COUNCIL OF THE CITY OF PHILADELPHIA PUBLIC HEARING BEFORE THE COMMITTEE ON LAW AND GOVERNMENT - - - Room 400, City Hall Philadelphia, Pennsylvania Monday, June 7, 1999 10:25 a.m. - - - RESOLUTION 990388 - Authorizing the Council Law and Government Committee to conduct a full and comprehensive investigation of the proposal to transfer regulation of the Philadelphia Gas Works from the jurisdiction of the Philadelphia Gas Commission to the State Public Utilities Commission, and the impact such transfer will have on the ratepayers of the utility and the citizens and government of Philadelphia. PRESENT: COUNCILMAN DAVID COHEN, Chair COUNCILWOMAN MARIAN B. TASCO COUNCILMAN ANGEL ORTIZ COUNCILMAN MICHAEL A. NUTTER COUNCILMAN FRANK DICICCO COUNCILMAN FRANK RIZZO COUNCILMAN DARRYL CLARKE - - - VINCENT VARALLO ASSOCIATES, INC. Registered Professional Reporters Eleven Penn Center, Suite 600 Philadelphia, PA 19103 (215) 561-2220 2 6/7/99 LAW & GOV'T - Res. 990388 I N D E X Ben Hayllar, Director of Finance . . . . . . . 6 Joseph Dworetsky, Esquire. . . . . . . . . . . 7 7 Former City Solicitor George Christian Kimmerle. . . . . . . . . . . 86 Joe Given, President . . . . . . . . . . . . . 104 Gas Works Employees Union, Local 686 (SEIU) Dennis Pollard, TAG. . . . . . . . . . . . . . 109 Mr. Knudsen, Public Advocate . . . . . . . . . 114 Jean Boon, Secretary . . . . . . . . . . . . . 117 Action Alliance of Senior Citizens 3 6/7/99 LAW & GOV'T - Res. 990388 P R O C E E D I N G S
The Committee on Law and Government is now in session to continue the hearings that began last Wednesday when the committee held an emergency session with respect to Resolution No. 990388, the resolution which authorizes the Council Law and Government Committee to conduct a full and comprehensive investigation of the proposal to transfer regulation of the Philadelphia Gas Works from the jurisdiction of the Philadelphia Gas Commission to the State Public Utilities Commission, and the impact such transfer will have on the ratepayers of the utility and the citizens and government of Philadelphia. I've asked my colleague Councilwoman Marian Tasco, who is Chair of the Gas Commission, to sit with us today since she has for a long time been very faithfully conducting her duties as Council appointee to the Gas Commission and serves currently as Chair of the Gas Commission. For this hearing, I sent invitations in writing -- and those letters will be made a part of the record of this committee -- to Mayor 4 6/7/99 LAW & GOV'T - Res. 990388 Rendell, to State representative John Perzel, who is also the Majority Leader of the House Representatives, and to State Senator Frank Salvatore. And to date, I have no response whatever from Representative Perzel, or Majority Leader Perzel, or from Senator Salvatore. And Mayor Rendell told me, during his appearance here Friday before the Public Safety Committee, that he would try to be here, and if not, would see that his office is represented. For whatever that answer may mean or for whatever it's worth, I'm just reporting what he said to me. I guess my hesitation is that it seemed clear to me that when the interests of Philadelphians are at stake, it would appear to me that the Mayor, who's the leader of the City, would be up and front, waving a flag, calling upon Philadelphians to support their right to have the Home Rule Charter, which regulates the Gas Commission. I would think he would be leading the fray against any attacks to take away the powers of the City of Philadelphia. But then, again, that's my point of view, and the Mayor may have a different point of view, and we may be exploring that later this 5 6/7/99 LAW & GOV'T - Res. 990388 morning. Now, is Representative Thomas here? I would like to extend a courtesy because I know he's due in Harrisburg. He just had a press conference on this issue, and I would like to invite him to be the first speaker before the committee. I note Mr. Givens, the President of the Gas Workers Union, is here. Do you wish to be heard this morning, Mr. Givens?
All right. The answer was no. 15 And in the course of time, I hope we're going to hear from the thousands of constituents of the Majority Leader, of Representative Perzel, those who are currently senior citizens enjoying the discount that the Gas Works offers, as well as those in his constituency who enjoy the benefits of the low-income discount provided by the Gas Works through action of the Gas Commission. We'll wait for a moment till we get the response from Representative Curtis Thomas. Somebody just went out in the hallway just to 6 6/7/99 LAW & GOV'T - Res. 990388 check. He made a strong statement in defense of Philadelphia's maintenance of complete jurisdiction of the Gas Works through the auspices of the Gas Commission. And he stated that in Harrisburg, he will be speaking against any proposal that would seek to transfer the power of the Gas Works over to the State Public Utilities Commission away from the Philadelphia Gas Commission. Now, is Mr. Hayllar in the room?
Would you come forward, please. And that's Mr. Dworetsky? Fine. For the record, sitting here currently is Councilwoman Marian Tasco, Councilman Frank Rizzo, and myself. And Councilman Ortiz is on his way in. All the members of the committee have been notified several times about the hearing as recently as ten minutes ago. (Ben Hayllar comes forward.)
Mr. Hayllar, let me first ask you, are you here representing the Mayor when he said that he would have a representative? 7 6/7/99 LAW & GOV'T - Res. 990388 Are you he, or are you here in some other capacity?
I think I represent probably a host of different capacities. The Mayor did not ask me to represent him, but as Director of Finance for the City and since there's no other party from the Mayor's Office, I assume I have that responsibility as well.
Okay. We'll let the lawyer untangle what that means by way of representation.
Many hats. I notice Mr. Dworetsky here but since he's no longer the City Solicitor, I assume he's here in a private capacity. Could you describe the capacity in which you appear.
I'm here as counsel for the City in connection with the deregulation of the natural gas industry in Harrisburg.
When you say counsel for the City, could you be more specific? Is it for the Mayor's Office, is it for the Gas Works, is it for the Gas Commission? 8 6/7/99 LAW & GOV'T - Res. 990388
No, I think the easiest way to say it would be the Mayor's Office because I was asked by the Mayor's Office to get involved about a year ago when the first legislative agenda began in Harrisburg on the subject. And I have served in that capacity since. I've worked closely with representatives from the Gas Commission, from City Council, and from PGW in that process.
And during the course of the session this morning, we will ask for further explanation of the last statement you made. We're not sure. For example, as a Councilmember, I have not been involved in any discussions. I don't know to what extent Councilwoman Tasco, as Chair of the Gas Commission, was or was not. I don't know whether the President of City Council or any other members were. And so I'll be asking for amplification in due course. We're very concerned about this legislation, very concerned that the Majority Leader of the House of Representatives is not here because I think it's his first duty to represent 9 6/7/99 LAW & GOV'T - Res. 990388 the constituency which elects him and which will be strongly and adversely affected were this legislation to become effective. I'm very concerned that Senator Salvatore is not here because my analysis, over the weekend of numbers of constituents in each of the districts that are represented by Representative Perzel and are represented by Senator Salvatore, indicates to me that there are thousands of citizens who are in their respective districts who are covered by the senior-citizen discounts and by the low-income discounts that are made available by the Gas Works. And I would like to hear their version as to why they think that's a bad policy and ought to be eliminated. And, Mr. Hayllar, let me put to you so you can answer -- do you want to make a general statement first?
If you would. I have prepared testimony which I sent to you on Friday.
And in deference to the time of everybody involved, if you don't mind, I 10 6/7/99 LAW & GOV'T - Res. 990388 will summarize it.
And we'll make the written statement a part of the record.
For well over a year, members of the Administration, the Gas Works, the Gas Commission, and City Council have been working with State legislatures and regulators as they contemplated deregulating natural gas utilities in Pennsylvania. This has been a long, arduous series of meetings in Harrisburg that have been going on for well over a year now. Our position has been, and continues to be, that the Philadelphia Gas Works should not be included in legislation pertaining to investor-owned utilities, the deregulation of natural gas since we are, unlike other utilities in the State, save one, we are an arm of City government.
Let me just interrupt for a moment to note the presence of Councilman Nutter at the hearing. 11 6/7/99 LAW & GOV'T - Res. 990388 Please go ahead, Mr. Hayllar.
To be specific, we do not have investors who look to us for appreciation in the stock value and increase in dividends. We are a City-owned utility with a multitude of owners, each with different requirements that the Gas Works must attempt to address. This is quite different than what is found in investor-owned utilities. However, Philadelphia Gas Works provides approximately half of the natural gas that's sold in the state of Pennsylvania, so it should come as no surprise that there are those who would like to open up this market on their own behalf. While I would point out that allegations about the Gas Works are frequently made and it's frequently criticized, you cannot, as the Gas Commission staff has pointed out in these charts, you cannot really make that case looking at the residential rates that we charge. When you compare our rates to other residential rates charged by other utilities in the State, we are comparable. We are particularly when you 12 6/7/99 LAW & GOV'T - Res. 990388 compare our rates to other northeastern United States cities and their gas rates. We have room 4 for improvement, we can point to many areas where we need to do a better job. But when you look at the average residential rate, we are not out of line, we are far from being the most expensive, and we do an incredible job. We are also particularly opposed to the notion that the Philadelphia Gas Works should be regulated by the Public Utility Commission. The reasons stated last week by a number of speakers are the same reasons that we have. We would point out that despite claims made by the advocates of using the PUC, it is almost certain that if the regulatory climate were changed, that the gas rates for the residential customer would go up. Certainly, the cost of regulation would increase. 7 million to fulfill its various duties. The fees charged public utility by the Public Utility Commission and other statutory required bodies have the cost of deregulation exceed $2 million. In addition, restructuring an audit costs would obviously add at least another million 13 6/7/99 LAW & GOV'T - Res. 990388 dollars of costs to the process. We would be required to hire additional outside counsel with PUC Harrisburg-located experience, adding further costs. We are concerned, as are many of the people who have been spoken to you last week, that the effect of the senior citizen discounts, our programs for low-income people, and the discount that is provided to the City government and School District would be jeopardized by such a move. The biggest problem we have -- the biggest problem we have is that having the PUC regulate the Gas Works would violate the commitment that we have with the people who hold $800 million of PGW debt. Because the methodologies of the PUC and the Gas Works are, by law, quite different, the simple act of changing the regulatory authority diminishes the position of bondholders and would generate a technical default. As Director of Finance for the City of Philadelphia, I am, by my oath of office and my position of the job I have, I am required to attempt to protect the debt of the City and its 14 6/7/99 LAW & GOV'T - Res. 990388 agencies. 5 times its debt service. We have always made this covenant. 5 debt service ratio, City law requires the Gas Commission to provide us with the rates that the covenant can be kept. This is very strong protection for the people who have purchased our debt. Because the PUC does not have such a requirement concerning a utility debt, the mere act of making the change in regulatory agents would hurt the position of the people who hold our bonds. We believe, upon the advice of our counsel, that it would generate suits not only from our bondholders but from the large insurance companies that insure PGW debt. Tomorrow, we will be pricing a refinancing of old PGW bonds for substantial savings, savings that we need this year because of the warm weather and the lack of revenue that came in accordingly.
And also, we will be seeking $100 million of new capital funds for new 15 6/7/99 LAW & GOV'T - Res. 990388 projects; many of these projects purely fall in the category of safety -- safety to our employees, safety for our customers. A fundamental change in the covenant with the purchasers of our bonds would end our ability to complete this transaction. Recognizing the enormity of the problem, Mr. Dworetsky, on behalf of the City, has dealt with staffers in Harrisburg, as we have been for the last year, to provide them with language that would avert the financial calamity. This work has been ongoing, and copies of the language that have been going back and forth have been disseminated broadly to representatives of Council, the Commission, and the Administration.
