Committee Hearing, April 7, 2004

COUNCIL OF THE CITY OF PHILADELPHIA CONTINUED PUBLIC HEARING COMMITTEE ON FINANCE - - - - Room 400, City Hall Philadelphia, Pennsylvania Wednesday, April 7, 2004 2:10 p.m. - - - - RESOLUTION 040229 - BILL 040153 - An Ordinance approving the Fiscal Year 2004 Capital Budget providing for expenditures for the capital purposes of the Philadelphia Gas Works... PRESENT: COUNCILWOMAN JANNIE BLACKWELL, Chair COUNCILMAN DAVID COHEN COUNCILMAN FRANK DICICCO COUNCILMAN RICHARD MARIANO COUNCILMAN MICHAEL NUTTER COUNCILMAN BRIAN O'NEILL COUNCILMAN JUAN RAMOS COUNCILWOMAN BLONDELL REYNODS BROWN COUNCILMAN FRANK RIZZO COUNCIL PRESIDENT ANNA C. VERNA - - - - 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 2 I N D E X BILL 040156 THOMAS KNUDSEN, PGW.................. CRAIG WHITE, PGW..................... 6 STEVE HERSEY, PGW.................... 60 7 8 9 10 11 3 04/07/04 - FINANCE- RES. 040229

Good afternoon. We would like to thank you for your patience and announce that the Committee on Finance is now in order. Today, it's a continuation of the originally scheduled hearing on March 24th, 2004. The hearing was recessed in order for PGW to come back today to address concerns outlined in Resolution No. 040229, sponsored by Councilman Brian O'Neill, which deals with the Senior Citizen Discount. I have two other questions on another matter, but I'm happy to first defer to my colleague, Councilman Brian O'Neill.

Thank you, Madam Chairwoman. I believe that the negotiations with my office and PGW have reached a positive resolution. It involves the audit of Senior Citizen Discounts, which is very proper. We had a few years where it wasn't done. I'm sure that won't happen again. And a removal over the past several years of some not-so-cost-effective locations in my district 4 04/07/04 - FINANCE- RES. 040229 that require people going a much longer distance to try to work out the discount being kept after a senior member of the household has died. So using the mini City Hall right off of Welsh and the Boulevard, it's central to the Northeast. It would be used just during this period, one day a week for six to eight weeks, and I think it will provide enough service to people. If someone can't get there, we'll know it's a true hardship and we'll deal with that. For the most part we're dealing with seniors who are spouses of deceased Senior Discount eligible people, and I think we'll get a lot of people off the Senior Discount who aren't seniors that have been riding on a deceased family member's discount, which is good for all ratepayers. I want to thank PGW, although it took a little bit longer than I would have liked, it's all going to work out in time, I think, for everybody to get what they need. I would like to thank Mr. Knudsen and Mr. Hershey, particularly, for working 5 04/07/04 - FINANCE- BILL 040153 this out.

Thank you, Councilman.

Thank you very much. Are there any questions from Members of Council with regard to the Senior Citizen Discount? (No response.)

We will go back to our discussion on the Capital Budget, which is Bill No. 040153. In that regard, I have two questions. One is with regard to the soft-off, because I was told today that there were some issues with that, and I would like you to explain what the soft-off is and go from there.

Madam Chairwoman, soft-off is a process that we follow. Essentially, what it means is that we don't formally, physically turn someone off before another. And it's usually a rental circumstance where one tenant leaves, the next tenant comes in. We don't formally turn them 6 04/07/04 - FINANCE- BILL 040153 off. It's called a soft-off. We simply recognize that the ownership of the account, the accountability for the account has shifted from one name to another. That's essentially what it involves. Since I'm not the technical person on this question, I would be pleased to write a formal explanation for you for the record on this issue. But it's a process that was followed for many years. We discontinued it for a period of time, but it's more cost efficient for us when we know when one party is leaving and another party coming not to go through all of the requirements of a formal shutoff.

So this means during that interim period then, neither customer is billed, am I correct?

Well, if that's the case, PGW bills itself. It's less expensive for us to bill ourselves than to actually deploy people into the field to try and make this. It involves a circumstance where we know there's a change taking place. 7 04/07/04 - FINANCE- BILL 040153

So then if we have consumers or customers who have some issues about that period, then I assume that we can be in touch with PGW. We usually get it when a person says, "I moved out and I contacted PGW, and I moved out on April 10th, and here it is January 15th and I'm being billed."

In that instance then we rely on our phone records, which are quite precise now, and we hold those records for a long period of time. We go back and reference those and establish the exact moment of the time that the service was discontinued. I feel inadequate to answer your question, frankly, but I will provide for you and for the record a detailed explanation of soft-off.

Thank you. Also, with regard to Mr. Harvey Clark on the news, whenever I turn it on, and all of the talk and on the radio every morning, where are we with regard to rates? I know you said at our last hearing, 8 04/07/04 - FINANCE- BILL 040153 about two-thirds of the people who could be contacted were, and are trying to apply for LIHEAP grants. As you know, we had legislation to try to apply to get more dollars from the State. Where are we on that whole issue of that and the additional surcharge for the customers?

Well, in terms of LIHEAP, there's two initiatives in place right now -- well, there's three. One is at the federal level, making sure that the amount of potential appropriation under the current bills in Congress are moving from a level of about $1.8 billion, $1.9 billion per year for the entire country to $3.4 billion. That will ensure that we get an additional amount of money in Pennsylvania. The second initiative is to make sure that Pennsylvania holds its proportionate share of the money that's going to be coming from the federal government. And the third initiative is that we in Philadelphia, specifically in PGW, most specifically, get our fair share. 9 04/07/04 - FINANCE- BILL 040153 So each of those is an initiative that we've undertaken. I've testified at the federal level. I've taken the case to the state authorities. In fact, we met with Secretary Richman the day before yesterday and got her support for this kind of effort. And I've also argued directly to Secretary Richman of the need for PGW to have a fair allocation of the resources for our needs. So each of those is in process right now.

So at this point, our ratepayers still don't have to look forward to an increase, correct? We're still investigating that and assessing our income?

LIHEAP is one of our sources of income. Let me repeat my testimony. The proposed regulatory process that I have in mind, which is the Reconciliation Clause, is strictly right now an insurance policy. We are doing everything we can to collect from the customer. Only if we fall short of our goal would we employ this proposed reconciliation mechanism.

So we're 10 04/07/04 - FINANCE- BILL 040153 still in the holding mode?

We're still in a holding pattern, that's right. As I indicated to you at the last hearing, I would come back to you in the June time frame to let you know where we are and what I thought we would or would not have to do.

Thank you. Before I ask my next question, let me ask those Councilpersons who are on the Finance Committee who are in the building if they could come to the Council Chambers because we are concluding our testimony. My final question, Mr. Knudsen, is that it is my understanding that PGW has different rates for and various classifications of users. Can you explain what residential accounts are, commercial accounts and PHA accounts, how they differ?

I'm going go ask Mr. White to explain this a little bit. Let me just brief him because I haven't spoken with him. 11 04/07/04 - FINANCE- BILL 040153 Madam Chairwoman, my expert is here.

Thank you. Would you identify yourself, Mr. White?

Thank you. My name is Craig White. I'm the Acting Chief Operating Officer. I appreciate the accolades of being an expert, but I'll do my best. With respect to the PHA rate, there are actually three different rates that PHA facilities get billed under. There are PHA scattered sites, which get billed under our GS rate, our general service rate, just like any other residential customer. It's the same rate that applies to an individual homeowner. And that's applied to the scattered sites. They also have a certain amount of dual fuel where they can burn both gas and an alternative fuel other than gas, in most cases oil. In that case most of those facilities are on what we call our BPS rate, our boiler plan service rate. That's an interruptible rate. Then there is a third rate, which is 12 04/07/04 - FINANCE- BILL 040153 the PHA rate. The PHA rate is a rate that is priced within -- if it's not identical, it's within hundredths of a cent from the commercial rate that we charge commercial customers. Commercial customers pay what we call a commercial general service rate, and in both instances they pay a monthly customer charge and then they pay the volumetric rate, which is per MCF.

