breaks that has now reached seven or eight?
Okay. Would you normally wait till seven or eight breaks?
Okay. Just give 45 /00 FINANCE me a preference of when you would like to fix replace it if you could. I mean, not fix it, replace it.
Several years ago, when we apparently had more money to spend on everything, we had reached a point where I think we had no block in the City with more than five breaks. And our intention, obviously, was to get working the inventory of all blocks with multiple many breaks down at any given time. If we can use the 2001 Budget, which you haven't seen and you're not looking at today, as an example, and that incorporates the Navigant results, we can probably get most of the high- priority blocks out of the system in five to eight years, which would be a dramatic improvement over where we have been over the last three or four years.
So this budget calls for about $20 million in main replacement?
How does that compare with prior years? I'll just go back five or seven years.
It's the total distribution budget, which supports a lot of these same activities that reduce leaks and fix leaks or repair leaks, is $28,369,000 in the 2000 Budget. I believe it goes up in 2001 to around $32 million. It and would have been more if the budgets had been preserved, let's say, from the early 1990s. We used to spend between 30 and $35 million a year in the early 1990s, and if you had let inflation be added on to this number, it probably would have been, in maybe the high 30s, low 40s by this time. We did not apparently have the money financially to support that kind of a budget.
We're in a rather precarious situation from a main replacement --
I think we have 47 /00 FINANCE recognized that and I think we've begun to address that. Even though the dollars fungible and have been intermixed with the company's general funds, we have increased the budgets going out to take advantage of this swap fund, or whatever it was called, to get those dollars, or dollars from somewhere, put back into the cast-iron replacement program.
Okay, thank you. Kumar, how long has this -- these 30,000 customers that we know are not getting billed, how long has that been going on? COMMISSIONER KISHINCHAND: I think it may have very well started in July of 1999 when the new system went into place. Whether those are the same customers that are not being billed or whether some of them were put back and these are new ones, I'm not sure what kind of a mix it is.
Was everybody that we're giving gas to being billed prior to that? I mean, everyone we're supplying gas to was getting a bill prior to that? COMMISSIONER KISHINCHAND: I would assume so, that would be my assumption. If we 48 /00 FINANCE know that these 30,000 are not being billed, then I'm assuming that all of them were being billed at one time.
Let me just comment that when the transition occurred between the legacy and the new system, there were accounts that appeared under the new system that were apparently not in the old system, and that had to do with identifying meters and so forth. So there were a number that were caught up as we moved into the new system.
The computer system that you've mentioned, that was originally priced at about $9 million? Was that what the budget was originally?
It was originally conceived as part of an overall program and priced by IBM in an initial study done that was done like 6 years ago at about 9.7 million. And I think that was what the request for the appropriation was initially.
Of direct capital 49 /00 FINANCE charges, that is correct. It's about 31 --
Well, we are continuing -- well, we have reconciled through the end of December of 199, and we'll continue to provide you with an update. I mean, this system is a work in progress. It is not done yet, and that total cost is still building.
There's three people running the Gas Works right now. I mean, Kumar, I know your title is Interim President and Chief Executive Officer, but I remember when the announcement was made, it was kind of a triangle, plus one.
Kumar is the interim CEO, Tom is interim CFO. Steve Hershey is the third person that was mentioned at the time, you know, the interim team was appointed. Steve has been a link between the Administration and PGW, helping us in particular with the deregulatory issues. As you know, Harrisburg enacted legislation that compels the deregulation of PGW. July 1st, we fall under the auspices of the Public 50 /00 FINANCE Utility Commission. So there has been, you know, ongoing negotiations and discussions with the Public Utility Commission, and we're trying to work through a host of issues that impact every aspect of the company's operation, and Steve Hershey, the third person of the team, has been, you know, the glue that's kept that process moving, and he's been advising the City and advising the company and working with our regulatory counsel and others.
Okay. I know, Commissioner, you have -- or, Mr. President, are you making the same money you made as Water Commissioner? Or did they bump you up, or how did you -- COMMISSIONER KISHINCHAND: They did give me a raise. I was making $108,000 when I was at the Water Department. And my salary has been increased to the maximum that the Water Commissioner make, which is $125,000.
Okay. So we're still saving a sizeable amount of money with you, and you live in the City, I assume, still. You 51 /00 FINANCE haven't moved out since you moved to the Gas Works, right? (Laughter.)
