Well, again, I don't know if we can dissect the issues and talk about them separately and then come back together and talk about them in a macro perspective.
Well, we can dissect them any way you want. I think we're going to end up having to talk about them because my next request to the City Solicitor is an opinion about what it is we have to do and what are the complications involved in going into the counties and being able to do gas and/or electricity in the counties. 'Cause if you can't give us any reasonable assurance that there's any possibility that we could do any of that, then that raises a question about whether or not we should expose the general fund and our rate-payers to what could amount to a pack of litigation expenses, not unless 00121 QST wants to pick up all the litigation expenses.
President Street, those are all good questions and they're questions that we spent a lot of time talking about, each and every one of them. I think the issue -- number one, let me go back to the issue that started this. You asked about the reason that this was pushed down to the last minute. I tried to answer that based on one perspective, and that was the perspective of all the work that had to get done and the fact that we were feeding that work into the Legal Department as it was being completed. I think that was just time compression that is a function of the requirements of the rule.
Mr. Hawes, I have to tell you, I don't hold you responsible for any of this. And I'll tell you because I believe you are trying to do a good job. I'll tell you who I hold responsible: I hold the board of PFMC responsible, I hold legal counsel to the board of PFMC responsible, because the moment this idea was hatched -- and it could be 00122 a great idea. But the moment anybody knew that there was a possibility -- we've now known -- we now know that there was a possibility that this could be done as early as August. But the moment that anybody talked about any of this, then the Law Department should have been on the case to determine in writing as best as anybody could say -- could produce whether or not this is something that we can do. And if the Law Department decides that this is something that can be done, which is fine, then the question is: How can it be done? And if it can be done, if we conclude that in order to do it, it has to be -- it has to be done with an ordinance of Council, then I'm telling you, the moment that that decision was made or that possibility was raised, which we now know is at least a couple months ago, that legislation should have been drafted. And all of these questions should have been posed and asked while you did everything else that you had to do, everything else.
Let me go back to the question of us participating in the pilot. I think 00123 the ordinance and the amendments, as structured at this point, suggest and ask for permission for to us participate in the pilot. We do not believe, and I can assure you that that is a very, very cheap way to learn and train people on what's going to be coming in gas anyway. So I don't see that --
I don't understand that. I need you to repeat that sentence a little slower.
Okay. The participation in the pilot, if we, for instance, get 1,000 or 1500 customers, we don't believe that that puts any stress on the organization, because we have 500,000 customers; 1,000 more won't make a whole lot of difference. The proposal that we have is to test this in the City. And it's not a foregone conclusion that we would recommend to you at the end of the year that we're go outside of the City. There's enough for us in this market where we have a strong name recognition -- (Interruption.) 00124
There's enough in this market. And I think that -- I'll tell, you from our perspective, we don't have any fear of PECO or anybody else. You know, everybody starts out with or without a customer, and I don't think size has a lot to do with how you go about goes about how you go about attracting and maintaining a customer. I don't think that we necessarily have to go out of the City to be extremely profitable. There are 5 or 6 or 700,000 electrical customers in the City. And I think the most important thing to understand -- one of the questions that I think Councilman Cohen asked earlier was about leveraging the resources. We can go after those customers with dollars that we've already sunk for gas customers. 00125 Now, if gets to be a business, obviously, we've got to look at some sort of legal separation, but I'm just saying that it almost is -- it would be a terribly wasted opportunity for us not to participate in this pilot and then start to review in about a year what the next steps are, whether they be expanding in the City. I don't think in a year's time, without a partner, we could go outside the City, but this whole business is about partnerships and alliances all over the place. And what I want to assure you is the fact that or this other company PECO are bigger will have little bearing on our success in our current market, with our current customers for electricity.
Council President Street, if I might speak to your concerns from the Law Department's perspective. As Mr. Hawes pointed out, there has been a compressed time frame. The Law Department has been looking at these issues since even before the pilot program was constructed. As I've said to you, we do have research memoranda, which I will share with Members of Council. 00126 I do not want to leave the chambers, giving you the impression that we have not been involved and have not looked at these issues. We have been involved, we have looked at these issues, and I will make the research memoranda available. I will issue written legal opinions. We would not be here today if I did not believe that we have the authorization to do this. I would not waste the Council's time, and I certainly would have communicated that to PFMC and PGW before today. As you also pointed out, though, there are a variety of different questions, and there are some issues that we are continuing to research and examine as we go through the negotiations of the venture agreement. So I'd be happy to provide you with the backup memoranda, some of which will answer some of the questions you've raised today. I will supply additional legal analyses and memoranda; and, if necessary, I will convene a separate legal briefing for Members of Council, or meet with individual Members of Council at their convenience.