Sir, please, could you -- specifically, when you say "representatives of Council," could be directly specific. Who have you communicated this particular information to and when?
To 14 people. Every time there has been a proposed change, a response, and a proposed change again trying to protect the bondholders of our debt, that material has been 16 6/7/99 LAW & GOV'T - Res. 990388 disseminated to, I believe, 14 people. Of the 14 people, they include the staff of the Gas Commission, Gas Commission consultants, Council's attorneys, and Council's technical staff.
I have been over a year. It's no secret. This has been broadly disseminated ever since we started this process of deregulation well over a year ago.
Has it been so broadly disseminated that the Mayor has apparently chosen to be concerned about the investors but not about the senior citizens and the low-income people of Philadelphia?
Okay. The Mayor has opposed the deregulation and has particularly opposed the notion that the PUC should regulate 17 6/7/99 LAW & GOV'T - Res. 990388 the Gas Works.
What has he done to get support out in the communities of Philadelphia? Besides letting the individuals that you've identified know, what has he done, for example, analogous to what he's doing on the proposed gun legislation that he supports and is trying to rally the people of Philadelphia to support?
What has he done of a similar nature to support retention by the City of control over the Gas Works?
Well, regulatory authority and control are two different things. We keep ownership of the Gas Works. Council, as the representatives of the owners of the Gas Works, that's not diminished. The Mayor has sent, as you know, Representative Perzel a lengthy and detailed letter pointing out the problems of moving the regulatory authority. He has had conversations personally with Perzel and others.
Well, we don't know 18 6/7/99 LAW & GOV'T - Res. 990388 what those conversations are because the appearance is that when on the one hand, you state that you're in opposition to legislation, but on the other hand, work to try to perfect legislation which will not hurt the investors but will continue to hurt the users, particularly the senior citizens and the low-income discount people, it looks as if what counts are actions, not word. And that's the reason why the people throughout the City are very concerned about the position of Philadelphia is. If the citizens of Philadelphia, the senior citizens are threatened by this transfer of jurisdiction, if they are threatened, if low-income people are threatened, what has the Mayor done to protect them?
He hasn't hired any -- he hired Mr. Dworetsky, who's a very able person. He's hired him to protect the investors, but what has he done to protect the people of Philadelphia?
I think over the eight years of the Rendell administration, you will find 19 6/7/99 LAW & GOV'T - Res. 990388 a long list of accomplishments in many areas where the Mayor has evidenced his concern and commitment to every resident of the City. He has opposed this move because we do not wish to create a second equally onerous problem: that is the default of our debt. That does not mean that we support going before the PUC. We oppose it, we opposed it for a year, and we oppose it now.
Well, I would like to suggest that the Mayor ought to show by his action, that he opposes it. He ought to be here, he ought to be rallying the people of Philadelphia as to how important this is. (Applause.)
'Cause otherwise, otherwise, it seems to me that he speaks with a forked tongue, and I don't know out of which side of the mouth he's speaking.
The Mayor has opposed vigorously the notion of having the regulatory authority move to the Public Utility Commission, and he has acted on that. On the other hand, the Mayor is not 20 6/7/99 LAW & GOV'T - Res. 990388 going to stand by and allow the credit rating of the City, as well as the Gas Works, be tarnished by an imprudent act. They are two separate problems. As Director of Finance, I am obligated, by my oath of office, to make certain that the credit worthiness of the City is protected. I recognize that you --
And the way you do that, Mr. Hayllar, is to protect and seek to preserve the Home Rule Charter which makes illegal any legislation that would attempt to take control of the Gas Works away from the City of Philadelphia. (Applause.)
You haven't done that yet. You can't really do it unless the threat becomes real, and the action to be taken is a mobilization of the people of Philadelphia to prevent this legislation, and thereafter, to take whatever legal actions are available to preserve the Home Rule Charter. The Home Rule Charter is not something that subsists at the will of the State 21 6/7/99 LAW & GOV'T - Res. 990388 legislature. The Home Rule Charter is different from other kinds of legislation. It was a grant in perpetuity to the City of Philadelphia, the right and the power to control its own destiny.
There is a wonderful old movie called "Dr. Strangelove," where one of the two countries in nuclear confrontation, it turns out, has developed a doomsday device so that in the event that the other country attacks them, the entire world blows up. I don't think that's a practical way of solving this problem.
You don't create a second huge problem with cataclysmic results for the City and the Gas Works, trying to stop a poorly conceived idea that somebody in Harrisburg has.
Well, it's not a huge problem at all. The second problem would be dealt with if it ever had to be dealt with, just as we dealt with the financial problems of the City in the past. But the real problem that exists is the problem affecting the senior citizens and the low-income users of the Gas Works because what 22 6/7/99 LAW & GOV'T - Res. 990388 this threatens is to have our senior citizens freeze this winter, and the same with respect to the low-income people. And it seems strange to me that you're worrying about how you're going to handle the investors, all of whom have sufficient funds to invest money in ownership of bonds issued by the City of Philadelphia, but you're not at all concerned about the people who really need the gas services. (Applause.)
That's neither true nor fair. We have demonstrated repeatedly our concern for those programs. In fact, as acting president of PGW, I'm implementing them. But to suggest that because we're trying to protect the credit worthiness of the City and our obligation to people who bought our debt, that that suggests we support going before the PUC is justifiable.
The way you protect the interests of the City is to oppose this legislation.
Not to lay down a 23 6/7/99 LAW & GOV'T - Res. 990388 red carpet and tell people, "But if you really want this legislation, this is the way to do it." And that's how the story comes out to us. You made a very excellent case when you showed that the there was no basis whatever for the takeover from the point of view of the rate structure under PGW.
Because columnists in Philadelphia and others who are rapacious and greedy and can't wait to get their hands on the PGW in order to turn it into profit-making machine for them at the expense of the citizens of Philadelphia, they just can't wait to grab hold of it. They don't spend even time, they're afraid to even have a public hearing for fear that the information you gave us at the outset of your testimony will be made known, that there's no 20 basis whatever in fact, in law, under any circumstance that would justify the legislation by the State. And it seems to me that the efforts of the City ought to be concentrated on maintaining local control, because we're all elected by people 24 6/7/99 LAW & GOV'T - Res. 990388 who have entrusted to us the responsibility for seeing to it that the Home Rule Charter is maintained. (Applause.)
And I'd like you to go further in the early part of your testimony, Mr. Hayllar, with respect to showing that the rate structure of the Gas Works is comparable to the rate structure of other -- of so-called private utilities.
In a comparison of regulated Pennsylvania utilities, the Philadelphia Gas Works, if you used the 100 MCF a year -- which is not the true average, but for mathematical purposes, it's a lot easier to do it with 100 as opposed to 104. The average residential user in Philadelphia pays $858.44 a year in a normal year at 100 MCF a year. This compares with UGI, which charged 981 cents a year and is equitable with $1,032 a year. Other utilities are slightly less. PECO, for example, would be approximately $833 a year. So we are in the mid-range. 25 6/7/99 LAW & GOV'T - Res. 990388 Your ability to have storage facilities, as we do, helps you maintain and keep your costs down. When you analyze our rates, we find that PGW is able to purchase gas at a lower rate than virtually any other utility in Pennsylvania.
Why is that? A lot of it has to be with able use of our contracts to buy gas in the pipeline. An awful lot of it has to do with liquification in our Port Richmond, which allows us to buy gas in the summer when rates are very low, liquefy it, and then use that, a portion of that during the winter. So you're buying it low and then using it when the rates and the pipeline have gone up in the cold season. It's just good management. And we have had and historically have had extremely good gas supply people at the Gas Works. Where we need to improve is in the costs of delivering the gas, our other internal costs. And we've identified those costs and we believe we can bring them down. When you compare PGW to other cities in 6/7/99 LAW & GOV'T - Res. 990388 the Northeast that have similar economic issues confronting them -- for example, large numbers of low-income people -- you find that in the analysis that we did in 1987, that we were the second lowest. Baltimore was $70 a month; we were $71 a month. The good people of New York City paid $20 more a month than the people of Philadelphia did. That suggests that in urban areas, which are more expensive because of the high number of low-income people, the high number of receivables, the fact that very often, to fix and to get out of pipe, you have to go through concrete, you don't dig through soft dirt. That these expenses show that the Gas Works in Philadelphia has done a good job compared to other city Gas Works. I understand the Gas Commission staff has listed their analysis based on more recent tariffs, which basically shows the same issue, that the Philadelphia Gas Works is competitive with other large cities in the Northeast. It is unfair to say, as Senator Salvatore has said frequently, that we are the most expensive supplier. When you compare our residential rates, 27 6/7/99 LAW & GOV'T - Res. 990388 that does not prove to be the case.
Along that line, there was an article written by Russel Beyers in the Daily News where he quoted from the PMC report.
The Public Financial Management, about, I guess, six months ago, was commissioned to analyze the potential of selling the Gas Works, was it a viable argument. I believe that the report demonstrated that selling the Gas Works is not a viable option.
But I believe, if I'm correct, that Mr. Beyers quoted from that report that Philadelphia -- PGW had some of the 28 6/7/99 LAW & GOV'T - Res. 990388 highest rates in the country. And I want to know, how did they come to that conclusion?
Well, it's not in the PFM report. Public Financial Management did not say that. It is often said of us, and as you know as Chairwoman of the Gas Commission, that's not the case.
We can do better and will do better on our costs but we are certainly not the highest when you compare us with other cities in the Northeast.
Okay. Well, could you tell me then, how does deregulation impact on the cost of gas in relationship to PGW?
It would require us to revise our rate structure, our tariff, so that more of the cost would be borne fully by transportation; and that is the billing, customer service, pipes, pipe repair, function of the company. And that it wouldn't matter to us whether we had people purchase gas from us or from another supplier; it would flow through the pipes. Interestingly enough, when you look at 29 6/7/99 LAW & GOV'T - Res. 990388 our rates, we are in a position where we probably could withstand competition because we are able to purchase gas at a lower rate than most other utilities. They would have to pay the transportation rate within the city that everybody else would have. So while we would want to keep it low, it wouldn't advantage them one way or the other. We would basically be supplying the infrastructure, the pipes, the billing, and so forth for anyone who wanted to sell gas. We could handle that. The problem with it is, we have been set up to purchase -- and we do it very well -- gas and sell it to our people as an efficient cost as we can that are in danger of doing that.
So if a marketer decides to come in and Philadelphia's opened up under this whole legislative deregulation process and marketers come into Philadelphia to provide choice to our customers, would they save any money by buying gas from a marketer?
That has yet to be proven. Much of the savings that would have been generated was the fact that other utilities pay a 30 6/7/99 LAW & GOV'T - Res. 990388 percent gross-receipts tax. Because we are municipally-owned, our customers don't pay that. The State is eliminating the gross-receipts tax on natural gas delivered starting in January of next year. So 5 percent of the additional costs that the marketer could have saved just went away. I don't know and I don't profess to be an expert, but I don't know that there's enough of a difference left that you would see much of a price difference between what we purchase our gas for and what somebody else does. That's yet to be proven.
Yes. The one experience we have had in Philadelphia with so-called business management was the recent experience where we changed the whole management and we hired, I believe, three different people from three different areas of work -- somebody in finance, somebody I think in marketing, and the chief executive.
All utility professionals. 31 6/7/99 LAW & GOV'T - Res. 990388
They were all utility professionals. And it was touted this was the way that the Gas Works should go because it was the way that the former company -- I'm trying to think of their name, that the Mayor had hired.
