The required pools that exist today, because of layoffs, yes.
This might be out there. But say Terry Gillen and I decide to open a machine shop down there, her and I go into business. We are going to make diesel engines, Terry and Rick's Diesel Engines -- we can call it Terry's Diesel Engines -- and we get to hire people. We can hire those people from Philadelphia?
We can hire people, hopefully, from Congresso, or from Councilwoman Miller or Councilman Nutter's district, who they have groups that do this sort of thing?
That's going to be there. And that's on the record. So if you lie 214 RESOLUTION 970801 to us, we come to get you later.
And your new hair style is not worth anything. All right? Thank you.
One other question, following up the question I raised with Mr. Hankowsky, with you, sir, before. In the event of a default by Kvaerner, and say we go through the various processes that you say are currently available when anybody is in default, who pays back, say, the HUD loans? Does HUD lose the money? Say nothing works, and you can't sell the property, you can't recover anything. Take my dismal view of what might happen. Is there any responsibility whatever by the city to make payments if Kvaerner fails to?
What do you mean 215 RESOLUTION 970801 "theoretical"? Lawyers get jittery as soon as you start talking about theoretical responsibility.
Again, I will be responsible. The HUD 108 program, which we have, I think, in various sessions discussed, there would be a first mortgage on the property by the HUD 108 loan. So one remedy is foreclosure, getting the asset and selling the asset. Kvaerner Philadelphia would be also a party to the Note, and we could go after the assets of Kvaerner Philadelphia. Then you reach the possibility that, yes, if there were -- if those remedies were inadequate, and the HUD 108 loan was still outstanding, and we couldn't pay it off any other way, HUD would have the right to subtract the annualized debt service on that loan from the annual CDBG allocation provided to the city. That's the case with all the 108 loans that are outstanding. This deal is no 24 different than any other deal.
But, see, the reason lawyers are cynics is, if everything goes well, you never have to worry whether there was an agreement or not. Everybody is happy. There is prosperity, you share it. The only time an agreement becomes important, and its contents and the small print become important, is if there are problems. If there are no problems, you forget the agreement. But if there are problems, is when people can get hurt. And that's the reason the small print worries lawyers, because that's when the agreement becomes important. I just think it is important -- it may well be a realistic thing that you have no 20 choice. It may well be that you choose to use the HUD loan 108 because it may be the best way of getting the necessary money. And then, in which case, you may have to accept the responsibility. But I just think, in fairness, every aspect ought to be told about these loans. So that 217 RESOLUTION 970801 if anything ever happened at any time in the future, you are not caught in the embarrassing position of not having made available all the information.
I am deeply concerned about that. And I think the Mayor is a very effective salesperson. I have never seen anybody that -- he could sell the Brooklyn Bridge. I never found anybody else that I thought could sell the Brooklyn Bridge to somebody just off the boat, as we used to say. But I think the Mayor probably could. But to do it without giving all the information can, you know, cause a bounce-back. Thank you very much.
You know, you were honest. All of you were honest in the Convention Center, when you said that the city was going to have to each year make up any deficit that existed. We were the payers of last resort. You said that openly, you know. And the Council considered that, and decided that was a risk worth taking, for the gain 218 RESOLUTION 970801 that may come from it. I think it would be better if we got to be clean on every aspect of this. Because if you are not, then we worry about how many hidden traps are there that may bounce up in our faces at some point. Thank you, Madam Chair.
You are welcome. Are there any other questions from members of the committee? The committee will stand in recess for ten minutes.
That's fine. (Short recess.) (Council President Street resumes the Chair.) 219 RESOLUTION 970801
May I have your attention, please. If I could have the attention of all the Councilmembers. What I would like to do is discuss with you briefly the process that we will use to conclude the day's business. I think we are now convened as a Council Committee of the Whole. And what we would like to do right at this point is make sure that we have all of the testimony on the Kvaerner resolution 12 in the record. Is there anyone here who wishes to testify on Resolution 970801? Is there anyone here to wishes who testify on the Kvaerner Naval Business Center Tax Increment Financing District resolution? If there is no one, this will complete our Public Hearing on this resolution. But we also have in front of us Resolution 970806, which is a resolution approving an amendment to the Venture Agreement between Philadelphia Facilities Management Corporation and QST Energy, Inc. I need to know, is there any member 220 RESOLUTION 970801 of the public who is here to testify on this resolution? Is there any member of the public? Now, seeing no one, that means that the only people who are here to testify on this are officers of PGW and officers of QST. A recommendation has been made to me that we consider in a Public Meeting the Kvaerner resolution. And that we then recess the Committee of the Whole, start the Council session, have the presentations -- because there are people here for presentations -- and then recess the Council session, reconvene the Council Committee of the Whole, consider the QST/PGW resolution, and then go back into the Council session so that we then can consider the Council session. I would like to amend that recommendation by suggesting that when we reconvene, when we recess the Committee of the Whole and reconvene the Council session, that we consider in that early part of the session the Kvaerner resolution as a Council. And then that probably will allow all 221 RESOLUTION 970801 or most of our beloved media, who are with us waiting for this historic vote, to be able to go about their business. And so, out of consideration for them, I would recommend that we do that. Is there any member of Council that has any concern about the recommended procedure that we take? Is that all right? We will consider in a Public Meeting the Kvaerner resolution, recess the Council Committee of the Whole, have a caucus, come back, convene the Council session, do our presentations, consider the Kvaerner resolution, recess the Council session, reconvene the Council Committee of the Whole, consider the PGW/QST resolution in the Committee of the Whole, then report it out to the Council session, complete the Council session and the QST resolution, and go home. Is there anybody who misunderstands that, of the Councilmembers? I could do that in my sleep. Councilman Nutter.
Thank you, Mr. President. Just a timing question. 222 RESOLUTION 970801 What time do you think we will actually start the Council session?
I think we will start the Council session in about 30 minutes.