It's based on how much gas they actually consume.

Yes. And I guess the point that I'd like to stress today, those facilities are typically your multi-unit apartment buildings that fall under the PHA category, which would not be any different than the commercial multi-unit buildings. They get billed under our general service rate.

My question is -- if the scattered site rate is the same as individual homeowners, that sounds fine. But I take issue with PHA -- we all know that PHA homeowners are low income people -- or 13 04/07/04 - FINANCE- BILL 040153 home renters, I should say -- home renters or homeowners are low income folks, and why would they be charged a commercial rate? Can't we charge them a regular residential rate?

They're not being charged a commercial rate. They're being charged the PHA rate, which is basically identical to the commercial rate. If I'm an apartment building owner and I have, say, 10 units in that building, I'm paying a commercial general service rate. If I'm a PHA building with 10 units, I'm paying a PHA rate. The two rates are all but identical.

I disagree with that. PHA folks are low income folks. Why wouldn't everybody be charged a residential rate, the same rate? To live in PHA, to move in PHA, you have to be low income to begin with. So why would they be charged the same rate as a commercial account?

The best I can do on that answer is that since these facilities are basically of the same structure or the same make-up as the commercial accounts, they were 14 04/07/04 - FINANCE- BILL 040153 categorized in our last rate case under the PHA rate, and the PHA rate was viewed appropriately representative of the cost associated with those types of buildings. I think the key here is that I think in some cases it's been represented that PHA is actually paying more money. PHA is paying for scattered sites. Individual homes are paying the same thing that other general service customers are paying. In a multi-unit building, they're paying a rate which is basically the same as a multi-unit rate building rate for commercially-owned property. One last item, Councilwoman, if I may. In our last rate case we had numerous interveners in the case. PHA was not one of those interveners. We didn't approach it in any way to take advantage of PHA. As a matter of fact, we kept it pretty much transparent from where it was prior to falling under the PUC. So it wasn't as if we took an opportunity to change the rate when we fell under the PUC. It was what it was for many, many years. 15 04/07/04 - FINANCE- BILL 040153

As I indicated to the Chairwoman, we would pleased to assist PHA in making the appropriate applications to correct what they perceive as being a problem here. That's all we can do because the rates right now are established by tariff before the PUC. We'd have to open up a whole proceeding to make the changes. As I indicated to you earlier in conversation, we're not talking about a lot of money here. I think we calculated it's something like $75,000 as a result of their paying a slightly different rate than they would under the way they want to be charged. We would be pleased to help them correct this at a future time.

So you're saying it's probably a form they need to fill out?

It's more than a form, Councilwoman. They actually have to intervene in the rate proceeding at the PUC to change their rate.

Point of 16 04/07/04 - FINANCE- BILL 040153 information.

Point of information, Councilman DiCicco.

I'm not clear. When we're speaking of PHA, Philadelphia Housing Authority, and the rate at which they're being charged, specifically on the multi-family dwellings, that's a commercial rate?

It's very close to the commercial rate. The buildings are treated --

The monthly customer charge is identical and the per MCF rate is --

Is the charge to the individual occupant or is it to the Authority? Is it the Authority that's being charged or is it the tenants?

It is the Authority under the PHA rate.

I was concerned with the Chair's question. I think the Chair is under the impression -- and I was at first -- that the customer, the individual customer, is being charged the commercial rate when it's 17 04/07/04 - FINANCE- BILL 040153 the Authority; is that correct?

We appreciate that clarification. That is correct. The only parties that are living in PHA housing that get charged directly and are asked to pay us directly are the scattered sites that receive the general service rate, that's correct.

If I am a tenant in a multi-unit apartment building, a PHA apartment building as an example, I'm not being charged the commercial rate for gas use; The Authority is picking up the bill because they're basically heating the entire building?

That's correct.

So it's not the individual low income family that's paying.

But isn't the tenant in PHA -- the renter receives a rate, so they may not pay their utility separately --

It could be included in the rent.

So it's included in their monthly bill. 18 04/07/04 - FINANCE- BILL 040153

As I understand it, PHA receives the federal dollars to pay the gas bill on behalf of customers that are on PGW's PHA rate. PHA also receives the federal dollars to pay for the customers that are on the general service rate. But the difference is that PHA distributes the funds to the individual consumer, and the consumer then has the responsibility to pay the Gas Works. With respect to the people who are living in a PHA -- in my example, a multi-unit facility, they are not seeing the check nor are they paying the check. They're not seeing the bill and they're not paying the bill. That is a PHA function. Whereas, if you're in scattered sites you actually receive the contribution from PHA and you have a responsibility to pay the bill directly to PGW.

I'm not sure that's correct. I'll call and get verification. But if a tenant pays a bill 24 that includes their utilities, the tenant is paying the bill. That bill is factored into 19 04/07/04 - FINANCE- BILL 040153 what their rent is. So it's still the tenant paying.

Well, it's the cost of charging rent for living in the unit. There is some --

I mean, if that's $75,000 that a low income tenant shouldn't pay, then certainly we would rather give it to the tenant associations or use it for job training or other uses in the facility, than paying a different rate.

We can get back to you specifically on this, but it's our impression that the federal government pays this bill, and I don't believe it goes to the tenant as part of any kind of requirement. But we'll clarify that for the record and get back to you on that.

That would be helpful.

That's a PHA issue, not ours.

Councilman DiCicco. 20 04/07/04 - FINANCE- BILL 040153 Let me note that Councilman DiCicco is here, Councilman O'Neill to my left, and Councilman Ramos to his left. Councilman DiCicco.

When we talk about delinquent customers to PGW, how does PHA rank? Do they pay their bills on time? Are they delinquent? Does PHA have any of its facilities, either multi-unit -- let's talk about multi-unit. Are their bills delinquent? Are they behind in any of their payments that we know of?

Councilman, on the matter of the payments from PHA to us, we have over time worked out a very efficient method for recovery of cost from PHA directly.

So they're not in that pool of, for lack of a better word, which we are referring to as the deadbeats? They're paying their bills pretty much on time, regularly?

Yes. PHA is, in fact, paying its bill regularly. 21 04/07/04 - FINANCE- BILL 040153

What about PHA scattered sites?

We have more difficultly with the scattered sites.

Can anyone quantify what that number may be on the number of PHA scattered sites and the people who live in those units about who is paying and who is not paying?

We have some statistics and we can provide those for you for the record.

That would be very helpful. I do have some other questions relating to the medical questions that I asked the other day, and your written testimony, which I didn't get until an hour or so ago. I really haven't had that much time to go through it. So if anybody else has any questions on the heating stuff and delinquent payments, I'll hold off on these until that time.

Let me note 22 04/07/04 - FINANCE- BILL 040153 that the President is here, President Verna. And I'm trying to call and get clarification, so I'll defer to my colleagues for their questions.

I have a quick question on the collection aspect. As Chairlady referred to, it's hard not to hear Mr. Clark's voice, particularly on radio. But my question is we have some process to go through now that we started the campaign. A lot of people have asked me why we didn't start it earlier so that we'd be at the end of the process part when we were permitted to do the shutoffs rather than waiting until the beginning of the shutoff period before we start the process. That has some elements to it that take some time.

Councilman, we did. It's a question of degree, not of time. What we did do is we started the process mid-March. Understand, we can't turn people off physically until the end of month.

That's the end of March? 23 04/07/04 - FINANCE- BILL 040153

End of March, April 1. Now, the other part of that is that we try to get sort of the bulk of them out, but we cannot physically process all of them at once. So what we do then is we try to spill that a little bit out over the first several weeks of April. But by the second or third week of this month, we will have everybody in the works. In other words, they are then subject to five separate steps of notification, and then a shutoff if they haven't come in those five steps of notification to make an agreement or to make a payment.

It's my very point. If there's five or six steps of notification, why would you be completing them around April 1st rather than beginning them?

It's a PUC set requirement. So we were prepared to shut people off the 1st of April when we notified them 10 days ahead. We started that process. A lot of them were eligible for turn off immediately. But we cannot process them all 24 04/07/04 - FINANCE- BILL 040153 at once. We spread that out over a couple weeks. That's the only issue. Ideally, everything would drop in place on April 1st. Can the phones handle it? No. Can we process the payments effectively in that reduced period of time? The answer is, it's very hard.

