Well, several things happen. One is that this clause that I am proposing they view favorably. I mean, they are not interested in the politics or the social theory of this, they want to know where the money is going to come from to service the debt. So that part of it they would view favorably. The --
But then again there's also an "if" attached to that; if the PUC approves that. If they don't approve, where are we.
Well, if the PUC doesn't approve this clause, and it's very controversial because although there are other states that have done this, Pennsylvania doesn't have one of these. If they don't, then we will look to file for a base rate increase. The money has to be generated to 125 03/24/04 - FINANCE - BILL 040142 keep this utility alive and the gas flowing. But coming back to the S & P or the rating agency response, I think the other aspect of this is that we have to demonstrate this summer that we are running an absolute first rate collection function and that we are getting money into this utility. And that's why I'm appealing to this Body and the Administration to support as a matter of public policy that people must pay these bills. But that's what they're going to be looking for between now and August or we're going to pay a very hefty premium for this debt.
Of the 130,000 shut-offs that you indicated earlier, do we have any indication at all as to how many of those customers would be eligible for LIHEAP?
Let me just inquire a minute. We don't know specifically how many of them would be eligible. We don't, as a matter of course, collect income information. 126 03/24/04 - FINANCE - BILL 040142 It's not something that we've done in the past, although we're going to have to do more of that.
I think that's something that should be done. If people aren't paying and if there are avenues that we could help them to pay --
But isn't there more than one program that can help many of these people, like Crisis?
Well, LIHEAP and Crisis go together, and we have enrolled as many people as there is money.
No, that's combined. The money combined is 350 to $400, something in that range. It varies by year depending 127 03/24/04 - FINANCE - BILL 040142 upon how much the federal government appropriates, but that's about what LIHEAP/Crisis contributes to our money.
I still think of the 130,000 shut-offs, there would have to be people in that group that would certainly be eligible for LIHEAP or some assistance. And if we know now, then we would be in a much better position next year to know that these people at least could apply and get the $300.
The issue for us is that there's only so much money. We have a program --
But if I recall, when you were here last, you were pleading with us to let many of our constituents know that they could apply for LIHEAP because you said that we did not have that many customers applying.
That's what you said. As a matter of fact, -- am I correct in my understanding? 128 03/24/04 - FINANCE - BILL 040142
Yes, Madam President. I agree with what you're saying, because now Mr. Knudsen is saying that the issue is how much money we receive to go into these programs. It was those applicants. He said today that two-thirds of those so far that they know qualify have been contacted. So that leaves us in no man's land. I said yesterday to them that I don't agree with telling people you're paying for the person who doesn't pay if in fact two-thirds we are reaching and if in fact there's no money there any way. So I don't think it's fair to make people -- I mean, most people would give a dollar for a senior. People don't mind paying for people who can't. But to start a fight -- and the gas company says they don't do it, but I don't agree with those who say I'm not paying for somebody or if a person wants to get a cell phone or go to the movies -- I mean, this is 2004. People have needs and I don't think it's fair to try to make people fight one another when we're all, quote/unquote, in the same boat. I don't 129 03/24/04 - FINANCE - BILL 040142 agree with that. I agree with what you're saying. This time last year, we were looking for applicants for LIHEAP and Crisis. Now this year we've reached the ceiling about the monies we get in. But even in spite of all that, I don't think it's fair for those individuals outside of this room who decide to make people fight one another about who pays and who doesn't and what they're allowed to do or buy with their dollars. I mean, I think that's a bit absurd.
May I just respond a little bit on this question of LIHEAP? One of the initiatives at the energy association state-wide that we executives are trying to get going is an appeal to the legislature to put some money behind LIHEAP for Pennsylvania, that they make some contribution to this effort as a state body. As I indicated earlier, there's only two states who do not participate across the northern tier of cold states and that is Massachusetts and Pennsylvania. So that's something that we're actively pushing in 130 03/24/04 - FINANCE - BILL 040142 Harrisburg right now, is to get some funding in this regard, to essentially make the pie larger. Councilwoman, I'm doing everything we can to get the money in.
I understand, but I do recall last year you were almost pleading with us to try to get people to apply for LIHEAP.
We were successful. We have enough subscribers; now we don't have enough money.
I just want to ask one other question before we go into the next hearing. Did the PUC ever make a determination regarding the senior citizens' discount, those that would be effective as this past September.
It was on the agenda last Thursday, and for whatever reason they 131 03/24/04 - FINANCE - BILL 040142 were never told. They withdrew it for reconsideration at the next meeting. We just don't know.
After the winter is over. So in all likelihood, do you think they'll make some determination before next winter?
I think it will be either in this session coming up or the one after. I don't think they want to delay it. There was just some considerations that hadn't been resolved on their part.
Thank you, Madam President. Councilman Ramos, then Councilman Rizzo, and then we'll recess. Councilman Ramos is going to defer to the next hearing. Councilman Rizzo, would you like to wait until the next hearing or --
No, this is relevant to this hearing. 132 03/24/04 - FINANCE - BILL 040142 I'd like to switch gears for a minute, and I apologize if you've addressed this issue, but I would like to talk about some quick arithmetic that I've done and I want to talk about other than residential customers. It appears to me that there's almost $14 million in debt from businesses. The big industrial customers tend to pay their bills, but I'd like to know do we have any customers that owe us close to $14 million here? And if I'm wrong on my arithmetic, please correct me. But I understand it's about 13.7 in money that's out there from small businesses, middle sized businesses that have not been paid. Why would we even tolerate for 30 seconds a business not paying their gas utility bill?