I think by the time we consider, which will only take a minute, but we consider the Kvaerner resolution, convene a caucus, and get back here for the Council session, it could be 20, 30 minutes. Any question about it? Does that meet with the approval of the body? The Chair recognizes Councilwoman Fernandez.
Just one other comment. I think, at least on other Thursdays, there is often a lot of time lost between caucus and coming back from the Public Meeting. And I think, I mean, I would find it very helpful if that did move. Because often a half hour goes by in between.
We will do the best we can. As soon as we get a quorum, we will 223 RESOLUTION 970801 proceed.
If there are no 5 further questions or comments, then this Committee of the Whole will stand in recess on Resolution No. 7 970806. We will end our Public Hearing on Bill No. 970801. (Public Hearing stands in recess.) - - - 224 COUNCIL OF THE CITY OF PHILADELPHIA PUBLIC MEETING of the COMMITTEE OF THE WHOLE - - - Thursday, December 1997 8 - - - 9 Public Meeting conducted by the Committee 10 of the Whole, held in Room 400, City Hall, 11 Philadelphia, Pennsylvania, on the above date, to consider action on the following: RESOLUTION 970801 - - - PRESENT: COUNCILMAN JOHN F. STREET, Chair COUNCILWOMAN ANNA C. VERNA, Vice-Chair COUNCILWOMAN HAPPY FERNANDEZ COUNCILMAN JAMES F. KENNEY COUNCILMAN W. THACHER LONGSTRETH COUNCILWOMAN AUGUSTA A. CLARK COUNCILMAN DAVID COHEN COUNCILMAN FRANK RIZZO COUNCILMAN ANGEL ORTIZ COUNCILMAN FRANK DiCICCO COUNCILWOMAN JANNIE L. BLACKWELL COUNCILMAN MICHAEL A. NUTTER COUNCILWOMAN JOAN L. KRAJEWSKI COUNCILMAN RICHARD T. MARIANO COUNCILWOMAN DONNA REED MILLER COUNCILWOMAN MARIAN B. TASCO COUNCILMAN BRIAN J. O'NEILL - - - 225 PUBLIC MEETING
We will now go into a Public Meeting on Resolution No. 970801. There was an amendment that was offered by the Mayor to that resolution. Does every member of Council have that amendment? Does any member of Council remember that amendment? It was made available. This is a resolution, an amendment to the resolution, on that reads as follows, delete "to execute an MBE/WBE program for the project similar to other programs for economic development projects in Philadelphia." That language will be out. The following language will be substituted for that language, "to implement an MBE/WBE program for the project, which will include good-faith goals for construction, subcontracting and construction employment similar to those in the MBE/WBE plan for the CoreStates Center, and good-faith efforts to include MBE/WBE firms in the operation of the shipyard and the supplier/subcontractor infrastructure." That's the new language that will be included in the exhibit. 226 PUBLIC MEETING Is there any question about that? The Chair recognizes Councilwoman Verna for a motion that the amendment be adopted. The Chair recognizes Councilwoman Tasco.
It is my understanding that design is included. I talked to Miss Hamilton. And, I mean, I think it is included. I don't have any reservations about doing that.
So that, okay, I think if we insert the word "design" between the words "goals" and "for" in the second line of the new language, that might do it for us. So it would read "to implement an MBE/WBE program for the project, which will include good-faith goals for design, for construction subcontracting and construction employment similar to those," et cetera, et cetera, et cetera. 227 PUBLIC MEETING Can we insert the word "design" in there by agreement? Is there any opposition to that? Then it is so ordered. The Chair recognizes Councilwoman Verna for a motion.
Thank you, Mr. Chairman. I move that the amendments as you have read be adopted. (Duly seconded.)
All in favor let it be known by saying aye. Those opposed say nay. The amendment is adopted. The Chair recognizes Councilwoman Verna for a motion on Resolution No. 970801, as amended.
Mr. Chairman, I move that Bill No. 970801 be reported out of committee with a favorable recommendation, as amended. (Duly seconded.)
All in favor let it be known by saying aye. 228 PUBLIC MEETING Those opposed say nay. The ayes have it. The Chair recognizes Councilman Nutter.
Thank you, Mr. President. I raise a question. On the resolution document that we received as amended, the two sheets, my only question, Mr. President, is, in the original Resolution, 970801, introduced December 4, 1997, there is a "whereas" that was dropped, in a comparison between the pink bill and the amended version in front of us.
Council will stand at ease. Councilman Nutter please approach the Chair. Can I get someone to get Mr. Ericson and ask him to approach the Chair. (Council stands at ease.)
May I have your attention, please. Upon further consideration, it has been pointed out to us by Mr. Ericson that that 229 PUBLIC MEETING "whereas" was intentionally dropped because there were some questions about whether or not the contents of that resolution was accurate, in light of the bill that we originally adopted. And, therefore, that "whereas" was dropped. I couldn't remember the reason. Now, does everyone have in front of him or her Resolution No. 970801 as amended? I am going to make sure there was no 11 question here. Let me have someone make some copies of Resolution 970801, as amended. I would like to distribute that to the members of Council. I want to make sure we are together. The original resolution was presented to this Council. There are a series of changes that were made in it. And that amended resolution was made available to members of Council, and it was circulated to everybody. And I know we had it, because the Mayor was here with it. I want to make sure that everybody has the amended resolution that we have amended. (Short recess.)
Order, please. 230 PUBLIC MEETING May I have your attention, please. Does everyone now have a copy of the Resolution No. 970801, as amended? I need to make it clear that the amendment, the MBE/WBE amendment that we just agreed to amend and adopt, is to the Project Summary. It is not an amendment to a resolution; it is to the Project Summary, which you have. Is there anyone who has any questions about where we are? If not, the Chair recognizes Councilwoman Verna for a motion.
Thank you, Mr. Chairman. I move that the amendments as submitted to us regarding Resolution No. 970801 be adopted. (Duly seconded.)
All in favor let it be known by saying aye. Those opposed say nay. The Chair recognizes Councilwoman Verna for a motion.
I move that 231 PUBLIC MEETING Resolution No. 970801 be reported out of committee with a favorable recommendation, as amended. (Duly seconded.)