They were a turnaround company. They were there for only a short period of time.
But I think it was a couple of years, and that may be long or short, depending on how you view it.
But this was to -- this new business management was really to bring in business. And what we learned is that private business apparently permits credit cards to be used for personal business, that moving account expenses can go to the ceiling, that it doesn't 32 6/7/99 LAW & GOV'T - Res. 990388 matter what you agree to limit your expenses to -- they can be very high. Now, if that was any example of business management -- and we're told that was because I saw comments in the newspapers from other utilities saying they saw nothing unusual in the various credit card stories that were being circulated in the press, that that was common in business practices -- I don't think that touts business management very highly. My experience over many years -- I have many complaints about PGW. Generally they relate to service for low-income and for senior citizens and to the length of time it takes to respond to calls. But I have many times spoken very highly about the quality of service of the employees of PGW and of the management that I've had direct experience with. And to have any notion that by bringing in professionals, that's going to have any impact, to me, is sheer nonsense based upon the record. If that's what's being touted as a basis for trying to take this public service company and turn it into a profit-making company for a few 33 6/7/99 LAW & GOV'T - Res. 990388 investors at the cost to senior citizens, at the cost to low-income, and the cost to all Philadelphians of having their own public service gas company, which is responsive, I believe -- I believe that a city-opened public utility company like the Gas Works is much more responsive than privately-owned companies. And I think that if anybody really were genuinely interested in turning it around, they would come forth with some solid evidence -- not a cartoon that appeared in the Daily News very recently, which indicated that only one-fifth of the bill for Gas Works is due to the expense of producing gas. It had a list of all other kinds of items as contributing to the gas bill. And I thought it was a very unfair attack on the City system. Did you see that cartoon?
I was embarrassed for the 1900 people that work at the Gas Works. They deserve better than the flogging they get, particularly in one paper. 34 6/7/99 LAW & GOV'T - Res. 990388 I would point out that on Friday of last week, the company introduced a program where we're utilizing our vehicles -- of which we have about 950 of them, and our radio equipment, which is in all of our vehicles. And we've logo-ed the trucks with a logo that says, "Kids Safe." And the point is that if a child in the streets of Philadelphia feels threatened by anything, they go to the PGW van, the PGW van will call the police or their parents and get the right authority out there. And this is something that we do anyway, but we're now taking credit for it and we're trying to be a little bit more of a safety net on city streets, 'cause that's the only place you'll find our trucks -- I hope -- so they'll help protect our children. I would note that the papers that were most interested in flogging the employees of PGW didn't bother to report that in any way, shape, or form. And I think that shows, to some extent, the unfairness of the problem we have. We've brought a lot of this on ourselves. Former management made mistakes that 35 6/7/99 LAW & GOV'T - Res. 990388 -- they weren't private business practices, they just made mistakes. Two of the three made mistakes that were embarrassing to the company, and we're going to have to live down. But I always feel, when those things happen, embarrassed for the people who work there. We have many second-generation, third-generation employees -- their fathers, their uncles, now their mothers and their daughters -- working at the gas company. They take a great deal of pride in what they do. They deliver a safe, efficient product for 512,000 customers in Philadelphia. And I think they deserve better than what they've gotten.
Mr. Hayllar, my public career probably goes longer than anyone else's in this room. I first became a Councilman 32 years ago. At that time, at that time, there was a strong demand by the same kind of people who are making the demand now for sale of the Gas Works to private industry because they apparently just feel this would be a wonderful opportunity to convert this into a profit-making mechanism, no 25 matter what the cost to the citizens of 36 6/7/99 LAW & GOV'T - Res. 990388 Philadelphia, for a small group investors. And I think it's outrageous that legislators elected by the City of Philadelphia would in any way participate in carrying out such a plan. Now, is there anything further that you wish to add before Mr. Dworetsky testifies?
No. I think if you think back on our conversation for the last 40 minutes, Councilman, you and I are i agreement on virtually every point. I understand your disagreement, ut as Director of Finance for the City, I feel I have an obligation. But on these points, you and I are on agreement.
Well, I think we're basically all in agreement on the technical facts. The question involves, how does one prevent a state legislative body from taking over the reins of government in a local municipality? And because this is not a new effort, it's been repeated over centuries, that's the reason why the Home Rule Charter was passed by the people of Philadelphia back in the late '40s, more than 50 years ago. And the essence of home rule against 37 6/7/99 LAW & GOV'T - Res. 990388 such legislation that's passed by the state from time to time regulating various activities of life in Philadelphia, the essence of home rule was to grant these rights in perpetuity and to forbid the State legislature from ever having the power to take back this authority. And it seems to me absolutely wrong for the City to sit back quietly and only participate in committee hearings and only give advice as to how we protect the investors in the City's bonds without taking the full step of fighting on behalf of all the citizens of Philadelphia and repelling this attack by the State. (Applause.)
Mr. Hayllar, in the event that the legislation goes through in Harrisburg, we hear that it could affect the senior citizens' discount and other -- the bond ratings and the bonds that we have.
I haven't read anything or had anyone respond to say if there would be. What has the proponents of this 38 6/7/99 LAW & GOV'T - Res. 990388 legislation said about the discount to our senior citizens? How do they plan to protect that? I haven't heard one of them say that they plan to eliminate that. How legally can they continue with that discount, even though we would become regulated by the Public Utility Commission?
I believe Mr. Dworetsky is in a better position to discuss that particular question. I have not talked to any of these people other than to voice our opposition to what they're doing.
Has there been any response to these claims that we are making here locally, that some of these benefits to our senior citizens and other discussion points here today, what we can do? I'll ask the counsel to respond to that.
There is a draft amendment which has not yet been introduced in the House or the Senate. As I understand where the current draft is, there's a provision that would -- excuse the term -- would "grandfather" people who are currently in the senior-citizen program in 39 6/7/99 LAW & GOV'T - Res. 990388 Philadelphia, and those who would become eligible to be in the program through the date that PGW's restructuring proceeding was completed, which is stated to be sometime in the middle of 2002. So those people who come in to the program qualify for the program up to that date, under the current amendment, would be included in that, and that would continue -- unless City Council determined to change the program.
The bond issue has been addressed in the amendments. And assuming the amendments are passed in the form that I last saw them in, there is a provision that requires the PUC to set rates pursuant to the same methodology for determining the overall revenues of the City as the Gas Commission applied under the management agreement.
Are there, as far as you know, any issues that we're discussing today that appear to be negative of an oversight or regulation that the PUC become the regulator that have not been addressed? Could you point out any 40 6/7/99 LAW & GOV'T - Res. 990388 that are not being dealt with. Apparently, two of the major concerns, apparently, legislation is dealing with that.
Could you just hold it for a minute. Councilman Rizzo, he did not address the question of senior citizens fully. It's not been taken care of. I just want it to be corrected for the record.
Well, I understand that, but the -- go ahead, continue.
Well, I think that the City's position on this legislation from the time we started was that the determination of whether there should be competition in Philadelphia or not and how the Gas Works was operated was a matter for local concern and should be determined by local option. So that has been our primary position in all of the discussions on the legislative side. 41 6/7/99 LAW & GOV'T - Res. 990388 Obviously, that's not something that is included in the amendments. We proposed as far back as a year ago as a structure under which the Gas Commission and City Council would make a determination of whether there would be customer choice in Philadelphia. And then if so, how it would be implemented. We proposed the idea that the Gas Commission would supervise a restructuring proceeding in the same way that the PUC does, and that idea has been unacceptable to the State.
And let me just for a moment mention the presence of Councilman Ortiz, a member of the committee, vice chair of this committee.
Well, I look at this as two different issues -- deregulation and coming under the control of the Public Utility Commission. Just to comment briefly on deregulation. I remember a statement, and I won't identify person that said it, that one of the obvious -- if PGW ever became available for sale, and the scenario was that PECO Energy purchased PGW or deregulation came in, that we could never 42 6/7/99 LAW & GOV'T - Res. 990388 compete with PGW or with -- excuse me, with PECO Energy if they ever started to go after our customers if deregulation became available to Philadelphia PGW customers. I remember that statement being made that said it would be the demise of PGW if deregulation ever hit. My -- do I recollect that statement being made?
I sure hope I didn't make it, because I don't think it's true. I think that we could compete with PECO. I'm not sure I'd want to compete with some companies in the west that have vast storage capability, but I think we could. Our cost of gas is comparable to PECO's. In terms of purchasing the gas, our distribution costs would be borne by all the customers anyway, but the cost of gas, we're pretty good. So I don't think that PECO is the great fear. And no offense to your former employer, but we always like to compare ourselves to PECO 'cause they have historically set a fairly low bar for us to make comparisons with. There are companies out there that are a lot cheaper, but in this region, with the 43 6/7/99 LAW & GOV'T - Res. 990388 problems of Southeastern Pennsylvania, we could do it.
Well, based on that, if deregulation becomes effective, it would be a very, very rough time for PGW to compete with the Enrons and some of the other companies that would be going after PGW customers. Is that accurate?
It would be a new world, and what you might see is that your larger customers going off, we would still charge them a transportation rate to get the gas to their boiler. But you would see more and more -- nobody's going to go after the low-income consumer. They would stay with PGW. So the customers that pay, in this scenario, would possibly go to another company, and we would have the people who have problems making payments.
So the cost to the City could actually increase. The impact on the City budget could be very harmful if there were deregulation.
'Cause government 44 6/7/99 LAW & GOV'T - Res. 990388 exists for the purpose of leveling playing fields, of giving everybody equal opportunity, of seeing that people don't freeze and don't starve. No private company ever has that obligation; its only obligation is to their shareholders, and that obligation is to maximize profit, no matter what the impact is on everybody else in the society. Isn't that true?
Well, no, excuse me. In all fairness, the Public Utility Commission does have protection to prevent that. Just look at the electric companies that have safety checks to prevent people from freezing to death. They don't necessarily always work, but they're there.
Mr. Dworetsky, I want to go back to the senior citizens' discount. I want to be very clear on what you're saying. You're saying -- am I correct to interpret that you believe that the legislation amended would allow for those people who presently receive the senior citizens' discount to be grandfathered in, and that those people who become senior citizens 45 6/7/99 LAW & GOV'T - Res. 990388 up until the time this legislation takes place, until the year 2003?
It's through the end of the restructuring proceeding. I estimate 2002, 2003.
But after that, there would be no senior citizens' discount.
I think that the fair way to say this is that the statute leaves that to the PUC, what program would be in place in the future. The company would propose a program and then PUC would then approve it. They wouldn't be required to continue the current program for people other than in the categories you've mentioned so --
Does the PUC presently allow for senior citizens' discount?
I don't believe they have any programs like that in Pennsylvania.
Is it my understanding that it is illegal for them to allow 46 6/7/99 LAW & GOV'T - Res. 990388 senior citizens to have discounts?
I think that that -- that may be true, I'm not sure. I haven't read all the cases on how the senior citizen discount would come out. But there is provisions that say that rates can't be unjustly discriminatory.
So, therefore, under the present law, as it exists, PUC could not allow for any further senior citizens' discount, as the law presently exists.
I think there's a legal issue as to whether they would be able to.
What moves you to believe that they would change that position?
So then anyone moving to becoming a senior citizen after the year 2003 would not be entitled to this discount based on present rules and regulations.
Okay. And local government would have no jurisdiction in providing 47 6/7/99 LAW & GOV'T - Res. 990388 that service.
All right. You said that PUC would set, under the bond covenants, they would set the rates to account for the bond covenants that PGW has to meet every year.