We have about 20,000 smaller commercial customers who are in this category that you're talking about. About 23 percent of them are delinquent at any time. 24 I'll be candid with you. Until a year or two 25 ago -- about a year ago, we gave some real 133 03/24/04 - FINANCE - BILL 040142 consideration to being hard on these people because they may be new businesses getting started. They employed people. So basically, we attempted to collect the money, we were at some times more lenient than we might have been. We're not that way anymore and we haven't been for about a year. We're cutting people off as their bills go into the appropriate arrearage.
Again, we started this hearing talking about policies, policies that allow a business to go and buy -- and I understand that you don't want to be responsible for a business going under, but you're going under. They'll be around --
And obviously, 134 03/24/04 - FINANCE - BILL 040142 your policies, you have to start thinking why we're in the situation we're in. And if you're telling me that we have almost $14 million of debt that small businesses haven't paid and you're not being really aggressive, if I were a small business person and I knew that you weren't going to come after me, guess what, I'd probably buy more inventory, I'd probably paint the store, or I'd do something different with your money to make me more money.
We are doing that and have been doing that for about a year.
If you look at some of the numbers, a large percentage of it is in the under 30-day. It's current and then you have 30 to 60 and -- a lot of it is not that old of money and we have a very aggressive program to make sure that these people try to stay current with their bills. This is not easy. And a lot of these are tenant/landlord situations. These are small residential 135 03/24/04 - FINANCE - BILL 040142 buildings that have a whole other set of problems associated with and relative to the PUC and what we can and cannot do with these people.
I'm saying these are commercial accounts but are three apartments, two apartments, whatever. And they go into arrears and then we have certain responsibilities because there are families in these residences that we can't just turn off because that's our desire.
I understand and appreciate the compassion, but I think the days of compassion have passed.
Thank you very much. I never think the days of compassion will pass. I'm sorry, but I can never morally forget our obligation to people in need and quality of life in our City.
I'm talking businesses. 136 03/24/04 - FINANCE - BILL 040142
Having said that, due to the hour, we're going recess our finance hearing until Tuesday the 30th, at 2:00 p.m. Having said that, we will ask you if you will look at the senior citizen discount. There are some concerns, especially by the sponsor of one location being listed in each neighborhood in the City and about four or five locations and the fact that in a 30-day period with it being so far, some people by the time some seniors are able to act, they have to make arrangements to get there and so we're asking if you would consider during this time some process to extend this 30-day period for the senior citizen discount applications.
Thank you. We will assume that for the purposes of our hearing that we will on Tuesday begin with the senior citizen discount. We will assume that the rest of the discussion with regard to the Capital Program has been completed, so everybody's clear where we are. 137 03/24/04 - FINANCE - BILL 040142 And we are happy to now defer to my colleague and chair of the Committee on Transportation and Public Utilities. Thank you very much. (Hearing adjourned at 4:25 p.m.) - - - - 138 COUNCIL OF THE CITY OF PHILADELPHIA PUBLIC HEARING COMMITTEE ON TRANSPORTATION AND PUBLIC UTILITIES - - - - Room 696, City Hall Philadelphia, Pennsylvania Wednesday, March 24, 2004 4:30 p.m. - - - - RESOLUTION 040149 - Resolution authorizing City Council's Committee on Transportation and Public Utilities to hold public hearings to investigate the proposed gas cost rate increase to be effective September 1, 2004... RESOLUTION 040216 - Resolution authorizing City Council's Committee on Transportation and Public Utilities to investigate and hold hearings on the Petition of the Philadelphia Gas Works to the Pennsylvania Public Utilities Commission... - - - - V A R A L L O Incorporated Litigation Support Services Eleven Penn Center 1835 Market Street, Suite 600 Philadelphia, Pennsylvania 19103 215.561.2220 215.567.2670 139 I N D E X RESOLUTION 040149, 040216 PAGE THOMAS KNUDSEN, PGW.................. 142 PHILIP BERTOCCI, ESQ., Community Legal Services................... 176 140 03/23/04 - TRANSPORTATION - RES. 040149, 040216
Thank you, Madam Chair. As the Chair has laid out, the Finance Committee, with the sponsor's agreement, if we don't finish the testimony today on these two resolutions, do we want to carry on onto the same day, or do you want a different day? What was that date?