You can't wait to get back to the Water Department probably. Now, Mr. Knudsen and Mr. Hershey, are you full-time an employee as Kumar is, or are you consultants on a --
I'm retained by the City. I have a law practice, and the City is one of my clients, and I spend a sizeable bit of time working on this, but I'm not full-time and I'm not directly at the Gas Works.
Okay. Mr. Knudsen, how are you compensated under this arrangement, as an employee?
My contact is $20,000 a month, and I have a contract for six months.
Okay. But it's full-time, it's exclusive, you don't do anything 52 /00 FINANCE else. Well, you're not an employee, is what I'm saying.
Okay. So you get regular sick benefits and you get pension taken out and all that?
No. Pension is not taken out, but benefits, I do have. I have health and so forth.
Okay. So you're not a consultant, but you're not quite an employee like Mr. Kishinchand.
He has the same status as the previous management, so he has basically the same contract Sharbutt had, who was, you know, identified by PFMC, hired for the purpose of being the company's CFO. It's indistinguishable, I believe, from that arrangement.
Okay. Now, when the prior management was in, Kumar was running the Water Department. I believe -- I'm not sure if both Mr. Knudsen and Mr. Hershey were consultants to the Gas Works? 53 /00 FINANCE
I was -- have been a consultant to the Public Advocate, who is, in turn, contracted with the Gas Commission.
And I have been a witness for the Public Advocate and also the Commission for years. And that's the background that I 14 brought to PGW and was understanding of the 15 financing and the operations over that period of time. Mr. Hershey was the public advocate and is part of Community Legal Services until two years ago, when he then left and joined a private law firm.
Thank you, Councilman. The Chair recognizes Councilman Nutter.
Mr. Kishinchand, Mr. Knudsen, and Miss Wilkerson, good afternoon to you.
Is there a Capital Budget book? I have a copy of a bill and I have a copy of testimony. Is there an actual document?
You should be in receipt of the -- there are two books: there is a summary of the Capital Budget and then there is a separate volume of work orders that support the requests that are being made.
I'm assuming, since this 55 /00 FINANCE was last November, that this was originally brought to the Council's attention, so I'm assuming it's here.
I believe it was transmitted when the bill was introduced.
Well, I beg your pardon. I understand it was resubmitted in --
But it would be the same documents that you received in the fall.
Okay, great. Now, you're on a September 1 fiscal year?
Okay. What has been the impact -- I mean, I guess, under normal circumstances, the calendar or operating budget of an entity would be submitted oftentimes, I guess shortly, before the end of the current fiscal year for the upcoming fiscal year. My recollection is 56 /00 FINANCE that your FY 2000 Capital Budget came, I guess, sometime last fall, and I think we actually -- did we have a hearing?
No. The process -- well, let me answer. I think your question goes to the process, and let's use this year as an example. We are in the process of completing our 2001 Fiscal Year Budget and Operating Budget.
And we will be submitting those to the Commission for their review probably next week or certainly the first week of June. That begins the calendar, and normally, then, we would have hearings at the Gas Commission in June and July, briefs would come in in August, and the Commission would make its decision in September. In that context, then, as soon as the Commission ruled on the Capital Budget, it would be conveyed to here, so you should have it by October of every year.
Okay, all right. What's been the impact on the company, if any, with the Capital Budget just coming in now? Has there been a material impact on the company? 57 /00 FINANCE COMMISSIONER KISHINCHAND: This is the 2000 budget you're talking about that's before you today?
Mm-hmm. (Mr. Kishinchand consults with colleague off record.) COMMISSIONER KISHINCHAND: Yeah, I believe PGW got a letter from Chairwoman Blackwell to go forward with the Capital Program not to exceed the previous year's allotted, you know, appropriated capital amount. And we kept to that, we have not exceeded that, to my knowledge at this point.
No. I think what he's saying is that we had a borrowing last summer for $100 million, and we had the capital funds, but we have spent, under this program that's before you, according to the Chairwoman's request, but only up to an amount as had previously been approved by the Council. COMMISSIONER KISHINCHAND: I was responding to the appropriation authority, rather 58 /00 FINANCE than the cash issue.