How do they plan to do that unless PGW is before them on a rate case? How do we know each year that PGW would make its bond covenants? Unless PGW's before them every year with a rate increase request.
PGW would have to take the appropriate action to request rates if they needed more rates than what were currently in place.
Well, right now, PGW comes before the Philadelphia Gas Commission every year with its budget.
We have budget oversight of PGW. We review their revenue and expenditures, and we review whether or not they will meet bond covenants. And since 1991, there 48 6/7/99 LAW & GOV'T - Res. 990388 has not been a rate increase. Who will provide that oversight to see that their budgets, the revenue and expenditures, are on target on a yearly basis?
The statute doesn't deal, as I understand it, the current state of amendments, it doesn't deal with the budgetary process. It doesn't give the PUC the authority to deal with PGW's budgets.
So then there would be no State oversight in terms of budget management or local oversight for budget management of PGW?
No direct budgetary approval. I think that part of what the PUC does has impact on the budget and what programs can be in the budget. But you're right that there's no 19 State budgetary approval process like the Gas Commission does.
And you can't speak for the legislators who've introduced this legislation. What do you see the legislation -- how does it provide better management oversight of PGW than presently exists with the Gas Commission 49 6/7/99 LAW & GOV'T - Res. 990388 and City Council?
I agree with what is on this first Charter, that PUC is not a management body, it doesn't provide management. And the cases are filled with both the courts and the Commission stating that the role of the PUC is not the Citizen Board of Directors or to provide management. The role of the Public Utility Commission is to regulate the company and for the company to manage itself.
I think it's a different system than the one that has been followed by the Gas Commission.
Well, it's the same system that a private utility uses. A private utility sets its own budget, sets its own goals, 50 6/7/99 LAW & GOV'T - Res. 990388 is responsive apparently to investors, to a board of directors. But nobody really manages a private company other than people directly involved with that company so that this outside control, which now exists, this outside supervision, would just disappear. The supervision that City Council and the Gas Commission now provide would completely disappear.
Well, I don't think the legislation deals with the management issue. I think it says that PGW will now be subject to the regulatory approvals of the PUC but it doesn't say that the City will no longer manage PGW, it doesn't say that PGW's no longer a City asset, and the City will have to manage PGW.
Point of order. How does the Daily News -- you can't answer this 'cause this is a rhetorical question -- and the State legislators come to the conclusion then that these amendments will, in placing PGW under the 51 6/7/99 LAW & GOV'T - Res. 990388 PUC, will better manage PGW? How does one come -- how can you look at the legislation and come to that conclusion?
Not on the basis of what you said. You said that they're not interfering in any way with the current management. So you're saying that despite their statements that this action is necessary in order to kind of protect PGW from the terrible management it now suffers from, you're saying that actually, the bill itself explodes the theory itself because it doesn't substitute any other kind of management.
Could they be -- and again, speculation, could they be saying that they won't permit rate increases to be approved as a result of mismanagement?
I -- the traditional way that the PUC regulates utilities is, they disallow costs that have been incurred by the utility into the rate structure. And the penalty 52 6/7/99 LAW & GOV'T - Res. 990388 of not approving those costs generates reduced rates and penalizes the shareholders of that company. That's a difficult structure to make work for PGW. And that's the reason -- excuse me?
The citizens of Philadelphia are the shareholders of PGW.
So who will pay for the mistakes made by management? Should they create some initiatives that are not productive, profitable, who will bear the cost of that expenditure not approved by the PUC?
That's a very good question. That's really, I think, the reason why it's been important to participate in the language on the bonds. Because if the legislation were approved without any specific treatment for the bonds, we'd have that very problem, that there would be a disallowance of rates if there were a management problem, and it could result in us violating the bond covenant. So what the amendments, in the form that I last saw them in, in which I understand 53 6/7/99 LAW & GOV'T - Res. 990388 that they intend to introduce them in that form, is to provide -- the PUC has to set the rates so that they cover the bonds. Regardless of whether they agree with the expenditures of the company, they have a legal requirement to set the rates so that they meet the bond covenant.
While at the table, are the issues that we've just raised discussed in terms of who pays? Because, usually, supposedly since 1991, PGW hasn't been before the Commission for a base rate increase. And it's moving now to the year 2000, and they're managing this company on a daily basis. And when they go to seek a rate increase, there are a lot of initiatives or expenditures that are not approved by the PUC. Who pays? Again, who pays?
Well, the -- I think the answer is that if the failure to approve those expenses would mean there isn't sufficient funds to meet the bond covenant, they would not be able to disapprove the expenses. If there were more than enough to meet the bond covenant, which, as you know, is not just debt service, it's 150 54 6/7/99 LAW & GOV'T - Res. 990388 percent of that debt service, at that point then, it would be the City that would pay.
The City? Does that mean the City government, the General Fund or the ratepayer?
Well, it means the -- I guess it's really the gas enterprise fund in which the City's interest in PGW is calculated.
It provides that when it becomes effective on June 30th of 2000, that the Gas Commission is abrogated to the extent and consistent with the State statute.
There is no new authority set up by the State legislation. That's left to the City.
Let's separate this discussion out from the amendments that will be or intended to be or that are discussed and deregulation. So let's take away the amendments and let's talk about deregulation. And if -- as I 55 6/7/99 LAW & GOV'T - Res. 990388 understand it, and my Commission staff was a part of the collaborative, that we asked to have forum to look at the whole issue of deregulation, and I know the new legislation that came on board did not have Philadelphia in the deregulation. Is that true?
So Philadelphia was not going to be a part of deregulation.
It was not going to be in part of the statute at all, that's correct.
Right. Up until the time we had a discussion -- we had a collaborative, for the record, Mr. Chairman. There was a Philadelphia collaborative made up of representatives from the Gas Commission, City Council, PGW, the Mayor's Office, a number of key stakeholders that met in Harrisburg from the initial time that this whole issue of deregulation was discussed. And at the time we raised the question as to what would it do for the ratepayer in Philadelphia, there was no answer to that, will we save any money? The discussion just went away. 56 6/7/99 LAW & GOV'T - Res. 990388
The deregulation issue became another discussion, what, last year?
And Philadelphia was not part of the proposal, right?
That's right. See, what happened was that the PUC called together about 60 stakeholders in the industry in Pennsylvania, and the City decided, through the progress described by Councilwoman Tasco, that we should participate in that process, and we participated extensively in the process. There was a separate working group from --
Did I miss something, sir? I don't want to interrupt, but just get me clear.
I did not recognize, as part of the collaboratives, any representation of ordinary citizens of Philadelphia -- say, senior citizens or low-income people. Was there some group that was supposed to be representing their interests as part of this 57 6/7/99 LAW & GOV'T - Res. 990388 collaborative?
In Harrisburg, in the overall collaborative that was convened by the PUC, there were a number of representatives of low-income, senior citizens, and other advocacy groups.
From the Philadelphia area and elsewhere. There was Public Utility Law Project in Harrisburg, Action Alliance for Senior Citizens was there.
And they've been kept informed, all of these groups, about what's been happening?
Well, let me put this in context. We're talking now about a year to 18 months ago. This is the big PUC process, 60 different parties -- low-income, community 58 6/7/99 LAW & GOV'T - Res. 990388 advocates, State utilities, and municipalities. And as a part of that process, they broke into various working groups. There was a separate working group for municipals, of which there were only two -- PGW and one other very small borough utility. And in that working group, all the problems that Councilwoman Tasco has raised now, plus, you know, 50 other ones that were raised by all of the different City people, were put on the table. And we talked about that with the other people from the different parts of the state that came in there. And I think there was an agreement there that the City's problems were unique, we were not the same as the jurisdiction of utilities. And I don't think we succeeded in persuading people that we should ultimately be treated differently as far as competition was concerned, but I think we did do a good job of convincing them that they could --
We didn't persuade our State representatives from Philadelphia that we shouldn't be a part of that. I think the rest of the people understood that, don't you agree? 59 6/7/99 LAW & GOV'T - Res. 990388
Well, I think that the governor's office was not supportive of our position. I think that the House --
Well, that would be clear. The governor doesn't even pretend to speak for ordinary people. He is interested, as he's made very clear, in business and only in business. So why would you expect to convince him?
Sometimes I have this very high and un -- ridiculously overinflated idea of my persuasiveness, but I did not succeed in that case.
Let me just finish, though, just to make sure we got the time line straight. That process ended in a deadlock -- not with Philadelphia, but between other parts of the interest group. And the whole legislation got 60 6/7/99 LAW & GOV'T - Res. 990388 stuck on whether the State would repeal the gross-receipts tax. And it really died at that point. When it came back, the rest of the state -- the other utilities -- had reached some type of resolution on their issues, other than this tax issue. And when the tax issue was resolved, they were ready to go. And so the bill was introduced without the City in it because the City's issues really hadn't been addressed. I don't think there'd been a determination that the City would never be addressed -- it was just that we were not at that point, ready to go, and they hadn't addressed our issues, and so that's what happened. Then once got into the legislative process now as opposed to the PUC process, then there was an impetus to bring PGW in.
When was that? Could you give us some idea of the time?
Yeah. It was really this year, it was in the winter of this year.
You mean back in January? 61 6/7/99 LAW & GOV'T - Res. 990388
Yes. Because we submitted -- our working group, our City working group submitted extensive lists of problems with the legislation in March.
Well, since that time, since, say, last December, January, February of this year, what meetings have taken place between the City and the Philadelphia delegation in the House and in the Senate?
Well, who would know that? Because it would seem to me that once the legislation was introduced that did not deal with Philadelphia's issues, that it was clear that there was a problem at hand. Was that the time at which they indicated they were going to include Philadelphia in the process of deregulation?
Yes. Maybe I was unclear in my answer before. 62 6/7/99 LAW & GOV'T - Res. 990388 I don't know of any briefing of the delegation as a, you know, get together and sit down and talk with the whole delegation. If there has been one, I didn't participate in that.
Well, you know, it's like A-B-C. And I don't understand it. Anybody who knows anything about politics, if a problem comes that's going to affect the constituencies of the Philadelphia representatives, then you bring those folks together and say, Do you know that this problem exists? And we've got to mobilize to find a way to defeat it because we think it's harmful. Now, that apparently has never been done. Instead, what's been assumed is that Governor Ridge and his party, I assume -- you know, I don't know how they're counting the votes. But it's assumed that Governor Ridge and the dominant party, apparently, has the votes to pass this no matter how it affects Philadelphians. And that's something that I don't believe. I believe that if the constituents of the City and State representatives and State 63 6/7/99 LAW & GOV'T - Res. 990388 senators know about this problem, they will take the necessary action so that no Philadelphia representative at the Senate level or the House of Representatives level will in any way support this legislation. And if that happens, there won't be any such bill endangering Philadelphia senior citizens, low-income customers, and everything else that goes along with it. And I just fail to -- this is why it seems to those of us that have some knowledge of how a political process works interpret the Mayor's failure to act, failure to mobilize people is tantamount to going along with the Governor's ideas. And we're wondering, why is he doing that? We dismiss future political ambitions because we certainly hope that's not been in the Mayor's thoughts because he's the Mayor of the City until the end of this year. So we hope that his first thought is what's important to Philadelphia. I just don't understand why once it became clear, why the Mayor didn't immediately call all the State senators and representatives representing Philadelphia together and said, We 64 6/7/99 LAW & GOV'T - Res. 990388 face a really problem here. And I think it would have been done on a bipartisan basis. Had that been done, you wouldn't have to spend all this time, Mr. Dworetsky. I'm not trying to make you lose fees, but I think even you would be willing to lose your legal fees if we could save self-government for Philadelphia. I'd like to see you be spending your time preparing the City's legal position, if that ever became necessary, in defense of the Home Rule Charter.
