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FACT CHECKING THE ADMINISTRATION’S

CLAIMS ABOUT THE PGW SALE PROCESS
The Administration Claims
1.) Myth: The Administration did not consider any options for PGW other than
a sale.

All options for the maximization of potential for PGW were considered
through two separate Lazard studies
Both studies concluded that a sale of PGW would provide the highest and best
value to the City. Page 6 of the Lazard February 2012 report states, "Lazard
believes that, of the potential privatization structures, a strategic sale would
likely generate the greatest expected potential synergies from a transaction,
and therefore maximize proceeds to the City.” See also pages 16-18
City Council was briefed on the Lazard recommendations in 2012, before the
start of the sale process and again in 2013 (after the sale process had started)
on the second Lazard report. Council was also briefed during the PGW sale
process by the City’s brokers. (See list of attendees at end of document). And
Council staffers were briefed on the APA and the Ordinance in April 2014.
A lease or public / private partnership would not rid the City of its
environmental and its other post employment benefits “OPEB” liabilities, PGW
debt, nor provide net proceeds for the pension fund

City Council Found
1.) Fact: The Administration did not consider any options for PGW other than a
sale.


The City Administration’s consultant, Lazard identified five alternatives: (1)
enhanced status quo, (2) strategic sale, (3) public-private partnership (“PPP”)
in the form of a long-term lease; and (4) initial public offering (“IPO”); (5)
management services agreement. The Administration chose sale only.
Lazard recommended to the City Administration that for any successful
outcome on the future of PGW, it involve all PGW stakeholders. The City
Administration acted against that advice.
The initial Lazard briefing was to inform City Council that the Administration
chose sale. All subsequent briefings were on the status of the sale process,
only.
Contrary to the recommendation of the City Administration Consultant,
Lazard, City Council had no input on shaping the RFP.
City Council was not involved in any decision on the best alternative for PGW.
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The Administration Claims
2.) Myth: The existing deal with UIL cannot be amended or changed

The Ordinance could be changed or amended to address deal points of
interest to Council
Section 8.1(b) of the APA provides as follows: City Council Approval. The
Council of the City of Philadelphia shall have enacted, and the Mayor of the
City of Philadelphia shall have approved, an ordinance to authorize and
facilitate the transactions contemplated by this Agreement in substantially the
form set forth on Section 8.1(b) of the Seller Disclosure Letter, provided that
Seller may amend, revise or add to the ordinance so long as such
amendments, revisions or additions do not adversely affect Buyer and Seller
shall consult with Buyer regarding any proposed amendment, revision or
addition to the ordinance and take into account Buyer’s reasonable comments
and provide a copy of the ordinance to Buyer prior to submission to City
Council of Philadelphia, which ordinance shall include the repeal or
modification of any previous ordinances of the Council of the City of
Philadelphia in order to effect the transactions contemplated by this
Agreement and the Related Documents (the “Ordinance”), and the Ordinance
shall remain in full force and effect.
Clearly there is a real and reasonable ability of Council to amend the sale
ordinance.

City Council Found
2.) Fact: The existing deal with UIL cannot be amended or changed

Any proposed changes to the ordinance have to be agreed upon by both buyer
and seller, and any proposed changes cannot “adversely affect Buyer” and City
Council must approve it in “substantially” the form presented by the
Administration.
The ordinance is more than just the sale agreement – Council could try and
change other parts of the ordinance, but the agreement is already signed and
dated and UIL and the Administration would have to agree to any changes.

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The Administration Claims
3.) Myth: The deal is not a financial win for the City

The sale price ($1.86bn) actually exceeds the estimate of value given by City
Council’s own advisors, Concentric, ($1.39bn-$1.80bn), and is at the highest
end of range provided by the City’s Financial Advisor, Lazard
There is no negative financial impact to the City from loss of $18mm/year
franchise fee because the amount of money that will be saved annually due to
lower mandatory pension contributions is projected to be over $40mm per
year as soon as 2017
The sale of PGW will allow the City to strengthen its severely underfunded
pension fund through net sale proceeds estimated to be between $419 and
$630mm
Based on the APA, all OPEB and environmental liabilities are transferred to
UIL and the City will have no future liabilities related to PGW (estimated at
$1bn)

City Council Found
3.) Fact: The deal is not a financial win for the City

No one disputes that the City Administration accepted the highest bid.
The Administration will make up for the loss of the $18M annual franchise fee
to the City, this year and all years thereafter, by reducing the minimum annual
payment (MMO) to the Pension Fund.
By using the savings of the MMO to make the General Fund whole, the
Administration is reducing the amount of money that would go into the
Pension Fund.
The Administration states that the sale will relieve the City of all employment
and environmental costs. The City of Philadelphia is not responsible for PGW’s
pension, OPEB and environmental liability.

