I think if the PGC were a nonprofit and not City commission so you could take all of the procurement issues off the table -- I don't know if that makes any sense. You know, if you had a PFMC board, two members were appointed by City Council, two by the Mayor, and one by the Controller and you got rid of the Gas Commission and had that be the governance mechanism, I think you would end up with a lot of the multiple layers of oversight eliminated. I think you would end up with a very problematic accountability back to the City.
Why is that? I don't understand. All of those players are members and components of the City. They all have responsibility to somebody. We all work for somebody. I mean, why -- 101 11/28/00 - WHOLE - BILL NO. 000603
I think something as simple as the memorandum that came down last week, I think that if you take away the issues about --
That was, I believe, distributed to members of City Council. That was what Mr. Kischinchand was just discussing. There were to orders issued by the PUC last week. One in the interim rate case, the City had asked for $52; the PUC awarded $11 million and established various conditions precedent that required that by September 2001, there was to be identified a management entity and a five- to ten-year agreement entered into with the entity and all responsibility for budgeting and operation of the company be turned over to the management entity. It also required compliance with some of the things, you know, with the management audit that is to be promulgated shortly. It required, you 102 11/28/00 - WHOLE - BILL NO. 000603 know -- and then it had a number of other requirements. The second part was an order that granted the $97 million increase in the GCR, subject to certain conditions.
Now, you said that there was a request in for 52 million and you only got 11?
Why was that? And I thought in some previous testimony we had been told that the staff in Harrisburg or somebody in Harrisburg had suggested that we even ask for more. I mean, I don't -- were they mistaken? I don't understand how you ask for 52, you get 11, and the folks said you should have asked for more. I mean, if we had asked for more, would they have given us 15?
Councilman, there were two separate cases. One was an interim rate case in which asked for $52 million and got 11 million. The 11 million in that case --
What was the 52 103 11/28/00 - WHOLE - BILL NO. 000603 for?
The $11 million granted by the PUC in the interim rate case was substantially lower than we had asked for and substantially lower than, for example, the state consumer advocate and the Commission trial staff had recommended.
It's been a challenge. The second case was the gas cost rate in which we had initially when we first for a whiled asked for $97 million increase. Subsequently, the gas costs continued to rise as the hearings were going on and the Commission trial staff and other parties recommended that we ask for substantially more, up in the neighborhood of 150 to $160 million. In our final brief, we changed our request to reflect the changes in gas costs, increased our request from 97 million to 120 million, and the 104 11/28/00 - WHOLE - BILL NO. 000603 Commission gave us only 97 million, with some opportunity, though limited, to file a request to have our gas cost rate more accurately reflect the gas costs that we're experiencing in purchasing our gas today.
What's the $41 million shortfall in terms of $52 million rate relief request? What does that do to your financials and how does that impact and have you made new financial projections and how impact on the Council-approved $45 million loan?
We're finding all of that. I would like to have the opportunity to put that together and perhaps set up a briefing later on this week with Councilmembers to talk about, you know, to talk with the lawyers about what the assessment is of the situation currently to talk about, you know, what the picture looks like if we just get the 97, if we get the 97 and the 11, and what the various strategies are for addressing the various scenarios.
Just to refresh my recollection, the projections that we received, did they anticipate both the 97 and the 105 11/28/00 - WHOLE - BILL NO. 000603 52?
I believe we were -- the worst-case scenario we gave anticipated, I believe, anticipated $27 million in the base rate, in the interim rate, and projected $97 million on the GCR.
Yeah, but, you know, 11 as we've indicated, receipt of the $11 million 12 was made contingent upon the City's acceptance -- 13 not the City's acceptance. The company's 14 acceptance of the whole management scenario, the 15 provisions of the management audit. If in fact 16 there is not agreement with that, the $11 million increase would not be available.
If the company does not agree to the conditions precedent which include compliance with a management audit, 106 11/28/00 - WHOLE - BILL NO. 000603 identification by September 2001 of a management entity, and I think there are probably about 4 conditions altogether. If those are not -- if 5 there is not an indication of acceptance of those 6 conditions precedent by letter, then the $11 7 million interim rate relief would not be 8 available to the company. 9
Okay. Let me go 10 back to some of the items raised in the opinion, 11 because I'm still trying to understand much of 12 this. 13
No. This is one of the few opportunities I get to say that. It's not my call, actually. (Laughter.)
I'm just asking questions. I'm taking advantage of the president being out of the chair, so you have to ask the majority leader, otherwise, I'll just keep asking questions. There's been an appeal made to the Chair. 107 11/28/00 - WHOLE - BILL NO. 000603
Since the president is in the room, I will defer to her. Madam President?
There's been a request for a short break. You're interested in a short break?
All right. How about a ten-minute break? All righty, a ten-minute break, everyone. (Break taken.) - - - (Proceedings resume.)
Thank you, Madam Chair. It's my understanding that Councilman Rizzo has a follow-up to some questions I was asking so I will yield to him.
Thank you. In 108 11/28/00 - WHOLE - BILL NO. 000603 reference to the PUC's -- and I guess the word, if it's not correct, the oversight that the Public Utility Commission has over the PGW, the oversight, you mentioned earlier that -- I believe the question was asked of the Chief of Staff about the PUC's involvement in the day-to-day operation of the company. It surprised me when I talked to some people at PGW that they don't really understand the impact that being regulated by the Public Utility Commission means to the way the company runs on a day-to-day basis. Now, correct me if I'm wrong, coming from the electric company, a Pennsylvania utility company has some reporting requirements. Give you an example of something that surprised me that supervisory people, management people -- and I don't blame them. I blame the fact that maybe the communication isn't good. They're not aware that the Publish Utility Commission has certain rules an regulations. A person pays their bill, as an example, could someone from PGW tell me how long, according the Public Utility regulation, you have to restore that service? Is there a restoration timeline on restoring a person's 109 11/28/00 - WHOLE - BILL NO. 000603 service. If a person is shut off for nonpayment and they get down the to gas company to pay their bill -- in the electric utility industry, you have x-numbers of days to turn the service back on or you're in violation and have to justify why you didn't meet the timeline. Do you have any day-to-day regulations since the Public Utility Commission has come into the picture that has been communicated? If there's been no changes or there are no directions, I'd like to know that. But from what I understand, there are regulations that the PUC have that you some adhere to, and I'd like to know if that is the case, are we following the direction of the Public Utility Commission?
Councilman, the PUC does have clear standards on issues like that one. I'm not personally familiar with the specific requirement they have as to how long the company has to restore after a bill has been paid. It's promptly. And it's my understanding that all of those rules have been made clear to the responsible parties at PGW.
I think you better 110 11/28/00 - WHOLE - BILL NO. 000603 double-check that. I would hope that that's the case, but in my day-to-day contact, I find that that is not the case and I would hope that when a person, even though they're turned off for nonpayment, that a response at least the one that's required by the Public Utility Commission be followed because, again, there are people out there waiting four, five, six days that have service contracts. You have a service contract with PGW, you're waiting four days to get your heater repaired. And I know December 15th or some internal policy that you get something back if you don't get your utility, your appliance repaired within the first day. And again, I know the problems the utility's experience with the cold weather, the first snap of cold weather, the backlog. But again, if we are now regulated by the Public Utility Commission, I think we should be playing by the game.