All in favor let it be known by saying aye. Those opposed say nay. The resolution is adopted. This is a resolution for which a suspension of the rules is not necessary. At this time the Council Committee of the Whole will stand in recess. We will now convene a caucus. We would appreciate it very much if you will go right directly to the Caucus Room. We will have our caucus, come back, convene the Council session, consider the Kvaerner resolution, have our preliminaries, and then come back into the session of the Council Committee of the Whole, and then go back into Council session. Thank you. (Public Meeting stands in recess.) - - - 232 PUBLIC MEETING
If I could have Councilmembers' attention. Those of us who are here, I would appreciate it if all Councilmembers would come to the chamber. We would like to reconvene the Council Committee of the Whole. We have somewhat less than a quorum at this moment. I think, Councilmembers, if you were to please come to the chamber. I would appreciate it very much if Councilmembers would come to the chamber. If we can't get a quorum today, what we will have to do is recess this hearing until tomorrow morning at 9 o'clock, and I know nobody wants to do that. I would appreciate it if Councilmembers would come to the chamber. We would appreciate it if all Councilmembers would please come to the chamber. At this time I would like to announce that the Council session that's currently in recess will stand in recess until 1:30. (Short recess.)
We would like to 233 RESOLUTION 970806 get started. Does every member of Council have Resolution No. 970806, the pink Resolution No. 5 970806? Do we all have Resolution No. 970806? All right. Here comes Councilman Cohen with his lunch. Just like the good old days, Councilman Cohen with his lunch. So if I could have your attention. Now, what was introduced was the Resolution 970806. Attached to that resolution was the Venture Agreement between Philadelphia Facilities Management Corporation and QST. The whole agreement was attached to the resolution. Do you follow that? And I have it here attached to the original. It was attached as Exhibit A. Now, what we have, I am getting ready to pass out now a black-lined copy of amendments indicating changes to the Venture Agreement. Can I have the City Solicitor take the witness stand. This is how it gets a little bit complicated. The Exhibit A has the Venture Agreement in it. The Venture Agreement, it is my 234 RESOLUTION 970806 understanding, is inconsistent with the ordinance 3 that we passed because the Venture Agreement does not comply with those things that we requested be in the Venture Agreement, in the agreement that was approved. So that what we are now getting ready to do is consider a set of changes to the Venture Agreement which modify what it is that has been agreed to. Is that correct?
And the black-lined changes in the Venture Agreement, are they in accordance with the discussions that you and I and Councilwoman Tasco had earlier today?
Now, what I would like to do is make available to the members of Council the proposed changes to the Venture Agreement that is attached as Exhibit A to the resolution that was introduced.
Council President, if I might provide a little bit more clarity on what's being distributed to members of 235 RESOLUTION 970806 Council.
I want to make sure they all have it. The Chair recognizes the City Solicitor.
Thank you, Mr. President. The resolution had attached to it an Exhibit A, which consists of a form of amendment to the Venture Agreement. The Venture Agreement was titled Exhibit A to the ordinance that had been introduced previously. What members of Council currently have for their consideration are black-lined changes so that you can see how the proposed amendments fit into the text of the Venture Agreement, as well as a form of amendment as a separate document, which incorporates those changes.
The Venture Agreement that Council originally approved by ordinance and by resolution is being amended. It is 236 RESOLUTION 970806 being amended by a separate instrument called an amendment. You have that form of amendment, and then you also have a document called black-lined changes, which, for your convenience, show how the changes fit into the actual text of the Venture Agreement.
The black-lined changes, are these amendments to the proposed amendments?
No; they are just amendments to the Venture Agreement. And you see them in two different documents.
Is Exhibit A the Venture Agreement as authorized by City Council?
Exhibit A to the resolution is the amendment document.
Then I ask you, is Exhibit A the Venture Agreement that was entered into between QST and PGW? 237 RESOLUTION 970806
So these proposed changes are amendments to the proposed amendments to the Venture Agreement?
The proposed changes are amendments to the Venture Agreement; they are not amendments to the amendments.
Wait a minute. See, that's why I wanted everybody here for this discussion. Because I know that if, after our discussions, I am not clear on this -- and everybody has a right to be unclear. What we have in front of us is not the Venture Agreement that we authorized, is that correct, as Exhibit A to the resolution that was introduced?
All right. That's not the Venture Agreement? These, Exhibit A, are the changes 238 RESOLUTION 970806 that PGW wished for us to make in the original Venture Agreement that we authorized?
Because you weren't authorized to enter into an agreement anything other than what we authorized.
And you did that, knowing that it would never be implemented or executed, unless we changed it to conform with the changes that had been requested by QST, after it went and dealt with whoever it had to deal with; is that correct?
I'm not sure I understand your question. I apologize.
Here we are. Pursuant to an Ordinance, we authorized PGW and QST to enter into an agreement.
It is over there someplace. You did that. QST said, "We don't like it and we are not going to implement it. We need these changes." But that agreement is over there. 239 RESOLUTION 970806 So that what we have in front of us as Exhibit A to the original resolution is the changes that PGW and QST are requesting to that thing over there that we authorized you all to enter into?
Right. These amendments to the proposed amendment are the changes that we have discussed in preparation for this hearing?
And that's why I wanted us to have this discussion, so that everybody could be here. So that the black-lined changes are proposed changes to Exhibit A, which are the recommended changes to the Venture Agreement which has already been entered into.
Where there was a little confusion is that we also provided a substitute of the Exhibit A that had been 240 RESOLUTION 970806 distributed before to incorporate these changes.