For the Committee on Transportation and Public Utilities, anything that's not completed today will again be combined with Committee on Finance on Tuesday the 30th at 2 o'clock. There are two resolutions. Resolution No. 040216 and Resolution No. 19 040149. Resolution No. 040149 is authorizing City Council's Committee on Transportation and Public Utilities to hold public hearings to investigate the proposed gas cost rate increase to be effective September 1, 2004, requested by the Philadelphia Gas Works (PGW) 141 03/23/04 - TRANSPORTATION - RES. 040149, 040216 with the Public Utility Commission, and in furtherance of such investigation authorizing the issuance of subpoenas to compel the attendance of witnesses and the production of documents to the full extent authorized under Section 2-401 of the Home Rule Charter. Resolution No. 040216, authorizing the City Council's Committee on Transportation and Public Utilities to investigate and hold hearings on the Petition of the Philadelphia Gas Works (PGW) to the Pennsylvania Public Utilities Commission to establish a cash receipts reconciliation clause (CRRC), in order to reconcile PGW's projected and actual cash receipts with billed revenues on an ongoing basis; the causes and necessity for a CRRC; and further authorizing the Committee to issue subpoenas and such other process as may be appropriate to compel the attendance of witnesses and the production of documents in furtherance of the investigation to the full extent authorized by Section 2-401 of the Philadelphia Home Rule Charter. We'll take a five-minute short 142 03/23/04 - TRANSPORTATION - RES. 040149, 040216 recess stenographer break. (Brief recess.)
Ladies and gentlemen, we're back. Can the witnesses come back to the table, please? Mr. Knudsen, can you proceed with your testimony? Do you have separate testimonies for these two items?
Sir, I provided -- I'm not quite understanding what the process is going to be. I provide a comprehensive testimony for all three of the resolutions and then split one off for the senior citizens and gave that separately. It is included here, but the testimony that reads, "My testimony for regarding the three resolutions," is the appropriate testimony for this part of the hearing. Do you have that? It should have some colored graphs in it.
Yes, I see it. Why don't you go through your testimony. Members may have questions on any 143 03/23/04 - TRANSPORTATION - RES. 040149, 040216 one of these items. I understand that there was some spirited discussion already about some of these, so why don't you proceed?
If it's your pleasure, I won't read the testimony, I'll really just summarize it.
The first question that's posed here is, what is this cash receipts reconciliation clause? The problem that confronts the company is, as we have stated earlier, historically, we've collected about 92 cents on the billed dollar. This last year, we collected 87 cents on the billed dollar.
Because the numbers of people who we would normally have expected to pay didn't and largely because, in our view, their bills went from $900 per family per year, which it had been for almost 15 years from the late '80s though 2003, it escalated to $1300 a family last year and escalating to 144 03/23/04 - TRANSPORTATION - RES. 040149, 040216 $1460 this year. It is this escalation that we think the elasticities kicked in and people just weren't able to afford as much and they didn't pay their bill. The difficulty that we have is that for every cent on the dollar that we didn't collect, it's worth 8 million bucks. We lost $40 million of liquidity in this exercise. And what happened was that this shortfall occurred very suddenly last summer when we would normally have expected to receive a large part of our receivables come in in the May through August period. It collapsed on us. So coming into this year, there were several considerations. One is I felt we needed to upgrade our collections effort, and I brought in a very good consulting firm to do so and we have made major progress in the effectiveness of our collection efforts even in light of the winter moratorium. Understand that come December 1st a lot of our efforts are frustrated because we can't turn anybody off and the motive to pay is heavily reduced 145 03/23/04 - TRANSPORTATION - RES. 040149, 040216 by that portion of our paying public who find it to their advantage not to pay. Now, as we came into our summer or as we're coming into this spring and summer, it is essential that PGW be viable financially. We must raise some debt.
We must sell some bonds this summer, late this summer. We have to keep our construction program going. We must be viable in terms of providing safety and reality in terms of our system. With the shortfall in our liquidity and our cash availability with the need to be in the financial markets, I was confronted with only really two options. One was to file 19 for a base rate increase. The other one was to take my lead from some of the other states who have put in flexible clauses that essentially are designed to address a specific set of circumstance and go away if necessary. And rather than create a permanent burden on our customers, because PGW already has the 146 03/23/04 - TRANSPORTATION - RES. 040149, 040216 highest rates in the state, we opted for this lesser approach.
Let me ask you a couple quick questions. First, where did this idea come from?
Has PFMC -- PFMC is your governing Board, is that correct, Philadelphia Facilities Management Corporation?
And was it 147 03/23/04 - TRANSPORTATION - RES. 040149, 040216 unanimous?
Where else is a proposal or program like this in place either in the Commonwealth of Pennsylvania or anywhere in the United States of America?
There is no program in the Commonwealth of Pennsylvania. That's one of the reasons that it's controversial. There is a very similar program in Ohio available to all utilities, and it's basically designed for utilities to collect on their uncollectible charges. It's very parallel to where we are right now. There is a similar type of mechanism in Georgia. There's a similar type of mechanism in Memphis.
How much of the average ratepayer's bill now is covering non-payment or inability to pay by other customers?
Well, you have to define the terms, but I will tell you in our bill right now there's something called the universal service charge which captures all of 148 03/23/04 - TRANSPORTATION - RES. 040149, 040216 these programs and it's about --
Well, you have the senior citizens discount, you've got the CAP Program, you have conservation, and there's a small piece in for our restructuring expense. As we came into being under the purview of the PUC, we had certain charges that we had to incur. That's about $1.15 out of our $14.65. So that's about 1/14 of the total. Now, that's part of the problem. That's about 7, 8 percent. We also write off or provide for non-collection of an equal amount of money.
Of about an equal percentage. So it's about 14 to 15 percent of our total revenues can be captured as paying for those who can't pay.
So then is it correct to say that about 15 percent of the average ratepayer's bill is paying for in essence non-paying or inability-to-pay 149 03/23/04 - TRANSPORTATION - RES. 040149, 040216 customers?
