City Council held two days of hearings this past week to discuss methods for transforming Philadelphia into an energy hub.
Council used this forum to address questions about why it rejected a $1.86 billion deal endorsed by Mayor Michael Nutter to sell the municipally-owned Philadelphia Gas Works (PGW). The window for the deal is set to close at the end of this year.
Council President Darrell Clarke said previously the council had “no appetite” for the proposal. Other council members said they rejected the deal because it appeared to be a take-it-or-leave-it proposal from the mayor and Connecticut-based UIL Holdings, Inc.
Nutter contended the sale would have helped bail out the city’s pension fund and help upgrade the aging infrastructure of the municipal utility. Council leadership has long maintained it wasn’t involved in the deal from the beginning, and the sale of PGW to the gas conglomerate does not represent the best interest of the city or its residents.
Greater Philadelphia Chamber of Commerce President and CEO Rob Wonderling was among the speakers who testified this week.
Wonderling said there are two overarching stats to consider when looking to transform Philadelphia into the energy hub or when thinking of selling PGW: The total annual average employment declined in Pennsylvania between 2007 and 2012 by 1.2 percent, and employment in the oil and natural gas industries increased by 259.3 percent in Pennsylvania over the same time period.
Wonderling proposed a series of steps the city can take to capitalize on the energy boom, including expanding the city’s existing Job Creation Tax Credit program to incite manufacturing and energy companies to locate and create jobs in Philadelphia, partner with local energy industry leaders, promote expansion of existing pipeline capacity to bring Marcellus Shale gas to the city and region, and preserve by-right-zoning industrial corridors.
“Lastly but certainly not least, we respectfully ask that City Council engage in a public process with UIL concerning its agreement to purchase the Philadelphia Gas Works,” Wondering said. “While neither the Chamber of Commerce nor our energy action team presume to tell this legislative body what course of action to take, we do believe that resuming and continuing a dialogue with UIL, to ascertain whether common ground can be found, to see whether Council can reach a comfort level with this transaction in the best interests of Philadelphia citizens, will send a positive signal to companies — national and international — that are watching our city very closely right now.”
Clarke said previously Council could not endorse the sale and would not introduce a bill to sell the utility, nor would Council hold public hearings on the proposal. UIL had until Dec. 31 to walk away from the deal.
UIL leadership said recently the company will not abandon pursuit of PGW, and is willing to work with the administration and Council to reach that goal. The company noted it needs Council to act in some fashion before the end of the year.
“On Oct. 28, 2014, we expressed our disappointment in the city council’s announcement that it would not endorse the sale, and stated that we would determine whether to exercise our contractual right to terminate the agreement and make a determination on future action within two weeks,” said James P. Torgerson, UIL’s president and chief executive officer. “The transaction made strategic sense for UIL when we announced the agreement in March of this year, and continues to make strategic sense today. Accordingly, with time remaining for the city council to consider the transaction at its upcoming meetings, we believe that it would be premature to exercise our right to terminate at this time.”
Torgerson said UIL will continue to monitor developments in Philadelphia and if the council does not adopt an ordinance approving the transaction by Dec. 31, the asset purchase agreement will automatically terminate.
While Council was holding energy hub hearings on Friday, Nutter testified before the Pennsylvania Public Utility Commission.
“The city and UIL are working with numerous civic leaders, institutions and unions to persuade city council to introduce an authorizing ordinance and to hold hearings on the transaction, because we are confident that both Council and the public will come to understand that this transaction is the best long-term option for PGW and its customers and employees, as well as for the city and region,” Nutter said. “PGW’s current financial position is stronger than in the past. Nevertheless, PGW remains highly leveraged and vulnerable to cash crises if energy prices spike in the future or there is a local or national recession. Given the city’s own ongoing budgetary challenges, [we] believe that ownership of PGW constitutes an unacceptable risk for the city and its taxpayers. The transaction would give us additional security, and would put more of the risk on private investors, where we believe it belongs.”
Nutter said UIL has made a number of commitments regarding the PGW workforce, both inside and out of its agreement with the city. UIL will make offers of employment in Philadelphia, effective at closing, to every PGW employee prior to closing. Compared to compensation with PGW, each employee’s base pay must be at the same level or higher.
“Moreover, UIL will not lay off any PGW employes for at least three years after closing,” Nutter said. “Any workforce reductions during that time will come solely through attrition, and even then UIL will ensure a workforce level of at least 1,350 employees. Over time, we expect that many employees will see an increase in their total compensation as a result of UIL’s philosophy of market-based, competitive compensation.”