Well, see, what I want to do is just make sure everybody understands where we are. Because I don't want people to think -- because we are actually amending the proposed amendments --
-- to the Venture Agreement. Now, what I would like to do is simplify this process. I would like to simplify this process in this way: What I would like to do is have the Solicitor tell us what the exhibit has in it, and explain how the proposed amendment to the amendment works, so that people can understand what the bottom line is. And then what I would like us to do is make sure we are straight on all of that. And if there is any question about it, I want to make sure that we answer those questions. I would like to have -- I want to consider it a possibility, depending on how complex this thing gets -- because we can recess this and we 241 RESOLUTION 970806 can have staff do some more work to simplify it, if necessary. Because we have a Council session to have on all those bills. And at the very end of Council session, if necessary, we can do whatever final work we have to do on this and be able to consider it. But right now what I want people to understand is that there is a Venture Agreement. Exhibit A is proposed amendments to the Venture Agreement. And after our discussions, there are proposed amendments to the proposed amendments of the Venture Agreement that get us to a bottom line as to what the Venture Agreement will be. Councilman Cohen, I see you shaking your head.
My intuition told me to have Councilman Cohen here when we had this discussion. The Chair recognizes Councilman David Cohen.
The sandwiches are 242 RESOLUTION 970806 gone, so I can't invite anybody at this point to share it.
But I am not sure what, quote, the amendment is. I know there was a Venture Agreement signed by PGW and QST that we knew nothing about. Wasn't there a Venture Agreement, the original one?
Councilman Cohen, there is a Venture Agreement that was entered into that we knew everything about. Because we had the Venture Agreement in front of us as an exhibit to an Ordinance. And we authorized QST and PGW to enter into that agreement, subject to certain conditions and limitations which were incorporated into the agreement. And it was entered into for technical reasons that we don't really need to get into here. Right? At the time it was entered into, we all knew, those of us who were following this, that 243 RESOLUTION 970806 it would have to come back here for proposed changes. Because as a result of discussions that took place between QST and its parent organization, it wasn't authorized to execute an agreement that had everything in it that we were requiring. So what we have as an exhibit to the resolution are the changes that QST and PGW agreed to come and ask Council to implement. Now, after a lot of discussion, working with the Chairman of the Gas Commission and myself, we requested some further amendments to the proposed amendments to the Venture Agreement. And those amendments are here, but there are amendments to the proposed amendments to the Venture Agreement that was attached as an exhibit to the bill that we approved. Do you follow that?
And this has nothing to do with the substance of it; this is the procedure of this. This is just so we will know 244 RESOLUTION 970806 what it is we are doing here. Because if we adopt the proposed amendments to Exhibit A attached to the Ordinance, that's going to authorize the changes in the Venture Agreement that isn't in front of us in great detail. We only have the proposed amendments attached to the Resolution. What I am hoping that we can do is, without getting to all of the particulars, and necessarily the dotting of the I's and crossing of the T's, is have a discussion with the City Solicitor that lets everybody know what the proposed bottom lines are. Do you understand what I am saying?
Well, and by "bottom line," do you mean what changes are now being proposed, changes to the agreement that City Council authorized PGW to execute?
But you get there because what you have to do is, there is a set of amendments that are proposed to the amendments to 245 RESOLUTION 970806 the original agreement which we authorized.
Yes. That's what this does, it unites them. But it is very confusing. And I knew it would be confusing, and I didn't want to have this discussion. Because now if somebody walks out, and you come back, at least you know what we have in front of us, proposed changes to the proposed amendments to the Venture Agreement. Now, I mean, that's where we are. Is there any Councilmember who has any question about where we are? I see Councilman Nutter's light.
Thank you, Mr. President. No, I think I know where we are. And I wanted to, I guess, get to the next phase. Did you say that you were going to ask the Solicitor to explain first Exhibit A as was handed out -- I believe we received this last week -- attached to a communication from the Mayor, which was, I guess, the sent-back version from QST 246 RESOLUTION 970806 and its parent company conversations? Is she going to explain that first, and then tell us what this new amendment, which is attached to the black-lined version, means in conjunction with that, and then get to what the bottom line is?
I am hoping that we can limit this and sort of drop to the bottom lines. And if we can't do it, I mean, we can take as much time as we need here. And what I thought we might be able to do is have a general discussion, a little bit of a general discussion, and then sort of work our way back. For example, one of the things that we decided in our original Ordinance was that no 18 further taxpayer or ratepayer's money would be able to be used for the implementation of the pilot PGW/QST electric project. That was a fundamental point in our discussion.
And what I wanted to do is just, for example, have a discussion of that point and find out what, if anything, has 247 RESOLUTION 970806 changed in all of that.
Thank you. I will try to make this simple. What Council did, through amendments and in the Venture Agreement that was authorized, was shift 100 percent of the financial and legal risk of the pilot program to QST. The proposed amendments generally deal with two issues, limitation of liability and indemnification. QST continues to be responsible for expenses of the pilot program, whether they relate to activities of QST or activities of PGW, after October --
Out-of-pocket expenditures related to the venture. They continue to bear the financial responsibility. The reason that you have amendments to the amendments is because when QST originally 248 RESOLUTION 970806 proposed their changes to the Venture Agreement on these liability points, the changes can be read to undercut that obligation. That is not what they intended to do. And so we have added clarifying language that makes it clear that they continue to have, as they originally intended, and as Council intended and as PGW intended, for them to have the financial responsibility for the program.
So if these amendments in Exhibit A, in the black-lined amendments to the proposed amendments in Exhibit A, if they were all approved, could Councilman Cohen and Councilwoman Blackwell and I say, well, PGW is involved in this project, but no additional ratepayer money or taxpayer money will be spent to implement this pilot? QST will spend all the cash. Those people who receive the electric will pay for, of course, their electric, and PGW will only be using existing facilities, existing personnel, existing equipment, as a part of its contribution to the 249 RESOLUTION 970806 partnership and to the Venture Agreement that we would have authorized?
That is correct. You may recall that QST is responsible for 50 percent of the same kinds of expenses prior to October 23, and then they are responsible for 100 percent of out-of-pocket expenses after October 23. So the Council President is correct in that assessment, that is not paid for by the ratepayers or by the taxpayers.