You're now proposing to tack on some other amount of money. I don't know what the percentage is, but in the plainest of English, what incentive would there be for anyone to pay their bill? They now know that the cost is going to be passed on to -- it's like going through the grocery line. I mean, if you can load up your cart with whatever you want and pretty much be assured that the person behind you is going to pay the tab, I mean --
First of all, our rates aren't that much higher than the rest of the state. So right now we're relatively competitive. That's Point 1. Point 2 is --
But many of the people in Philadelphia are a lot poorer than other parts of the state.
Well, that's exactly 150 03/23/04 - TRANSPORTATION - RES. 040149, 040216 what our problem is.
You can finish. Or members may have questions. My last thing will be, you're asking the PUC for a two-year program or in two years the PUC would determine whether or not to allow the program to continue, they could, I guess, theoretically do nothing and the program would just stay in place.
If you were to get this approval from the PUC, who would decide when to implement the CRRC; PGW?
Let me be very clear what it is, all right? If we collect 92 cents on the dollar this year, this clause will not go into effect. And that's why I wanted a flexible clause so that it wasn't automatic that rates went up. But we had to have some provision that we would get money into the company to support our fiduciary responsibilities of both keeping the place operating and paying for the bonds. If we get to 92 percent in this collection effort, then 151 03/23/04 - TRANSPORTATION - RES. 040149, 040216 the mechanism is in place and we don't use it. But it is there in the event that if rates keep going up that we have some way of assuring the bondholders and the stakeholders that PGW can sustain itself going forward.
Well, I understand that, but let me just at least posit this and then I'll relinquish the microphone. Not that you would do this at least consciously. But there is at least the more than likely scenario that even if rates didn't go up but if somehow some way collections fell off and you went below the 92 percent threshold that you want to attain and if -- and I don't know how aggressive the collections process is, but if for some reason there was some shortfall in that particular area, haven't you, in fact, created a readymade pool of dollars through this program such that you will either get people to pay their bills or costs will go up, as you've laid out these other situations so even if people want to pay but the costs are going too high, they can't; or costs could stay level, 152 03/23/04 - TRANSPORTATION - RES. 040149, 040216 collections for some other reason drop and you'd institute the CRRC anyway, correct?
Yes. We have to have sufficient liquidity to run this company.
I understand that, but the only point I'm arguing at the moment now is what keeps the pressure on the company to make sure that you're collecting everything that you can and should?
Because 92 percent, I'm right here (indicating), I'm barely above water. And there's no way that this company can survive indefinitely that way. The incentive for us is to cut costs and to create an environment where we are collecting money from our customers in excess of 92 percent. We need 94, 95 percent.
I understand that. I'm not going to be able to stay, which ultimately may be a benefit to just about everyone in the room. I can't keep doing this.
As a public 153 03/23/04 - TRANSPORTATION - RES. 040149, 040216 official, as a ratepayer -- maybe my house is not the most energy efficient home in the City, but the bills are pretty hefty and obviously I pay my bills. But we can't keep doing this. It's going on and on and on, and you're stretching your brain, scouring the country, finding other ways and mechanisms to try to do this. It's bandage after bandage. There is no plan whatsoever that I've heard about or seen -- and we had a report that apparently most people haven't seen, including you, and it was about your company. Somebody's got to lay a plan out on the table to change the dynamic here and change the function. You can't keep limping along this way. The company is bleeding, the patient dying, and we just keep coming up with different ways, as you indicated, to keep your nose above water. You can't run a company like this. So it seems to me that while you're trying to run the place, either internally, through the Gas Commission, hire a consultant. Someone needs to come in here with a true 154 03/23/04 - TRANSPORTATION - RES. 040149, 040216 turnaround plan of how this company is going to function and operate under the current circumstances of the population that we have, unless another million relatively well-off people want to come into Philadelphia anytime soon. But given the 1.5 million people that we have today, somebody's got to walk in here and tell us what to do with this thing. I cannot do this anymore. I'm not going to spend all this kind of time going through this over the course of the next three or four years. It is the absolute definition of insanity. We continue to do the same thing over and over and over again getting the same result and expecting something different. I think you need to come back to us with a plan.
Mr. Knudsen, I agree with my colleague Councilman Nutter's poignant analysis of the situation, and I also agree with his recommendation that a plan needs to -- I think some of that might call 155 03/23/04 - TRANSPORTATION - RES. 040149, 040216 for us to get more involved in a way to design or to present a plan to the people of Philadelphia. I had a question concerning the debt collection. You said you have now contracted a company that you feel satisfied with their debt collection. Give me some indications of your satisfaction.
Well, the conversation earlier was in outsourcing activity, and we have outsourced the collection of about $200 million worth of what amounts to now fairly old receivable paper. The folks that are --
Well, some of this could be as little as six month, some as old as a year and a half.
Outsourcing means we've given it to somebody outside the company and they are performing -- three are certain 156 03/23/04 - TRANSPORTATION - RES. 040149, 040216 benchmarks for the collection industry, and they are performing about where they could expect them to perform. We get 2, 3, 4 percent back on the money we've given out. That's as good as it's going to get.
