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Editorial: PGW Survival Guide

October 29, 2008

Philadelphia Inquirer


The city-owned gas utility offers a great deal to its poorest customers: At a fixed discount rate, these 78,000 Philadelphia families can use all the gas they want.


With no financial incentive to conserve, it's little wonder these customers' gas usage is almost 50 percent higher on average than the thousands of other Philadelphia Gas Works customers who pay full price.


That may be a sure-fire way to keep people warm, but it's no way to run the nation's largest municipally owned natural gas utility. In fact, the runaway cost to subsidize poor customers - up fivefold since 2002 - represents only the most glaring challenge to PGW's survival.


Those woes are nothing new, but an independent study by the Economy League of Greater Philadelphia - commissioned by the Pew Charitable Trusts and William Penn Foundation - makes a strong case for addressing the utility's structural financial problems sooner, not later.


In addition to exposing the low-income discount program's flaws, the report issued last week concludes that PGW is hobbled by byzantine government oversight that boosts costs and hampers managers. Despite PGW being unable to cover costs, city policies cripple its ability to compete for new customers.


PGW frequently has to borrow to meet operating expenses and also to keep aging pipes from leaking or, worse, blowing up. Meanwhile, state regulators have been stingy with rate hikes. For their part, successive mayors and other elected officials have refused to help PGW meet its obligation to help destitute customers who cannot pay their bills.


So even as Mayor Nutter grapples with his own budget woes, his administration needs to make it a top priority to fix PGW - not just maintain the Gas Works on life-support.


PGW's full-price customers should be clamoring for reforms. They're the ones paying $277 a year - nearly 20 percent of their bill - to subsidize thousands of other customers.


A first step should be to retool discount programs so they encourage conservation. That's easily done by charging low-income customers a percentage of their actual bill, rather than a fixed price based on income. Couple that with stepped-up weatherization programs.


Long term, city and state officials need to come up with a strategy to spread the burden of supporting low-income Philadelphians' utility costs through tax-supported efforts - preferably at the state level.


On staffing, PGW chief Thomas E. Knudsen has trimmed the workforce by hundreds, but recently acknowledged that the utility would like to downsize more. The Economy League points a way: Looming retirements could give PGW a chance to reshape labor agreements that limit contracting out.


Selling the utility is now even more remote; the Economy League believes the city would have to pay someone to take it. Customers likely would see higher rates, given the loss of municipal tax breaks. A better course: Scrap the layers of duplicative regulatory oversight, then free the utility to compete against Peco Energy Co. by giving PGW preference for any city-aided projects.


The good news is that PGW under Knudsen is "no longer in crisis," the Economy League says. That means Nutter has a capable partner to get PGW reforms into the pipeline.