Now, a major concern of City Council was the potential liability, people sue us in all kinds of ways. Somebody is getting electrical service and claims that, as a result of the provision of this service, there was a fire. And personal property was destroyed, and maybe injury to somebody occurred. And the city gets sued, PGW gets sued, QST gets sued, everybody gets sued. We wanted QST to indemnify us against any and all expenses associated with those kinds of 250 RESOLUTION 970806 lawsuits. How does QST and PGW propose to change that with this set of amendments here?
Okay. For personal injury and property damage claims, QST does propose to limit the scope of their liability to claims arising out of their activity. But they are providing the electrical service. So any fire or incident that's related to the provision of electricity service, QST bears that liability and QST agrees to indemnify the city and PFMC and PGW for claims arising out of that activity. If there is a personal injury or property damage claim that somehow arises out of PGW's activity, what QST proposes to change is accepting that risk. We would continue to have that risk. We are, however --
Why should we have that risk? I mean, QST is responsible for buying the electricity off of the grid, for buying the electricity. And I guess somehow PECO, I mean, they 251 RESOLUTION 970806 are using PECO lines. I mean, we don't own any lines, and I guess neither does QST or PGW. I mean, what can we do that causes us to be liable? And why wouldn't QST want to be willing to indemnify us, since it appears that the dangerous activity, if there is any -- phone calls are not generally dangerous, although I guess they could be -- I mean, it is QST's responsibility?
Well, let me try to answer it this way: From a commercial standpoint, from a corporate policy standpoint, QST's position is simply, "We can't control your activity, and, therefore, we don't want to accept that risk." As a practical matter, the claims are going to arise out of what QST is doing. And we do have the benefit of their indemnification for the kind of claim that's going to arise out of their provision of electricity service. And even with the way that they propose to change the language in the agreement, we, nonetheless, the city, PGW, and PFMC, have the benefit of QST's insurance -- we are named as an additional insured -- PGW and PFMC have insurance 252 RESOLUTION 970806 coverage to cover this kind of claim.
But are there deductibles on those policies? What are the deductibles?
I don't know the specifics. I can say to you that the Risk Manager for the City of Philadelphia reviewed all of the policies, both QST and the PGW/PFMC policy, and in writing concluded that we have the protection for these kinds of claims, through the combination of QST's insurance, PGW/PFMC's insurance, and the Tort Claims Act. Not only for liability for these types of claims, but also the cost of litigation defense.
But I want to know what the deductibles are. Because if the deductibles are high enough, it doesn't matter. These policies don't mean much to us.
Ramon Sharbutt, Chief Financial Officer of PGW. The deductibles at PGW are $500,000.
So the insurance kicks in in claims over $500,000. How does that help us? We pay the first $500,000. I mean, that is a monumental problem. And I guess I would like to complicate this discussion a little further. I mean, as we see it, it is so unfortunate, it is a terrible situation, and there is a fire, and PGW and QST are delivering the electricity, and there is injury involved. And, of course, I mean, knowing, you know, one or two lawyers in this room, they sue everybody. And the juries come back, and they sometimes will find everybody liable. How does that get resolved?
If a jury finds all of the defendants equally and jointly liable, and we say QST is only responsible for its activities, I mean, and the jury finds us responsible because we are in this Venture Agreement, doesn't that mean we have to pay?
Let me say that again. We have the benefit, the insulation, the immunity under the Tort Claims Act. The first level of protection for us is the Tort Claims Act; PGW, the city. So to the extent --
But doesn't that mean that we can't be misforced to pay anything over $500,000 in an incident? It doesn't mean --
Not if it is covered by the insurance. So the levels of protection --
I only raise that question because you raised the protections of the Tort Claims Act. The Tort Claims Act keeps us from 255 RESOLUTION 970806 having to pay $10 million verdicts and $100,000,000 verdicts. It is only like $500,000, and that's very important. But if during the course of all of this, all you need is one bad incident, and it could end up costing us hundreds of thousands of dollars, based on the way I understand what you are telling us here. Because the Tort Claims Act doesn't help us. We end up having to pay our own attorney's fees; right? Wouldn't we have to defend this? We don't have any insurance that would pick up our legal fees. We have to pay our own attorney's fees. And then we may end up having to pay our share of any judgment that was rendered against us. I rest my case.
Council President, I think that we would have no exposure because this comes within the Tort Claims Act. It is the kind of claim that we would handle on a regular basis. Your point is well taken in terms of the insurance deductible. But the fact of the 256 RESOLUTION 970806 matter is that these are personal injury and property damage claims. We are insulated under the Tort Claims Act. It is not likely that the city, as a practical matter -- because we will not be providing electricity; it is QST --
But you have to answer my question. And I have had these discussions as a member of the Gas Commission. If you say the Tort Claims Act insulates us from exposure over $500,000, and we have an insurance policy that had $500,000 of limits on it, so we wouldn't have to pay the $500,000, now I am back to my question, what are any deductibles on the insurance policy? Because if it is 10,000 or 15,000 or 20,000, then what that does is, that limits what it is the insurance company has to pay on our behalf in judgments against the city, or PFMC or PGW, below the deductibles, end up being paid for by us. And there is no question in my mind 257 RESOLUTION 970806 that we pay the cost of litigation. I mean, we hire the lawyers. Some of it is handled by lawyers that work for the city, and some of it is obviously handled by lawyers that are on retainer from the Law Department to defend against these claims.
Let me also point out something that I think might add some clarity. This is language that is covered in the amendments. And although QST has limited its liability to its activities, it expressly, in language that you have before you in the changes, as between QST and PGW, QST assumes sole and absolute responsibility and liability resulting or arising out of the provision of electricity. So, again, in terms of apportionment of responsibility, the risk is not, I think, a real one that the city would actually be involved in providing electricity. And based on the Risk Manager's review of the insurance policies, the Tort Claims Act, and the language changes proposed by QST, he believes that the city, PFMC, and PGW are protected 258 RESOLUTION 970806 against these kinds of claims not simply in terms of liability, but also in terms of cost of defense.
Well, is there anything in the agreement that speaks to how disputes among and between PGW and QST, on who is liable for these things, how they get resolved? Is it possible we could end up in a big dispute with QST about who is responsible?
