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News Digest

PUC Oversight: Panacea or New Problem?
Fortnightly Magazine - October 1 2000

that PGW file a restructuring plan with the PUC no later than July 1, 2002. But, he added, there is no guarantee that any such plan would be implemented, and, in fact, "PGW's long and tangled history of maladministration and cronyism suggests the opposite."

Future Direction: PGW Saved Or Sold?

The new PGW interim management has come up with several proposals for cost cutting. They want to end its senior citizen discount of 20 percent, because that program has no means test, merely an age test allowing even wealthy seniors to take part. PGW also would cut staff, and restructure health benefits for retirees.

But Lambert noted that for all the good intentions, it is easy to understand why PGW is resistant to change: "It is a 165-year-old municipal entity run like a political fiefdom, not a business." Lambert pointed to PGW's employment of unionized gas workers that earn above-market salaries, as well as its overall rates reflecting the higher costs of inefficient operations.

For now, the PUC has hired seven new employees who set up shop in Philadelphia to take customer complaints. The PUC has hired independent auditors to go through PGW's books in anticipation of the first PUC rate case.

But a lawsuit filed by the City Council challenges the right of the state to take away the city's control of PGW. The City Council wants regulatory oversight to stay with the gas commission. The Pennsylvania Commonwealth Court was expected to hear oral arguments in September. Added into the milieu is the state's gas deregulation law, which will allow other gas suppliers to compete in the Philadelphia gas market in September 2001.

Meanwhile, many frustrated Philadelphia residents hope that the result of the changes is that PGW becomes financially viable and an era comes to an end—that PGW is sold and the city gets out of the gas business.

Lambert agreed that PGW should be sold. He cited more problems recently found by the interim management team, including an $8.4 million bond issue designated for maintenance but used instead for operations, inability to pay the city an annual $18 million dividend, a bloated payroll, projected loss of $17 million in 2000, and a call center that loses two-thirds of its callers. Lambert noted that "such inefficiencies would be given short shrift by a private owner." He added that last year, PECO Energy's unregulated affiliate, Exelon, was among six companies bidding to take over PGW's gas purchasing operations. But despite the lure of a cut in gas purchase costs of up to $10 million per year, Lambert pointed out that "PGW has not outplaced its purchasing function, nor gone forward with a private-sector takeover."


Electric Reliability

Generating Reserves. Connecticut regulators concluded that with new plants going online over the next few years, the state should enjoy adequate electricity supply beyond 2000, although "increasing demand and rising environmental concerns will similarly exist."

The PUC pointed to several operational changes at ISO-New England put in place since low reserve margins threatened reliability in summer 1999, including communications enhancements that would allow participants