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Council "Fact Checks" The Nutter Administration's PGW Claims
Council "Fact Checks" The Nutter Administration's PGW Claims
All options for the maximization of potential for PGW were considered
through two separate Lazard studies
Both studies concluded that a sale of PGW would provide the highest and best
value to the City. Page 6 of the Lazard February 2012 report states, "Lazard
believes that, of the potential privatization structures, a strategic sale would
likely generate the greatest expected potential synergies from a transaction,
and therefore maximize proceeds to the City. See also pages 16-18
City Council was briefed on the Lazard recommendations in 2012, before the
start of the sale process and again in 2013 (after the sale process had started)
on the second Lazard report. Council was also briefed during the PGW sale
process by the Citys brokers. (See list of attendees at end of document). And
Council staffers were briefed on the APA and the Ordinance in April 2014.
A lease or public / private partnership would not rid the City of its
environmental and its other post employment benefits OPEB liabilities, PGW
debt, nor provide net proceeds for the pension fund
Any proposed changes to the ordinance have to be agreed upon by both buyer
and seller, and any proposed changes cannot adversely affect Buyer and City
Council must approve it in substantially the form presented by the
Administration.
The ordinance is more than just the sale agreement Council could try and
change other parts of the ordinance, but the agreement is already signed and
dated and UIL and the Administration would have to agree to any changes.
The sale price ($1.86bn) actually exceeds the estimate of value given by City
Councils own advisors, Concentric, ($1.39bn-$1.80bn), and is at the highest
end of range provided by the Citys Financial Advisor, Lazard
There is no negative financial impact to the City from loss of $18mm/year
franchise fee because the amount of money that will be saved annually due to
lower mandatory pension contributions is projected to be over $40mm per
year as soon as 2017
The sale of PGW will allow the City to strengthen its severely underfunded
pension fund through net sale proceeds estimated to be between $419 and
$630mm
Based on the APA, all OPEB and environmental liabilities are transferred to
UIL and the City will have no future liabilities related to PGW (estimated at
$1bn)
No one disputes that the City Administration accepted the highest bid.
The Administration will make up for the loss of the $18M annual franchise fee
to the City, this year and all years thereafter, by reducing the minimum annual
payment (MMO) to the Pension Fund.
By using the savings of the MMO to make the General Fund whole, the
Administration is reducing the amount of money that would go into the
Pension Fund.
The Administration states that the sale will relieve the City of all employment
and environmental costs. The City of Philadelphia is not responsible for PGWs
pension, OPEB and environmental liability.
Employment level of 1,350 with no layoffs for 3 years is guaranteed, the highest
guaranteed employment level offered by any bidder that submitted a binding bid
for PGW, this is a stronger protection than employees at PGW currently have.
(While there are some restrictions on layoffs in the current CBA, there is not a
strong no layoff clause as in the UIL APA)
Wages and benefits will be the comparable or higher than they are now
PGWs pension will be fully funded at closing of the sale, protecting its workers
and retirees
UIL has offered additional guarantees to PGWs workforce, including the Union,
above and beyond what was outlined in the APA that it will put in writing (such as
allowing eligible employees to continue with their current retiree medical plans)
UIL will commit in writing to invest in training and development programs in
Philadelphia to create jobs for Philadelphians
Current wages and benefits are only guaranteed through May 15, 2015, when the
existing collective bargaining agreement (CBA) expires.
There is no actual blanket no layoff clause. There is only a minimum
guaranteed floor in the agreement.
There is no guarantee wages and benefits will be the same under new ownership.
PGWs pension fund is actuarially fully funded under current City ownership.
Any offers by UIL that are not in the Asset Purchase Agreement (APA) are not
guaranteed and have no legal weight.
UILs commitment to invest in training and development are promises that have
been made outside the APA.
Such programs are approved by the PUC which has control over the future of
these programs.
Any owner of PGW, including the City or UIL, is required to work with the PUC to
maintain these programs in their current form
Any owner of PGW, including the City or UIL, is required to ask the PUC to
maintain the hardship fund and energy efficiency program
All other privatized utilities in the State of Pennsylvania have similar programs
UIL has similar customer programs in the utilities it currently owns in
Connecticut
Collections and shut offs for PGW would still be regulated by the PUC under UIL
ownership and UIL would not be able to operate differently than PGW currently
operates without PUC approval
5.) Fact: Programs for the poor and elderly will be cut under UIL ownership
Under private ownership, UIL can increase a customers bill to pay for costs of
acquiring PGW.
Under City or UIL ownership, customers will have to pay more for main
replacement.
The current PGW funding of cast iron main of replacement through the DSIC is
the cheapest way without burdening rate payers.
Councils proposal to accelerate the cast iron main replacement program
under DSIC would lead to a $2 per month increase in a customers bill.
PGW has significant barriers to operating like a private utility and its own
management team has said it is hindered to invest in the business or explore
new business opportunities, not to mention that changes to the City Charter
and the State Constitution would be required to accomplish this goal
UIL has access to capital that allows them to replace cast iron mains
significantly faster that PGW currently can, which will increase jobs in skilled
labor and trades
City Councils own consultant concluded that expansion of LNG and NGL sales
could not be pursued by PGW under its current governance structure
A privatized PGW has the best option of creating an energy hub in Philadelphia
due to its ability to expand the business through access to increased types and
levels of access to capital.
If this were true why isnt PGW doing all of the things a private company
could do now?
Prior City Solicitor opinions have permitted PGW to enter into a public private
partnership. An ordinance approved by City Council and signed by the Mayor
allowed PGW and private company, QST, to enter a partnership.
No comprehensive evaluation has been done to determine alternative
organizational or legal structures for PGW
PGW has access to the capital markets and can borrow funds at cheaper rates
because it is a tax exempt entity.
PGW has been pursing activity that is done in the private sector, such as
expanding it LNG facilities.
PGW under any ownership can participate in the creation of a regional energy
hub.
8.) Myth: The Administration did not invite Council to participate on the deal
team and did not tell City Council about the sale until UIL was selected
City Council had representation on the steering committee for the first Lazard
engagement that determined a sale of PGW was the best option for the City
(refer to list of meetings beginning on page 4)
The Council President was asked to have a member of his staff on the steering
committee for the sale process but he declined the offer
Briefings on the sale process with individual members of Council and their
staff took place on June 24th, July 8th, August 22nd, and September 11th of
2013 (refer to list of meetings beginning on page 4)
Council President Clarke met privately with the 6 short-listed bidders on
December 9th and December 11th of 2013, where he had the opportunity to
hear their proposals, provide input, and offer suggestions of how the deal
could be made palatable to the Council
From 2004 2010, PGW did not provide the annual $18mm franchise fee to
the City. (Total loss to City of $126mm)
In 2000, the City had to give PGW a $45mm loan, which was repaid much
later than originally scheduled due to PGWs poor financial condition
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11.) Myth: Council was not involved in the PGW sale process
11.) Fact: Council was not involved in the PGW sale process
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