All right. Well, the bill in front of us seems to indicate that you are -- Section 2, Spending Authorization, in part reads: ". . . shall be available for expenditure upon the effective date of this ordinance for Fiscal Year 2000, defined as September 1, '99 through August 31,2000 in the amount of $57,331,277." Are you planning to have a borrowing for the FY 2000 Capital Budget?
Yeah. We have the money in the bank right now for this program, and we have the money in the bank for most of next year's program.
So this would merely approve what you have already done?
This would be to approve the program, and we have incurred expenditures against these projects awaiting your approval, in 59 /00 FINANCE accordance with the Chairwoman's letter.
Okay. That's a number that's getting used a fair amount these days.
That billion dollar figure. Can you provide to us, through the Chair, a listing of the debt obligations of PGW, the years of the borrowing and a schedule showing your debt service?
Yes, we can do that. The annual report contains most of the information you want and we'll provide a supplementary schedule showing coverages or indenture requirements.
Okay. Now, what is your debt-service coverage ratio right now? 60 /00 FINANCE
We are forecasting under what we're calling "a probable scenario for this year," which is to say that the program we have underway right now is, in fact, realized, we're showing a little over 1.5 on the 1998 indenture, which is the controlling document.
I'm sorry, the 1975 indenture, which is the controlling document.
But the fact that you are making this statement with that level of specificity, does that mean that the debt-service ratio on other borrowings is some other figure? Or is there an overall debt-service ratio for all of the debt?
Let me express it in a different way. There was a change in the way the long-term debt has been treated in 1998. They effectively separated out the new debt from the old debt and using this sort of double indenture technique. If it had -- if we had not known that, we would not make the 1.5 coverage for the 1975 indenture this year. In other words, it would be about 1.3. 61 /00 FINANCE
Okay. And you said you've already made the borrowing for FY 2000. And what do you anticipate the Capital Budget for 2001 to be?
We're estimating right now slightly under $50 million. Most of that is contained in two projects: the L and G plant, which is the continued refurbishment of the liquefaction equipment and prudent main replacement.
There was a gentleman up at the table earlier; I didn't catch his name.
Yes. Could you come back up, please. (Mr. Stinson returns to witness table.)
You had made a statement in response to a question by Councilman O'Neill and I just took down the essential words, and I wanted to try to get a better understanding 62 /00 FINANCE of what you meant. You used the phrase "fungible dollars." What did you mean by that? What does "fungible dollars" in the --
I'm not a finance person, but as far as I know, an influx of funds through this swap deal comes into the General Fund at PGW. And as Mr. Knudsen explained, because of the ongoing financial problems, those dollars, perhaps if they were routed to pay for other items or bills that came through or whatever was going on at the company at the time. But what we did in the capital budgeting process was presume that those dollars were, or dollars to replace them, would be made available; and, therefore, we budgeted to spend at a higher level for cast-iron replacement in 2001 and going forward.
That's a very interesting response. You lost me a little while ago. Are you saying that dollars that should have gone to the Operating Budget were spent on capital items? 63 /00 FINANCE
Let me respond. The intent on the swap money, the $8.4 million, was to be spent -- the intent was to use that money in the Capital Program, but it comes into the books of the company as a revenue, as it's called, as "project revenue" by legal definition. That money is treated in the books as --
Well, as opposed to customer rates or customer service revenues. It comes in -- it has another source than customers. The way the books work is that that money then works its way through the operating statement and, effectively, the intent at the time, I think, was that we would have an operating surplus and that money would be used for the Capital Program.
Why do you continue to use the term "intent"? What does that have to do with anything?
Because the intention was not realized. We did not use that money -- there was no money -- there is no profit in PGW this 64 /00 FINANCE year that that money was intended to generate, so that that money was used for the operations. It never got to the bottom line, it never got to be retained earnings that would then be devoted to the Capital Budget. It ended up inside the company paying for operating bills.
Is that like if we were to sell the building and we received certain dollars for it and we're supposed to receive that into a capital account, and you're saying that it worked its way through the system and it never ended up on the capital side and it ended up on the operating side? Is that what you're saying?
In your example, had you sold the building and it went into a capital account, it would have been reserved for capital charges and capital purposes.
The way this particular transaction is accounted for, it goes into the operating statements of the company. It didn't get segregated or put aside for a capital project only.
What was the 65 /00 FINANCE original purpose of this transaction?
I don't know. I mean, the statement of Mr. Hayllar was that it was going to be used for investment in prudent main replacement. If he had any other intent at that time, I don't have a clue.
