Philadelphia natural gas rates to rise by about 24 percent

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PGW gas rates to rise by about 24 percent

A residential customer will pay about $250 more a year on average under yesterday's PUC decision.

By Wendy Tanaka INQUIRER STAFF WRITER State regulators voted unanimously yesterday to allow Philadelphia Gas Works to raise residential customers' rates by about 24 percent - on average, about $250 per year.

PGW, which provides natural gas to some 490,000 Philadelphia households, is about $1 billion in debt. It had requested rate increases totaling $172 million to pay salaries, stock up on natural gas, and make interest payments on the debt.

But the Pennsylvania Public Utility Commission, in a 5-0 vote, awarded it considerably less, granting increases totaling $108 million. Of that amount, $11 million will be raised through a 2 percent interim increase in a line item on customers' bills known as the base rate. The other $97 million will come from an increase in the charge for natural gas.

PGW's residential customers pay an average of $1,041 per year for gas that heats their homes and, in some cases, provides heat for appliances such as dryers, water heaters and stoves.

Consumer advocates applauded the PUC's decision, particularly in light of recent indictments of former PGW executives who were accused of mismanagement and misusing company funds.

"I think this is a strong signal to PGW that the commission intends to hold their feet to the fire," the state's consumer advocate on utility issues, Irwin Popowsky, said.

Philip Bertocci, the city's advocate on gas issues, said: "This is what we were fighting for. We said no base rate increase until service was improved."

But Mayor Street's chief of staff, Joyce Wilkerson, worried that the reduced increases would be too little, too late. PGW had sought a $52 million increase in the base rate, plus larger increases to pay for gas.

"Before we went in asking for money, we took a hard look at the gas company's operations and made a real effort to try to conserve," she said. "We don't have much flexibility. To get only $11 million out of $52 million raises real problems for the company. We need to maintain a safe system. Our expectation is to go into the capital markets and issue debt."

PGW can go back to state regulators on Jan. 1 to ask for another increase in the residential base rate of $8 per month; the increase approved yesterday would raise that by just 16 cents a month.

Wilkerson said PGW was reviewing its options, which include asking the PUC to reconsider its decision or appealing the PUC's order in Commonwealth Court.

Earlier this month, Philadelphia City Council approved a $45 million city loan to PGW, the largest city-owned gas utility in the nation, after PGW said it would not receive money from rate increases in time to keep operating this winter.

The PUC said the increases it approved yesterday would provide an "adequate level of financial health to fund operations and meet the utility's debt service requirements through the winter heating season."

"We trust that our actions here will send an important signal to the financial community regarding the commission's concern for preserving PGW's financial integrity balanced against the need for maintaining reasonable rates for customers," PUC chairman John M. Quain said.

Two major bond-rating agencies, Moody's Investor Services and Standard & Poor's, have rated most of PGW's bonds just two ticks above junk-bond status, and have placed the bonds on their watch lists for possible downgrades.

The agencies said yesterday that they were reviewing the rate increases, and would be able to provide more information on PGW's bond ratings next week.

In granting the increases, the PUC also ordered PGW to:

Hire an "independent and experienced manager" by Sept. 30 who meets the commission's criteria. PGW has an interim management team composed of current and former city officials and a former city consumer advocate.

Follow PUC standards and measures on management, operations and service quality.

Correct billing problems and improve customer service.

File a full base-rate case with the commission by Jan. 1.

Refund money from the interim rate increases if, from the full base-rate case, the PUC decides that rates should be lower.

Agree not to recoup monies from customers if the PUC finds that base rates should be higher.

The new rates would go into effect one day after PGW accepts them. The PUC said gas companies usually accept the rates within two weeks.

Quain criticized PGW for failing to see the need to overhaul its management structure and for leading the commission to believe last year that it did not need rate increases.

"PUC staff began meeting with PGW as far back as the summer of 1999 to advise the company that the world had changed, and that it cannot simply be 'business as usual' at PGW," Quain said in a statement.

"These meetings continued with increasing concern on the part of our staff, but, I regret to say, an insufficient sense of urgency on the part of management of PGW."

Quain said PGW had repeatedly assured the PUC that rate increases would not be needed.

"Knowing as early as March 2000 that rate relief would likely be needed, PGW did nothing," he said. "PGW had ample opportunity early on to pursue interim rate relief with the [Philadelphia] Gas Commission, but management failed to act."

The Gas Commission reviews PGW's budgets.

Wendy Tanaka's e-mail address is wtanaka@phillynews.com

http://www.phillynews.com/content/inquirer/2000/11/22/front_page/PGW22.htm

-- Martin Thompson (mthom1927@aol.com), November 22, 2000


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