Well, as you point out, there clearly are implications for the Charter. The statute does repeal portions of the Charter, and it is the first time that I've seen State legislation do that. I mean, I think you understand, you know, my role in this has been to try to make sure that if a bill is passed, that it contains provisions that are protective of the -- that address the major problems that the working group identified and --
Well, the reason we asked the Mayor to appear is, we understand that both of you, you know, don't make the policies, 65 6/7/99 LAW & GOV'T - Res. 990388 that only the Mayor makes the policies on behalf of the City administration. And the reason we wanted the Mayor here was so that we didn't have to raise these issues with you because each of you is very limited in your ability to answer, because only the Mayor has the ability to change a policy or to explain what his policy is. And it's kind of shocking to me to see that the Mayor has chosen to ignore Philadelphians by not coming here. He didn't do that Friday when he was interested in something that we strongly favor, and I think Council probably unanimously favors the gun control legislation. But he was here to help rally Philadelphians. I'm just wondering why he isn't here to help rally Philadelphians in this case to save their Home Rule Charter, you know, to save the rights that we have built up. Obviously, at the State level, rural people who have no knowledge of Philadelphia's problems may have a different approach, you know, to how Philadelphia ought to deal with this problem. It's always easy to do it from a distance. But if you're living in a situation, I 66 6/7/99 LAW & GOV'T - Res. 990388 have trouble believing that the rural legislators are going to vote to have Philadelphians freeze this coming winter or the winter that follows. Well, look, I think it's time that -- could both of you remain here on behalf of --
I haven't finished yet. I support Councilman Cohen in that an attack on the Home Rule Charter seems to me would have been the answer to address that issue. I mean, you start today with attacking the Charter or removing your powers and then some other move comes down the line. So I have to go on record to question the sincerity of the Mayor. Yes, he did send a letter. That is, you know, you can wink and nod and do what you have to do but, on the other hand, be supportive of what's going on. For the record, also, Councilman Cohen, we have had for the last two or three years the whole discussion of governance around the 67 6/7/99 LAW & GOV'T - Res. 990388 Philadelphia Gas Works and the role of the Gas Commission. And sometimes there has not been a lot of pleasure with the Commission in terms of some of the decisions we have made or have not made. And there may be some support to remove the Gas Commission and use this as a way to get rid of the Commission because we do provide oversight of PGW. So that was just an editorial comment there.
Councilwoman Tasco, wasn't there recent action in which the Mayor asserted himself to dismiss a member of the Gas Commission?
He did that too. And there have been many discussions around governance relative to the Gas Commission and the role of the Gas Commission that plays with PGW. We were criticized for micro-managing and we were told not to micro-manage until we got new management in. New management came in and we let them manage, so now we're criticized for not micro-managing. So, I mean, you're dammed if you do, you're dammed if you don't. 68 6/7/99 LAW & GOV'T - Res. 990388 But in any case, there are some people who are unhappy with the Gas Commission. Let me just ask you a question, Mr. Dworetsky. What role have you played in this whole issue of deregulation and the amendments? And how long have you been involved? And when did you begin to work on the amendments relative to the whole issue the deregulation?
There was a -- we got -- when we first got the first draft amendments that were drafted in the House Republican caucus, it was, I think, in February. And what I did was, we have this working group that we mentioned before of 14 or 15 people, and we had a big meeting in my office and we put together a list of the major problems that we could all identify with respect -- with respect to the amendments as they were done. And we sent off that list to the State in the middle of March. And from the middle of March, I have been getting -- I got a response from the State with respect to those amendments, and I have drafted language that dealt with particular points in that, and circulated it to 69 6/7/99 LAW & GOV'T - Res. 990388 the working group. So it's been in that time frame.
Let me ask you this question. When you saw the amendments presented in the way that they were to attack the Home Rule Charter, as former City Solicitor, did your red flag go up to say to the Mayor, We should address this issue rather than trying to help the legislators draft the amendment to take away the power of the City to oversee the PGW?
Well, Councilwoman, I mean, if you're asking me whether I like these amendments and whether I support the amendments and whether I thought the amendments were a good idea from the beginning, the answer is, I don't. And I think that that's been very clear.
Well, what would you advise the Mayor to do if you were City Solicitor around this issue? To go along with it and help them take away the power of the Gas Commission and the power of City Council? Or would you fight the process of taking away -- attacking the Home Rule Charter?
Well, I think the 70 6/7/99 LAW & GOV'T - Res. 990388 issue about fighting this legislation from a legal perspective, through litigation, doesn't even come up until the legislation is passed. In the meantime, I think -- and I would have told the Mayor when I was City Solicitor, and I think it's the responsible position is that if there's any chance to make sure that legislation which is passed does not include language which causes either a technical default or a fact default on the bonds, we should try to do that. I think that's the responsible thing to do. I know it's not -- that doesn't mean that the legislation is supported.
Well, that depends on the circumstance. If the Mayor were at the same time leading a fight against this and taking these steps that you're talking about, that might be one thing. But the record is clear that all the Mayor is doing is saying to the leadership that wants this new legislation, This is the way to do it and to minimize the damage to Philadelphia. And many people, we are told on very good authority, many people assume that that means 71 6/7/99 LAW & GOV'T - Res. 990388 that the Mayor supports this legislation. I am told that the common opinion among Republicans in the House and the Senate is that the Democrats are also on board; therefore, you Republicans ought to be on board, because the Democrats in Philadelphia support this legislation. That is common knowledge throughout Harrisburg you won't find any responsible political analyst there concluding differently. What you're talking about is a very sophisticated legal defense which, under certain circumstances, is appropriate. But in this case, it has all the earmarks of, We accept the inevitable, therefore just put in this language so we can protect Philadelphia's investors. Forget about the senior citizens, forget about the low-income people 'cause they don't really count. It's only people that have money to invest that really count. And that's the message that's gone forth throughout the State. And if that's not the message the Mayor wants to be circulating, then I think the Mayor's got to come out and make mighty clear that he's against this legislation and that he will fight it 72 6/7/99 LAW & GOV'T - Res. 990388 to the very end. And if he does that, he will mobilize all of the representatives in the Senate and House, irrespective of party. Because I cannot believe for a moment that any representative at the State House or the State Senate would support this legislation 'cause every one of them have large numbers of senior citizens and large numbers of low-income constituents right in their own district. But they're all just going along because they think the Mayor wants us to go along and he's going to protect us, he's going to tell us that, Gee, there was never any chance of defeating this. And, of course, the Mayor knows better than that. The Mayor's a pretty good politician, and he knows had he wanted to, he could have killed this a long time ago. (Applause.)
And now that he's let it go this far, it's urgent now because he's the one that's going to be held accountable if this bill passes. And you know the silence from the two candidates for mayor is deafening. I haven't 73 6/7/99 LAW & GOV'T - Res. 990388 heard a word in protest from either the Democrat nominee, who was nominated three weeks ago, or from the Republican nominee, who officially was nominated three weeks ago. It seems to me they both ought to be out in front together with this Mayor leading the parade. They joined him when the Mayor led the fight against the retirement benefits. Sam Katz and John Street sent him letters saying to the Mayor, We support your being tough and not giving increases to the retirees. It certainly seems to me that they owe everybody in Philadelphia the responsibility to support the Mayor and to lead the fight against this bill becoming law. And if the Mayor refuses to do it, certainly the two candidates ought to do it on their own. (Applause.)
We talked earlier about the creation of a new authority. Is that a part of the new proposed amendments? 74 6/7/99 LAW & GOV'T - Res. 990388
It doesn't create a new authority, but it would give the City the power to create an authority, a municipal authority.
It's pretty flexible. It could be either gas supply or gas distribution. The current Municipal Authorities Act, which gives Council the power to create authorities, doesn't include gas. So this would, in essence, give you that authority with respect to a gas utility as well.
Would the authority have a budgetary oversight of PGW?
The details of how an authority would get the assets, none of that is dealt within the statute and how the authority would deal with budgetary matters. It's just an option that is given under the last draft of the amendments for the City to create an authority for that purpose, if the City desired to do so.
In this new 75 6/7/99 LAW & GOV'T - Res. 990388 legislation.
The City does, okay. So who would oversee the budget of PGW?
Well, under the current structure, obviously, it's the Gas Commission.
But the Gas Commission's going to be abolished. Let's look at the future. Who's going to have budgetary oversight?
Well, it could easily come back to City Council, and it could be done through Council as you do other departments. And you could provide separately by, you know, the new version of the governance.
Is there any reason to abolish the Gas Commission in this new legislation?
Is there a reason to? Well, I guess if you accept the premise that you're going to substitute a different regulator, there is reason.
Well, the City isn't much of a regulator, is it? Didn't the newspapers 76 6/7/99 LAW & GOV'T - Res. 990388 report recently about a million and a half dollars being spent on a homeless shelter with no 4 supervision as to the expenditures, no way at all of finding out what happened to that million and a half dollars? That's the City's oversight, you know, that part of the City directly under the authority of the Mayor. Incidently, let me note for the record the presence of Councilman Frank DiCicco. So I don't know when you say the City will have authority, it doesn't -- I mean, the fact that the City has authority doesn't mean anything. The City lets money be spent without checking on anything.
No, I don't think that's right. All I mean is that the governance of PGW is not addressed in the statute. That's been an issue for the City a long time, and it remains an issue for the City. And that's done through the different components of City government -- through City Council, through the executive branch. And there's no reason to think that that's going to be obviated by the statute. I 77 6/7/99 LAW & GOV'T - Res. 990388 mean, this statute makes it probably more important that the City determine how it wants to govern PGW.
But it's taking away the power from the City. It's saying in certain areas, You're not going to be able to do anything because you're going to be subject to the same rules that private utilities are under the PUC; therefore, out goes the senior-citizen discount, out goes the low-income discount, out goes a whole series of regulations with respect to gas shutoffs.
And if you have an outside agency suddenly deciding whether certain expenditures are appropriate or not, how can you say the City maintains the authority when these important areas are being taken away from City control and being turned over to the State?
Well, I think there are two different components that we're talking about. One is governance and one is regulation. And there are areas, you're quite right, there are 78 6/7/99 LAW & GOV'T - Res. 990388 areas where they get very close. And there are some times -- and Councilwoman Tasco would agree with me on this, there are areas where it's hard to tell when your regulatory arm is really your governance arm or vice versa. But in many areas, the governance is a separate thing than regulation, and governance remains with the City, and the City's policy decisions with respect to many matters that PGW currently has will continue in the future.
The only group that's confused about governance and the regulatory body has been this group sitting at this table. The ability to regulate and to manage, and with the Commission's authority to oversee the budget process, it helps to keep the rates from going up. I mean, you put the rate process in Harrisburg and you have the governance issue over here someplace, who manages the company in terms of their ability to manage their own expenditures? 'Cause we've had some problems with some initiatives that have been brought before the Commission that have not been well-thought 79 6/7/99 LAW & GOV'T - Res. 990388 through. And because we raised that issue, we have saved the ratepayers money because we stopped it at the door instead of allowing it to go through and then coming back and saying, Oh, that wasn't a good idea, let's raise the rates and let the ratepayer pay for this, 'cause the City's certainly not going to pick it up. So only the confusion has come about because there are some people who don't particularly like the way the Commission has had oversight, budgetary oversight and thorough budgetary oversight by some competent staff, which raise some very crucial issues. And that's why this Gas Commission is being recommended to be abolished, but it doesn't have to be abolished.
Mr. Dworetsky, why are we doing the dirty work for those who want to take away rights from citizens? (Applause.)
