Nutter: City agrees to sell PGW to Connecticut company UIL

PHILADELPHIA - March 3, 2014

Mayor Michael Nutter said the deal, which requires the approval of City Council and state utility regulators, would keep rates frozen for three years, maintain discount programs for low-income families and seniors, and safeguard employee and retiree pensions.

Philadelphia Gas Works, which traces its history to 1836, is the nation's largest municipally owned gas utility with more than 500,000 residential, commercial and industrial customers and more than 1,600 employees. New Haven, Conn.-based UIL serves about 706,000 electric and natural gas customers in Connecticut and Massachusetts.

The mayor told reporters that having the city own such a utility may have made sense at one time but "stopped making a lot of sense back in the '90s," since PGW can't expand its customer base outside the city and isn't as well positioned as a private company to take advantages of new opportunities. The utility was in dire condition well into the 2000s, but turnaround efforts have increased its value to the highest point in decades, he said.

"In an environment where there is great interest in the marketplace for this kind of entity, this really is the time to try to move something like this forward," he said.

The deal would help the city's meet its pension obligations, which are less than 50 percent funded.

Officials said after bond obligations are paid off and funds put aside for other liabilities, including fully funding PGW's own pension plan, the city expects to have $424 million to $631 million remaining that would be deposited into the city employee pension fund.

"The state of our pension fund and the crippling effect of its obligations ... on our city, is a major concern of mine and has been for years, and it's a concern shared by many, many members of City Council," Nutter said. The infusion and other planned investments could leave the fund percentage "in the high 70s" a decade and a half from now, which would be "a pretty healthy pension fund," Nutter said.

UIL's offer was the highest from the finalists, which were chosen from 33 entities that had originally expressed interest, Nutter said. It was "at the top end" of what the administration's financial adviser had forecast, he said.

Nutter said the approval process and discussions with employees and union members could be completed by the end of the year. The contract requires that all PGW employees be offered employment at UIL, with total employment not to dip below 1,350 employees for at least three years.

The mayor said the agreement "positions PGW to take full advantage of the abundant supply of natural gas in Pennsylvania, offering our city and our region the opportunity to become the prime energy hub in the United States."

UIL President James Torgerson said new federal environmental regulations aimed at reducing pollution from ships provide an incentive for them to switch engines from diesel to natural gas, and Philadelphia is "ideally positioned" to take advantage of that. He also said the company probably will need to expand a liquefied natural gas facility in the city's Port Richmond section.

The Utility Workers Union of America Local 686, which represents 1,150 PGW workers whose contract expires in 2015, is against a sale. Union activists have recently been circling City Hall in a truck urging Nutter to reject a sale.

Several environmental organizations immediately announced plans to fight the sale, saying it would increase gas bills and increase use of natural gas from the vast Marcellus Shale formation, which lies under Pennsylvania.

No filing for the sale has been made to the Pennsylvania Public Utility Commission on Monday, spokeswoman Jennifer Kocher said. The public also would have a chance to comment on the proposed transaction, she said.

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