When will your catch-up period be?

As I said, we are fully in place in the first two weeks in April.

So it would be soon?

Oh, absolutely. We have no interest in delaying this process at all. We are right on top of it.

I hope the Chair won't mind if I actually ask a Capital Budget question. It's so hard to stay off the operating side with collections and everything. But the bill before us is the Capital Budget. I want to give you one more 25 04/07/04 - FINANCE- BILL 040153 on the collections. I'm told that there are about $10 million worth of payroll involved in collections of PGW, the staff that are doing collections. Does that sound right?

It wouldn't be collections. It would be our entire customer service area.

It's not accounts receivable and collections?

We have what's called our customer service department, and that includes the phone center, our back office, paper processing, mail receipts. And then on the collection side we have a full phone collection effort and a full back office, as it were, collection effort as well. That together may total --

Give me a ballpark on how you spend internally as opposed to your outsourcing of your collections.

On collections alone? It's hard to say because we shift the burdens 04/07/04 - FINANCE- BILL 040153 between our customer service areas.

I'm told you spend $10 million and get $2 million back.

No. No. No. 6

It's kind of a far cry from one to the other. If you can give me some idea of what that effort costs and what it produces, because somewhere you have to be able to figure out internally where you're picking from other areas that do other things. How much of their time is allocated to collections?

This isn't a simple process, because by maintaining our collection function, we put pressure on all of our customers to pay their bills. So whether they are directly touched by our collection effort or whether they just know that we're there and ready to dun them or to turn them off when the time comes, they pay their bills. So there's a direct and an indirect involvement with our collection department. It's not $10 million. I'd have to get you the number, but it's substantially less than $10 million simply for 27 04/07/04 - FINANCE- BILL 040153 the collection effort itself.

We have four outside collection companies that we use right now?

We have four firms that we have contracted with to essentially -- once we've written paper off or we have final billed paper, final billed our bills, we give it to them to collect. Yes.

Do you do any of that yourself?

That piece we don't do because we found it more effective for us for outside firms to do that.

If you don't have it at your fingertips, I'll understand. The names of the companies you have, can you give us that now and then maybe the next time you'll turn it in to us at some point? Meaning, what I really want to know is how much we pay them and how much they collect.

I can give you that. I don't have --

Who are the 28 04/07/04 - FINANCE- BILL 040153 four companies?

I don't have the information right now.

Is there somebody here who can tell us the four companies?

No. My vice president for customer service didn't show today, so I don't know. I'd have to get it for you. And we have a straight analysis showing how much paper we've placed with them and how much they're collecting.

We have two very effective ones and two very ineffective ones?

No. If they're ineffective, we don't use them again.

On the Capital Budget, what is in essence last year's Capital Budget, the one that should have been approved before July 1st?

That's the one before of you now.

That's what's 29 04/07/04 - FINANCE- BILL 040153 in front of us now. How much have you already spent of what you're asking us to approve?

Well, the bulk of our investment is still in front of us for the year.

I didn't ask you that.

I understand. I'm trying to remember. Subject to check -- and I'll confirm this to you -- I think we would have spent by March, out of the 65 or so 13 that's in this budget. 14

I have a 15 question I'm going to ask. The President is 16 here. The Finance Chair is somewhere in the 17 room. It would seem to me that if this were 18 the City Administration sitting in front of us 19 telling us that even though we haven't 20 approved the Capital Budget yet, they had 21 spent one third of it, we'd be turning the 22 tables over up here. I don't see any 23 difference when it's PGW doing the same thing. 24 We have to approve the Capital Budget. We 25 haven't approved it, and a third of it has 30 04/07/04 - FINANCE- BILL 040153 already been spent. There's such a great disconnect here that I have trouble even believing it. Can you explain how this happens?

Well, I think it had its origins about years ago when the 8 budgets were handled separately and the 9 Capital Budget was brought in the spring time 10 for resolution before Council adjourned. I'm not exactly clear what happened, but a judgment was made that it was better for PGW to have the Operating and the Capital Budget dealt with at the same time because so much of what we do is interlaced. A process with the Gas Commission evolved where we had and were granted, we thought legitimately and I think they thought legitimately, some kind of continuing spending authority in the absence of formal authority from the Council on our Capital Budget. That process continued for a period of time, for 10 years at least. And we have been informed that that is not acceptable. And we are now preparing our Capital Budget for submission to 31 04/07/04 - FINANCE- BILL 040153 the Gas Commission and to you for resolution 3 prior to your adjournment this year.

I mean, if $25 million has already been spent, you can't get it back. But you will agree from this point on not to spend any Capital money that hasn't been approved by the Council?

Well, if you --

I'm not just talking about the upcoming '05 Fiscal Year, I'm talking about the remainder of '04.

In concept, absolutely. There's some mechanical issues here with things that have already been committed to. But we desperately need the approval of this City Council on this matter immediately. We have pipe that absolutely must go in the ground for safety and reliability purposes.

We're going to leave this hearing and go right into the Capital Budget for the City's '05. We haven't approved your '05 yet. Can you emphatically 32 04/07/04 - FINANCE- BILL 040153 state that until your '05 budget is approved, no money from that '05 budget will be spent?

That I can commit to, yes.

Can you send that to the President and the Chair of the Committee in writing? I'd appreciate that before I have to vote on this bill in final passage. I think we'll probably vote it out today. Some traditions have to change. I don't think there's any question about it.

Councilman, we are absolutely on board with doing it appropriately and doing it according to law. We understood that we were okay with the continuing spending authority. Since we're not, obviously, we have to change the process.

So you will put it in writing?

Yes.

Mr. Knudsen, how many people do you have in your PR department, and what is the budget for that department? 33 04/07/04 - FINANCE- BILL 040153

We have three.

How many did you have last year?

It's been about the same. Since we restructured the company and downsized most of the departments --

What is the budget for that unit?

Something like $150,000. Just recognize that we do all of our own artwork. We do all of our own placement.

Is that $150,000 for three people?

That's about right, yes. That includes benefits.

That can't be right.

The Chair recognizes Councilman Rizzo.

Councilman, I've misspoken. I think we're going to have to get you the appropriate number.

Mr. Knudsen, you 34 04/07/04 - FINANCE- BILL 040153 just said something that got my attention. We've been talking about the company restructuring and doing things differently. Do you think it's appropriate that you're doing your own art work? Do you really believe that there isn't a better way to out-source some of that stuff?

Councilman, we have a very effective art person and we save a great deal of money, a great deal of money, doing it inside. Mr. Clark would be happy to answer your questions, I'm sure.

Thank you, Madam Chair. I hope you heard my question.

Yes, I did.

You are going to get the information to the President and the Chair on the collection firms, costs and recovery?

Yes. I'm sorry, Madam President, to pull you away from the conversation. We'll get you the budget and the numbers of the full-time 35 04/07/04 - FINANCE- BILL 040153 equivalents and what we spend our money on. This is also an area that we've looked at.

Do the three people represent a company or are they just employed individually or independently?

We have three people on payroll at PGW doing our public relations communications efforts. This is all of our internal organs, with the magazine that we have inside, it's the bill stuffers, it's the Get Good Gas News. All of that is done inside. We do have an advertising budget in order to place our notices for changes of rates and so forth. We can give you an entire breakdown, and I think you will find that it's quite cost-effective.

Thank you. Mr. Knudsen, I believe that last you testified you stated that PGW is $1 billion in debt. And I believe that was the same figure, or we're being told that it was the same figure used in October of 2000. The question is, could it be possible that there is not any dollars in debt that has been accrued since 36 04/07/04 - FINANCE- BILL 040153 2000?

I think my testimony was that it was $1.1 or $1.15 billion before. And, yes, there's been some growth in the debt since that time. But understand, we pay debt off regularly and we incur new debt. We did have earnings as well over that period of time. So, again, I can provide that information to you. But just for purposes of this discussion, our debt over the last several years has been around $1 to $1.1 billion.