We can clarify that. I don't recall exactly what the regulation might be in terms of turning the delinquent customer on once they've reached an agreement. We do it as promptly as we can. I have not heard 111 11/28/00 - WHOLE - BILL NO. 000603 of any violation notices that have been given to PGW as a result of the oversight the PUC has, but I will check into that.
I don't think it's a matter of -- I think that we have to self-report. I think there's cases where -- again, the gas business might be different than the electric business. But I know that there are some self reporting that's required if you don't make a timeline. I believe that there's information that many utility companies send out daily, if not on weekly basis, to the Public Utility Commission when their outside the parameters that the Public Utility Commission mandates. So, again, I think if you have a person on staff -- the word I'm looking for, the --
The person who watches the rules, I forget what exactly they call that person, the oversight person. The compliance person. So I think that really if we're under this regulation that we should be 112 11/28/00 - WHOLE - BILL NO. 000603 following it because people --
People are calling and calling and calling about the lack of service from PGW.
Councilman Nutter, do you want to yield to Councilwoman Tasco?
I guess the question is when the Gas Commission was regulating PGW, we had a series of tariffs haves which the company clearly understood which they have been operating under for many, many years. Now, what happened to those tariffs? Are we under the PUC tariffs? And does the staff understand the change, that they're no longer under the Gas Commission tariffs and now they're under the tariffs set forth by PUC and are they aware of all those tariffs? And what has been the education process to inform the staff members of the change and the impact? I think that is 113 11/28/00 - WHOLE - BILL NO. 000603 the question.
The staff has been informed. In fact, we have a vice president of regulatory affairs who is responsible for making sure that the PGW staff responds in accordance with the tariffs that we are now subject to. The customer service people have been trained. The training ongoing on those issues and the staff that regulatory affairs department has. Has another attorney who oversees the day-to-day operations on that issue.
Okay. I think that's what Councilman Rizzo was asking you in terms of the new regulations, because they are no 16 longer under the regulations of Gas Commission.
That's correct. I apologize that I don't know the details. And that's what I suggest that I would find out and pass it on to Council.
Councilwoman, the PGW continues to operate under the tariff and requirements of the Gas Commission. The PUC insisted on a number of changes, but the bulk of the tariff that PGW worked under when the Gas 114 11/28/00 - WHOLE - BILL NO. 000603 Commission regulated those issues remains in place.
Thank you. Thank you, Madam Chair. My earlier question before the break was going to be one of the areas of the opinion on . And I wanted to try to get a better understanding of that and then, Madam Chair, I just have a couple of other questions. It has to do with -- I guess it's going into . It talks about the City Charter places the power and duty of operating the Gas Works within the authority of the Department of Public Property unless the City contracts with another entity to operate the Gas Works and that then references the City Charter, Section 5-900 (D). And it continues and says, "Therefore, under the charter PGW is to be operated either, one, by lease to a private operator under contract with the City, or two, by private property if there is no private operator. 115 11/28/00 - WHOLE - BILL NO. 000603 Now, in looking at the references, both in the opinion and in two sections on in the middle, there's a quote from Chapter 5 3-100. It talks about the Gas Commission shall exercise such powers and duties and perform such duties as may from time to time be provided in contracts between the City and the operator of the City Gas Works or in the absence of a contract by ordinances. And then later in this 5-900(D), it talks about it shall operate and itself contract maintain repair and improve City gas, electric, and steam facilities not under lease to others and when authorized by the Council acquired, design and construct additional such facilities. Mr. Trujillo, what I was trying to understand is I never in any of that saw words or the phraseology in the charter language, private operator. It only talked about operator or it talked about others. Can you tell me about your determination at the top of that it was either one or two, and one by being lease to a private operator?
Certainly. The 116 11/28/00 - WHOLE - BILL NO. 000603 annotations to Section 5-900 speak -- the annotations that I've looked at were and 8, and 4 it talked about the history of the Gas Works 5 being operated by private operators, Both with 6 respect initially to transit facilities and then 7 shortly after that in annotation number 8 considerations similar to those applications, the transit facilities govern gas, electric, and steam facilities.
I did not mean to suggest that the only kind of entity with which can be contracted is a private entity. I think that it could be an authority. Certainly there could be another municipal entity.
For the non-legally trained, you would leave the average person to believe -- I mean, you know how I feel about City opinions, City Solicitor opinions. I mean, this is a weighty document here of the heaviest proportions, and your conclusion is, I mean, in very direct language, "Therefore, under the charter, PGW is to be operated either, one, 117 11/28/00 - WHOLE - BILL NO. 000603 by lease to a private operator under contract." What I'm trying to understand is nowhere in the chart language is the private operator phrase used. Once it talks about operator with regard to the Gas Commission and then in the section 7 that seems to control all of this, 5-900(D) it is, quite honestly, of the most general terms when it talks about "It shall operate and itself or by contract maintain repair and improve City gas electric and steam facilities not under lease to others." I mean, "others" is a fairly broad category of people, isn't it?
Again, the use of the term "private entity" comes from essentially annotations 7 and 8 an from the history of the way that the Gas Works has been operated. I do not mean to suggest that a private entity is the only entity with which the Gas Works could be managed by.
What's the legal weight of annotations? Tell me about that concept.
Well, annotations are used to explain the intent of the drafters, 118 11/28/00 - WHOLE - BILL NO. 000603 whether it's in the charter or in any other similar document. It's to explain the intent when the actual language was drafted.
Okay. And you're saying that somewhere between and 8, there is 7 either kind of this associative property or --
Or by this annotation concept direct relationship between how City transit facilities of treated versus gas facilities?
Yes. Annotation 7 says, "City-owned transit facilities are operated by private operators pursuant to leases and contracts with the City."
Then in Annotation 8, it states, "Consideration similar to those applicable to transit facilities, govern gas, electrical, and steam facilities."
And then goes on to speak about public safety and other issues.
And you take the considerations phrase in to encompass the 6 private operators language in 7 related to the 7 City-owned transit facility; is that how you're 8 connecting the two?
Okay. Just to go back, though, your now direct testimony, notwithstanding the opinion, is that you do not mean that it could only be affected by a lease to a private operator; is that what you're saying?
Would that then preclude a lease with the Gas Commission?
The Gas Commission is the City; the City cannot contract with itself.
Okay. Now, does PGC make contracts? 120 11/28/00 - WHOLE - BILL NO. 000603
Yes. Does it have any contracting relationship with --
I'm certain that it does. Sitting here, I'm not aware of what they are, but I'm certain that it does.
Maybe an unfair question, since you already indicated that you didn't know. I just wondered if any of them are with the City.
Again, I'm not aware. I'd be surprised if that were the case.
Okay. Let me go back to the first question, and then I think I just have two more. Miss Wilkerson, I think you, in reference to my initial question, I asked about the difference between PFMC oversight versus PGC oversight as per of bill, and I think you laid out that there was a structure that might be more 121 11/28/00 - WHOLE - BILL NO. 000603 workable which was -- sounded like virtually a blending of the two, is what I took from that, which was, I guess, a scenario in which you would have, whether it's called PFMC or some other entity, it would be something that would allow for appointment of two people by the Mayor, two people by the City Council, and one by the City Controller. Is that a preferred model of a new governance structure? Is there another or other models of preferred governance and oversight.