I came upon a person that's in the debt collections business a few months ago. And I said, "Are you doing anything with the gas company?" He said, "I don't even want to touch the gas company. I can't make any money, I can't collect." Do you feel comfortable enough that with this company you're going to be able to recover 93, 94 percent?
Let me come back to the earlier point that I made. I think there is a culture of entitlement amongst a lot of the customers of PGW, and it goes back not a decade, it goes back generations. We hear this anecdotally. I think the Mayor and this Body and the agencies whether it's the DPW or whatever, have got to make it very clear that people must pay these bill. It's like a tax bill. 157 03/23/04 - TRANSPORTATION - RES. 040149, 040216 When it's in arrears and it's putting the Gas Works and it's putting the City in some kind of financial stress, people must pay these bills. And the question is distinguishing between those who can't and those who don't and can, and that's the issue.
I would think that even if you have the best collections agency out there now working for you, that your success is going to be very limited because you would still have a high percentage of people, whether they are just not wanting to pay or probably more as equal a number or higher people that cannot pay. So if people cannot pay, it doesn't matter how good of an agency you have, if they don't have it, they don't say you and you stay in hole that you're in.
But the problem we have, Councilman, is if that's the case, then this is not a viable enterprise and we'd better acknowledge that right now and either socialize it in some way or let it go under. I don't have the answer. If people don't pay 158 03/23/04 - TRANSPORTATION - RES. 040149, 040216 the bills, then we have a transference that has to occur to the General Fund or we appeal to for to Harrisburg for supplementary funds. If we have so many poor people to whom we provide service and they cannot participate in the process of receiving that service and paying it, the commercial contract, then we have to redefine the terms of this company. We cannot continue this way. And I absolutely agree with Councilman Nutter on that. I think there has to be a discussion about the social burden that the customers are bearing to keep people in their homes in the wintertime warm. Is that a responsibility of the other ratepayers or is that a more general responsibility of the body politic? That conversation has got to occur. I don't have the answer for -- this year, we will do everything we can in the best -- to your point about a collections agency, I think we've created at PGW the best capability that it's had ever and I would stack it against private industry right now in its ability to reach out, make contact, do the 159 03/23/04 - TRANSPORTATION - RES. 040149, 040216 appropriate things, state-of-the-art benchmarking, whatever you want to call it. And if that doesn't work, then we have a whole other conversation about PGW, because if bills continue to go up, then more and more people will slide from that half. That half will grow to 52 percent or 54 percent or 55 percent of our customers who can't pay regularly or don't pay regularly.
Thank you, Mr. Knudsen. Your response in agreement with Councilman Nutter and myself -- and I don't want to assume other colleagues probably feel the same way. We were going through this in -- we had hearings here on healthcare and the issue is broader than the closing of one hospital. It is how do we now manage to keep hospitals, how do keep utilities that people need in this City in a way that's accessible to them? And we have some very challenging times ahead of us because it's not just in utilities but in other phases of our daily lives in this City. Thank you so much for coming before 160 03/23/04 - TRANSPORTATION - RES. 040149, 040216 us, and we have some very tough times again.
I think we should replace the leadership at the Gas Works because I think one of the reasons for your failure is that you have no respect for City Council, you excluded them from consideration, you thought you had full authority. Yet you're here, you were here earlier this afternoon asking for help on a Capital Budget and you're trying to indicate that you're interested in Council support. You're not; you're not the least bit interested because you took this action knowing it was against the will of City Council yet you didn't discuss it in advance, you didn't show us any respect, any interest in our position. I think by that action, you've shown that the Gas Works under its present leadership is not competent of running the show. I'm not going to decide to assist the Gas Works under its present leadership at all. And I think conversation ought to begin and you ought to 161 03/23/04 - TRANSPORTATION - RES. 040149, 040216 acknowledge your failure as Chief Executive and you ought to remove yourself so that we can put people in who have confidence in City Council as well an executive who just doesn't ignore us but wants to participate with us. Otherwise, I think you're just operating a shell game, and that's what I think you've been doing. You decided you were going to have this all your own way, or maybe you're negotiating with other people or talking to them. You're certainly not talking to City Council. And until and unless you immediately withdraw this request from the Gas Works as an insult to the senior citizens of Philadelphia, I see no way of accepting your leadership at the Gas Works.
Good afternoon, Mr. Knudsen, again. Thank you. I won't call for your resignation, but I will ask -- at least the people at PFMC knew, and the 162 03/23/04 - TRANSPORTATION - RES. 040149, 040216 question I have is when did you figure out you were going to file this and why wasn't there any discussion, not only with City Council, but with the Gas Commission about this plan?
I think this proposal, we were faced with -- we had several options. And this particular option required action no 12 later than the 1st of March. And as of early, sort of mid-February, we still had not formulated our thinking about this. And it evolved in a very quick time frame. We did share some thoughts with the Executive Director of the Gas Commission. But this was a very fast-evolving proposal. And the problem was to get it into the time frame at the PUC, we had to file by March 1st. I think we have not in the past sought the approval of the Gas Commission or City Council when we have raised gas rates. We raised them quarterly. We have not made it a policy to do so. When we raised base rates 163 03/23/04 - TRANSPORTATION - RES. 040149, 040216 the last time in the manner in which we did, we did not seek the approval of the --
But this is not the traditional gas rate or the base rate; this is a different kind of program that you're triggering.