Thank you, Madam President. Earlier when I asked about some statistics on the number of PHA scattered site customers, if you would include -- and you may intend to do that, but I'd like to make certain that you include the number of PHA customers, residential customers, and what percentage of those customers fall within the non-paying population, if you will.

Yes. I understood your question. 37 04/07/04 - FINANCE- BILL 040153

Another question I had, are you aware of the letter that was sent to Councilwoman Tasco from District Attorney Lynne Abraham?

I am not aware of it.

I received it yesterday, I believe. In it, the District Attorney raises a question about the shutoffs, and I will read the line where she says what Mr. Knudsen failed to say, again concerning shutoffs and the shutoff involving the PUC, is he failed to say -- and no one has, to my knowledge, put on the table -- is the fallacy of the statement about the PUC's position on shutoffs. Mr. Knudsen made his statement as if the PUC has the final word on this and other issues, when that is far from the case. From this question or comment, I'd like to hear from you who has the final say in shutoffs.

The PUC regulations are very specific, and we get fined when we are in variation with Chapter 56, which is the guiding legislation. The rules are very 38 04/07/04 - FINANCE- BILL 040153 specific about who may be shut off, under what conditions, after what amount of noticing. So we follow those to the letter in order that we don't take a financial penalty. That being said, obviously we shut people off. So we have notice for 130,000 potential shutoffs. We're in the what we call our credit and collection path, that's the five to six steps that people have to go through prior to being shut off. And when that is over and if they haven't paid, we shut them off. That is in accordance with the PUC requirements or guidelines.

Has PGW ever been in a position where shutoffs occurred and the PUC has ruled against those shutoffs, to the best of your knowledge?

Let me answer the question. The circumstance normally arises when we have shut someone off, they have appealed, what's called an either informal or formal appeal, to the PUC and the PUC has effectively required that we put somebody on that we might think they ought not. 39 04/07/04 - FINANCE- BILL 040153

So the PUC basically reversed the decision of PGW to turn off the service?

We would disagree over turning somebody on, but we follow the PUC requirements on that.

Has PGW ever filed an appeal to the Commonwealth Court or any other court in the Commonwealth to overturn what the PUC's decision to overturn your decision was in the first place?

Let me just check, Councilman. Again, if I'm not correct, I'll submit something to the record. We have appealed some of these decisions to the PUC itself. We have not gone beyond the PUC to the courts. Other people in the state have, and we rely on the precedence of other utilities. I'll give you a case in point. Recently, PECO got a ruling from the PUC that there should be only one agreement per customer per violation. We're relying on the PECO determination here as precedent for us. 40 04/07/04 - FINANCE- BILL 040153 So I'm sure at some point one of our decisions before the PUC will be precedent for others.

I appreciate the report on the questions I have concerning the medical unit. As I said earlier, I really didn't get a chance to go through this at all in any thoroughness. I do have a question, though. On , workforce qualifications, where the medical unit performs disability evaluations. Is the employee mandated to come through that process or can they opt to go to a private physician or their family physician?

Just a second. Forgive me. I don't know the answer to that.

I think that would be helpful for us. I understand, from what I was able to glean from your report here, some of the savings by being able to do it in-house. I'm not suggesting at all that it doesn't make sense, but I'm just curious. If I'm an employee and I'm not mandated to go through that process, I choose an outside, so what do I need that doctor for? 41 04/07/04 - FINANCE- BILL 040153

Well, understand, we like to have things confirmed as well, so...

Again, on of your testimony, you outline present structure and alternative structure. Do I take alternative structure to mean out-house and not in-house? I'm not sure of that. What does that mean?

I'm sorry. Could you read the context?

On your testimony, you give us a financial breakout of the cost of the nurses, the doctors, et cetera. Present structure versus alternative structure. What is alternative?

The alternative was a proposed outsourcing, that's correct.

I thought so. I just wanted to be clear on that as well. There's really no difference in your estimation, there's no real savings, it's basically dead even?

Well, in that regard, it is. But I think also at the end of page -- 42 04/07/04 - FINANCE- BILL 040153 I think it's on -- where we indicate a dozen or so additional issues that haven't been quantified.

Again, I quickly tried to read this as I was walking up from my office to this meeting.

I apologize.

I do apologize also.

We tried to make it as thorough as we could for you.

And I think it is thorough and I'll have some more time to go through it in the next couple of days. On a totally different issue -- and I think this comes up just about every year -- the number of vehicles in the PGW fleet, my real concern is for those vehicles that are non-essential vehicles to the operation of PGW. I'm not talking about maintenance trucks, emergency vehicles, what-have-you. I'd like to have some information on those vehicles and the number of people who are permitted to take those vehicles at home and 43 04/07/04 - FINANCE- BILL 040153 the rationale for that. And does the fuel, the gas that operates these vehicles, does that come from a fuel depot that you have or do they go to a City installation?

It's from our fuel depot.

You have many, or one?

Basically, the one at the headquarters at Ninth and Montgomery.

Is it the system that we now have with the City with the computerized system that has the chip in it and all that stuff that better monitors that?

That's correct. We just had a major review of this at the Gas Commission and we have also committed at the Gas Commission to a whole fleet evaluation. We're looking at this entire area constantly and we'll be making some additional changes soon.

You may have read in the paper about the Philly Car Share 44 04/07/04 - FINANCE- BILL 040153 Program that the City is now involved with. I've been involved with that group for a couple years now. I've actually helped get them some grant money. I think it's something, if you haven't already decided, you might want to look into. Some people wonder if they're paying for someone to be able to take a vehicle that belongs to PGW. It's like for personal use. That's not job related.

This is our concern as well. We do have requirements that people on call be able to get to an Ogontz situation as quickly as possible. It's not only people on duty at that time, but others come when there's an accident of that nature, and that's really what some of this is designed to provide for. But there's no question, this always has to be evaluated and we're doing that.

And I understand that you need certain personnel at emergency times to be at a location, and I can appreciate that. I guess my concern is -- because I think I may have raised these same 45 04/07/04 - FINANCE- BILL 040153 concerns over the last few years -- is that that same person could get from their home to that site in their personal vehicle and it may be less expensive to reimburse them for the fuel. I worked for PennDOT many, many years ago as a construction inspector, and I was given mileage, cents a mile, I think it 10 was, and then a dollar for every hour I was on 11 the road, which could be less expensive than 12 having that vehicle, insuring the vehicle, 13 purchasing the vehicle, maintaining the 14 vehicle. And again, I'm not talking about 15 vehicles that are necessary to deal with the 16 emergency at hand, the truck with the equipment in it that is necessary to shut the gas off and do whatever else that has to be done; I'm just talking about an employee who is a supervisor, as an example, goes from point A, which is his or her home, to point B for the purpose of that emergency or whatever other normal business, for that matter. Putting emergencies aside, that has to be very, very expensive. 46 04/07/04 - FINANCE- BILL 040153

It is and we're looking into that. I think your observations are well taken.

Mr. Knudsen, I think you know that I'm not one to go for anyone's jugular vein, but we have been talking about this for about as long as I've been in City Council and we keep hearing, we're working on this.

We have been shrinking the fleet consistently. Your criticism is heard.

Thank you. I have no further questions at this time.

Thank you.

The Chair notes that Councilman Mariano is here as well. To get back to this whole issue -- we did have a bit of a sidebar. And the issue for PHA becomes -- they said in the last several years, in five years it cost them $2 million, and that the issue is that PHA be charged the municipal or residential rate and 47 04/07/04 - FINANCE- BILL 040153 not the commercial rate. These are low income people. And we are requesting that you find some way to help drive their request with the PUC and to put it forward and to consider that this client base are low income people. I don't even know how we ended charging PHA customers more. It just really doesn't make sense to me.

This is just on the multi-family dwelling. We're not talking about the scattered sites.

We're talking about PHA accounts. PHA pays a different rate than other customers. They pay a PHA rate and their rate is a commercial rate. They're PHA, so they should pay a residential or a municipal rate and not a commercial rate.

Again, Madam Chair, if I may. Point of information. There are two -- and maybe more than two, but at least two that I'm thinking of, customers that we're talking about. We have the PHA who resides in the scattered site, 48 04/07/04 - FINANCE- BILL 040153 single family home, that pays residential rate; is that correct?