I think that in terms of board appointment, there are a number of different alternatives that we have talked about within the Administration. One would be similar to what was proposed and actually implemented for the appointment of the School Board. I think that, you know, that was done at a time when it was thought appropriate to try to tighten up accountability and so there was, you know, a mechanism put in place to do that. I think that in trying to create a governing body that had some sense of buy-in you could have nominations made, you know, the Mayor proposed with City Council confirmation. That would be an 122 11/28/00 - WHOLE - BILL NO. 000603 alternative that would have more participation than simply having the Mayor unilaterally responsible for appointing the board. You could have the same composition, you know, the same appointing authority that you have with the Gas Commission but have it be appointments to a board of directors. I think what you would get out of that is the elimination of the old function of the Gas Commission and the elimination of some of the overlap, but what it is that folks find attractive, I suppose, about the composition of the board of gas company, I think you still have outstanding some of the issues of control. I think you still have outstanding some of the questions about what our decisions that ought to be retained by the City as the City's prerogative as oppose to something that is appropriately delegated to whatever the new governing entity is. I think you also have outstanding the whole question of the budget. You know, I think that is one of the difficult questions. At what level, you know, who ought to have approval of the company's budget, is that something that is simply between the management entity for the 123 11/28/00 - WHOLE - BILL NO. 000603 company and the PUC or is that something over which the City ought to have some kind of input? And I guess under the proposal in 603, it's something that is up to the Gas Commission. There's input solicited from the Finance Director, but it ultimately is something that is decided unilaterally by the Gas Commission Board. But that would be the kind of issue that --
Yeah, but I mean as we talk about the Gas Commission Board, I mean -- I mean, let us not talk about it in whether the present composition or a future composition. I mean, it's not like it's some completely detached independent entity that, you know, meets at some secret location somewhere and no one, you know, on a day-to-day basis knows the composition of the entity. I mean, we know all of these people. We know where they live. We know what they do. They actually work for the City of Philadelphia. I mean --
Well, I think until you actually require that, you don't know any of those things. You're talking about if it were composed as it currently is or how it might be 124 11/28/00 - WHOLE - BILL NO. 000603 composed. I think part of the problem is you don't know what the Gas Commission will be. There is nothing in 603, if you use the 603 model that identifies who it is that's going to be serving on this board and, you know, I think that is the source of some of the concern, that you don't know, you know, there is no assurance of a nexus back to the City. And I think those are the kind of mechanisms --
I thought the appointing powers were two by the Mayor, two by Council, one by the Controller.
Aren't appointees at a minimum responsible to their appointing body? Tell me what the concern is. I mean, that there will be five people from Kansas or something? How do you get any more connected to the City of Philadelphia if the major elected either officials or bodies of the City are making all of the appointments? I mean, where do you get the --
I think you end up 125 11/28/00 - WHOLE - BILL NO. 000603 with a different level of scrutiny of the budget. For example, if you were to have City Council approving the budget, I think that suggests a different level of oversight than simply relying on somebody reporting back to the appointing authority. I think if you have the Finance Director of the City of Philadelphia approving the budget, I think you're going to have a different level, a different kind of oversight than if you simply are relying on the relationship between the appointing authority and the actual appointee to the board. I think those are decisions that have to be made, whether or not it's appropriate to have City Council deciding the budget. Historically, the budget review for the gas company has been a very detailed process. There are hearings that go on for a protracted period of time. There are witnesses that are brought in. Folk have an opportunity --
Wasn't that done 126 11/28/00 - WHOLE - BILL NO. 000603 by the Gas Commission?
That was done by the Gas Commission. The nature of the relationship changes, though, once you begin to put the Gas Commission in the role of a board of directors that ultimately is responsible for creating the budget, I think you end up with a much different kind of oversight than you had when the Gas Commission was sitting as an independent third party evaluating, taking testimony. If you are now talking about having a board of directors that's going to conduct hearings, call in witness, I mean, you're talking about a much different -- and perhaps that's the kind of conversation that has to happen.
Let me say this at least. And I understand where you are and even the line of where it might be going, but, I mean, I am hard-pressed to not say, with every due respect to the current board, the current board, I don't have any issue with. I mean, at some level, you know, thank goodness that at least the Gas Commission was paying attention to what was going on down there because apparently 127 11/28/00 - WHOLE - BILL NO. 000603 the other operation was asleep.
So, I mean, somewhere in all of that, there must be a benefit to what that operation was to what the Gas Commission operation was about and at least trying to do.
Can we have the microphones on, please? Mr. Hershey pulled the plug on the microphone. He didn't like the question. (Laughter.)
I think the question is, what do you lose when you merge the oversight function and the management function? The Gas Commission will no longer sit as an independent party overseeing the operation of the company. It becomes responsible for the operation of the company, and that, I think is --
I think what you 128 11/28/00 - WHOLE - BILL NO. 000603 don't have is the independent oversight anymore and that, I think, is what has historically been very valuable about having the Gas Commission out there.
It appears -- and I'm not an expert on PGW or PFMC or any of those entities. But it appears, notwithstanding the independent entity, going through a whole process, making determinations, issuing directives, order, pieces of paper, you know, send a note home to mom, we'd like you to do something, it does not appear to the outside observer that they paid any attention to it. Time and time again. I mean, I guess part of my anxiety in all of this is, I mean, what is it that we're either trying to preserve? Who are we trying to protect from us or you or somebody else? I mean, what is the game plan here?
I think the goal -- from the Administration's perspective, the goal is to try to flatten out some of the control mechanisms. Currently you have the PGC that has dual responsibility remaining the oversight and the management to the extent it's not exercised. 129 11/28/00 - WHOLE - BILL NO. 000603 You have the management responsibility within the PFMC, and you have something else yet again coming out of the PUC. And I think one goal ought to be to simplify some of that so that it's clear to whom the company must respond on what kinds of issues. I think there are some set of issues that ought to be retained to the City. I think there are some issues that are the responsibility of the PUC. And then clearly, some things are just left to -- but I think that for something like the budget, for example, there ought to be some kind of oversight of the proposals that come from the company. And I think that when you get -- that the Gas Commission role is going to change, it's no 17 longer going to have the oversight, you know, stand back, take it from another perspective with respect to the company. It will be involved in the development of the budget for the company. It will be involved in evaluating the assumptions that go into the budget. It's no longer going to be there as a different entity taking a third-party look at what the proposal is. It will be involved in a very integrated way. 130 11/28/00 - WHOLE - BILL NO. 000603
But I guess I need to ask a fundamental question. One, do we need that? And two -- because that seems to be part of old model, old mindset. And two, I mean, to some extent isn't that independent oversight third-party person back off, you know, just kind of watching what all is going on. I mean, maybe that is something that we'll ultimately end up doing anyway.