You knew the strong position City Council had if there was an ordinance passed by City Council in opposition to this.
You knew that City Council had taken a very strong position against this kind of thing for senior citizens. At least you could have had the courtesy on the problem of payments and senior rate discounts and you went ahead with that without any discussion with City Council.
Well, that was a larger political discussion, Councilman. As we had that conversation, PGW itself -- this 164 03/23/04 - TRANSPORTATION - RES. 040149, 040216 was an administration issue and management itself --
Felt that you could find some kind of language to try to cover up the idea that it was thumbing its nose at City Council and telling City Council, "Butt out. We're competent, we're going to handle this ourselves." Go handle it.
I agree with Councilman Nutter because my question earlier too is what is the incentive for PGW to engage in active collections if they know, "If we don't get the money, we can just pick it up from the ratepayers and trigger the CRRC and there's no incentive to do the collection."
Well, I respect that. And one of the reasons that I proposed the structure of this clause the way that I did was that I understand after -- my experience is 30 years of appearances before the Public Utility Commission. I knew the question would be raised, "What is your incentive?" And one 165 03/23/04 - TRANSPORTATION - RES. 040149, 040216 of the reasons that we delayed doing anything was that I knew the question would come to us, "What have you done at PGW to collect these funds?" And I needed in that juncture to demonstrate that we had this collections initiative in place and that it was starting to work, that we had the possibility of collecting the money that was out there. Come directly to your question as to what's our incentive. We have enormous incentives to continue to collect money. Ninety-two percent does not give us any real leeway at all. We must go beyond 92 percent to 94 or 95 percent in order to start to work this company out of the hole, as someone characterized it earlier, that we're in. It is that incentive that's driving this management team. We've got to get to a position of paying down the short-term debt, we've got to get to a position of paying off the $45 million loan, and we've got to get to a position of generating funds internally to apply against our construction funds or we'll never get out of this mess. 166 03/23/04 - TRANSPORTATION - RES. 040149, 040216
You're never going to get out of it until such time as you recognize the role of City Council.
Let's put on your consumer hat. You sat on the side of the table as consumer advocate. Because you said earlier -- having sat through all of this since I've been on the commission, the company is getting deeper and deeper. We're not finding a way out. In 1994, I believe the Phoenix Company came in and they were supposed to turn it around; they didn't turn it around. We got new management; we didn't turn it around. And here we are worse off, in more debt than we were. Certainly, there has been some circumstances such as BCC failure. And how much was the restructuring cost?
The cost of restructuring the company, going to State PUC, how much did that cost? 167 03/23/04 - TRANSPORTATION - RES. 040149, 040216
And you had 5 other problems too. But you talked about 6 socializing the company. Do you see that being the final answer? Because we don't seem to have another answer to getting PGW -- because nobody's going to buy it. What is your consumer thought about this? And what can you and your company do to engage the discussion around what is really needed? Because what's happening, we're all jumping around it. We're not really coming to the table to say the company has failed or is failing or will fail, and what do we do about it? Because this is really just Band-Aid effort. If this doesn't work, we'll have to find something else to work. There are not too many options for you to address the many problems that we have. So where is your advocacy to do something different and something that's not in keeping with the usual solution?
If we can't get 168 03/23/04 - TRANSPORTATION - RES. 040149, 040216 customers to pay and if there is no purchaser for this utility, it would seem to me that the only conversation that you can say is some kind of a State solution, an authority provision, something that removes PGW from the governance of the City and may raise it up a notch, raise it to the State level.
Where does the money come from? Are they going to put the money in it? They can give the money without making a authority, they can just make us a line item in the budget.
Well, that would be an answer then. I mean, any place where there's a willingness to put some funds, not into the operations of PGW, that's not where the money needs to go. The money needs to go to people in order to fund their bills. That's a very different proposition. We're not looking for money to run the company; we've got that. It's the money that we need to have people pay their bills. Now, if that can be addressed either in terms of the General Fund or some 169 03/23/04 - TRANSPORTATION - RES. 040149, 040216 kind of state source, then so be it. In fact, as I said earlier testimony, we're looking for the State to put some money into LIHEAP so that there's some supplemental funds coming. But I agree with Councilman Nutter. We don't want to be continuously at this problem forever. There's got to be some addressing of this question of how people are going to pay for gas service. There's another alternative, you discontinue gas service for X numbers of people and find some alternative, put them on electricity which, for all intents and purposes, is cheaper. Certainly cheaper for us.
One of the impediments you have spoken about is the inability to shut people off in the wintertime. Even though they cut off in the summer, you have to cut them back on. And we know people get into this game. That's how PGW has gotten into the position it has gotten into. People made an agreement, kept it just at the point and then when they get to the winter, cut it off. The bill gets bigger and 170 03/23/04 - TRANSPORTATION - RES. 040149, 040216 bigger and bigger and they play that game every time. One of the recommendations that did come from Phoenix to the Gas Commission when we had regulatory authority was to have the ability to cut them off in the wintertime. Now, have you approached the PUC -- in spite of the fact that that may be their rule, knowing the condition of this company and the problems that we have, have you given them the approach and say, "Look this is a way we did it prior to you taking over. At least this plan was on this table." How can you and have you talked to them about doing something like that? Because they have to see that there's some need here that may be different than other utilities in the State.