We tried to be clear in terms of allocation of responsibility. There is no specific provision in the agreement that provides for dispute resolution. And it is always possible, as with any of our contracts, that you could get into some disagreement with regard to who did what at what point in time. But for purposes of these kinds of claims, we are talking about activity that is clearly QST's activities. QST is providing the electricity. PGW is not providing electricity.
I will tell you, you know, we had some of these discussions before. It just seems to me that under this Venture Agreement, that the partnership is providing 259 RESOLUTION 970806 the electricity. I mean, PGW and QST, aren't they jointly providing the electricity? Maybe you need to tell us a little bit about how it is you can really fill the line between about who is providing the electricity and who isn't providing the electricity. And what happens, for example, if QST says that the electricity is provided, and we aren't responsible because, you know, it is the way electricity, it is PECO's wires, or something? I mean, it just, to me, I have to tell you, it just sounds to me like we are going to be out there potentially fending our way on our own, possibly in disputes with PGW, with PECO, and anybody else, about who is responsible for these things. And the reason why we wanted, in the very beginning, to have the clear set of responsibilities is because then we don't have to get into these arguments. QST indemnifies us. It is the expert in providing electricity; we aren't the experts. PGW isn't the expert in providing electricity. They indemnify us, they supervise 260 RESOLUTION 970806 everything that is done in the provision of electricity, and then we don't have to worry about that. And I think this seriously complicates it, and I think it compromises our position on it.
Council President, if I might, I am now looking at the Venture Agreement. And, as I testified previously, this is not a legal partnership, where it is a separate legal entity, where we have combined our assets and we are dependent on and intertwined with QST, and what they do is considered what we do. The obligations of QST and PGW are specifically delineated in the Venture Agreement that you reviewed and approved before. It says, specifically in terms of QST activities, that the provision of electricity is QST's obligation; it is not an obligation of PGW's. And, so, it is clear under the Venture Agreement. And the proposed changes to the Venture Agreement don't modify that or change that obligation. 261 RESOLUTION 970806 And QST says that we will be responsible for that liability, any liability arising out of our provision of electricity, and we will indemnify the city and PFMC and PGW for any claims arising out of that.
Thank you, Mr. President. City Solicitor, just to make a very basic example. If, when PGW starts selling electricity, the customer at that location, a contractor, is injured, electrocuted, could you just describe who would be responsible? Who would they sue? Would they sue PECO? Would they sue QST? Would everybody get sued? Could you just paint a picture of how that would work?
I think the Council President's point in that regard was well taken. Generally, everybody gets sued. The question then becomes whose obligation, whose liability, whose responsibility is 262 RESOLUTION 970806 it as between the parties that have been sued. We can't say we won't ever be sued. But it is clear that, in the agreement, that it is QST's responsibility, obligation, and liability. So that it won't necessarily prevent us from being sued. But, as I said previously, in that kind of situation, it is QST's obligation. They have agreed in the amendments to the Venture Agreement to be responsible for the liability, to indemnify us in connection with costs of litigation arising out of their activities. So if they have assumed the sole and absolute responsibility for their provision of electricity, their indemnification obligation, their agreement to reimburse us for any expenses associated with our being sued as a result of what they have done, we are covered for the litigation defense under the terms of the agreement. We are also an additional insured to their insurance policy. And if there is any question at all, we have the benefit of the Tort Claims Act, as well as PGW and PFMC's insurance. So through the combination of all of those different levels, the Risk Manager of the city 263 RESOLUTION 970806 has concluded that, under that kind of situation, and under a situation where somehow conceivably, even though PGW is not providing electricity, we could be responsible, we are adequately protected and covered.
Thank you, Mr. President. So, Madam Solicitor, let's go back to one of the earlier questions, which was, what is it that PGW could do as an action that would result in any exposure under any of the circumstances? And are you able, even in a hypothetical case, to lay out in a chart fashion or a grid what happens in a lawsuit, the issues raised with regard to either legal fees, when you have to pay your small portion -- I am forgetting that term, the car gets banged up -- deductible -- hopefully no 23 one runs into my car -- deductibles and all other potential expenses. Are you able, I guess, to show either 264 RESOLUTION 970806 on paper or explain verbally what protection covers what? You talked about the Tort Claims Act. You have talked about QST's indemnification of us. We have talked about insurance that PGW apparently has. How do all these various things get covered such that, I guess we get back to the goal, which is, when you see the City of Philadelphia line on that chart, it reads zero?
Councilman Nutter, let me answer what I think your question is. Because I think your question goes to the heart of the impact of the proposed changes. Looking at personal injury and property damage claims is one category of potential exposure. Between the City Solicitor's Office and the Risk Manager of the City of Philadelphia, we reached the conclusion that the bottom-line risk, there is, say, roughly zero, if not minimal. We are adequately protected. I don't think there is any guarantee. But we do have, in terms of the 265 RESOLUTION 970806 agreement, the reimbursement obligations on the part of QST, the indemnification; the assumption of the liability; QST's insurance; the city, through PFMC and PGW, insurance coverage; and the benefit of the Tort Claims Act. So in terms of risk, that category of claims, we are protected. The changes -- and where there is potential exposure -- really relate to other types of claims, nonpersonal injury, nonproperty damage. So if we can put those kinds of claims aside, the kinds of claims that are not personal injury, not property damage, not covered by insurance, we have no Tort Claims Act protection, that's the category of claims and risk that I think are relevant for purposes of your understanding the impact of these proposed changes. As to that category of claim, Council intended for QST to bear 100 percent of the risk, whether that kind of claim comes out of QST's activity or whether it comes out of PGW's activity. And let me give you an example.
The kind of claim would be -- remember we had extensive discussion and testimony -- for example, if a competitor of PGW or if a ratepayer or a taxpayer were to challenge our legal authority to engage in the business of electricity; that's the type of claim I am talking about. The Venture Agreement approved by Council passed the risk of that kind of claim to QST. The proposed changes by QST would modify that. QST proposes to limit its liability and its indemnification obligation to claims arising out of its activity, not out of PGW's activity.