That's right, but I think that's the kind of thing that we ought to plan --
Part of my frustration here is do we have to be wed to any of the major components of the past, given that we all seem to agree that much of that has led to where we are today; we do not like it, and I just want to try to fundamentally understand why do we want to repeat any of it and how do you get to a new model? I mean, I didn't have anything for the most part to do with the current model. It's 131 11/28/00 - WHOLE - BILL NO. 000603 been around for a long time. So, I mean, I don't have fingerprint on it. It wasn't my idea. Maybe it was a great idea then. Doesn't necessarily seem to be working now. Why are we doing it? I mean, I just really want to get to all of the fundamentals of questioning why. Why are we doing X and why are we doing Y and why are we doing Z? And if we have good answer for those, then fine; then it doesn't matter. But if we don't, let's try to figure out something else. I guess, which will lastly lead to, do you have a sense of your best estimate of a timetable for a new model and for a different structure and answers to many of the questions that are outstanding about what the new relationship will be or what the new model would be?
I don't have a timetable. I can develop a timetable. I can sit back, develop a timetable. I think that realistically if the Administration were to come forward with a timetable or with a proposal, you know, or work with the Councilwoman on a 132 11/28/00 - WHOLE - BILL NO. 000603 proposal, it would be introduced -- I mean, it could be introduced before the recess and then moved when Council resumes in 2001.
Well, okay. I mean I guess the last thing I do want to say is to the extent that we can get movement on even changing some of our individual mindsets about, well, if the Administration wants to do X and so-and-so wants to do something else -- I mean, it seems fairly consistent all the way around the board that the Councilmembers and the Mayor 13 and so a total of 18, and I'm not exactly sure 14 where the Controller is, just because I haven't 15 really talked to him much about this, that there 16 should mean hopefully be one proposal or one idea 17 and that this is what the government has decided to do as opposed to continual lines of division about, well, that's so-and-so's thing and I can't deal with that and that's the other one's thing and I'm not trying to deal with that. And we ultimately end up in these kind of situations where it's just, you know, rapid fire scud activity going back and forth as oppose to working it all out, coming in, and this is what 133 11/28/00 - WHOLE - BILL NO. 000603 it is that we're trying to do and show a greater level of a united front about trying to get something done. Obviously, I'd be glad to participate in that, but the Chair of the Gas Commission and Councilwoman Krajewski as another commissioner are obviously in the forefront of this effort and I'm trying to play a supportive role. Does the PFMC have any staff other than its contractual obligation to provide for, I think it's CEO, CFO, COO?
No, the PFMC has no 14 staff. What we have done from time to time is drawn City employees and so for some of the budget issues or IT issues or risk management, for example, is handled in connection with the City so we've drawn on City resources. But the short answer is the PFMC has no staff to the board that assists in oversight of the company.
Well, I guess just -- I mean, how do you run a place like this and not have staff? I mean, for me, while kind of chewing on that one, part of my problem with the 134 11/28/00 - WHOLE - BILL NO. 000603 current model is you have a group of very well-intentioned, very well-meaning people who all do something else. They really have other jobs and responsibilities. That doesn't mean that busy people can't serve on boards and stuff, but this is not, you know, the board of making people happy. This is like the board of a serious company. And it has always perplexed me as to what that thing is about, what it's supposed to be about, and it technically employs three people, has no staff, the board itself is composed of all busy people who really have something else to do with themselves and they're stuck relying on the people in the shop. And in the previous example, we clearly saw that didn't work under any circumstance.
The result of which is, you know, five lawsuits and folks in serious trouble.
I think that the 135 11/28/00 - WHOLE - BILL NO. 000603 whole staff question is an important question. I think figuring out what the appropriate role of the staff so that it's not micro-managing the activities of the company but provides sufficient board it support so that you can have active and effective board. I think from my experience as a PFMC board member, it is very clear that you can't do it on a volunteer basis unless you have support. If I didn't have --
There's a contract with Mr. Hershey. You know, he looks at some issues for me. I have members of my staff that do work in connection with the company. I think the whole question of how it is you get adequate support to whatever the board is is important. I think there is a balance, though. I think that it is possible to micromanage the company in a way that is deleterious to how the company operates. So I thing that --
Under the current circumstances, again, having nothing to do with the current entity or folks that are in place, 136 11/28/00 - WHOLE - BILL NO. 000603 this is a company that's crying from some level management and could have used a little on the micro side when they were, you know, approving $9 million for IT and on their way to spending 30. I mean, you know, if somebody maybe around had said, "You know, hey, we're spending like 8 a little more than we thought we were." I mean, 9 you know, but we don't need to go down that path. 10 It's too bizarre. 11
I think you're right 12 about that. I think that the board currently meets twice a month or more frequently and that it is an enormous demand on board time and that allocating adequate resources to have an effective level of oversight and I think it could happen in a number of ways. I think the City could have institutionalized adequate staff perhaps within the Finance Department so that its role can be more aggressive. I think another model would be staffing the board of the organization so that it could be more aggressive in terms of trying to keep up with what's going on in the company. I think somehow you have to develop that capacity. Exactly how you do it I 137 11/28/00 - WHOLE - BILL NO. 000603 think is important because I think ultimately it impacts on who it is that you can bring in -- nobody wants to come, be CEO, and then not have some kind of flexibility with respect to the company.
Thank you. Councilman Nutter, I wasn't around in 1972 here either when, I believe, that was the year that this whole scheme or governance scheme came into being.
I was a sophomore in high school. I was minding my business.
I can probably give you some idea as to why, and I think it's pretty obvious. The Mayor at the time wanted to control by bypassing Council by bypassing the Gas Commission the company. The reason that they want to control the company was because of the contracts associated, both legal and nonlegal and the patronage involved with running that company. 138 11/28/00 - WHOLE - BILL NO. 000603 And as time went on, it became a very comfortable thing for any executive to have that kind of control to bypass this legislative body and that independent commission. And I think it's clear that was the reason why it was instituted and probably clear to me, at least, today why any chief executive of the City would be fighting to keep control of it. And that's what, I think, we've come down to now is that it's been controlled basically by the Mayor of the City for the past 30 years. Despite the efforts of the Gas Commission to put it in the right direction, to do certain things, to make recommendations, basically they've been ignored. And Council has been out of the loop because it was assumed that if members of Council were a part of the Gas Commission, then that would placate that group a little bit. But the problem is no one listened to members of the Council who a part of the Gas Commission. So basically what we had was a dictatorship of a company for reasons other than distribution of gas and the service of customers. That's, I think, the reason why sitting here today. 139 11/28/00 - WHOLE - BILL NO. 000603 I think some of the misunderstanding, however, is what a board of directors does. I served on a number of boards and we don't run the company. The board of directors is responsible for overseeing the people who run the company. And when you have a board meeting, those executives come in and talk about their various areas of responsible and they have someone that they need to be responsive to, and that's the board. And the board then in turn has the authority to fire those executives or that executive if, in fact, they don't perform up to the board's expectations by running the company in the right way. If the Gas Commission wanted to fire the last crew that basically drove this company down to its knees, they would have no 18 authority to fire the last crew. They could explain about things. They could point things out, but when it came to removing A, B, or C member of that executive board -- the executives in that company, couldn't do a thing. I think what Councilwoman Tasco and Councilwoman Krajewski and the other people who sponsored this bill are asking for is the ability 140 11/28/00 - WHOLE - BILL NO. 000603 to act as the board of directors of this company, to hire the people that are necessary, to oversee the people that are necessary, and I don't really think that this request for a change in this governance scheme is a threat at all to this company. If anything, it's probably more of a breath of fresh air. Frankly, I don't know whether or not the company can be saved, frankly. I don't know. It remains to be seen whether or not this company can be drawn back. It's kind of over the precipice now and you got to kind of pull it back from there and I don't know if there's the strength to do that. But I tell you what, the current system that's there now just doesn't work and hasn't worked for quite, quite some time; and I think if we have a real board of directors, despite the fact that they're appointed by people who are elected the ratepayers and the citizens of this city, I think we're going to be in much better position than we are today because no one seems to want to be in control despite the efforts of this particular new group executives which we admire and wish well. I do think that there needs to be a board 141 11/28/00 - WHOLE - BILL NO. 000603 in place that has some power to remove people in the event that they don't perform the way that they're supposed to.
