Pennsylvania PUC sets conditions on Gas Works rate hike

The Pennsylvania Public Utility Commission (PUC) Tuesday approved a $108 million rate increase by Philadelphia Gas Works (PGW), while sharply criticizing the city-owned utility for failing to correct long-standing financial and managerial problems. The nation's largest municipally owned gas utility had requested an increase of $224 million. The state legislature placed PGW under the PUC�s jurisdiction July 1.


The Pennsylvania Public Utility Commission (PUC) Tuesday approved a $108 million rate increase by Philadelphia Gas Works (PGW), while sharply criticizing the troubled city-owned utility for failing to correct long-standing financial and managerial problems.

The PUC voted 5-0 to allow PGW to raise base rates on an interim basis by $11 million and its gas cost rates (GCR) by $97 million, provided the company accepts certain conditions.

The nation's largest municipally owned gas utility had requested an increase of $224 million, a $52 million base rate increase and a gas cost increase of approximately $172 million. PGW is responsible for the acquisition, storage, processing, and distribution of gas within the city of Philadelphia and maintains a 6,000 mi distribution system serving nearly 518,000 customers.

During Tuesday's meeting, PUC Chairman John M. Quain complained the company failed to begin correcting financial problems while it was still under the jurisdiction of the Philadelphia Gas Commission. The state legislature placed PGW under the PUC�s jurisdiction July 1.

Quain said after being repeatedly assured by PGW rate increases would not be needed, the utility abruptly changed course in March, saying that without emergency rate relief it would not be able to meet its financial obligations come Jan. 1, 2001. The company waited until it fell under PUC jurisdiction and then filed for a rate increase and the GCR adjustment.

"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 gas commission, but management failed to act."

After reviewing PGW�s request, the PUC determined Tuesday's action provides an adequate level of financial health to fund operations and meet the utility�s debt service requirements through the winter heating season.

He said the PUC staff began meeting with PGW as early as the summer of 1999 to discuss the issues that led to Tuesday's order.

"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," Quain said.

Under the new rates, and given the recent sharp increase in natural gas costs, average residential rates will rise about $250/year. By law, PGW may not make a profit on its cost to purchase wholesale gas. It must charge customers the same amount that it paid for wholesale gas.

However, the approved gas cost rate results in a lower percentage residential rate increase than those approved for 7 of the 10 major jurisdictional gas companies, the commission said.

The rates will become effective one day after PGW files a compliance document with the PUC, agreeing to the terms of today�s order.

As part of today�s order, PGW must meet certain conditions in order to raise its base rates by the $11 million. The company must:

� Hire by Sept. 30, 2001, an independent and experienced manager for the Gas Works. The manager must meet specific performance standards outlined in a management agreement, which will be reviewed and approved by the PUC.

� Commit to implementing management, operational, and service improvement measures ultimately recommended in a PUC management audit, unless otherwise directed by a PUC order.

� Commit to correcting its billing problems, providing quarterly reports to the PUC.

� Demonstrate customer service functions improvements, including its call center.

� File a full base rate case with the PUC on or before Jan.1, 2001.

� Agree to refund the interim rate at the conclusion of the full base rate case, if the PUC decides a lower level is just and reasonable.

� Agree not to recoup additional revenue from ratepayers if the PUC ultimately determines that a higher level of rates is appropriate.

Quain cautioned the utility that if PGW does not adhere to the conditions and to its commitments to improve customer service, the PUC could revoke the interim rates.

In addition, as part of Tuesday's order allowing it to adjust its gas cost rate by $97 million, PGW must take steps to educate its customers about the increase in wholesale gas costs. The commission also required the company to explain how budget billing works and encourage customers to participate in the program. It must notify them of weatherization and efficiency programs run by the utility.

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