After I circulate the legal memoranda which cover the issues we've researched, as well as additional issues that have come up today, which we will cover as well, then we can convene a legal briefing to respond to any specific questions, if that's Council's pleasure. Or I can meet with individual Members of Council.
Well, I think probably we'll see what we get. The Chair recognizes Councilman Cohen.
Mr. President, I think there is a great confusion between legality and policy here. We seem to be operating on the theory that if something is legal, that means we ought to go and do it. Now, I want to state for the record, I will fight till the very end against PGW performing services outside the City. It is not -- we have not acquired PGW to become any kind of a profit-making venture. We want good service for Philadelphians. And I hear you say that you've made changes. I can tell you, the complaints in my office have not diminished at all in volume, 00128 complaints about the lack of good service by PGW. It's one thing and it's quite easy to declare, "We have made changes and we've made great progress," but I must measure them, and I expect other Council members to measure them by what we hear when we go out to meetings and what comes across the telephone or comes to us from meetings with people. We don't know that there's been any change. And, sir, when you say that PGW has name recognition in Philadelphia -- and I hate to say this because it hurts me personally and I don't think it's good for Philadelphia -- but the kind of name recognition PGW has is not an asset, in my opinion, for any other company because PGW's name recognition generally goes together with the condemnation of PGW for the lack of services to people or because its rates are so high. Now, what the future proves -- I share the welcome of the new officials to PGW. But I would like to see, before there's any concept of venturing into other areas, I would like to see a concentration that produces better service and, if possible, lower rates for Philadelphians. 00129 That's why we have PGW, to service Philadelphia, not to wander about wondering, Is there a new field that they might do something well in? And, therefore, maybe we'll go do that. Now, it always worries me, Mr. President, when people from outside Philadelphia come in to head Philadelphia agencies. And one reason I worry about that is being exhibited here today because, apparently, the new leadership of PGW doesn't recognize the same mission for PGW as the citizens of Philadelphia have always recognized it to be. That's good service. That's not telling people they're going to wait two or three days for service when they call about a complaint. That's not to say, We'll be there tomorrow, if it's an older person in a house and in the wintertime. Now we're going to see what happens this winter and the kind of service. So, Mr. President, I don't think this just a legal issue. The legal issue is, first, if you can't do it, then you can't do it, no matter what the policy might be. But we have a second issue. Let's 00130 assume it's clearly legal. There are all kinds of questions. You were talking about this company, was it QST? I never heard of them before. Mr. Hawes, you talked about how in your consideration of what led you to the decision to pick QST, you gave a good accounting of, I think, five reasons, one of them was the culture of the company. Well, I'd like to know about the culture of QST. Tell me, what do the labor unions in the area of QST think about the company? What do the consumers think in all of the areas where QST is? I would feel ashamed that the City of Philadelphia would in any way affiliate with a company that might have a record that I'd be ashamed to present to anybody. You haven't shared that with us. We know nothing about QST. We don't know how embarrassed we might be by disclosure that might come six months or a year later about some activity of QST that was thought to be harmful to some people in the area that it was serving. You didn't say anything about having an 00131 open competition where different companies might meet. The financial officer testified that he knew some of the people from QST, but that's no basis for choosing that company. We don't know why you chose them.
Is that a company that's heard rumors that sometime PGW might be sold, and maybe they want to be in the best position to be the purchaser? Are they trying to lure PGW away from the concept of service to Philadelphia, to become some kind of a national company, working in all areas? You're not a private utility out for profit; your focus is to get better service at a cheaper rate here in Philadelphia. So I'm very concerned about all those issues. It isn't just a question of whether it's legal; it's a question of whether it's an appropriate and a proper decision to make. And I am sorely troubled by all of these interests in outside excursions at the same time that my office is flooded with phone calls of Philadelphians who are unhappy about the service they get from PGW. Mr. President, I could go on for hours, 00132 but I want to just deal with that general matter, because after all the legalities are decided and we read your memorandum and everything else and we say, Sure, it's clearly legal -- and I doubt very much that will be the answer. But assuming that's the answer, then comes the question of: Should we do it? What business do we have in Philadelphia seeking customers in Bucks County or Montgomery County or any other county, to sell them gas? Thank you, Mr. President.