And I think that's the misunderstanding here is that what this bill is asking for is a board of directors with some power as opposed to an oversight board that basically people can ignore. Thank you.
Thank you very much. Any more questions? (No further questions.)
We thank you. Janice Parrish, Esquire, Senior Hearing Examiner for the Philadelphia Gas Commission is next. (Witness comes forward.)
Thank you for your patience. Would you introduce yourself for the record and begin.
Yes, thank you. I see I have two microphones, but I think I'll only use one. My name is Janet Parrish. I am the Senior Hearing Examiner for the Philadelphia Gas 142 11/28/00 - WHOLE - BILL NO. 000603 Commission and I appreciate the opportunity to address the Council on Bill 000603. I have submitted my testimony in written form, and in the interest of time, I will not read that to you at length, but what I would do with your indulgence is try to go through and address a few key points outlined in the testimony and, as well, I'd like to respond to some of the discussion that has occurred as I've been sitting here listening. Before I do that, if I can just briefly inform those of you who don't know me as well as others of my perspective on PGW. I have been involved with PGW in one form or another since 1978, initially as an attorney with Community Legal Services and its energy project, then as the Executive Director of the Utility Emergency Services Fund, and then finally most recently in my capacity as Hearing Examiner at the Gas Commission since 1993. My general responsibilities are to -- or have been to review and conduct the annual proceedings regarding PGW's operating budget, changes to its gas cost rate, changes to the tariff and regulations as 143 11/28/00 - WHOLE - BILL NO. 000603 well as decide the various formal customer complaints. So just to give you a little sense of the various hats I have worn over the years. Now, I'd like to cut to the chase here, I guess, and say, well, I don't really want to say I'm sitting here contradicting the City Solicitor, but I guess I'm going to sit here and contradict the City Solicitor at least just a tad. As we've indicated in our written testimony, we agree with some of the points that had been made by the Solicitor in his memorandum and in his testimony here today. But there are some issues that have been discussed here already this morning that we do have a different take on, a different conclusion on. Let me just address the issue, if I may, of the Department of Public Property and its role. The point has already been made that it's really only in the absence of a lease agreement that the Department Public Property under the charter is charged with the operation of the Gas Works. And it's important to note that this startling discovery was also made back 144 11/28/00 - WHOLE - BILL NO. 000603 in 1983 by then-Councilman Street when he sponsored the PGW governance bills that were referred to earlier by Councilwoman Tasco. And also these bills are referred to in Ms. Wilkerson's testimony. Now, Councilman now-Mayor Street, of course, is a very good lawyer and he was very emphatic and he had other good lawyers backing him up at the time in the conclusion that the PFMC agreement is not a lease. It does not grant any type of leasehold interest to that company. Rather, it's a contract for management services. Based on this, he charged that the Gas Commission at that time didn't really have the authority to fix and regulate PGW's rates. Really, it was the Department of Public Property that had that responsibility. Now, as we know, Councilman Street's bills did not pass, and for 17 additional years, the Gas Commission continued to fix and regulate PGW's rates and charges without any objection, without any legal challenge that said, Well, wait a minute, there's not a lease here, it's really the Department of Public Property that should be doing this. So we don't really find this to be 145 11/28/00 - WHOLE - BILL NO. 000603 terribly surprising because as has been pointed out, the Gas Commission is a departmental commission of the Department of Public Property. And while it may not be the alterego of the department, as the solicitor has identified, it certainly has been the long-standing practice to treat the Gas Commission as a surrogate for the department itself.
The management agreement delegates both rate-setting and management oversight powers to the Gas Commission effectively ratifies this practice. And I think we must also note that there's really nothing in the charter itself which precludes the Department of Public Property from effective exercising its powers through the Gas Commission. Now, in the written testimony, I have referred you to in 1992 Commonwealth Court decision whose language shows that the Department of Public Property and the Gas Commission have essentially been regarded as one in the same, and I won't recite that to you again. But the language is very interesting because, again, it also shows that even where the city has a management contract as it does with PFMC and not 146 11/28/00 - WHOLE - BILL NO. 000603 a lease, it's the Department of Public Property (slash) the Gas Commission which retain responsibility for operation of the company. And point has already been made earlier I think by Councilman Nutter that there is no language in the charter that requires that the lease or contract be with a private party. Now, what the bill, Bill 000603 attempts to do, and I think this is a subtlety that perhaps may have been missed so I'd like to underscore it. The bill is attempting to acknowledge both the Department of Public Property's role as specified by the charter and at the same time to recognize the unique legal standing of PGW that existed prior to passage of the state gas deregulation law in 1999 and really has been effectively codified by that legislation. The State law says now that PGW shall be deemed an instrumentality of the city that owns it. That is why the bill itself provides that the City, that is the Mayor acting through the Department of Public Property, would enter into a contract with the instrumentality known as the Gas Works. And then these would be 147 11/28/00 - WHOLE - BILL NO. 000603 the various provisions of the contract itself. And the solicitor's memorandum does not directly discuss or opine on this particular approach. But let me focus a little bit now on the Civil Service and procurement issues that have been much of the focus here this morning or this afternoon. In terms of the procurement issue, I think let me deal with that rather quickly. The Solicitor's memorandum refers to Section 8-200 of the charter on procurement, but doesn't discuss Section 6-500A, and that's the section we were really focusing on. We think that section is clear by its terms in saying that the City's procurement requirements apply only to purchases made with funds appropriated from the City treasury. Now, if one thing has been drilled into my head over the years is that PGW's revenues and the City's revenues are not to be commingled. PGW has a whole separate revenue stream. It is the ratepayer funds that fund all PGW purchase, and that is why to this point in time both PGW and, in fact, the Gas Commission whose whole budget comes from ratepayer funds have operated outside of the City procurement 148 11/28/00 - WHOLE - BILL NO. 000603 requirements. Now, the Civil Service issue, I think, requires a little more discussion or attention, although it's really relegated to just a footnote in the Solicitor's memorandum. Having looked at this very carefully, we really cannot agree that direct City management or responsibility for PGW employees through the Gas Commission would somehow make those personnel City employees subject to city service requirements. Let me explain why. There are a number of reasons for that, and we discussed this somewhat in the briefing that we held with Councilmembers a couple weeks ago. PGW is a unique entity, a unique legal entity. I think there's no question about that. On the one hand, we have numerous courts saying it is part of the City. They phrased it all different kinds of ways, but what comes down to is PGW is an integral part of the City.