Because this is a perfect point. They sue, and they sue for 15 different reasons. They say, one, you delivered the wrong kind of electricity; two, the wires were 267 RESOLUTION 970806 faulty; three, you didn't come when we called, and if you had come when we called; four, we called PGW at the office, and it didn't have anybody come. PGW says, well, we called QST; nobody went out there. And then they say, and you weren't authorized to go into this business in the first place, and, therefore, you shouldn't have been even in the business. And they throw all this. Because that's the way we lawyers do. We just throw it all in. And then a whole bunch of lawyers are sitting in the back room of the judge's chambers someplace. And the judge wants to leave because it is Friday, and he wants to get out of town. You know, it is 2:00 or 4 o'clock in the afternoon, and the lawyers are there, and everybody wants to go. And the judge is leaning on the city -- because we now all have to be there, because there are allegations involved -- and the judge says, "Well, everybody kick in 50,000, or everybody kick in 100." Councilman Cohen, I mean, this is what happens. Everybody kick in the money. Let's 268 RESOLUTION 970806 settle this, let's get this off the docket. And I will tell you, that's precisely what I had in mind when I say, we make QST responsible for all of that. Then we don't have to worry about it. Because QST, I mean, is at the heart of this thing, is delivering the electricity. And QST is going to do that. Let QST take the weight for all of that, and then indemnify us, and then we don't have to worry about trying to draw all those fine lines. I am telling you, whether or not this goes or does not go, this is a can of worms that will never be resolved unless we decide today who is going to be ultimately responsible for all of this. Because Councilman Nutter is never going to be able to figure out, and neither will I, whether or not the judgment was given because PGW didn't belong in the electricity, the electricity business, or was acting outside of its statutory responsibility, or whether some of these other things were the case. Because that's just the way this stuff boils down. And we won't be able to be out of 269 RESOLUTION 970806 it. Now, if QST has indemnified us against everything, then do you know what we do? All these claims, do you know what we do? We send them to QST, and QST's insurance policy covers it. And if there is any liability, QST's insurance company pays. And, to me, that's simple. And I apologize, because I think that's where you were.
What is QST's explanation for their position? And I asked this once before, when we were dealing with this issue. Are there any QST people here today?
If I might, Councilman Nutter, I apologize, before we get to that point, I do think it is important for me to try to put into context what the Council President said by way of example. Let's assume you are right, and we have a Complaint, and it makes a lot of different allegations, a lot of different kinds of claims. And, yes, we may end up in the room, we have been sued, and there is a settlement. And let's assume that we agree to pay $50,000. 270 RESOLUTION 970806 To the extent those claims relate to the obligations I just talked about, the provision of electricity, QST's activities, we then, under the Venture Agreement, QST has an obligation to reimburse us. So at least in terms of the personal injury and the property damage claims, let's assume we have paid $50,000. Then maybe as between QST and PGW and the city, $30,000 of that is attributable to those kinds of claims. We get that money back. The question then goes to the other 20,000 in that example, hypothetically. That is not covered by insurance, whether it is QST, or whether it is PGW, or the city. At this point in time it is a risk that's not insured or insurable without a lot more investigation. It doesn't mean necessarily, though, that in terms of the actual 20,000, that we believe, for those kinds of claims that I'm calling contingent liabilities, that arise out of the city's or PGW's activities, that we wouldn't have strong 271 RESOLUTION 970806 legal defenses. I believe that we do, and I believe that the risk in terms of judgment and liability is minimal, whether or not you ultimately settle and whether or not there may be an expenditure to make the nuisance of the suit go away. I'm not going to say to you that it is not possible that we could pay, say, $20,000. But that's the kind of claim or situation where I assume that the Law Department would be actively involved. Those are the kinds of claims that you would want us to be actively involved in.
But I think the primary issue that is being raised is, there appears to be virtually nothing that PGW could do, in the course of whatever it is that it will be doing, that would make it liable for anything, even in the hypothetical. I mean, they are just there. Why should they pay any money to anybody? Even if a judgment is found, or even if it is Friday at 5:00, and the pressure is on to settle, and they kick in whatever they kick in, what did they do to cause any harm to anybody to then be 272 RESOLUTION 970806 subject to suit and a payment?
I have spent some time speaking with the lawyers and the President of QST, so let me try to articulate their position. In terms of the actual --
They should be articulating their own position, let me say that for the record.
In terms of the activities as between the parties as for the pilot program, I think you are correct, PGW is not providing the electricity. PGW's activities, compared to QST's, are more limited. And, again, QST has said, we will bear responsibility for -- we will indemnify you for anything that arises out of our activity. QST takes the position that if, however, there is a challenge that's based on a claim that somehow we don't have the legal authority to do this, or a ratepayer is concerned that somehow there is an impact on the gas rate base, or if a bondholder has some kind of issue that's related to, you know, anything related to the possibility that 273 RESOLUTION 970806 the bonds could become private-activity bonds, those are the kinds of things that QST takes the position are not within their control. They have no control over those kinds of issues. That is a risk that the city and PGW should bear. And from their perspective, that is commercially reasonable. Remember, they are assuming responsibility for all of their activities. They are indemnifying us for anything arising out of or relating to what they do. They are assuming financial responsibility for the activities of both QST and PGW on or after October 23. So they bear the financial responsibility. They also are bearing the legal liability and indemnification for the period before the Venture Agreement, the Memorandum of Understanding.
Can I interrupt? Councilwoman Fernandez has to leave. She will be back. She would, in the event that this discussion concludes before she gets back, she would 274 RESOLUTION 970806 like to make a statement as to how she wishes to be recorded as voting, if that should happen prior to her getting back. The Chair recognizes Councilwoman Fernandez.
Thank you, Mr. President. I do have a meeting regarding child care and the Welfare reform, so I do need to be at that. I hope to be back by 4:15. If I am not back, I would like to be recorded as voting yes on all the bills and resolutions coming before the Council's Public Meeting.