Well, there's nothing like a crisis to generate a little attention. I am not well regarded at the PUC right now for the problems that are attendant to PGW. As I said, everybody's got these issues, we've got them worse than everybody else. 171 03/23/04 - TRANSPORTATION - RES. 040149, 040216 To answer your question, yes, there is an initiative in the State amongst the executives of the utilities to look seriously at some of these provisions.
Can you move them along a little faster? Have you talked to the State -- we're meeting, just for the record, the Gas Commission and the PFMC Board set up a meeting with the State delegation to talk to them about increasing the funding for LIHEAP. And of course, as we meet with the -- a lot of these problems have come up. Certainly we ought to use our political leverage to get the state political agency to move quicker. You've got a Governor up there that's certainly friendlier to us than in the past. Could we please get his attention?
Councilwoman, I'd be happy to talk with you about exactly that. I mean, we have this initiative going with the Philadelphia Delegation. We should maybe take different approaches we have to date to bring this message around to the bureaucratic agencies in a different way. And I absolutely 172 03/23/04 - TRANSPORTATION - RES. 040149, 040216 agree with you. But understand the other initiative that's underway is through the industry and essentially presenting these problems to the Pennsylvania Public Utility Commission as very real and ones that are not given to easy solutions, but we have to change some of this. To answer your question specifically about a winter turn-off, I think you understand that this is an age old tradition. It's been around for decades. We would like to propose that not everybody be privileged in this way, that maybe folks who have higher incomes would be subject to -- would not be subject to the moratorium and, in fact, we could turn them off if they didn't pay their bills. But then this becomes a much more complex political question at that point.
It does. And I'd suggest to both of you that this firestorm would be nothing compared to something that would happen if there was turn-off and someone were found dead in bed of freezing.
Let's talk 173 03/23/04 - TRANSPORTATION - RES. 040149, 040216 apartment owners who own these large companies and have these outstanding bills and there may be a couple that have several apartment buildings that owe maybe a hundred thousand dollars or more. How do we allow them to get such high bills?
We don't. But to go after them, we have spent thousands of man hours and lots of money tracking these people and with some success, but with a lot of frustration because they manage to elude us in the courts and the processing of our applications against them. It isn't for lack of trying, but there is some real frustration out there of our efforts. But we're going to keep pushing.
Let me ask a couple questions, then I'll be done. The Mayor recently confirmed that the City's budget for Fiscal Year 2005 no 22 longer assumes that PGW will make the $18 million payment due by June. Is it your understanding that this payment is being deferred until later, or is 174 03/23/04 - TRANSPORTATION - RES. 040149, 040216 it that the City will not be paid at all this year?
My understanding is that the City will forego the payment completely this year. That's what we have been told.
Then does this mean that City Council has to approve this by the ordinance, the management ordinance?
As I understood the conversation with the Finance Director and the Mayor's Chief of Staff that there is an ordinance being proposed to allow this to happen, yes.
Thank you. I think we'll let you go a little bit today, right, David? We're going to recess until the 30th also at 2 o'clock.
Thank you very much to you and to the Committee and the opportunity to present our case to you. Thank you.
I certainly urge that between now and the 30th you give every consideration to the withdrawal of your 175 03/23/04 - TRANSPORTATION - RES. 040149, 040216 application, telling them that you thought you had the authority, or whatever reason you wanted to give, and you're withdrawing and will communicate with them later.
I'm committed to not supporting anything for PGW as long as you disregard City Council. You've done that constantly. This is not the first time, Mr. Knudsen. We've had this discussion in open meeting. But you continually choose to ignore City Council except in those instances where you need our help specifically, like on a budget. And that's all you use us for, for that purpose. And until that changes, I'm convinced the management is more at fault than anyone else because you freeze everybody from helping you by your elitist manner and refusal to recognize the proper authorities in Philadelphia.
Councilman, it's our intention to work more closely with Council, and I appreciate your admonition on this and 176 03/23/04 - TRANSPORTATION - RES. 040149, 040216 we will respond. Thank you.
I think what we'll do, when we have the hearing on the 30th, the witnesses will come prior to the testimony from the company. So Mr. Bertocci, if you wanted to testify, you'll be one of the first.
Mr. Bertocci, you feel you would like to be heard today?
Come on. We'll wait. Good afternoon. Would you state your name for the record, please?