Thank you very much. The Chair recognizes Councilman O'Neill.
Thank you, Mr. President. I was just hoping that that question which you elaborated on by talking about the current situation and how we got here, I really wanted an answer on what happens down the road to avoid this. Do we have a commitment from PGW and the executives sitting here, that we will be brought in before the solicitations or whatever the equivalent action would be then, rather than after 00133 the fact, with our backs up against the wall time-wise?
I assume that's a fairly affirmative response. And maybe the brevity is perfect for the hour. But following up, actually, on Councilman's Cohen's question was my next question. My understanding is that the strategic plan, vision, future long-term vision of this company is to become a full-service energy company outside Philadelphia, down the road; not in this particular pilot, but down the road. And I think it is a part of the picture that we look at here today even though we're approving both legally and otherwise a narrow pilot program. And I just want to see how that jibes with what we normally see. Forget policy, David, and I know that's what you were talking about. But I don't think you'll find anyone who will say that down the road, if that becomes Plan B, the plan after, this being 00134 Plan A, that it's without question illegal for the City to get in a proprietary electric or gas business outside the City. And I just want to comment on that. I know we're not voting on that, I know it's not part of it. But if it's part and parcel of a long-term plan, and this is just the beginning, at least, I think, we should at least be informed of that.
And I think, in part, what we have to decide is: Why spend money on money on a pilot if you're opposed what's going to happen if we're successful in the pilot. I mean, why go through a pilot program and then reject the logical outcome of it.
Okay, let me try to answer what I believe may be a little bit of a misunderstanding. When a company starts to look at what the future might hold -- and I think this would apply probably to any LDC in America -- you set a vision of what it is you want to look at and evaluate. And that vision says that we will want to look at all options that will make us a health company long-term. 00135 But the next step after that makes it very clear that 85 percent of our effort and our strategy is aimed at revitalizing the core business and growing the core business. Probably another percent of that 7 evaluation has to do with what are the expansion 8 possibilities. But I think it's not an accurate 9 statement -- and I don't mean that you're being 10 inaccurate, I just mean it's not understood that 11 when you talk about vision, you're talking about -- 12 you don't want to preclude anything. 13 Because, I can assure you, Councilman 14 Cohen and others, that in a year and a half, we will 15 be having gas deregulation. And this whole issue of whether we can be viable, you have to make decisions today about how you place your bets for two and three years from now. You can't wait two and three years from now. We are not at all focussed and have not focussed on anything other than discussion and looking at alternatives for what might be part of our long-term strategy expand. There is no question that our efforts and our dollars that we've invested have been to improve service in the City of 00136 Philadelphia. Now, I'm not going to argue, because I can't argue with how many complaints come into your office. Our statistics, and we get them from customers, and we do talk to other Council officers too, is that our statistics are significantly improved over what they were months ago -- not 9 close, significantly improved. 10 So I'm not sure what the basis is to 11 say that we're not providing service to the citizens 12 of Philadelphia when, in fact, that's what's been 13 our focus. 14 Now, we were smart enough to understand 15 that you don't change 10 or 20 or how ever many 16 years it's been of a perception of inefficiency. 17 But I can tell you that the current statistics don't 18 show that. So -- 19
Take the statistics 20 in crime reporting, for example.
Foul, foul ball. 00137 That's like beating a batter. (Laughter.)
Councilman, I understand, but I think you know the number of discussions that you and I have had about trying to help customers. And I think you know those so --
Well, this is the first winter that you're really being tested. Last winter was horrible. The complaints were very heavy constantly.
Yeah, but I mean complaints are fairly -- I mean, we'll always have complaints. I mean, you can't stop complaints. But I think you have to look at the improvements to the infrastructure to see if, in fact, you are getting better. And I will tell you that you try anywhere else in Philadelphia getting one-day or 00138 two-days service, and see what would happen; or emergency service in one hour 98 percent of the time, or whatever you choose to measure. We are not where we expect to be, but progress is on a continuum. And I think that we have probably come further in a shorter period of time than most in the industry would say possible.
Thank you, Mr. President. The solicitations that went out for this pilot and the number of responses, I'd like to know how many responses you had. But first, I want to clarify that I understand that the pilot is not a money-maker; but the larger the pilot, the more it costs. Is that true, both those statements? I understand them both to be true.
And how many people have responded to the solicitation as it is closed off right now?