It's an entity which has the ability to sue and be sued, so it's got existence even though it's also been called just a name for the assets owned by the City. But what's really important to note 149 11/28/00 - WHOLE - BILL NO. 000603 and, in fact, the previous City Solicitor discussed this issue in the opinion that we have cited to you in our materials, there is a 1992 Commonwealth Court case which, as the previous City Solicitor indicated, expressly addressed the fact that PGW is managed by a private entity when reaching the conclusion that PGW was still a part of the city. In other words, the presence of PFMC, a private nonprofit corporation as a manager of the assets, did nothing to change, to alter, to lessen PGW's status as a City entity. It already exists. So to argue that putting the Gas Commission in charge of PGW, if you will, will somehow increase PGW's status as part of the City is just a fallacious argument. Now, what's also very strange an anomalous is that at the same time, PGW's has been recognized repeatedly under both under State and local you law as an employer who is separate and distinct from the City. And we've cited in our written testimony several provisions and several decisions which are not at all addressed in the City Solicitor's memorandum, and I commend them to your attention. The state law, state gas 150 11/28/00 - WHOLE - BILL NO. 000603 deregulation law, as I previously alluded to, provides that individuals who work for PGW shall be deemed employees of that city natural gas distribution operation as a distinct entity from the City. This is really not a big surprise if you look at the fact that Council for many years has enacted a pension ordinance for PGW employees which specifically provides that it is applicable to the employees of the Philadelphia Gas Works, not the employees of the City, not the employees of PFMC. PGW has been recognized as an employer by the courts who it's been sued for employment discrimination. PGW, as you know, has its own separate union, the Gas Works Employees Union, which has been around, if I'm not mistaken, since 1937; so it well predated both the current charter and the current management agreement. And that union, as we understand it, is the duly authorized collective bargaining agent for all nonexempt employees of PGW, not the City, not PFMC. PFMC, as you know, has three employees a CEO, a CFO, and a COO. 151 11/28/00 - WHOLE - BILL NO. 000603 Let me then turn to one last area which we think is relevant and also was not discussed in the solicitor's memorandum, 1and that is section 2-305 of the charter which clearly provides that Council has the authority by ordinance to add to the powers and duties of commissions like the Gas Commission as long as those new powers and duties are not inconsistent with the scheme of the charter. Now, as the Solicitor has recognized in his opinion, there is an unusual setup vis-a-vis the Gas Commission, and that is that it's unlike all of the other commissions referred to in the charter, its composition not spelled out in the charter, it's not mayoral appointees plus designated appointed officials. Its composition is left to the contract between any operator of PGW and the City or, in the absence of a contract, to ordinance by Council. That is unusual. Similarly, the Gas Commission's powers and duties are left to contract or ordinance. So in other words, what we have concluded is that City Council clearly has the authority by ordinance to add to the Commission's 152 11/28/00 - WHOLE - BILL NO. 000603 powers and duties as is proposed by Bill 000603. It would be nonsensical to say that just because the Commission's current powers and duties are spelled out in a contact and not in ordinance 6 that the City Council would lose its authority to add to those powers and duties. Now, if I can turn just for a moment to a few of the points that had been made by Ms.
Wilkerson in her testimony and in some of the meetings and try to clear up a couple misconceptions. We've already had some discussion of the Gas Commission under the Bill 14 000603 being too highly politicized as a board and the concern about there being no requirement of industry expertise for board membership. Now, I think point has already been made that it really depends on your view of how trustworthy or how capable the Mayor and Council and the Controller are of appointing people with the necessary breadth of experience to serve on such a board. But I'd like to add that the School Board example which cited by Ms. Wilkerson is one where, at least as far as I'm aware, there wasn't any particular requirement that the members 153 11/28/00 - WHOLE - BILL NO. 000603 appointed to the School Board have specified expertise in public education, finance, or other related fields. However, presumably, the Mayor did make appropriate appointments to that board. And as or more importantly with the School Board has now done is to work to bring in the top management that had the necessary expertise and experience, and I think that's a parallel to what's envisioned in Bill 000603. Now, as to the request of the Finance Director no longer having approval over PGW's operating budget only the Gas Commission, as has been asserted by Ms. Wilkerson, I'd like to note, it's not a change in the Finance Director's role from what is currently provided in the management agreement, rather it's a change in the wording or the language, because if you look at the current management agreement, only the Gas Commission actually is charged with approval of PGW's operating budget. The role of the Finance Director is twofold: One, to assist PFMC in preparing that budget; and two, to confirm that the budget itself and the words that are used is it's in form and extent satisfactory. In other 154 11/28/00 - WHOLE - BILL NO. 000603 words, the format is fine and there's sufficient detail in the budget. So again, contrary to what has been stated, this is really not a change from the current situation. Now, the point has been made or the charge has been made that we really need to build in a way for the City, as opposed to its representatives through the Gas Commission, to make some of the big policy decisions that might be facing us with respect to PGW, such as restructuring under the gas deregulation law, issues like sales of electricity and whether PGW would branch into that. Now, we don't disagree and the bill 16 does not attempt to block the City or City Council from having the appropriate role on major decisions regarding the disposition of the assets. For example, Council still has approval of PGW's capital budgets, real estate transactions, long-term borrowing, short-term borrowing, temporary advances like the $45 million advance that was approved recently by Council. All of this is provided for in the bill, so there's no change from the current 155 11/28/00 - WHOLE - BILL NO. 000603 situation. I would also like to note that the bill only provides authorization to deliver safe and reliable gas service, not unlike what the current management agreement looked like before it was amended to permit PGW to engage in electricity sales. So clearly, any issue about branching into another form of business such as electricity sales would have to come back to the Council. Now, some of the other decisions that Ms. Wilkerson says would have to be made regarding PGW in an unbundled environment are really not necessarily going to be City decisions anyway. For example, she says, Well, what should the City do about customers who either can't choose or could not find another gas supplier if PGW were not to continue to want to be in the business of purchasing gas? Under state law, PGW would have to serve as what's called the provider or supplier of last resort to those customers anyway. It's not necessarily a decision that the City would have to make; it's been made for us.