My name is Philip Bertocci. I'm the supervising attorney of the Energy and Community Legal Services. I'm testifying here today on behalf of Community 177 03/23/04 - TRANSPORTATION - RES. 5 percent of poverty. Many of these folks do not benefit from LIHEAP and do not benefit from CRRP, the low-income programs, so they bear the full brunt of any PGW rate increases because there's nothing available to them except whatever resources they might have. I have presented some written testimony, and I'm not going to read it. I'm just going to summarize some aspects of it or highlight some aspects of it for your attention. I put together a chart at the end of my testimony which just summarizes what the level of rates are in Philadelphia now, what they would be as of September 1, 2004, with the GCR whip PGW has applied for, and what they would be with the GRC plus this CRRC, which everyone knows what it means now so I don't have to go through it again. The bottom line is -- the bottom line on my chart too is if the CRRC was approved at the level which is proposed and if 178 03/23/04 - TRANSPORTATION - RES. 040149, 040216 the GCR was approved at the level at which it is proposed, there's a potential that customers would have a total bill, a total annual bill of $1,505 annually. Now, $1500 annually is a very large amount. PGW as of last November had an annual bill of more than percent than the next natural gas utility 9 which was equitable in Pittsburgh. The annual 10 bill was $300 more a year than PECO Energy Gas which operates in Southeastern Pennsylvania and has some very poor sections as well as having some sections which are not so poor. But, of course, we have Chestnut Hill and some fairly prosperous sections of the City also. I think that we have to look at the CRRC proposal in the context of a utility which already has unacceptably high bills and a utility in which bills have gone up very fast in a short period of time. I'm like Mr. Knudsen, I think that the reasons that the increases really started in November of 2000 and in November of 2000 bills were about the $850 level, 850 to $900 level, and they've gone up steadily from 179 03/23/04 - TRANSPORTATION - RES. 040149, 040216 there. I don't believe that is totally a result of simply gas costs, as Mr. Knudsen says. In fact, about three-eighths of that increase since 2000 can be directly attributed to a base rate increase of $70 million. So there are a lot more factors going into this. This is not an increase which -- I don't think PGW's present situation can be described merely in terms of due to factors beyond PGW's control. The factors which give us a potential $1500 bill involve the total utility, all the ways in which PGW has been managed and mismanaged over the years. Sometimes PGW wants to describe it as a culture of non-payment or a culture of entitlement. I would say more likely that what we are experiencing in part is a crisis of credibility. This is a utility which has had great trouble accurately and consistently billing its customers. It struggled since 2000 in order to get a credible collections system together, contrary to what you've heard today, although I think the foundation has been laid. I think that we have a call center 180 03/23/04 - TRANSPORTATION - RES. 040149, 040216 which is better than what existed before. It still is not state-of-the-art. They're still not answering 80 percent of their calls in 30 seconds. PGW employees are still not consistently talking to customers and telling them exactly what their rights are and what their bill is and being able to give a credible explanation to many bills which seem to be, at least from the basis of what I have seen, bills that seem to be rightfully too high and incorrect. So that this is a much more complicated situation than the company would like us to believe. Not to take anything away from the tremendous effort and dedication of PGW's present management.
This is not intended to be any kind of personal attack on them. It's intended to say that there are policy issues here which go way beyond the immediate crisis which brings us here. The last thing that I want to say -- because I know it's been a long day -- is that it seems to me that the CRRC is not the first thing one would suggest; it's the last thing 181 03/23/04 - TRANSPORTATION - RES. 040149, 040216 one would suggest. Giving up the $18 million payment this year or putting a plan by which a portion of the $18 million payment was given up for a series of years could be part of a larger plan to make sure that PGW begins each fiscal year with the level of cash which it needs in order to get gas for the coming year. There's also the possibility, which PGW has not mentioned at all today, of various kinds of gas management contracts which enable PGW to husband its cash in a way where it doesn't need so much money right at the beginning of the fiscal year. Those are things which I know that PGW is considering but have not been brought before you, and they would be ways in which this cash problem could be dealt with. Furthermore, we need still steady pressure in terms of improving collections. It's good that Accentia (ph) is here. We have yet to see any real results from Accentia's activities. We know that they're putting a plan together. We know that they are charting a course but, again, as you know, with any 182 03/23/04 - TRANSPORTATION - RES. 040149, 040216 business, and this is a big business, a change takes a certain period of time. It's not going to be immediately discernable. The other thing I want to say is that it is always a kind of a wishful thinking that goes on. But, for instance, we hear that PGW is in fact reporting people that can pay but won't to collection agencies. I think the term that was used was "a process," we're in the process of reporting them. Well, as far as I know, it's only in the process. That doesn't mean that anybody has actually been reported. People have been told if they don't pay -- this is the best knowledge that I have. People have been told if they don't pay, they may at sometime be reported to a collection agency. I would expect -- not to a collections agency, to a credit reporting agency. I would expect that if PGW put together a program of that sort just like other programs like the senior citizen program, that there needs to be groundwork laid. The public needs to be informed as to exactly what to expect. The program has to be 183 03/23/04 - TRANSPORTATION - RES. 040149, 040216 well defined. And if all those things happen, that would create a major incentive on the part of those people who can pay but won't to move PGW up the list right next to their mortgage in terms of their payments. I know it's been a long day. I thank you for giving me the opportunity to talk. I will be out of town next week, but I'm always available if any Councilperson has a question or their staff has a question. I can give my perspective and give you some idea which perhaps you might want to verify with PGE.
Is there anybody else who wishes to be heard this afternoon? If not, the hearing will be recessed until Tuesday, March 30th at 2 o'clock. The Committee stands in recess until that time. (Council adjourned at 5:25 p.m.) - - - - 184 C E R T I F I C A T I O N I HEREBY CERTIFY that the foregoing proceedings of the Council of the City of Philadelphia of Wednesday, March 24, 2004, were reported fully and accurately by me, and that this is a correct transcript of the same. RE: COMMITTEE ON FINANCE COMMITTEE ON TRANSPORTATION AND PUBLIC UTILITIES _________________________ Lisa C. Bradley, RPR