City to sell off PGW

PHILADELPHIA GAS Works is on the market. Any takers?

Mayor Nutter announced plans to proceed with the sale of the utility after a study by Lazard Freres & Co. LLC released yesterday revealed that selling PGW to a private entity would be good for the city.

It's an idea that had been bounced around by previous mayoral administrations. In 2010, the city entered into a $200,000 contract for the study examining the possibility of selling the country's largest city-owned gas utility with its more than 514,000 customers.

"Lazard's view is that a sale could . . . be a net profit for the city," Nutter said, emphasizing the word could. "The study also concluded that pursuing a management-services agreement, essentially a long-term lease, would not mean a significant liability reduction or risk transfer for the city."

The city could get up to $1.85 billion for PGW, and would be able to collect real-estate taxes, but would lose an annual $18 million dividend that PGW paid last year for the first time since 2004.

Before the city would enter into an agreement to sell PGW, Nutter said, the offer would have to exceed liabilities - about $1.5 billion, mostly in bonds. Also, a number of conditions would have to be met, including maintaining programs for low-income residents and senior citizens, a four-year rate freeze, honoring current employee contracts and fully funding pension benefits at the time of sale.

City Budget Director Rebecca Rhynhart said selling PGW could mean lower rates while maintaining safety and quality of service.

But Keith Holmes, president of Local 686 of the Utility Workers Union, vowed to fight the proposal for the union's 1,125 workers. An additional 500 or so workers are nonunion.

"It would be two to three years before the company could be sold," Holmes said. "Our contract would expire then, so I don't see that as sufficient as far as saying that we are going to be secure. I would like to see them honor all of our employees' jobs, our retiree benefits and have some long-term guarantee that we're going to be here."

Craig White, PGW's chief executive, said he would not take a side in the debate.

According to the study, downsides to a sale might include an inability to recover tax expenses and an inability to impose a lien on a customer's property for nonpayment.

The city will retain advisers, and the sale process, with multiple rounds of bidding and negotiations, could take up to a year, plus an additional year for approval by the state Public Utility Commission. City Council also would have to approve the sale.