Again, I think if there are policy areas, other policy areas that the Council feels 156 11/28/00 - WHOLE - BILL NO. 000603 very strongly would need to be carved out or specified to assure some other form of control over those decision, those are issues that obviously can be laid on the table, but no one has come forward to this point with any specific language or specific suggestions. Let me also address the point that if the City Council were to prevail in its litigation challenging the validity of the state gas deregulation law that this bill is problematic because the Gas Commission would be both the manager and the regulator of PGW. Obviously, there's a point to that objection, but it seems that that's a bridge that we would need to cross when we get to it. If in fact the City Council does prevail, we would obviously have to look at revising the setup because the Gas Commission would then have its regulatory functions restored. We're not there right now and this bill attempts to address the situation where we have lost, the Gas Commission has lost those regulatory responsibilities. One last point that has not been discussed in much detail this morning, and that 157 11/28/00 - WHOLE - BILL NO. 000603 is advantages an disadvantages of a nonprofit model versus the Gas Commission. Now, putting aside the charter questions or the issues about Civil Service and procurement because we really think those are non-issues, it should be recognized that the Commission, the Gas Commission is an entity created by the charter. It exists. It's left to Council to provide it with responsibilities. And as Councilwoman Tasco pointed out in her opening statement, the Gas Commission, as a City entity, is subject to sunshine requirements, unlike PFMC or unlike any other private nonprofit corporation. So on balance, we would submit that bringing the oversight and management of PGW into the public light is preferable to keeping those decisions behind closed doors. Now, I wanted to come back, if I can, to one last point. Councilman Rizzo had asked some questions earlier regarding whether PGW was in compliance with the PUC's customer regulations, and what I initially heard Mr. Hershey indicate to you and Mr. Kischinchand that, yes, PGW's employees have been made aware 158 11/28/00 - WHOLE - BILL NO. 000603 of the rules and it's not a problem. And Councilwoman Tasco followed up with some questions about PGW's tariff, at which point Mr. Hershey said, Oh, yes, most of the tariff is still in place. I'd just like to take a moment to underscore that. Under the state gas deregulation law, Act 21, it's very clear that PGW's preexisting tariff, and that is the rules and regulations that were adopted by the Gas Commission regarding customer rights and responsibilities stay in place until the PUC about two years from now would enter its final order with respect to restructuring PGW unless in the intervening time, PGW asks for an amendment to the tariff and the PUC approves it. That's what the State law says. And so it's been our understanding and our position that the tariff is the law. Now, what is occurring, however, is that in the absence of a single entity accountable for PGW and the obvious vacuum of leadership that the PUC has perceived if you look at the decision on PGW's rate request, what has 159 11/28/00 - WHOLE - BILL NO. 000603 occurred is that PFMC, as outline indeed my written testimony, has entered into deals, agreements with the PUC which we believe are not in either the City's, PGW's, or the ratepayers' interest. And as part of these deals, they have dismantled long-standing customer rights, made changes to the regulations contained in PGW's tariff, as I said, rules that were duly adopted by the Gas Commission in a public forum after notice, after hearing, and so forth. This was a behind-closed-doors deal, no notice to the public, no opportunity to participate or comment.
And ironically, Councilman, many of the rules that the PUC has are actually quite similar to the Gas Commission's rules. The Gas Commission's rules were basically modeled on the PUC's initially. Now, in some respects they're a little different. In some respects they might be -- one set might be more favorable to customers and the other might be slightly less, but generally they try to accomplish the same thing, such as putting a time on when service must be restored. That's spelled out in PGW's tariff. It's got to be within 48 hours and there 160 11/28/00 - WHOLE - BILL NO. 000603 are some conditions on it where it can be faster and that's still the law. That hasn't changed, and that's the standard PGW should be complying with and it's the standard that they should know that they should be complying with. But what is of concern is that some of the commitments that are being made without input from the Council or the Gas Commission are committing PGW to conditions that are not in the company's interests. For example, different payment requirements to get service restored which, while an individual customer may like them because they can get service restored for $200 instead of $2,000, that at a time when PGW is in desperate financial straits, this has to be of grave concern. At a time when PGW's ability to the repay the $45 million advance is being questioned, this has to be of concern. So, again, I apologize if I went through these points rather quickly. Just in the interest of time, I wanted to try to hit each of them and certainly will be available to you for any questions that you may have. But thank you again. 161 11/28/00 - WHOLE - BILL NO. 000603
Miss Parrish, how many staff members are on the current Gas Commission?
Currently there are a total of eight full-time staff at the Gas Commission. Four of those are professional staff, what you might call professional staff, the Executive Director, myself, and two others two other analysts, and there are two customer investigators and two clerical support staff, so that's a total of eight.
Okay. And I'm assuming, based on the small staff you have, you from time to time have to out-source work?
There are some consultants to the Gas Commission, if that's what you're asking, yes.
I received this 162 11/28/00 - WHOLE - BILL NO. 000603 document at a briefing. I think the Councilwoman had it about a month ago, PGW briefing, this yellow document here, and it referenced certain orders and advice that go back in this particular section to 1997.
And my question is, given that, my understanding, the commission approves the operating budget of the Gas Commission?
And you make a recommendation to City Council on the capital budget?
At any time did you, the commission, either question the last of response to your recommendations as a result of the approval of these various operating and capital budget issues?
Yes and no. I mean, there's been a number of orders and recommendations over the years, so that in some instances -- let me just step back a second. 163 11/28/00 - WHOLE - BILL NO. 000603 Normally what would happen in that operating budget review process is that we would conduct hearings, public hearings, on both the operating and capital budgets. And at the end of that process, the hearing examiners, myself and Carlton Williams, a former commissioner of the Gas Commission who has served since then as a hearing examiner for the capital budget.
We would issue written recommendations, and all of the parties, PGW, the Public Advocate and whoever else might be participating, would have the opportunity to state any objections to the recommendations; and they have. And sometimes it's PGW and sometimes it's the Advocate and sometimes it's no one and sometimes it's both. And then the Gas Commissioners, of course, would then make their final decision. Now, at that point in terms of the operating budget, the order is basically final. In terms of the capital budget, if the question is, has PGW differed from a recommendation that the Gas Commission made to 164 11/28/00 - WHOLE - BILL NO. 000603 City Council? Is that what you're asking?
I guess, the question is, if there were some concerns with respects to, say, the capital budget because there's been allegations that there have been expenditures from the capital budget to pay operating costs. I think during the discussion you may have referenced that. And my question is, did you not recommend that we authorize the capital budget based on that or did you recommend that we authorize the capital budget and not bring that issue up? I'm just trying to get a sense of --
Because in here there are a number of things -- and they all make sense to me and I don't understand why we couldn't get a response to that. But you then subsequently recommended authorization of the capital budget and yourself as a commission authorized the operating budget in spite of all of these thing things that you recommended advised and were essentially ignored. And I'm 165 11/28/00 - WHOLE - BILL NO. 000603 just trying to understand. I'm a new councilperson so I wasn't around for a lot of this discussion.
I think it did come out on occasions. I know when I've sat in this room 7 and heard that conversation and certainly it came out in the recommendations of the hearing examiners questioning why spending was not in accordance with approved budgets and there was actually considerable debate about that, and I think Councilman Kenney may have made the comment earlier regarding the fact that, well, PFMC essentially thumbed their noses at the Gas Commission; and in effect, I think that is what occurred.
So why would you recommend that we pass the capital budget and yourself authorize the operating?
So that the -- what was recommended was the budget as approved and not the spending or the overspending that PGW felt free to engage in.
So you authorized the budget, and after the fact, they 166 11/28/00 - WHOLE - BILL NO. 000603 inappropriately spent money in various categories.
Right. And the flip side of that, I think it's important to note as true as well, and that is that both the Gas Commission by recommendation and City Council by ordinance approved levels of funding, for example, on main replacement as we discussed earlier which were higher than what PGW management had proposed because we felt essential that additional spending occur in that area and then those funds were underspent, so that was the flip side.
I guess I could ask you a question in retrospect. Given where we are today, had you held fast on maybe authorization of the operating budgets maybe back in '98, the capital budgets maybe back in '98, we may not be in this position today because I'm assuming that Council essentially adhered to your recommendation particularly on the capital side?