Why are we providing an excuse for Representative Perzel and Senator Salvatore to say later, Oh, they thought this is what the City of Philadelphia wanted. You know, this legislation, we work with the City of 80 6/7/99 LAW & GOV'T - Res. 990388 Philadelphia all the time. For a year and a half, they've been meeting with our committee, they gave us the language that they wanted inserted. They didn't give us any language that said the rights of senior citizens shall be protected and that the PUC, if it takes jurisdiction, will have to honor the commitment made to our senior citizens. You didn't give them any language to protect the low-income people, did you? You gave 'em language to protect the investors 'cause that's all Philadelphia was interested in. (Applause.)
Why do you want to give them that cover? If Perzel and Salvatore and anybody else want to take away the rights of people, let them come out and proclaim it, and let the people respond to that. But you're permitting a stealth attack on the rights of the people. And that's why the people are suspicious as to the role of the Mayor and what the Mayor's policy really is. They believe the Mayor supports this bill that's in Harrisburg, despite his statement on the record in 81 6/7/99 LAW & GOV'T - Res. 990388 opposition.
Well, as I've said now a couple times, what I have tried to do is to make sure that the legislation, if it's passed, is protective of the bonds and deals with the other issues identified by all the constituencies.
Why aren't you interested in the rights of the senior citizens and the low-income customers?
I think you misunderstand the positions that we took from the very beginning of this process. We not only said that the decisions about senior citizens and low-income should be local decisions; we said that all the decisions concerning how PGW should be operated in the future should be determined locally. That's been our position. We had a full draft chapter of the bill.
Then why didn't you include that kind of language into the bill? When did you tell them that together with the investors, these are the other interests that have to be protected from possible PUC change?
All those discussions 82 6/7/99 LAW & GOV'T - Res. 990388 happened. I mean, you're --
But you didn't put it in the language, did you? saying that this bears the imprimatur of the Mayor's approval? The Mayor says any bill has to contain this. As well as the protection of the rights of investors, it has to protect the other interests. Why didn't you give them language which protection the Gas Commission as the continuing authority? Why do we have to create another body when we have a Gas Commission with complete representation -- two members of City Council, two members from the Mayor's Office, and the City Controller appoints the fifth member. It seems to me that's fully representative. And this comes from me. I don't always agree with the Gas Commission. I filled Councilwoman's ears on a number of occasions with complaints about their decisions. But that's the best form of representation that I know that we could have. You have the legislative body involved, you have the Mayor, and you have the City Controller. They're the top officials of the City. That's where there ought to be 83 6/7/99 LAW & GOV'T - Res. 990388 responsibility. So why didn't you include that the Gas Commission will remain the regulatory --
I suggested that in the legislation from the very beginning that the City, in --
-- the current structure and that the City be able to legislate for what senior citizen program there would be, what low-income program there would be.
They have that language, they had a full chapter that was designed to create local control over the PGW deregulation and a local determination of whether there would be. I can't tell you they didn't -- it's not that they didn't get the language. The question is whether they are amenable to the language. I've negotiated into the statute those provisions which there was room to negotiate. Is that perfect? No, it's not 84 6/7/99 LAW & GOV'T - Res. 990388 perfect. Is the statute something that we like? No, it's not something that we like. Is it better than what it was? You bet it's better.
Well, I haven't heard a public statement by the Mayor saying that unless this bill contains full protection for senior citizens, for low-income customers of the Gas Works, and protects on the stoppages of service, that unless it contains those protections in addition to investor protections, this City will oppose this legislation in every form and everywhere, and calls upon all of its representatives to vote no on this bill. Why doesn't the Mayor say that if that's his position? (Applause.)
Well, I think you're asking a rhetorical question. You have said several times that you think the Mayor should be out in front in terms of the legislative initiative.
You said that. I can't speak for the Mayor on that. 85 6/7/99 LAW & GOV'T - Res. 990388
Well, I understand that you can't speak for the Mayor, and the Mayor apparently doesn't want to speak for himself because, apparently, he's not willing to make these statements. What has been known in Harrisburg is that the Mayor is willing to live with this bill 9 if it contains investors protection, and you can forget the rest. Whatever we've given you, we've given you for the record. So our witnesses can tell that to City Council when they raise questions.
I don't think that that's true. I think it's been quite clear that the City's position has been opposed to this legislation from the beginning. And the amendments we opposed, and the question is whether the amendments, undrafted, without any improvement, that we should fight over those and we should try to get them better. And the decision was made to improve those amendments. And I think that whatever the amendments today, they are much better than when they started. 86 6/7/99 LAW & GOV'T - Res. 990388
Well, not so far as the senior citizens rights are threatened, not so far as those who benefit from the times when the gas cannot be shut off, not so far as the low-income customers. They're not benefitted, and I don't think the citizenry in Philadelphia in general is benefitted because all I think that's going to happen is the rates are going to skyrocket, just as they do with cable TV, just as they're doing in the telephone business. As soon as you put private enterprise in, the need for profit-making takes precedence over the need for services to people. And that's what's going to be happening here. Unless there are any other questions of these witnesses, I would like to call Mr. Kimmerle of the Gas Commission. But I would like to ask Mr. Dworetsky and Mr. Hayllar to stay in case questions come up and there are differences of opinion. (Mr. Kimmerle comes forward.)
Thank you, Mr. Kimmerle. Would you identify yourself, sir, for the record. 87 6/7/99 LAW & GOV'T - Res. 990388
And could I ask you, because I think we've had probably a more extensive discussion of many of the aspects, I'd like to ask you to summarize and to state any differences that you feel are important for this committee to have.
Thank you. You'll recall that I testified before the Council.
The Chair notes the presence of Councilman Clarke, Councilman Darryl Clarke. Or Councilman Clarke. There's only one Councilman Clarke. There's a Councilwoman Clark, but they spell their names differently, right?
Thank you. Instead of going on, I'll trying to work from memory. I don't have the current statements. But essentially, there is --
Bring your 88 6/7/99 LAW & GOV'T - Res. 990388 microphone closer to you, as close as you see it is to me so that everybody in the audience can hear as well as members of the committee.
Essentially the legislation moving through Harrisburg will be composed of --
And, Mr. Kimmerle, the microphone belongs right in front of you, not to the side.
Okay. Essentially, the legislation that's moving through Harrisburg today consists of what I call the "core legislation," which is the legislation designed to provide, quote/unquote, customer choice to all gas consumers in the State of Pennsylvania. And I'm also aware that there is language circulating that would amend the legislation to bring the City of Philadelphia under the terms of the core legislation, and at the same time, have fundamental changes on the regulatory structure of 89 6/7/99 LAW & GOV'T - Res. 990388 the Philadelphia Gas Works. The core legislation would essentially, what they call, "unbundle" the distribution systems in Pennsylvania. It would allow gas marketers to enter the market for the first time, and it would continue the monopoly status of the pipe companies, or PGW or PECO, to deliver gas within their service territories. There are some weaknesses in the core legislation from the consumer's perspective. It does a couple of things. First, with PUC approval, gas distribution companies would be allowed to exit the regulated gas sales market. That's an important component because no one has been able to demonstrate within the collaborative process -- and in fact, I've asked the PUC on numerous occasions, Has anyone reviewed the economic impact of this legislation? The result is no, there has been no analysis of the legislation. The testimony that we received in '97 said that gas rates could be reduced by as much as 20 percent net of the gross receipts tax. The testimony is now silent. And when the PUC and 90 6/7/99 LAW & GOV'T - Res. 990388 others are asked, why is the legislation being moved forward? it's to provide customers choice. It's not to provide reduced gas prices 'cause there's no basis for that argument. And in fact, it's likely the that gas prices will go up in the state of Pennsylvania as a result of legislation. There are also some sleeper pieces in the core legislation. To the extent that a utility continues to provide gas service, the legislation provides a new option that hasn't been available in the state before, and that's to provide monthly adjustments to gas costs. And in the case of the amendment that's been drafted to deal with the Philadelphia Gas Works, not only is there provision for providing a monthly gas cost adjustment, but there's also a provision for a monthly non-gas cost adjustment -- without review; it is reviewed at a later date. This comes to the core of costs in the City for gas. The Philadelphia Gas Commission this year turned down PGW's requests for a monthly gas cost adjustment on the basis that it would expose the consumers to a very volatile gas market, 91 6/7/99 LAW & GOV'T - Res. 990388 particularly during periods of dislocation. As an energy professional, I've lived through two significant dislocations in the oil market. I think, sir, you'll remember the gas lines in the early '70s, and you'll remember the dislocation that happened in the international energy gas markets in the '80s. This volatility will now be pushed through to gas customers on a monthly basis. Just like now when you go to the gasoline pump, you pay today's price; that same thing is going to happen to residential customers. The other core piece of the legislation that will have an impact on the PGW and the ratepayers in Philadelphia is the concept of a provider of last resort. The provider of last resort in the core legislation is designed to provide gas service to those customers who a gas marketer chooses not to serve, a customer who chooses not to be provided by a marketer, or third, in the event that a gas marketer defaults on its obligation to deliver gas. Now, if you look at that population, who are the people that the gas marketers are not 92 6/7/99 LAW & GOV'T - Res. 990388 going to go after aggressively? I would assume that if I was in that business, I am not going to provide competitive rates to people who have troubled credit histories.
To the extent that -- so the other group is a situation where a gas marketer fails to make delivery. And why would that happen? I've been in the energy business now for over years, 10 and I have seen marketing organizations declare 11 bankruptcy so that because they could not meet 12 their obligations to deliver energy during periods 13 of dislocation in energy markets. 14 Under the core legislation, the 15 provider of last resort would have to step into 16 the market with no notice at all, secure gas at 17 the market price, and deliver it to PGW 18 customers. The provider of lasts resort 19 obligation is almost impossible to plan for 20 because the real impact comes from dislocations in the energy market. As a result, we're going to have people bundled into a group of customers served by a provider of last resort. And that group of customers are probably going to have substantially 93 6/7/99 LAW & GOV'T - Res. 990388 above-market costs for their natural gas commodity. Let me move on.
Well, Mr. Kimmerle, I'm not sure I understand what it is that you're saying, and I --
What I am saying is that the core legislation is going to result in an increased cost in gas to a significant portion of the Philadelphia population, bottom line.
Because if there is choice, the aggressive market is not going to serve portions of the population.
The provider of resort does not have a right to refuse, and that's why the provider of last resort will be the expensive provider of gas service in the City.
That's right. They're 94 6/7/99 LAW & GOV'T - Res. 990388 in business, they're just like the grocery store. They can --
But I thought a utility had a responsibility that -- oh, I guess that's when the utility has a monopoly.
That's when it's a regulated business. But the gas marketer is not a regulated business.
So they will have no 11 responsibility to provide gas to people of low income.
They will have an obligation, as established by the PUC. The question comes down to, how far will the PUC go in structuring an obligation to serve all customers? I know in the private sector, you can design your marketing campaigns and your advertising campaigns to target customers. During the Hawes administration of PGW, there was a plan to mine the PGW customer base to identify those customers most likely to buy selected products. The gas marketer is going to mine the City of Philadelphia and identify those customers who they want to choose, and they will 95 6/7/99 LAW & GOV'T - Res. 990388 design the marketing programs to target those customers.
To target, for example, industrial and commercial users 'cause they're the highest volume users?
I believe that we've already seen the testimony from Connectiv Energy, who was testifying on the part of Green Mountain Energy and Shell Oil, that they would not participate in the unbundled market in Pennsylvania because the legislation itself is poorly drafted and does not allow them to make a return on the residential customer.