So you're saying that that's what we were told at the time, that was the basis for the presentation and the decision that many of us would have made at that time based on what --
I was present the day that he made his statements on this issue.
And so the purpose for which we were asked to vote and support that particular transaction, which was for main replacement and hard things in the ground, you're saying that those dollars ended up on the operating side?
I'm saying -- yes, that's correct. 66 /00 FINANCE Now, that isn't to say, as Mr. Stinson was saying, that we aren't going ahead and using and meeting that level of investment. We're simply borrowing more long-term to do that.
Well, did anyone at the company think maybe to come back and tell City Council that you -- that the company had been deceptive in its testimony about that particular item?
Point of order. I believe that -- and I'm not sure, but we can check the notes of testimony -- when the former CEO, Mr. Hayllar, testified, I believed we asked the question, Did the funds have to be spent on capital projects? And he said no. He said no, that could be used for operating budget.
Because that was a concern that was raised by the Commission.
Okay. I know you answered some -- thank you, Mr. Stinson. I know you gentlemen had answered some questions earlier about the IT system, and 67 /00 FINANCE hopefully this is not redundant, but is there a projected timetable for getting that particular matter cleaned up and fixed? COMMISSIONER KISHINCHAND: There is a projected timetable, but not for a complete cleanup of that. As I said, by the end of June, we should be able to bill everybody by the end of August. The number of, you know, modules might start working.
The number of what? I'm sorry. COMMISSIONER KISHINCHAND: The number of modules. I'll have Tom Knudsen, who's taking over the ownership, I guess, of BCCS to answer that. He's obviously (inaudible).
The program right now is to get to August 31st and have auditable statements of PGW. To do so, we must bill our customers. Our timeline right now is to have the system billing by the end of June. We'll use July to clean up whatever issues or process are still involved, and then we want to have the month of August to essentially clean up for the entire year. 68 /00 FINANCE So to answer your question in the specific, we will improve part of the program through August. The remainder of the improvements to BCCS, we are looking at that right now to determine whether we can afford to do that or what the options are. We have Arthur Anderson, which is now Anderson Consulting, looking at this whole question.
What do you mean "the remainder"? What does that mean?
Well, beyond simply the billing function of the customer information system, there are a number of other things that it should do well. And the question is --
Sure they are, but they are not necessarily important to its survival, and that's what we are talking about right now; we're talking about it's financial survival. And we need two things: we need billings and we need financial statements.
What happens if things go well and August comes and it's a better 69 /00 FINANCE operation, what happens to the 30,000 or so people if you catch up with them?
I mean, do they get some enormous bill, do they just, you know, kind of start with a blank slate and say, Well, you know, glad you finally caught me, and I'm, you know, pleased to see you? Or do they get some huge bill and then now they're in a fight with you about it? I mean, what happens?
Well, I think that's a fair question, a fair representation. We may, in fact, end up with some fights, but the tariff allows that for as long as it took us to bill a customer, they have to pay without any penalties, without any interest. So that -- and, yes, in fact there will be large bills, but the tariff has anticipated just this kind of a problem.
Okay. COMMISSIONER KISHINCHAND: They can take as long to pay off that back-charge as it took us to bill them. So in the eight months -- they have another eight months to pay it off.
Well, I understand 70 /00 FINANCE that, but I think I may have mentioned this at one of the other meetings. I mean, how successful do you think you're going to be at proving that the person owes it under the present circumstances?
Right. Well, we have -- we have some real faith that the bulk of the bills that are going out are correct. I mean, we can run some analyses to demonstrate that. We have problems with the system such that -- as Kumar indicated, he didn't get properly billed simply because the AMR did not read properly at his house. I mean, those are ongoing problems, but there are these --
Was that an AMR problem or was that a software problem of the system reading what the AMR received? COMMISSIONER KISHINCHAND: We don't really know at this point. In fact, Councilman Kenney asked that question, and I don't think we're prepared at this point to say whether it's 71 /00 FINANCE the system that's not working or whether it's the AMR that's not working. We need to do some investigation of that.
Okay. Last question. In the exchange between Councilman O'Neill and Miss Pozefsky, again, I took down part of the response, and the response was, Well, that's a Law Department question. And I thought I had read or heard somewhere that PGW, one, has a somewhat recently fairly beefed-up legal counsel office or kind of a law operation as well as, I guess, access to outside attorneys. So I didn't really understand what that response meant.