As much as I have heard, yes, I will vote to report this out of Committee of the Whole.
On the resolution 22 and any amendments that are offered?
Okay. We have the 275 RESOLUTION 970806 outrageous exception. I thank you. I am sorry; I think Councilwoman Tasco wished to have the floor. Were you finished, City Solicitor?
I just wanted to add that I think, as the Council President, you were trying to figure out why we are where we are with QST. And I think as the Council President said in his earlier remarks, QST has looked at this risk. They do believe that they agree with our risk assessment in terms of it being minimal. These are contingent liabilities. But --
Because, as a matter of corporate policy -- and I think if you shift perspectives for a minute, it is the same idea as the city saying, "We will not indemnify you for that which we don't have control over. If we don't 276 RESOLUTION 970806 control it, why should we be responsible for it?" And that's QST's position as a matter of corporate policy. They are saying, "We will take on the financial responsibility, even for what you are doing." If PGW, as part of its obligations, whether it is marketing our whatever else, needs to expend money, QST is paying for that, they are assuming the financial responsibility. They are saying, "We will cover you for anything that we do. We have the bulk of the activity that's related to the kinds of claims that" -- you know, personal injury and property damage, the major kinds of claims that I think would really subject the city to risk, if we didn't have adequate protection. And they are simply saying that, if there is an issue as to whether or not you have authorization to do this, if there is an issue or a claim that comes in from a ratepayer or a bondholder, these are things that we have nothing to do with, we have no control over, and, therefore, why should we bear the risk of that? 277 RESOLUTION 970806
And at the same time, we would not be sued if not for the relationship between PGW and QST, and we haven't done anything. I mean, it is only the nature of the relationship that would cause any of those, in the three scenarios that you laid out, that someone would go to court in the first place. So QST cannot separate the relationship when it is convenient. We wouldn't be at the table; they would be at the table. It is the mere existence of the electricity relationship that causes a person to go to court in the first place. You can't separate the two. Before you try to respond to that, Madam Solicitor, I had asked the question kind of off to the side. Is there a representative from QST here with us today?
I mean, I have to say that it baffles me at some level. For someone who wants to do something so much -- 278 RESOLUTION 970806
He is trying to do another deal with somebody else. It is just a little confusing to me that people would spend all the time that they apparently have spent trying to get this done, but the one place that they don't want to be, notwithstanding all their conversations with Mr. Hawes, our Solicitor, or Bud or anybody else, the one place that they don't want to be to explain themselves and help us get to the bottom line is the place where, I guess, some of us happen to believe they need to be to make this happen. I mean, this not-showing-up thing is starting to get a little tiring. I mean, if I 279 RESOLUTION 970806 didn't show up as much as some other people around here don't show up, we wouldn't get any work done. Or I guess I wouldn't be here anymore. So, Madam Solicitor, you can try to explain the earlier question. I mean, what do they want? Do they want to do it, or do they not want to do it?
Council President Street, and other Councilmembers, I am Jim Hawes, President and CEO of Philadelphia Gas Works. I think, Councilman Nutter, to the question of do they -- I don't know that I can defend QST, as to why they aren't here. But I think they have demonstrated from the beginning, in that I think they have given in on almost everything that we have asked, I think they have demonstrated, through some very tough negotiations, over a very long period of time, that they absolutely want to be a part of the terrain and the marketplace in this part of the country. So I think if you just look at where we started and where we are today, and from a financial perspective, they have literally -- notwithstanding the discussions on the indemnity -- 280 RESOLUTION 970806 have literally taken all of the financial risk. I think that in itself would suggest to me that they are very, very much interested in keeping this deal alive. To the issue of why they aren't here, I think because we probably didn't ask them to come.
I said, to the question of why they aren't here, I am not sure the answer to that. But my last discussion in a three-way call last night was, I think, around 11:20, and I think there were two calls after that. And I think there were two this morning, perhaps, before 7:00. So I think they have been involved. And other than the fact that they aren't here, I don't know that I can add any more to that.
Excuse me. Mr. Hawes, something else is troubling me about all of this. Everything that we put in the Ordinance conditioning the PGW/QST relationship was done at a Public Meeting, right out here on the 281 RESOLUTION 970806 floor of Council, in the presence of the QST officials. They heard it. They were a part of all of it. They let us go with it. And I will tell you, the voice of experience is a wonderful thing. Because I did not just ask the members of Council to support amendments. What I did was, I asked you to take them to the Board of PFMC, take them to the Mayor. And I asked the Mayor, the Board of PFMC, yourself, and everybody, including the QST people, to look at all of this. We had those conditions right here. They were sent here, they were endorsed by everybody. And the QST people were here. And then, a month later, six weeks later, eight weeks later, now they have these problems with these amendments. And that's almost, to me, tantamount to acting in bad faith. They let us go through all of that. We are now covering the same ground we covered before, because we didn't want all these sticky questions about liability. We didn't want 282 RESOLUTION 970806 that. We wanted to make it clear that PGW, PFMC -- I will tell you, every lawyer in this region views PHA, PGW, SEPTA, the City of Philadelphia, as the deep pocket to go after whenever any incident occurs. That's what they do. And I will tell you what will happen is, if we are not extremely careful, that everybody will be right after PGW, PFMC, the city. All of us, we will be the targets here. And when you start trying to figure out who is going to be responsible, what will end up being, if we are not careful, if we don't have some real clear guidelines, right, I mean, we have to have something -- we don't have anybody from QST here. I actually thought there was somebody from QST here. I saw somebody. And the person who I really believed was from QST isn't in the chamber, and probably wasn't from QST in the first place. Has anybody from QST been here today?
See, I was 283 RESOLUTION 970806 probably mistaken about that. Because I did think somebody from QST was here. We aren't even in a position where we have somebody from QST here who we can ask questions to kind of get into this record in case, you know, some of these sticky liability questions would come up. We would be able to at least say, well, we had somebody from QST who testified at the Public Hearing about all of that.