Well, that's a -- would I be wrong if I said it sounds to me like this opens the door to companies taking the cream of the crop and leaving the City with the burden of serving the customers that have economic problems?
I believe that's true. I also believe that it's deceptive to say that the senior-citizen discount would continue under the proposed legislation. The purpose of the legislation is to provide customers choice. 96 6/7/99 LAW & GOV'T - Res. 990388 At the present time, the way the senior-citizen discount is structured, a senior citizen receives a percent discount off all of 5 the charges of PGW. To the extent that a senior 6 citizen takes advantage of a price being offered 7 from a marketer, only the transportation portion 8 of the PGW rate would be discounted. The gas 9 component of their bill would not. 10 As a rule of thumb, we assume that 11 about 50 percent of a customer's bill is for the 12 commodity of gas and about 50 percent is for the 13 commodity of transportation. So that even the 14 assumption that the senior-citizen discount would 15 continue is a fallacy. 16 And at the risk of going beyond reason 17 on this testimony, the legislation also provides 18 that if competition doesn't develop in a market 19 within five years, that the PUC will reconvene a 20 collaborative to figure out ways to make competition work. What's happened in the Canadian experience and is happening in other parts of the country is that the utilities have been somewhat more effective in maintaining their market share. 97 6/7/99 LAW & GOV'T - Res. 990388 And now, the thrust in Canada is how do we drive the utility out of the gas business altogether? This goes to the very core of the senior-citizen discount because to the extent that five years from now, the market's determined not to be competitive, the PUC could regulate PGW as the regulated entity out of the gas sales business altogether. And even those senior citizens who are grandfathered would lose their discount on the commodity gas.
Well, thank. You you've given much added weight to the threat of the senior citizens' discount. You're saying basically that they would lose half of their discount because only a portion of it would be covered by the senior citizen's discounts. That's for those that the legislation contemplates grandfathering in. Other newly senior citizens -- we hope they live and get to become senior citizens -- they would not get it after the year 2003?
No, they would get it after the year 2003, but five years after the effective date of the legislation. 98 6/7/99 LAW & GOV'T - Res. 990388
But new people who become senior citizens after that date.
No, the new people would not be -- under my understanding of the last draft I read, new people would not be eligible for the discount.
What we're also saying is that those people who are eligible for the discount and grandfathered in could very well lose their discount over time because of further review that competition didn't develop in the Philadelphia market.
Okay. Thank you. Are there any questions of Mr. Kimmerle from any members of the committee? (No questions.)
If not, thank you very much. I'm going to ask you, is there anything else you wanted to add?
I've been sitting in the collaborative process since the beginning. In 99 6/7/99 LAW & GOV'T - Res. 990388 fact, Councilwoman Tasco testified as early as 1997 on this piece of legislation. In an earlier life, I was employed by Conrail, and the corporation made a decision that deregulation of the rail industry would be in the best interests of the company. And as part of that effort, we mobilized all of the employees, we mobilized all of the management to do a grass-roots lobbying campaign of the legislators in Washington. At the same time, management of the company was aggressively lobbying in Washington to promote deregulation of the rail industry. I have been involved in other lobbying campaigns, both on the part of the National Coal Association, and more recently, on the part of the National Association of Utility Regulatory Commissioners. And in each case, there has been developed a strategy as to how to accomplish the goals of the organization. First, there is a definition of what was the goal; the second was, how then do we accomplish our goals. I've been very frustrated as a member of the City's collaborative with respect to 100 6/7/99 LAW & GOV'T - Res. 990388 unbundling. It seems to me from the very beginning of the process that the strategy has been to develop the best deal we can for the City under the terms of the legislation. The City began drafting language that ultimately appears in this legislation early on in the process, far -- when you're in the municipal section, language was drafted and circulated amongst the participants in the municipal section. We initiated meetings with the Governor's staff. At that time, we were drafting language and circulating it that would protect the bondholders. But we didn't see and we haven't seen a strong concerted effort to develop a strategy for defeating the amendment. As recently as last week, I had the opportunity to meet with a number of State legislators, and they were surprised to learn that the legislation was even moving. I had an opportunity to talk to some of the others, and we were saying that based upon the work of Mr. Dworetsky and Mr. Hayllar in Harrisburg, they assumed that the City was behind the legislation. I asked them about the letter from the Mayor. 101 6/7/99 LAW & GOV'T - Res. 990388 They said the letter from the Mayor -- that's dated. We haven't seen any opposition to this legislation or to the amendment of the legislation from the City. They're working under the assumption that based upon the silence in the City, that the City is in agreement with the forms of the legislation. Thank you.
Thank you very much, Mr. Kimmerle. The observations you have made are in conformity with what my independent survey of what's going on in Harrisburg reports. Councilman Ortiz?
I think it's very clear that no strategy for defeating the amendment was ever structured. I think the strategy was to make the amendment as palatable as possible, but not to defeat it as such.
Let me add to that. It took me close to four years to understand the nuances of the governance of PGW. I had to ask myself for three years who I worked for. Ultimately, I found out I'm an employee of PGW, I 102 6/7/99 LAW & GOV'T - Res. 990388 think. But I've seen the strategy in Harrisburg to be something along the lines of Atila the Hun being at the gate, and we have a beautiful city. And the decision's been made that instead of putting the City at risk, we'll give Atila a road map as how to enter the City with the least amount of damage. Thank you.
Well, that's what we're fearful but the way to change it is to bring about a change in the Mayor's policy, and we're hoping the Mayor will respond to that. And if he doesn't, I think that initiative will be taken by members of City Council to bring about that change. I think it's absolutely urgent that the constituencies of the different representatives and the different senators representing Philadelphia be informed as to what may be happening, and that they find out from their representatives and the senators what their position is. I don't think the senators and representatives should have the protective 103 6/7/99 LAW & GOV'T - Res. 990388 covering of saying, well, they never understood what this legislation was about, and had they understood it, they would have been opposed to it. I'm fearful that the City's policy is giving credence to the statements to be made at a later time by the representatives and senators that we thought Philadelphia supported this, we never knew it, you know, created any kind of problems for anybody, or we would have been against it. And I think we've got to shatter that kind of story and make sure that the elected representatives are held responsible for their actions. We thank you for your statement. Any questions? (No questions.)
I see no questions from members of the committee. We thank you very much and I also ask you to remain just for -- I think the remainder of the testimony is going to be very brief. But I'd like to ask you as I've asked Mr. Dworetsky and Mr. Hayllar to remain just in case some questions 104 6/7/99 LAW & GOV'T - Res. 990388 came up. Mr. Given, I understand that as President of the Union, you may have anybody else come up with you if you wish to. (Joe Given comes forward.)
And there's a representative, I think, of TAG that's going to -- are you with Mr. Givens? Then you can please sit with him. Very good, sir.
My name's Joe Given, G-I-V-E-N, President of the Gas Works Employees Union, Local 686 (SEIU). I don't have a prepared statement, and I wasn't going to make any statement. But after listening to the testimony, I think I've got to clarify both the union and labor's position on this bill. We were part of the task force for the last year and a half out in Harrisburg. We testified as early as 1997 for Tedyffrin Township, 105 6/7/99 LAW & GOV'T - Res. 990388 Chester County, on this issue. Our position has always been that we were against deregulation. Our position is now that we're against deregulation, and we're also against these amendments for putting us under the PUC. Labor put together a group of labor leaders through the AFL-CIO in Harrisburg to attend these meetings. This bill, Senate Bill 10 601, as you know, we are not in the bill -- meaning PGW. This bill, I believe, is on the floor today in Harrisburg. The bill will go back to the House and I believe the bill number we were talking about before was 937. And as you know now, State Senator Salvatore and Representative Perzel have an amendment to this bill. This amendment to this bill stinks, to put it in plain words. This is nothing more than what they did with electric deregulation where they snuck the electric deregulation in in the middle of the night on the back of the Taxi Cab Medallion Bill. We've been out there for two years, labor, a coalition of people from the city, have gone to these meetings, and we came away just as 106 6/7/99 LAW & GOV'T - Res. 990388 recently as three weeks ago that we were not a part of this bill, and then that's when this amendment came up. Labor's big concern was that there was no protection for the workers. There was no 7 protection that if a company came in and started merging or if somebody came in and bought another company, there was no protection for the people as far as if they would be laid off, or workers' right as far as who would do the work. There was a lot of safety concerns. They were the two main issues that labor had. When this bill came out of the Senate, the issues weren't this. So they have their own amendment that they're trying to introduce for workers' protection. Through the whole process of all of our testimony, like I said, I think that the way they're dealing with this now, they're trying to pull us in in the last two weeks, right before they go on a summer session. And I'm kind of confused, I think, like you are as to where the City stands on this. We get mixed signals from PGW, from the administration of the Mayor, and even out of Harrisburg, as you've said, because 107 6/7/99 LAW & GOV'T - Res. 990388 we're under the understanding also that there might be some Democrats jumping on this. But all the people that we talked to out in Harrisburg, the PUC, the State legislators, they don't really care if we're in this bill or not. But there is a concern that if it's coming from Perzel's office, they will vote with him because he is from the Philadelphia area. And I think a clear message has to come out of Philadelphia here, where are we on this bill? Are we for it or are we against it? Like I says, Gas Workers Local 686 has always been against this bill, from the beginning. We feel that there is nothing in this bill that protects the workers, there's nothing that protects the senior citizens, there's nothing that protects the rates. There's no savings in this. Last week, in the Wall Street Journal -- and I have a copy of it here today -- they had a situation to where what electric deregulation has done and how the salaries of the people have escalated, and they give names. And I could share that with you later. I don't want to bother you by reading it all. And how much money these 108 6/7/99 LAW & GOV'T - Res. 990388 corporate have made on the back of deregulation, on the back of the workers, on the back of the ratepayers. And like I said in the beginning, this bill stinks. Thank you.
I think your concerns are well-placed. Because, as I understand it, probably if we go by tradition, the first thing a new company would do -- and incidently, I think all of this is preliminary to finally readying PGW for sale to some private company in order to convert it into a profit-making company rather than a public service company that serves the people of Philadelphia. And I think your concerns are true 'cause in all of those cases, the efforts have been made by new employers to get rid of the 109 6/7/99 LAW & GOV'T - Res. 990388 workforce, terminate all contracts that exist, and treat everybody as brand-new employees. So I think your worries and concerns are well-placed. And we thank you for appearing here today.
I have note of a further witness from TAG. (Dennis Pollard comes forward.)
Thank you, Mr. Chairman. I'm Dennis Pollard, and I'd like to move admission of my entire prepared written statement -- I don't want to read it -- in its entirety. But I have four main arguments to make for you.
Very good. The full statement will be admitted into the record.
