Time to blow up Philadelphia Gas Works? City may sell gas utility

Mayor Michael Nutter announced yesterday that, following a feasibility report, the city will test the marketplace with an eye toward selling Philadelphia Gas Works to a private owner.

“This is something we can explore and, if it doesn’t come back the way we want it to, we don’t have to move forward,” city budget director Rebecca Rynhart said.

The report, commissioned from financial adviser Lazard Freres in June 2010, said that a strategic sale is likely to result in a net profit for the city while maintaining the quality of service and reducing the risk to the city’s general fund, Nutter said.

The question is whether the sale would outweigh PGW’s current $1.5 billion in liabilities. Lazard Freres estimates that it could net between $1.5 billion and $1.85 billion, which would cover the debts and possibly make a profit.

That could change, as the report estimates that the city would have to raise consumer rates sooner than a private owner would. Privatization could even save rate-payers money, according to Nutter.

Despite the speculation, the process is still in its very early stages. The city will be putting out a request for proposals in about a month, the bidding process will take six to 12 months and, if a deal is struck, PGW authorization of the sale could take up to a year.

“We are surely at the beginning of a tremendously complicated process,” Nutter said.

“… No judgment or decision has been made. We want to see what really is the answer to the question that has been sitting out in the public for 20 years.”

Stipulations

The city says there are stipulations for any potential buyer of the largest municipally-owned natural gas company in the country: the new owner must keep the company’s social services programs for low-income families and seniors, agree to a four-year rate freeze through 2016 and honor employee contracts.

PGW also has the “unenviable distinction” of offering one of the highest costs of service in the state, Nutter said.