We sent solicitations to over 22,000 customers entirely within the City. 00139 As I said earlier, I don't have today's information with me. But through yesterday, we had approximately 1200 cards that had been returned by customers. Now, some of those cards, as I said earlier, are incomplete cards; and, therefore, we don't know whether they're valid customer sign-up cards or not.
Yes. The deadline, as we talked about it in the briefing, is -- October 25th is the deadline for customers to choose their suppliers. And when they choose their suppliers by October 25th, then the electricity from that supplier, under the contractual agreement with that supplier, starts November 1st. So, allowing for a couple of days and mail times, I guess practically, the deadline for October would be around noon -- midnight 21 tomorrow. 22
Okay. This asset, 23 PGW -- and the Council President described it in a 24 way that I hadn't really heard it described before, 25 and it makes perfect sense. 00140 It is the City's asset, the collection of pipes and everything else that forms the company. It has a value. And prior to this proposed move into electricity, I think most people could at least agree on a range of the value, if the City were to sell it tomorrow, of how it would be evaluated by people that are in the business. I'm wondering if, and I know it's going to have a different value a year from now or six months from now, as we get into this new area. And I say it parenthetically, I believe that the strategy is flawed in this way: My strategy for PGW would be to marshal every resource possible in Harrisburg during the deregulation and carve out the monopoly that we have. But under the best circumstances, we can negotiate with the legislature. They may not give us everything that's there now. They may not give us the same senior discount. For instance, they may not give us the same shut-off period. But to preserve the monopoly, to me, would be our primary goal. The second we step into electricity, as we're doing now, we've lost all hope of that. No 00141 legislator is going to seriously talk about any monopoly being carved out from Philadelphia and PGW once we've crossed over into the other utility in an unregulated way. That would be my strategy. But I do think there is a difference once we make these different moves. If we pretty much agree to open up the City to gas deregulation and allow the PECO Energy's and all the others to come in, as we're trying to go out into electricity, I think there's a different value to this company after that I'm not so sure it's higher, and to this asset. I shouldn't say "company" because it's really the asset of the City's that someone would pay. And I want to know if there's been any analysis of that before and after, not just by internal evaluators but by anybody outside of PGW. And I would like to see that because I think it's an important -- something for us to evaluate as well in this whole thing.
All right. I have good news and bad news. The good news is that there are enough Council Members here who have appointments that they 00142 must keep, that will cause us to have to recess this hearing. The bad news is that we will come back again tomorrow morning at o'clock, and we will go 6 as far as we can go. But, I will tell you, it is 7 the intention of the Chair to move this discussion 8 to a point in time where a final decision can be made within the time frame that has been requested. So what I recommend that Council Members do is please be here at 8 o'clock in the morning. We have a continuing quorum, and we will get started as close to 8 o'clock as we can. If we do not finish, we will recess this hearing and convene a Council session, have part of the session, recess the Council session, reconvene the Committee on the Whole, conduct whatever additional discussion we have to have. We can come to a conclusion on this matter, we will have a public meeting. We will reconvene the Council session if necessary. If we have a public meeting and the bill fails, there's no need to reconvene the Council session, but assuming the bill gets reported out in some way, shape or form, I would like to do that 00143 tomorrow. I would appreciate very much if people could alert your offices that we will probably have to -- we may very well have to do some work tomorrow afternoon on this. Councilman O'Neill.
Did I just get a "yes" or "no" on that question as to whether there's been an evaluation or a valuation done now and in the future?
Has there been an evaluation of this collection of assets commonly referred to, in a loose way, as "PGW"?
Obviously, we've done one, but I don't think that's what he's after. I think we have an evaluation that's either in progress or starting by an independent party. Is that right, Ray, or not?
I'm Ray Sharbott, the Chief Financial Officer. We are discussing an evaluation now with a firm that is worldwide-known for making such evaluations. They've been used by many other companies that have holding companies with subsidiaries that do a number of things. That's in the development stage at this point.
Thank you very much. This Committee will stand in recess until tomorrow morning, at 8 o'clock a.m. (Adjourned at 5:24 p.m.) 00145 C E R T I F I C A T E I HEREBY CERTIFY that the foregoing proceedings of the Council of the City of Philadelphia of Wednesday, October 22, 1997 were reported and accurately by me, and that this is a correct transcript of same. RE: PUBLIC HEARING/COMMITTEE OF THE WHOLE __________________________________, JOSEPHINE CARDILLO, RPR.