The first statement -- and, again, I analyzed the public policy and legislation for Tenants Action Group. The first statement is this. The Public Utility Commission of Pennsylvania lacks the staff and the ability to properly and completely review the Philadelphia Gas Works. The Pennsylvania Public Utilities Commission, or the 110 6/7/99 LAW & GOV'T - Res. 990388 PUC, deals with for-profit, private utilities. It's been said again and again, and it needs repeating that the Philadelphia Gas Commission is the only authority with the knowledge, the staff, and the understanding to review. And one reason for this is quite simple. For-profit private, utilities have extensive reports and filings which are sent to the Securities and Exchange Commission. So in other words, the work is already done with respect to going over budgets and making sure the companies are operating properly. This is not so with respect to our Philadelphia Gas Commission. They take the time, and it's an arduous amount of work, to review the necessary documentation. Second is that the PUC is not a super board of directors. And by that, what I mean is that the PUC does not and the PUC will not closely review what the Philadelphia Gas Works does. It doesn't have the time, it doesn't have the experience, which is one reason why it's proper in that this body should continue to push for local control. 111 6/7/99 LAW & GOV'T - Res. 990388 The only way, as I see it, that the PUC can regulate the Gas Works, as it does with its private utilities, is to reduce the profit margin. Well, companies that are not for profit, companies like the Philadelphia Gas Works do not look towards their profit margin as the main entity of making money, so the PUC cannot reduce the profit margin -- that is, reduce the amount of revenue and dividends that would go to stockholders. The only alternative by not granting PGW rate increases will be, in effect, to penalize residents and tenants of the City of Philadelphia. As has already been stated, the Philadelphia Gas Commission has not allowed the Gas Works to increase its rates. And at the same time, customer rates have remained low. If the PUC, in turn, regulates the Gas Works, and by the same token, does not hypothetically allow Philadelphia Gas Works to increase rates, what the Gas Works can then do is pass on any costs to the consumer, to the residents and tenants of Philadelphia. The Gas Commission is the buffer that keeps the Gas Works from arbitrarily raising its rates without 112 6/7/99 LAW & GOV'T - Res. 990388 impacting the citizens and residents of Philadelphia. The third item is the senior-citizen discount. And as someone who used to practice law, let me state that the wording of this is quite important. Yes, the Perzel amendment does not literally end the current senior-citizen discount, but it does phase it out over time. Currently, as the amendment reads, current senior citizens who are currently receiving the discount will continue to do so. However, those who become senior citizens after the legislation takes effect will not be eligible for the discount. Also, those current senior citizens who have, for whatever reason, not applied for the discount but later find that they need it will not be eligible. And the last item is simply that whatever difficulty that TAG or any other organizations may have had with the Gas Commission in the past, it remains true that the best, most capable, most qualified entity to supervise the Gas Works is the Gas Commission. And it's for one simple reason -- local control, accountability. 113 6/7/99 LAW & GOV'T - Res. 990388 If for, whatever reason, the Gas Commission were to sleep on its job, the Mayor is subject to recall or reelection in the future, members of the City Council who sit on the Gas Commission are subject to recall and reelection.
But if control goes to the Gas Utilities Commission, the citizens of Philadelphia, the residents of Philadelphia no longer have the ability to remove an entity or an individual who is not acting in the best interests of the City of Philadelphia. I will take your questions if you have any.
Well, we thank you very much, Mr. Pollard, for your statement. We're hoping, we've hoping that as a result of this hearing and the general reawakening of the people of Philadelphia to a knowledge about this threat to their interests, that the Mayor will begin to act in conformity with the statement of opposition. This committee is prepared to cooperate with the Mayor in every way, we're prepared to join him in a press conference, we're prepared to go with him to go to Harrisburg, to do 114 6/7/99 LAW & GOV'T - Res. 990388 lobbying, we're prepared to join with him and appeal to all the people of Philadelphia. Out of respect for his office, we believe he is the one that ought to take the initiative, and we will prepared to cooperate with him. But we think the danger is great and imminent, and we think the Mayor ought to be out in front, and we're willing to have him assume the leadership, which we think rightfully belongs to him, to lead this fight on behalf of all Philadelphians. And your analysis, I think, is very sound, and we thank you for its presentation today.
We'd like you to come forward, and you've heard the testimony, and I believe you were here when we had the emergency 115 6/7/99 LAW & GOV'T - Res. 990388 meeting on Wednesday. We'd be pleased to hear any final comments from you.
Just to be very brief, the conversations this morning, thus far, have been sort of the political objective.
The conversations this morning have gone to the political aspects of this problem. I think there is a mechanical problem as well, and that is that these transitions are not going to be without costs to PGW. This is an organization that is in not great shape financially and organizationally. It has undergone a lot of trauma. This legislation is asking the City and PGW and the customers to spend money they don't have, that they are putting at risk the implementation of major initiatives because what this legislation requires is a lot of activity on the part of the senior management team, on the part of the entire organization. They will undergo a major management audit. This is not a simple process, particularly in an organization in 116 6/7/99 LAW & GOV'T - Res. 990388 the condition in which PGW finds itself right now. Moreover, there are restraints on the company in terms of rate caps, in terms of inability to change tariffs that impose a level of inflexibility that PGW shouldn't be under, I feel, in the next to months. There should be the 8 flexibility to answer tactical issues that will 9 come up and that this company has historically had 10 to address over the last four or five years. 11 So I would simply raise another 12 concern, and that is for the organization and its 13 ability to implement this change in a manner that 14 I think would be successful and would put an 15 enormous burden on everybody throughout the 16 organization -- senior management and personnel. 17
My only comment, 18 Mr. Knudsen, would be that I don't see that this 19 change could ever be successful if we consider as 20 a barometer of change the interests of 21 Philadelphia citizens. I just don't see any 22 possibility of movement to the PUC as being 23 positive. I see it has being harmful. 24
And we're pleased to 117 6/7/99 LAW & GOV'T - Res. 990388 have you mention these items -- they're very specific and they're very important for everybody to consider.
Thank you very much. Are there any other people who wish to be heard today? Come forward, please, and identify yourself. (Jean Boon comes forward.)
Good morning. I'm Jean Boon, the secretary of the Action Alliance of Senior Citizens.
Many of our members wanted to be here today but they were advised on the radio by the City Health Department to stay home because of the heat. In fact, our President would have liked to have been here. Action Alliance of Senior Citizens is calling on all Philadelphia members of the General Assembly to oppose legislation to be considered this week in Harrisburg to open the Pennsylvania natural gas market to deregulation. Action Alliance has been, and still is, conducting a 118 6/7/99 LAW & GOV'T - Res. 990388 postcard drive. We've sent out thousands of postcards to the State legislators telling them we do not want to put PGW under the PUC. So if they say they don't know anything about it, that isn't correct. They have all received -- and especially Mr. Perzel. We want the authority for gas to continue to be under the local control. We have more than a thousand signatures from Mr. Perzel and Salvatore's districts against losing control of PGW. When we wanted to meet with Mr. Perzel, he would not see us. Until we had a huge rally outside, he finally agreed to see a few people. Unlike electric deregulation, Pennsylvania ratepayers have little to gain with natural gas deregulation and much to lose in the long run, said our president, George DePasquale. This is a 120,000-member organization, when we count the actual members and all their families. Action Alliance is a 26-year-old membership organization with 220 affiliated senior clubs, and they may have from 50 to 100 or more members in each one of those clubs. It is clear now that we have to wait 119 6/7/99 LAW & GOV'T - Res. 990388 until we can assess the impact of electric deregulation on consumers before we go into natural gas deregulation. There are still a lot of questions to be answered about how the Public Utility Commission has handled the consumer education part of the deregulation in the electricity industry. There is no need to rush into natural gas at this point. And as an aside, I would say that I imagine everyone present here today knows that only a third and then only two-thirds of the ratepayers were to be admitted to electric deregulation, but that was terribly undersubscribed because the so-called education program that PECO was awarded the right to do was a disinformation campaign. So people, even if they could have received better rates, many of them remained unaware of it and were given the impression, "We have always been here for you," said PECO, "we are safe," and many people were afraid to turn their purchasing over to another company. What will we have when it's gas deregulation and they're told they have to look 120 6/7/99 LAW & GOV'T - Res. 990388 for another company? How many explosions will we have in Philadelphia? Senior citizens and other consumers are particularly concerned about the dismantling of programs that help people on fixed incomes and the poor pay for their gas bills. Mr. DePasquale continues that this current legislation might be amended to include the Philadelphia Gas Works. If that happens, it is very likely that the 11 percent senior discount will disappear, and other 12 programs to help the poor will also disappear. 13 And we heard that. 14 And today Mr. Kimmerle told us what I 15 was not aware of -- I'm not sure others are aware 16 of -- cherry picking. This is what we see when 17 the banks close. First Union came in against our 18 hopes and closed banks. And when the neighborhood 19 has no banks, where do people cash their checks? 20 At the check-cashing store, which takes a usurious rate, and this is what would be happening with gas. If you are low-income, have a bad record of payment, you will not be chosen, you will not be the chosen few to get the rate discount. You will have to be told to go to that other place, 121 6/7/99 LAW & GOV'T - Res. 990388 analogous to the check-cashing store, which is the Gas Works of last resort, and they may put their rates wherever.
It's the same as a person who needs automobile insurance, if they have an accident, their rate goes up. And if they try to get another place, they have to have a scheduled rate, a higher rate. That's no way to treat people. They're asking every member of the General Assembly to consider postponing any consideration of natural gas deregulation until we can actually answer all of the these questions. Thank you very much. )
Thank you very much. We're sorry Mr. DePasquale was not here. We wish him well.
And tell the senior citizens it may well be time for action quickly and strongly.
And if I may, Mr. Cohen, I would really like to thank you very much for all your efforts on our behalf over many years. 122 6/7/99 LAW & GOV'T - Res. 990388
Thank you, thank you. Mr. Hayllar, I wonder if would will come to the table. Councilman Rizzo has brought up a matter that the committee would like clarification on. We understand or we hear reports that there may be a contract search -- a search for a new management of PGW?
Could you bring us up to date. We understood there was an RFP out.
No. An RFP will be going out either this afternoon or tomorrow, dealing with the management of PGW's assets and gas supply. It was brought to our attention sometime ago, and after a series of about 15 meetings with other companies, including other utilities that many of us participated in, we determined that it was -- it is in the public's best interest to determine if there could be savings that could be derived by having a third party manage or assets and our gas simply. In theory, a company that is managing the gas supply for a variety of utilities would be 123 6/7/99 LAW & GOV'T - Res. 990388 sharing the peak days -- in other words, the day where the demand for gas was at its absolute maximum and, therefore, you could purchase more economically. We want to test that with an RFP which has been prepared, and it's been circulated, I think, about two weeks ago for comment. We've finished the compilation of the comments. That will go out today or tomorrow.
The Gas Commission -- the Chairwoman has been a participant. We have circulated drafts of it. Ultimately, if it's a contract, it would come before City Council. As we've said earlier, our goal is to, if we believe that there is a substantial value to the ratepayers, we would like to have this before Council this fall.
Are any questions from any members of the committee? (No questions.) 124 6/7/99 LAW & GOV'T - Res. 990388
If not, thank you very much. And I want to express appreciation to you and to Mr. Dworetsky for your patience, and we hope your influence will go in the same direction that was indicated here say, and that you will be urging within your powers that the Mayor lead this campaign.
Thank you very much. The committee will -- you know, has made the offer to cooperate with the Mayor to a press conference or to a delegation to Harrisburg and to work with him in any way to mobilize the public because of the imminence of action by the State legislature. This committee is going to stand in recess until tomorrow, at 12 o'clock. And at 11 o'clock, there's a Committee of the Whole, and the Committee on Law and Government will convene immediately at the end of that meeting and no 22 later that 12 o'clock tomorrow to consider what the situation is and what action needs to be taken. We hope that you will communicate with 125 6/7/99 LAW & GOV'T - Res. 990388 the Mayor. We would hope to hear from the Mayor by noon tomorrow with respect to what action he thinks is desirable to take. Thank you very much. We stand in recess until o'clock tomorrow. 7 (Adjourned at 12:39 p.m.) 8 - - - 9 10 11 12 126 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 Monday, June 7, 1999, were reported fully and accurately by me, and that this is a correct transcript of same. RE: COUNCIL COMMITTEE ON LAW AND GOVERNMENT RESOLUTION NO. 990388 __________________________________, JOSEPHINE CARDILLO, Registered Professional Reporter