That's correct.

So I think what the Chair is speaking to is the PHA customer who is in a highrise, multi-family unit where PHA is paying commercial rate. They're two different, distinct issues.

That is correct. I will get back to the Chair on this question and we'll clarify with PHA so that we're absolutely on the same page. I don't want any confusion on this.

In fact, the highrises, PHA has tried to do away with highrises. So the highrises are generally the older buildings. They don't want to pay more for highrises than people don't want to live in them, if they have to move into a new brand-new unit like the Lucien E. Blackwell Homes or some other place like that. However, it just doesn't make sense to me to have a PHA tenant pay a commercial rate. It just doesn't make sense. And I'm 49 04/07/04 - FINANCE- BILL 040153 not saying that it started with you. Obviously, it didn't. It started before that. But we're here now and we want to try to rectify it and we need your help to do so. This whole issue of somebody paying more, it doesn't make sense because the customers don't have anything. So their rent is based on what their utilities cost too. So ultimately it still comes back to the tenant, one of those 80,000 people who live in PHA. We would like your assurances that if it has to go to the PUC, that you will put forward the argument -- the question, maybe, is a better word -- of PHA paying municipal or residential rates for these customers.

We will assist PHA in making their application.

We want you all to lead it. I don't want PHA to assist it because I don't know if they know. I mean, you all are the gas company. So we need you to put forward the argument and they'll do whatever it is they need to to support it, to legally support it. 50 04/07/04 - FINANCE- BILL 040153

We can do that.

Thank you. Questions from my colleagues? President Verna.

Thank you. Mr. Knudsen, I'm referring again to the District Attorney's letter.

Do you want a copy of that?

Yes.

She indicates, "Mr. Knudsen never denied that this 'new surcharge' proposal is not new at all, and that in fact ratepayers are already being surcharged for those who don't pay." I would like your comments on that, please.

This surcharge is new. Up until now we have only had base rate proceedings, firm cost proceedings. Within our base rates are now locked in several provisions: Bad debt, which is part of the conversation that we're having right now, this has now changed; Conservation; And as Mr. 51 04/07/04 - FINANCE- BILL 040153 White clarified for me, the structure of the Senior Citizen Discount flows through a new kind of surcharge that came with restructuring. But it is essentially a base rate proceeding. The difference between this proposal and what is in base rates right now or what is billed to customers is that this will not take effect if we're able to collect the money. We have no other provision like that in our tariffs. This is a brand-new idea. It's a new idea to Pennsylvania. It's not a new idea to some of the other states who have been struggling with these same issues and have come up with a flexible answer. So to answer Ms. Abraham's statement, it is a new proposal of a new mechanism that is flexible and is not fixed. That's what's different about it.

We're just having a sidebar.

Isn't there about 20 or percent of what gas customers 25 pay today, before any talk about a surcharge, 52 04/07/04 - FINANCE- BILL 040153 I'm talking about the approved rate, that pays for other people's gas?

It's not that high. It's about percent, percent. That's the 6 bad debt plus what's called the universal 7 service charges, which are CRP, Senior Citizen 8 Discount, conservation. 9

How much of it 10 is paying for people that don't pay, not 11 conservation, not Senior Discount, 12 percentage-wise? 13

Eight or nine percent. 14

So about half 15 of the number you mentioned? 16

That's correct. 17

And what 18 percentage is the surcharge asking for? 19

If we were to get the entire surcharge, about 5 percent, 4 percent.

So about 50 percent of it is already being charged to the base rate?

Well, we would go from 18 to, say, 22 percent. 53 04/07/04 - FINANCE- BILL 040153

I just think most people don't realize that are hitting the ceiling, that are feeling their nerves being frayed by PGW, don't realize that they're already paying twice as much today as they're being asked for to pay additionally tomorrow if the surcharge were to go through for other people's bills. And I know that's how the system has to work, but I don't think people realize how much of that bill every month is for that. Everybody expects it to be something, but they expect it to be something very low.

So in essence, Councilman, this is not a new proposal. It's an existing proposal.

It's the old proposal in a new form.

So they're just giving it a different name.

It's what we experienced, to some extent, in cable TV when they made them unbundle the charges. And when you found out that you were also paying for 54 04/07/04 - FINANCE- BILL 040153 the box, the remote and a whole bunch of other things, which originally had been just a part of your monthly thing, then people starting calling. "Why am I paying for this? Why am I paying for that?" Well, you were always paying for it. We just gave it a new name.

At the Water Department years ago we split the bill, water usage, service charge. People went ballistic. They didn't realize how much they were paying for service. It was already being paid, but it wasn't split up. Maybe we should have it split out so people know.

Where are we on commercial accounts? Are they all paid up, commercial and other accounts?

No. We have an ongoing collection effort with our commercial accounts as well.

Well, how come everybody tells the poor residential customer, you're paying for your neighbor and nobody talks about the commercial accounts? I said it at our last hearing. Nobody says to a 55 04/07/04 - FINANCE- BILL 040153 commercial account, if you employ one person you could be paying for a business who employs 50 people. Nobody talks about business accounts. Everybody says that some poor little old lady is paying for somebody or a senior is paying for a woman with a houseful of kids. The whole argument is very unfair and it pits poor people against poor people or people who are average wage earners against other average wage earners. It's not fair. I think it's an unfair argument and I don't think you can make it, at least until you give us a full picture. Let's help everybody who owes gas and talk about who owes and then we can have a legitimate question. But to be all over the place blaming one neighbor for another neighbor is not fair. I think it's wrong. I think it's immoral. I think it's unfair, absolutely unfair, to just tell the residential customer, you're paying for the next one. Well, give us some numbers on the commercial stuff.

About 10 percent of 56 04/07/04 - FINANCE- BILL 040153 the problem is commercial.

So how much is that? About percent? So you're saying 5 90 percent of it is residential? 6

90 percent of it is 7 residential. 8

So what 9 does that mean to us in dollars? 10

Well, if we're talking $150 million, $135 is residential related and $15 million is commercial related.

Is the delinquency rate the same, though, for commercial and residential?

It's about percent. 17 Again, these are numbers I don't have right at 18 my fingertip. We can get you a schedule that 19 shows exactly what the relevant contributions 20 are to the problem. It's a substantial 21 contribution. 22

I thought you 23 said last week or the week before when we were 24 sitting here that commercial delinquencies, 25 forgetting what percentage they are of the 57 04/07/04 - FINANCE- BILL 040153 total, were just as poor as residential delinquencies.

What I said was that a lot of these delinquencies are of two kinds. One, they are very small businesses that are on margins; pizza shops, dry cleaners, those kinds of establishments. And there are also rental buildings fitting within -- just as the PHA has a commercial rate, small multiple-unit dwellings are commercial customers. We have a substantial problem with some of those as commercial customers.

You just mentioned two businesses that we all have in our districts and are all over the City, that when one moves out, the other moves in right away. There aren't any vacant dry cleaners. There aren't any vacant pizza shops. And landlords who are crying poor in this market are just using you as a bank. That's my suggestion.

Councilman, the people who move out are our problems. It isn't the ones who move in. 58 04/07/04 - FINANCE- BILL 040153

Once that happens, the landlord should be responsible for the utilities.

Well, that is a proposal that we would like Council to consider.

Give it to us.

Okay. You will have it.

We have had some issues where a person says they moved, a person or business, and that they called in and then they're told, well, the utility says they didn't get the call and then they're charged an exorbitant amount and they're stuck. So I think that we have to be careful when we talk about doing that. Also, if commercial accounts have a commercial rate, which is obviously higher than a residential municipal rate, where does that affect all of this about what they owe? Is it that you are more apt to shut off commercial accounts or are you more aggressive in contacting them? 59 04/07/04 - FINANCE- BILL 040153

We have issues turning off multiple units. There are renters in the units and so there's a whole other legal set of restrictions on us. That's what makes shutting off some of these accounts difficult because when you shut them off, you're shutting off people in their homes and that's what we don't do.

Who may be paying the rent on time.

Who may be paying the rent.

