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News Digest

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

with California-based Edison Source to market electric services in the city. A problem arose when Edison Source sent materials to residential consumers of PECO Energy promising 16 percent in generation savings, when those customers actually were eligible for much less in savings. By December 1998, PGW withdrew from the electric business, and Edison Source followed in 1999. But the venture came back to haunt PGW, as evidenced by a $70,000 settlement PGW agreed to-without admitting wrongdoing-with the Pennsylvania state attorney general's office on July 13 to settle allegations of false advertising. But because John Street, then president of the City Council and now Philadelphia's mayor, had required that PGW's agreement with Edison Source protect PGW from liability, the $70,000 burden fell to Edison Source.

City residents have been in an uproar over all the bungling. The situation was worsened by scandals involving top PGW officials who were caught siphoning PGW money to personal accounts. Finally, Mayor Street in March appointed three interim executives to straighten out PGW's finance and technology problems.

PUC Oversight: Panacea or New Problem?

But the three interim executives will be getting help from an unlikely source: the Pennsylvania Public Utility Commission. That is because the problems at PGW had been evident for so long that the state's gas restructuring law includes a provision that turned its regulation over to the PUC as of July 1. The gas commission will continue to be in charge of operations and budgets, but the PUC now will set rates and investigate customer complaints.

The hope, of course, is that the PUC will pull PGW out of its financial morass. PGW, for example, while taking in $492 million in revenues in 1999, had its debt rise from $676 million in 1991 to $972 million in 1999. But some detractors argue that introducing the PUC into the situation only adds another layer of bureaucracy, and that the PUC is inexperienced at regulating municipal utilities, especially one as politicized as PGW.

In fact, PGW in June filed a $52 million rate increase request with the . PGW also asked to increase the customer charge from $8 per month to $15 per month, a total increase of about $94 million. That customer charge already recently was increased from $4 per month to $8 per month. The thinking at PGW was to file for its first rate increase since 1992—averaging about $170 per year per residential customer, or $90 million—with the gas commission because it still has authority to review the budget, and since the budget has a revenue deficiency, the gas commission should set the revenue requirement. So PGW already is asking for a waiver from PUC oversight. Another part of the thinking is that the gas commission usually decides rate cases in four months, while the PUC can take more than twice as long.

According to energy expert Jerry Lambert, senior partner in the Washington, D.C. office of Shook, Hardy & Bacon LLP, the rate oversight shift to the PUC eventually could fix PGW's problems. Lambert pointed out that the state's gas restructuring law requires