I think commission did what it could do and Council did what it could do in setting the parameters. And this really 167 11/28/00 - WHOLE - BILL NO. 000603 points to the failure of the system where there is really no one entity that is accountable. And as the point that was made earlier, again, the Gas Commission didn't have the power to come back and fire management if that were appropriate. You're not doing the job, you're not complying with the budgets, this is a problem, either you're going to clean it up or you're not going to be here.
We potentially hold up the budget authorization until that advice is adhered to.
Council could hold up a budget authorization, but hopefully what the board of directors would do would be to hold the management accountable for performing.
My limited time here, I've seen situations where some things may have happened in the prior fiscal year and some Councilmembers have some very long memories and 168 11/28/00 - WHOLE - BILL NO. 000603 in the subsequent budget hearing, that is brought up to that particular department and we have held things up until that has been rectified. My questions is, did you not feel the need to do that on PGW's side?
Well, again, I guess the question is -- and I don't know if you had success in doing that. PGW, we have put restrictions on spending. We have limited spending for various purposes, and so you're not authorized to do so this, you're not authorized to purchase weather insurance, for example, and management proceeded to do it anyway. So what do you do? The money's been spent.
The enforcement powers to really enforce those orders is what has actually been lacking.
Okay. I've heard the same thing around here in this Council as it relates to some departments. We authorize money and it doesn't necessarily get spent the way we'd like to see it get spent. Okay, thank you.
You're welcome. Are there any other questions or comments from members of the committee? (No further questions.)
Do we have any other witnesses to testify? Would you approach the witness table, please. (Witnesses come forward.)
My name is John Foulkes. I'm Director of Legal and Financial Affairs in the Office of City Controller. I have submitted Jon Saidel's testimony, his written testimony, and I'm available to read some of it and summarize some of it for you and also to answer questions if that's your pleasure.
Did we 170 11/28/00 - WHOLE - BILL NO. 000603 receive copies of the testimony?
Do you have the copies now? I apologize that Mr. Saidel can't be here today, and I'm going to try to summarize some of his testimony and his testimony begins with a historical view of PGW to try to explain how we got here today. And I think it's sufficient just to say that the City of Philadelphia has owned the Gas Works for 159 years and the management problems that we're having today are not the first time. There have been a number of crises over the years, and just to pick out a couple of points in the history that were raised by Councilmembers earlier, that if we look at just the last 103 years which was going back to when UGI first began to operate and manage the Gas Works, the employees of PGW were not City employees and they were not employees of the operator UGI or later PFMC. They were employees for what PGW was worth, even though its legal starts has been somewhat nebulous. There's 171 11/28/00 - WHOLE - BILL NO. 000603 always been a separate pension plan ever since employees were in a pension plan. And as Janet Parrish mentioned, since two years after collective bargaining was made a right in this country under the Wagner Act, the gas workers have been represented by the Gas Works Employees Union. As you know, although Philadelphia's a Home Rule municipality, it's the management agreement and not the Home Rule Charter which lays out PGW governance. Under this agreement, PFMC, like UGI before it, manages an operates PGW pursuant to ordinances of City Council and resolutions of the PFMC board of directors. PFMC is a Pennsylvania nonprofit corporation incorporated by the City for the stated purpose of operating PGW. Under PFMC's articles of incorporates, the Mayor appoints all seven members of PFMC's board of directors. PFMC's responsibilities under the management agreement are as follows: It manages and operates PGW assets for the sole and exclusive benefit of the City, applying the highest standards of management 172 11/28/00 - WHOLE - BILL NO. 000603 practice and diligence. It hires the CEO, COO and CFO subject to Gas Commission approval and supplies them to PGW. It prepares operating and capital budgets and multi-year forecasts. It submits plans for capital projects to Council. It furnishes PGW's interim finance reports and audited annual financial statements to the Mayor, Director of Finance, City Solicitor, City Council, City Controller, and Gas Commission. That's probably one of the sources of the chart to the right in the front of the room. It keeps the Gas Commission fully apprised of its business plans and it pays the City $18 million annually. In the past, the governing board for PGW, the PFMC Board, has not been able to fulfill these responsibilities in a day-in, day-out, hands-on basis. This is because the board is a group of volunteers who historically have not been able to devote enough time, despite what may 173 11/28/00 - WHOLE - BILL NO. 000603 be good intentions. In fact, to the extent that the duties specified in the management agreement were fulfilled, it was done by PGW executive staff. For example, it has been years since 6 the CEO, COO and CFO were employees of PFMC as 7 specified in the management agreement rather than 8 PGW itself. One need only to have read the 9 Daily News in recent years to learn that the 10 highest standards of practice management practice 11 and diligence, to quote from the management 12 agreement, were not being applied. And also, as 13 you've heard today from people who testified 14 about compliance with Gas Commission orders, 15 budgets and other required filings have typically 16 been made late or perhaps not at all. 17 That being said, Mr. Saidel want to 18 point out that the current PGW Board meets each 19 week. I believe trying to do a job, however, as 20 many corporations have found, a group of even the most well-motivated volunteers has difficulty keeping up with normal enterprise oversight.
That is why many boards have at least some professional directors who can summon the requisite skills and time. When we move beyond 174 11/28/00 - WHOLE - BILL NO. 000603 normal oversight where we have an organization like PGW having profound problems, we can only expect that a board will have a difficult time keeping up. Therefore, I recommend that there should be a permanent governance structure put in place such that the board will always have the necessary time and skills. Bill No. 000603 seeks to do this to do this. Under the Pennsylvania Natural Gas Choice and Competition Act, the Pennsylvania PUC assumed regulation of municipally-owned gas utilities, including PGW, beginning July 1, 2000. This state deregulation legislation transfers rate-making and resolving customer complaints from the Gas Commission to the State PUC. As the comes back is already in place with an experienced and professional staff well-versed in PGW's operations and problems, it makes sense not to lose them, but rather to transfer them from the regulation side to the management side. In closing, I would like to deliver a commercial message from the Controller's Office. Under the current management agreement, we have the right to do annual financial and special 175 11/28/00 - WHOLE - BILL NO. 000603 audits of PGW. Currently, we appoint an outside CPA firm to do the annual audit and PGW pays for this audit. There have also been special audits done by outside firms. We want to hire all auditing firms directly and have them report directly to us. In this way, we will have more control over ensuring meaningful findings. As alternative to hiring outside firms, the Controller's Office could do most PGW post-auditing, including the annual financial audit. City Controller staffers used to do PGW's annual financial audit, but the shift to an outside firm was made in the mid-1960s. We would be willing to bring this function in-house once again; however, we do not have the staff to do it. Please give us the staff and make it possible for us to pay them competitively. Finally, when we use Controller staff to do special audits of PGW as we did to back up the Grand Jury investigation, we want to be reimbursed from PGW through Council. Thank you.
Thank you. Are there any questions from members of the 176 11/28/00 - WHOLE - BILL NO. 000603 committee? (No questions.)
Thank you very much. Our next witness is Mr. Phillip Bertocci. (Witness comes forward.)
Good afternoon. Thank you for your patients. Please identify yourself for the record and proceed with your testimony.