But the landlord or the owner who isn't paying his or her bills.

The landlord may not be paying us, but the renter is paying the landlord.

Yes, Councilman?

Coming from a utility background, don't tell me that you've never heard that there's a process where you approach the people that are the tenants and 60 04/07/04 - FINANCE- BILL 040153 the tenants at some point start paying the bill? There is a process where you can turn the service off, negotiate with the tenants in the building and they start paying for the usage from at least some point forward and then the landlord is responsible for the debt. Am I correct that there is a process like that?

There is a process. Councilman, could I have Mr. Hershey respond, if he might? This is Steve Hershey. He's our Vice President For Community Initiatives.

Councilman, you're referring to the Utility Services Tenants Rights Act, which does provide a mechanism and a whole set of requirements on the utility. The way that works is that the utility, prior to shut off, must post a notice on the building and give tenants the opportunity to organize as a group, then approach the utility and agree to pay the utility bills from that date going forward. It's an Act which sounds wonderful in theory, but, in fact, is very 61 04/07/04 - FINANCE- BILL 040153 cumbersome and not terribly workable from the perspective of the tenants. It has worked on occasion. I know that PGW has worked, for example, directly with the Tenants Action Group to assist tenants. And within the last month, I personally had conversations with the Tenants Action Group to try to organize other mechanisms that go even further than the Act that we've referred to. The Act has not been an overwhelming success for tenants, and it's very difficult to work.

Well, I recollect PECO Energy was very successful in making that work, so I don't know why it would work for an electric utility and not a gas utility. I'm curious, how many times have you pulled the trigger on that process on multi-apartment complexes? In other words, do you ever try to do it? Again, that's an example of not using all the tools of the trade to collect your money. I mean, just to allow the debt to continue and continue, at least you're 62 04/07/04 - FINANCE- BILL 040153 collecting the money going forward. It just sounds like you're not using some of the authority that you have through the PUC. I believe that's a PUC process, the posting, et cetera.

Councilman, in response to that, I can tell you that during the years that I worked at Community Legal 10 Services as an energy attorney and 11 coordinating with the Housing people 12 representing Tenants Action Group and other 13 community organizations, the difficulties that 14 I've cited with implementing that Act were 15 uniform for all utilities that were subject to 16 the Act in this City. 17 The success and ability to implement 18 that and make it work so that the tenants 19 organized varies from building to building, 20 landlord to landlord, year to year. It 21 depends on who's in the building, how many 22 tenants there are, how well those tenants get along with each other. There are certainly some success stories.

Thank you. 63 04/07/04 - FINANCE- BILL 040153 Thank you, Madam Chair.

Thank you. The Chair notes that Councilwoman Blondell Reynolds Brown is here as well. Getting back to that very issue that Councilman Rizzo discussed, you have slum landlords and landlords who don't pay where tenants end up in an escrow rent thing under that kind of system. So generally, if they're not paying the utilities, they're not taking care of tenants, and tenants have the right to escrow their rent and place their rent with the escrow agent. That is acceptable. I mean, that's a process that's open to anybody. The tenants still pays, but that happens anywhere where you end up with an irresponsible or a bad landlord, one who won't keep up repairs and that sort of thing. That's a process, period. Whenever there's a problem, tenants have rights. Sure, they do have a right to escrow their rent and they end up with utility problems and all of that, but that is what it is. You know, you do what you have to do if 64 04/07/04 - FINANCE- BILL 040153 you end up with a slum landlord who won't do that. It's always a lot of work and a lot of meetings and a lot of everything, but that is what it is. It still seems to me that we have different standards for different people. PHA pays in advance, pays on time, and yet they're put in a business account status. I don't agree with that. I don't think it's fair. And it seems to me that we don't have uniform standards for all. It looks to me like we don't have fair standards for all, and that's my concern. Councilman DiCicco.

Thank you, Madam Chair. My final question. In the pool of people, I think it was 130 or 135,000 people who fall into that category of delinquent, default, what-have-you?

Qualifying for shutoff.

How many of those customers have received shutoff notices? 65 04/07/04 - FINANCE- BILL 040153

I would say based on what I know about the timing of this, a vast majority have already. And we will be notifying the remainder over the next week or so.

Of those that have already been given shutoff notices, how many of those actually have had a shutoff occur?

I'd have to get you that because it's changing by the day. In some respects, we have just begun the actual turnoff because we are restricted -- for example, we can't turn off today because tomorrow is a holiday. I can get you that number. We have started to shut them off. Mr. Clark tells me 50,000 of the 130,000 have been notified and we are shutting off 4,500 a week.

You are doing it? You are shutting off?

Yes.

The Chair recognizes Councilman Nutter. 66 04/07/04 - FINANCE- BILL 040153

Thank you, Madam Chair. Mr. Knudsen, at a previous hearing, maybe it was two weeks ago now, either in Finance or in Transportation and Public Utilities where we had back-to-back hearings, I asked you about the longer-term prospect of the company and its current operations, and more a statement than a question, that at least from my perspective we can't continue to run PGW the way that it has been. This is not a commentary on your leadership at the company. It's really more about the financial situation that the company finds itself in, the inability to control some factors that affect the company and whatever its ability is to control other factors that should be within its control. Earlier today in the Fiscal Stability hearing, I formally asked the Finance Director, Ms. Davis, and the Mayor's Chief of Staff, Ms. Wilkerson, to look into utilizing both the PFMC Board, the financial advisors for PGW, the Finance Office, and the 67 04/07/04 - FINANCE- BILL 040153 prospect of any other advisory consultants to come back to us with a plan of options that would show both the financial and managerial turnaround within the next three to five years, taking into account the social issues that we're faced with because the easier or even less brilliant options would be, well, why don't we just get out of the business. We could turn it over to someone else, take it back into the City. But I don't necessarily know that that option serves all of our interests. It's not in our interest to have people without gas. It's not in our interest to have people forced out of their homes because they don't have gas because now we're going to run the company in a particular way. So how do you deal with the social cost issues and other goals that we have as a humane government, the financial impact to the City of Philadelphia, the potential loss of the $18 million, the potential non-repayment of the $45 million, a billion dollars in debt that the company is having, the employees who 68 04/07/04 - FINANCE- BILL 040153 have their own union, their own pension plan, their own work rules, and a whole series of issues? So now I'd like to formally ask you if you would join in with the Director of Finance and the Mayor's Chief of Staff in a cooperative effort to try to get an answer to the question. What I posed to you two weeks ago is that we can't continue to do what we do. Today, the conversation was, why are we in this business as a municipal government? And comparing Philadelphia to places like Pittsburgh, Boston, New York or other major cities in the northeast corridor who are faced with the same climate issues, variations in gas prices -- most of whom I believe are not owners of gas companies or gas utilities -- how do they insure that their citizens are not forced out of their homes or dying in the street or have all of these other scenarios? Can you give your perspective on your participation in such an effort to get to these issues? 69 04/07/04 - FINANCE- BILL 040153

Councilman, I'd be pleased to join that kind of an effort. It certainly is the single most important question before PGW right now. I'd be pleased to join that effort.

I greatly appreciate it. Now, you may have responded to this earlier. I know you made reference to $150 million in response to one of my colleague's questions. Unfortunately, I didn't hear the question. I only heard the answer. What's the $150 million that you were responding to? You said it was 135 for residential and 15 for commercial.

At about percent or 18 20 percent of our total revenues or our total 19 costs, we have a transference from those who pay to those who don't pay. I was using the example of $150 million. I was indicating that about 10 percent of the problem that we have is of a commercial nature and 90 percent or so is residential.

Let's run 70 04/07/04 - FINANCE- BILL 040153 through some numbers. What are your total revenues?

Approximately $800 million.

And what is the split of the 800 between commercial and residential?

It's about $40 million commercial and the balance is residential.

Forty million commercial?

Yes. I'm going to confirm all of these, but for purposes of conversation --

Are there any industry standards on -- I mean, that seems to be a tremendously disproportionate relationship. Or is that the norm?