Councilman Nutter, Councilman O'Neill, and Chairwoman, I've had the opportunity to caucus with PGW and with the Gas Commission to come to an agreement on the interpretation of the agreement and what it provides for with respect to budgets in the past 15 minutes.
I understand that, and I'm sure Councilman O'Neill will want to come back and get the answer to that. My question had more to do with your response to his inquiry, 72 /00 FINANCE which was, That's the Law Department question. I mean, you are the general counsel for PGW?
Six and a half. Six lawyers and a part-time person, a part-time lawyer.
The lawyer is a full person who works part-time, I'm sorry.
Very good. What did you mean by that in your response to Councilman O'Neill?
What I meant that, Councilman, is there have been historic differences of opinion as to how this particular provision is interpreted, with PGW, at times past, having had a different opinion than the Gas Commission. And ordinarily, when there's a difference of opinion between PGW and the Gas Commission, it would be the Law Department that 73 /00 FINANCE would come in and make a formal decision as to what would be the binding interpretation. In this particular instance, however, that probably would not be necessary, because we've had an opportunity to caucus since the last discussion.
Okay. With respect to the interpretation as to how the budgets -- whether the budget are, in fact, line items and whether approval is needed if changes are made, PGW, at this point in time, having discussed this with the Gas Commission and understanding that the Gas Commission is, in fact, able, subject to its own rules and regulations, to determine whether or not a line-item budget is necessary, the Gas Commission at this point in time has no formal rules and regulations but has, in fact, in orders -- the Gas Commission has, in fact, stated that they would like to see PGW return to the Gas Commission for approval of transfers between line items. It's not a formal rule and regulation, and that was, in fact, what the agreement appeared 74 /00 FINANCE to require. The Gas Commission certainly could promulgate a rule or regulation instead of doing it in the form of an order. PGW will come back to the Gas Commission for line item approvals if the line items are changed during the course of the budget.
How long has this been -- first, actually, I understood very little of what you said but, you know, I'll reread the notes of testimony. But, second, how long has this been an outstanding question or a difference of opinion between the Gas Commission and PGW?
Councilman, I don't know. I was made aware of the issue in November when the last Council hearing on this subject came up. In terms of how long it's been an issue and in terms of what of interpretation has been, my understanding has been that PGW's practice over the years has not been to come back to the Gas Commission when there are line items changes in the budget.
And they chose not to come back based on what? 75 /00 FINANCE
I believe, based on their understanding, that as long as there was no 4 overspending in the aggregate, there could be some flexibility of spending and changes within categories, among categories.
And here today, as a result of a question asked by Councilman O'Neill, and after what did you say, a 13-minute, a 15-minute caucus, you've now resolved the issue?
Okay, so if that's the agreement or the understanding -- and as I said, you lost me a little while ago about some of the orders and who tells who what to do -- what does that now mean?
Let me tell you what the management agreement says what the issues were and what I think it now means. The management agreement says that all expenditures and commitments for the Gas Works shall be made pursuant to, quote, such approved budgets and subject to rules and regulations, if any, promulgated by the Gas Commission in 76 /00 FINANCE connection therewith. My understanding is that the Gas Commission has never formally promulgated a rule or regulation that requires the budgets to be line-item budgets that are approved, and that all the spending needs to adhere to the line item category, but that the Gas Commission -- and Carlton Williams, who was the budget examiner for this purpose says, that the Gas Commission has in fact, in orders, stated that line items should be adhered to. Based on the fact that the Gas Commission certainly could promulgate in a rule or regulation the content of the orders that Carlton Williams has said he has issued --
Hold on for a second, 'cause, I mean, as you know, this is nowhere near any level of serious expertise. Am I understanding you to say that the Gas Commission could issue an order to PGW about whatever that order is about? And my am I understanding your language to mean that PGW can then operate within that order? And are you using the term "promulgate" some regulations or processes or procedures or rules about how they're going to 77 /00 FINANCE adhere to that particular order? Is that what you're saying? I mean, these aren't trick questions. I mean, I just don't know.