No. No. No. Going back to your earlier question of what cities have in terms of revenue bases, most of the investor-owned utilities for these large metropolitan areas incorporate substantial industrial, large commercial, as well as 71 04/07/04 - FINANCE- BILL 040153 residential, both suburban and urban. And therefore, they are able to absorb some of the social issues, social costs that we cannot. Our commercial and industrial load is relatively quite small relative to some of the other utilities. There's just no question of that.

Why is that?

Because we don't have gas consuming industries left in Philadelphia. We have about 500 major consumers of our interruptible rate, and the rest of them are small commercials, as we've just been talking, which are largely small establishments or landlord/tenant situations.

Forgive my lack of information on this area, but how are all these larger commercial or industrial entities heating their buildings?

They may be using gas, but there aren't that many, is my point. Relative to the size of the residential load, we provide the heat for 80 percent of the residential customers of Philadelphia. 72 04/07/04 - FINANCE- BILL 040153

In terms of bills, what's the outstanding at the moment uncollected revenue for the company?

Our net receivable right now is about $260 million coming off the winter. Understand that that will fall now as we come through May and June.

Because?

Because people are now paying bills. They're paying their February, March bills in April, May, June.

Because the moratorium has ended?

No. But people who incurred their costs in March are billed on the 1st of April. They have until the end of April.

But you've got 260 outstanding right now?

That's right.

What again would you estimate the split to be on the 260 between residential and commercial?

I don't know offhand 73 04/07/04 - FINANCE- BILL 040153 right now. I haven't looked at the numbers.

In your testimony from last week, my recollection is that you're now saying that you went from 92 percent collectable on the dollar to 87?

A little less than 87, yes.

And what's the split again between residential and commercial customers in terms of percentage of paying?

There the problem is about 10 percent of the problem. Presumably out of that 5 percentage points, a half a percent would be commercial.

So they're small?

Yes.

Now, I don't want to reopen this discussion, so just give me the really short version of the answer. Why is PHA on a commercial rate?

It's not. The precedent for this was established some years ago when we had our rate case. There was no 74 04/07/04 - FINANCE- BILL 040153 intervention for PHA to change the way they were so designated and it simply came forward into our present tariff. As I've indicated to the Chairwoman we'd be happy to help PHA straighten out whatever it feels its inequities are right now. We can't do that alone. We have to go to the PUC to do that.

Now, the programs that we have, say the CRP -- what's that, Customer Responsibility Program?

Customer Responsibility Program, that's right.

And that is for low income --

Percentage of income program.

When you come in to get your service, does someone tell you about this program, that it exists, or do you just have to know that it exists and you ask someone about it? How does that work?

Well, there is both some notification through our customer 75 04/07/04 - FINANCE- BILL 040153 communications of one sort or another. But there's also, when people call in for an arrangement, the conversation quickly goes to income levels and then it can either go to a CRP discussion or it may go to a regular arrangement.

How do you determine whether someone is eligible for the program?

On the basis of the income information that's presented.

What do you have to present? Is this an in-person interview or over the phone?

Well, they have to come into one of our DOs to qualify. They have to bring appropriate documentation in.

What's a DO?

I'm sorry. District office.

Okay. So you come in. What information do you have to have?

Pay stubs, tax returns 76 04/07/04 - FINANCE- BILL 040153 if you have them, indications of social security, something that will establish your --

As the person conducting the interview, do they make the determination or does it go to someone else?

No. It would be determined between our customer service reps to take this information and act on it.

Then my last question will be -- go back to the start of this. Do you have any sense, Mr. Knudsen, on how long it would take to have this options plan put together that would give us, for lack of better words, a bit of a menu that we might be able to -- or series of options that we might be able to pick from in terms of putting in place a PGW that serves customers well, is functional, doesn't negatively impact the citizens or the City of Philadelphia financially?

We're in the midst right now of putting our budgets together in our Five-Year Plan. We can thread these 77 04/07/04 - FINANCE- BILL 040153 options on top of it, so I would say a matter of months. We can give you a quick look at something shorter, but something more comprehensive would take us a couple months yet.

I'd greatly appreciate it if you forward it to the Chair. As I said a couple weeks ago, I don't think we can just keep doing what we're doing.

I agree. And part of this discussion, I think, is a necessary one. And my proposed clause, I think, brought some of these problems to the floor and I'm glad of that.

Thank you. Thank you, Madam Chair.

Thank you. Councilman Rizzo.

Mr. Knudsen, I honestly, believe it or not, I really feel bad about having to have this exchange that we have. You just said something that makes me feel that you accept the comments that we make to you, so I don't really feel as bad as I 78 04/07/04 - FINANCE- BILL 040153 thought I would because it's tough for you to sit there and hear criticism. And some, it's justified; Most of it. What I wanted to ask you, can you describe any effort -- and I know three years ago -- I checked my notes -- I suggested that possibly your fleet management and the City Fleet Management talk. I checked with a person that I think is reliable in our Fleet Management and asked, was any significant effort made to really work together, to buy together, to pool resources. Can you just describe, using that as an example, of how many efforts have been made to really try to buy smart by combining buying power, to use Fleet Management to do some of the work that maybe you send out? Where are you with some of these joint efforts? Because I was told by Fleet Management -- again, a reliable source -- that they don't know of any effort ever to get together.

Mr. White is better prepared than I.

Councilman, the only 79 04/07/04 - FINANCE- BILL 040153 thing I can report back on that specific issue -- I believe you and I spoke about that at one of the affairs a couple of years ago, and I immediately asked our director of transportation, materials management and building services, Joanne Nunez (ph), to contact Reilly -- and I apologize. I can't remember --

He's deceased.

I understand that. Reilly and Joanne had a conversation on a number of fronts, and the feedback that I got was that they didn't see that there were synergies there that would really save money.

No synergies in fixings trucks?

Well, that's the response that I got. I didn't get into the details as to why that was decided by those two.

I just called Reilly and he said he never got a call.

I'm sorry neither of us can do that. But I can report that we did 80 04/07/04 - FINANCE- BILL 040153 have the contact. I just can't --

To save time, could we really sincerely revisit it? Because you have construction equipment. The City of Philadelphia, the Water Department has vehicles very similar to what you do. I'm not suggesting we collapse your vehicle maintenance, but I feel that both of you do hydraulics, that there's a way that you could get together and maybe both save some money. I know there's turf over there, and you've got to get beyond the turf.

We will certainly go back and look at it again.

I will call the Deputy Managing Director of Fleet Management, Jimmy Muller and ask him to -- how about if I start off by asking him to give you call?

That would be fine.

Thank you. Because both of you do a great job, and I think together you could even do a better one. That is an area that I think you would really do well. 81 04/07/04 - FINANCE- BILL 040153

Thank you, Councilman.

If it is acceptable to Members of the Committee, a recess is requested since we have to go back into further discussion requested around the cars issue that Councilman DiCicco raised, the PHA issue I raised and also the issue of where we are on the report, where we are with the issue of collecting money aggressively so that, hopefully, we don't have to do a surcharge. Councilman Cohen, you wanted to speak before we recessed?

Was there any discussion today about Tom Ferrick's column in the Inquirer? I was wondering what you thought about his analysis of the situation. He has a column this morning indicating that there's nothing new about the idea because basically it was built into every rate base, the factor of whether a certain number of people will not be paying their bills, paying their bills or paying them on time. So already customers are now paying for 82 04/07/04 - FINANCE- BILL 040153 the expected default of certain people, and that this seems to be a second level of payment by the good payers against those who could not pay.

Councilman, we just recently had that conversation, and I thought the piece of Mr. Ferrick's article that dealt with the substance of PGW's questions and issues was right on. Yes. In fact, in base rates as we just discussed there is a major provision for costs that are essentially transfers from those who pay to those who don't pay.

So you basically agree with his analysis that this would be a second level of payment by good paying customers to make up for those that are not good paying customers?

Yes.

Did you agree further with his final conclusion that the incident he referred to was an indication of mismanagement that he believed has existed at PGW a long, long time, long before your 83 04/07/04 - FINANCE- BILL 040153 involvement apparently?

Councilman, we take 1,750,000 calls a year. It is impossible for us to be perfect. So there will be incidences of -- regrettable incidences, I would say, of people who have a problem. But we try very hard to make sure that that is at the absolute minimum. I know of no utility that can deliver flawless service. In this instance, there was a customer who was unhappy, and I understand that.

Do you have any figures on the number of calls that the Philadelphia Electric Company, PECO, gets?

I don't know, sir. They're substantially larger than we, so I don't know, but I could call there and find out for you.

Because it would be interesting to see whether the level of calls is roughly equal, where they get more or we get more, and if so, why. I suspect that we may get more and I'm wondering why. And I'm wondering how our collection rate agrees 84 04/07/04 - FINANCE- BILL 040153 with that of PECO. Apparently, your statement last week was that the collection rate of PGW is about the same as the City of Philadelphia generally. Is that right?

You used a figure of or percent, or 88 cents on the dollar, 8 and I think the testimony was, if that was the 9 case for the City as a whole, then, yes, we 10 were consistent with that. 11

Do you think the 12 Water Department gets more service and more help in the City of Philadelphia than the gas?

I have no way of knowing, Councilman Cohen.

Have you ever tried to find out?

No. 19

Do you have any idea how you benefited -- for example, if the City of Philadelphia took over the Gas Works and you became like the Water Department, the Gas Department or a part of a utility department, do you have any thoughts on that matter? 85 04/07/04 - FINANCE- BILL 040153

Well, as I indicated to you in testimony last week, were that conversion to take place, the problems would be the same and the financial obligations would essentially remain. I don't know how you would pass to someone else the obligations for a billion dollars' worth of debt. So the essence of PGW would have to continue. It's gas through a pipe to a burner tip and a bill 11 that gets paid. That's the business. It's very simple.

Well, it's not really that simple, is it? Becasue you seem to be determined -- and the whole emphasis is the desire for PGW to be recognized by the Association Utilities. It seems to be very important for you and PGW to feel it's recognized as a utility rather than look at the problems as a municipal utility. Don't you think that your relation to the City taxpayers and City residents might be different than that of a for-profit utility? It's a different kind of utility. Because I gather you were very proud of the 86 04/07/04 - FINANCE- BILL 040153 fact that you believe that PGW's finally getting recognized as a utility and not as a City utility, but as a utility. That was somewhat troublesome because I don't know that it's Philadelphia business to run utilities. I know it is the business of Philadelphia to provide services. And in connection with providing services I think as a municipality, Philadelphia has a greater responsibility than a private company. Philadelphia has a responsibility as the owner to see that the needs of Philadelphians are met. Now, they may have a greater responsibility for the so-called social aspect of the rate. The fact that some people can't pay, the fact you have to have different rates for people in the lower income than a private utility may be concerned about because it essentially is a business, but this is much more than a business. And I'm wondering under those circumstances, what do we gain by being a separate utility or seeking recognition from other utilities? I don't think that's anything to be working toward. I think what 87 04/07/04 - FINANCE- BILL 040153 we want to work toward is that Philadelphians feel proud about having ownership of this Gas Works and finding a special good out of the fact that it's City-owned. And yet I felt you were rejecting that. You wanted to be recognized as a utility. That may be the reason why there are differences in the way in which the City treats employees who work for this so-called utility as against City workers. So I'm concerned that your emphasis on the utility recognition rather than on the acceptance of responsibility as a City-owned organization that you have a very special responsibility to the taxpayers of Philadelphia.

Well, let me directly answer that question. There is no question in my mind that this is a municipal utility, that we have special responsibilities to meet the needs of the citizen customer owners of this utility. That's very much in the forefront in my mind. Now, that being said, we operate in 88 04/07/04 - FINANCE- BILL 040153 a real world. We are part of the American Public Gas Association. We are the largest member of a group of 600 municipal utilities, and we work with this group, for example, on getting LIHEAP funding. We were able to use our offices with this group to bring some political pressure on Washington to get the amount of the potential appropriation increased from a billion eight or nine now to a potential 3.4 billion. It helps us to be part of an organization that can bring leverage on a group in Washington. That's the kind of connection that we look for as being members -- being a utility identified as a utilitya but in a municipal context with fellow or sister utilities across the country, sister and brother municipality utilities across the country.

Well, aren't there other municipal utilities, other municipalities that furnish gas services?

Yes.

Is there an association of those? 89 04/07/04 - FINANCE- BILL 040153

That's what I'm saying. That's the reference that I'm making. There are 600 municipal utilities of various sizes of which we are the largest.

Now, in your testimony last week, were you talking only of utilities that were municipal utilities when you indicated you were being recognized?

No. Again, we operate in the real world. As a utility, we have very specific requirements, federal requirements, local requirements. We are part of the State PUC function. They will not -- they deal with us as an identifiable utility of record with specific processes and procedures that they will oversee. Now, we are within the municipal structure which causes a lot of this -- it causes a lot of confusion with many of the groups in Harrisburg because they haven't dealt with somebody that looks like us, but we're trying to get through all that. But in those instances, it also helps us to be make common cause with some of the other 90 04/07/04 - FINANCE- BILL 040153 investor-owned utilities in Pennsylvania because our problems are the same and the administrators of these issues are the same for us all, and we would like some of these problems solved.

Are you in an executive position with PGW at the time the PUC took over control from the Gas Commission?

I was part of the administration of the PGW at the time which was July of 2000. I was not part of that group when the decision was made in 1999 to so do.

Because I think one of the real problem with the Gas Works is this separation that seems to exist between PGW and rest of the City. For example, the Mayor would not have as much a hands-off position on the operation of PGW if it's a separate municipal utility as you would have in guiding the rest of the departments. And it seems to me, even though I may frequently disagree with the Mayor, nonetheless I think it would be good if the same kind of concern 91 04/07/04 - FINANCE- BILL 040153 were expressed by this Mayor and other past mayors about PGW. It seems to me that mayors historically have taken advantage of the fact that they claim PGW is a separate company and therefore they don't need to worry about it as long as they get their $18 million for the Gneral Fund. And I wonder how that compares to the contribution the Water Department makes and why don't we get the same kind of sense about the Water Department. What's so different between the Water Department and the Gas Department that justifies the City owning and operating one and not the other?

Well, to answer the first part of your question, I don't remember in my years of exposure both as a 18 consultant to community legal services and then as an executive of this company, I don't remember an administration being more involved, more caring about where this company is headed and how it gets there than this Administration. Both Ms. Wilkerson and Ms. Davis sit our on our Board of Directors. We meet regularly. 92 04/07/04 - FINANCE- BILL 040153

Well, that's because your current financial position which has lasted the number of years you've been in it and probably for some period before you took over as Chief Executive Officer. You've been on life support all through the last four or five six years, haven't you?

Well, as you said to you at the outset of these hearings, were it not for that gas costs increased 300 percent of a three-year period, we were on target to deliver this utility into some state of solvency and we were going to be able to pay the 45 million off and keep paying million 16 and still not borrow ourselves blind. The 17 fact that bills for customers went up 60 18 percent over two years has laid us low, and that's why we're here. But to come back to your point about this Administration, whether we were in extremists or whatever word you want to use, this Administration has been very attentive to the needs and certainly responsive to any --

Other than in the 93 04/07/04 - FINANCE- BILL 040153 physician area?

Oh, absolutely. They're very supportive of all of our policies, whether it's the extent to which we putmains in the ground to how we treat our customers. They were very instrumental in the initial initiatives that we undertook to assure that customer service improved so materially as it did, very involved. We were meeting weekly for many months

If I may, gentleman. We still have to get to the rest of our Capital Budget hearings today. We are going to continue this discussion, if it's okay, Councilman. We did mention three issues that were raised: One being cars, one being PHA rate, and the other being the rate of money collected by the company in terms of the surcharge, which none of us really wants, but at any rate... So we would like to recess this subject to the call of the Chair. But the President is asking everybody stay put so that we can begin the rest of our hearing 94 04/07/04 - FINANCE- BILL 040153 immediately, our Capital hearing. (Council adjourned at 3:55 p.m.) - - - - 95 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, April 7, 2004, were reported fully and accurately by me, and that this is a correct transcript of the same. RE: COMMITTEE ON FINANCE _________________________ Lisa C. Bradley, RPR