This is not a process with which I am particularly familiar, which, I think, is fairly evident from the level of some of this discussion. The first time that I had looked at this carefully, spoken with the Gas Commission and spoken with our folks about the budget has been today, because our assumption was that filing with the Gas Commission, the reconciliations for the last few years, which was done in February of this year, would address this issue. So, Councilman, I'm attempting to give you a quick answer to a question that was posed here today. We can get back to you with a better analysis of what the agreement says and what the Gas Commission and PGW agreed to do within fairly short order, and I think that -- you know, I make that proffer now.
I just -- again, the order mentioned that the Gas Commission has 78 /00 FINANCE ordered line items but they haven't formally filed the ruling, and I guess a fair inference is that rules have to be followed but their orders don't?
That seems like a logical follow-up to that because if they --
Let me respond to that. It is this management's intention to follow the orders of the Commission. The order as it stands right now is that we will follow a line-item approach to this budget and to the next. It is my understanding that if we were to want to change anything in terms of redirecting resources within the approved budget, that we can go to the Commissioner, and that they can give us that kind of approval. But right now, it is our intention to follow the letter of the budget line by line.
Okay. Now, I understand that from this day forward, where we have a line-item budget, even though no one agrees that it's written anywhere that that has to be, it's just everybody agreeing to do it if that's what the Gas Commission wants, okay. 79 /00 FINANCE And we just had a discussion about a swap of 8.4 million that was everybody's intention to use for gas mains, but it didn't work out. And, obviously, there was nowhere that forced that money -- nowhere was it written that that money had to be used for gas mains; it's just what was told to this legislative body. So I want to know what the law is. If the law isn't line-item budgets but you're agreeing because the Gas Commission wants it and could make it law, that's fine, I understand that part of it. But I want to know if it is currently the law. And I'd also like to know, since I'm now learning about orders versus rules, if the Gas Commission has ever ordered or filed an order for line items and how often and how recent they have filed. The management agreement go backs to the '70s?
'72, okay. So it's about a 28-year history where it should be pretty obvious whether we ever had line-item budgets and why, and also whether there's a City 80 /00 FINANCE Solicitor opinion anywhere on this. I mean, in some brief discussions with my colleague, who is a member of the Gas Commission for some time -- has been a member of the Gas Commission for some time now, Councilwoman Tasco indicates that this actually has been a request a long time. I didn't grill her on how long that is, but it's not like it just came up this morning. So I would like some historical -- and I really don't want to -- I don't have any problem with this budget, I mean, which was better news on the gas mains, but I can vote for this budget to start getting things done since it's taken so long. But we don't have a Council meeting for two more weeks, and I don't want to vote on budget unless I know whether it's a line-item budget by law, and I think that's only fair. So if you could get back to me in the next two weeks, I would appreciate it.
I will take the responsibility for getting a City Solicitor opinion on that and also for developing the record on -- 81 /00 FINANCE
-- what the historic practice has been and what orders have come from the Gas Commission with respect to line items.
I'm actually very upset that there's this much question about it. I mean, this is not an significant matter, when someone can get approval for $9 million for a computer system that costs 30 or 2 million for a warehouse that becomes office repairs. This is not how -- because these budgets just don't come to the Gas Commission; they come to City Council, and the reconciliation doesn't -- won't be just coming to the Gas Commission, I hope it will be coming to City Council, and I think it also should have, at least my understanding. So the historical part would be very important. Thank you.
Thank you. Are there any other questions from members of the committee? (No further questions.)
The Chair will be 82 /00 FINANCE with us shortly. (Chairwoman Blackwell returns to chambers.)
Thank you very much, everyone. Thank you. What the Chair would like to do at the request of some members of the committee is to continue this hearing until June 1st, at 9 a.m. so That means we will skip a week and we don't have a session next week. And then we'll reconvene the following Thursday, before we go into Council, at 9 a.m.. And if that's acceptable to everybody, then we will be recessed until then. COMMISSIONER KISHINCHAND: That will be fine. We will be here.
Thank you, thank you very much. Thanks, everyone, for coming.
Thanks. COMMISSIONER KISHINCHAND: Thank you. (Adjourned at 4:25 p.m.) - - - 83 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 Thursday, May 2000, were 8 reported fully and accurately by me, and that this 9 is a correct transcript of same. 10 11 12 13 RE: COUNCIL COMMITTEE ON FINANCE 14 BILL NO. 000280 15 16 17 18 __________________________________, JOSEPHINE CARDILLO, Registered Professional Reporter