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The Administration Claims
4.) Myth: The deal with UIL doesn’t protect workers



Employment level of 1,350 with no layoffs for 3 years is guaranteed, the highest
guaranteed employment level offered by any bidder that submitted a binding bid
for PGW, this is a stronger protection than employees at PGW currently have.
(While there are some restrictions on layoffs in the current CBA, there is not a
strong “no layoff” clause as in the UIL APA)
Wages and benefits will be the comparable or higher than they are now
PGW’s pension will be fully funded at closing of the sale, protecting its workers
and retirees
UIL has offered additional guarantees to PGW’s workforce, including the Union,
above and beyond what was outlined in the APA that it will put in writing (such as
allowing eligible employees to continue with their current retiree medical plans)
UIL will commit in writing to invest in training and development programs in
Philadelphia to create jobs for Philadelphians

City Council Found
4.) Fact: The deal with UIL doesn’t protect workers





Current wages and benefits are only guaranteed through May 15, 2015, when the
existing collective bargaining agreement (CBA) expires.
There is no actual blanket “no layoff” clause. There is only a minimum
guaranteed floor in the agreement.
There is no guarantee wages and benefits will be the same under new ownership.
PGW’s pension fund is actuarially fully funded under current City ownership.
Any offers by UIL that are not in the Asset Purchase Agreement (APA) are not
guaranteed and have no legal weight.
UIL’s commitment to invest in training and development are promises that have
been made outside the APA.

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The Administration Claims
5.) Myth: Programs for the poor and elderly will be cut under UIL ownership

Such programs are approved by the PUC which has control over the future of
these programs.
Any owner of PGW, including the City or UIL, is required to work with the PUC to
maintain these programs in their current form
Any owner of PGW, including the City or UIL, is required to ask the PUC to
maintain the hardship fund and energy efficiency program
All other privatized utilities in the State of Pennsylvania have similar programs
UIL has similar customer programs in the utilities it currently owns in
Connecticut
Collections and shut offs for PGW would still be regulated by the PUC under UIL
ownership and UIL would not be able to operate differently than PGW currently
operates without PUC approval





City Council Found

5.) Fact: Programs for the poor and elderly will be cut under UIL ownership


There is no requirement for UIL to keep the same low-income programs in
their existing forms.
In fact, UIL may not be able to maintain the Senior Citizen discount program
since the law only allows a City owned gas company to have this program.
UIL will inherit PGW’s liens. The current policy is that PGW will not foreclose
on these liens. There is no requirement that UIL follow the same policy.

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The Administration Claims
6.) Myth: Rates will go up under UIL

Customer bills will actually go down immediately based on a return on capital
methodology versus a cash flow methodology
City Council has stated that if PGW remains under City ownership they want to
increase the DSIC charge immediately which will be an immediate increase in
cost to the customer

City Council Found
6.) Fact: Rates will go up under UIL



Under private ownership, UIL can increase a customer’s bill to pay for costs of
acquiring PGW.
Under City or UIL ownership, customers will have to pay more for main
replacement.
The current PGW funding of cast iron main of replacement through the DSIC is
the cheapest way without burdening rate payers.
Council’s proposal to accelerate the cast iron main replacement program
under DSIC would lead to a $2 per month increase in a customer’s bill.

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The Administration Claims
7.) Myth: PGW can do everything a private buyer can do


PGW has significant barriers to operating like a private utility and its own
management team has said it is hindered to invest in the business or explore
new business opportunities, not to mention that changes to the City Charter
and the State Constitution would be required to accomplish this goal
UIL has access to capital that allows them to replace cast iron mains
significantly faster that PGW currently can, which will increase jobs in skilled
labor and trades
City Council’s own consultant concluded that expansion of LNG and NGL sales
could not be pursued by PGW under its current governance structure
A privatized PGW has the best option of creating an energy hub in Philadelphia
due to its ability to expand the business through access to increased types and
levels of access to capital.
If this were true why isn’t PGW “doing all of the things a private company
could do” now?

City Council Found
7.) Fact: PGW can do everything a private buyer can do




Prior City Solicitor opinions have permitted PGW to enter into a public private
partnership. An ordinance approved by City Council and signed by the Mayor
allowed PGW and private company, QST, to enter a partnership.
No comprehensive evaluation has been done to determine alternative
organizational or legal structures for PGW
PGW has access to the capital markets and can borrow funds at cheaper rates
because it is a tax exempt entity.
PGW has been pursing activity that is done in the private sector, such as
expanding it LNG facilities.
PGW under any ownership can participate in the creation of a regional energy
hub.

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The Administration Claims

8.) Myth: The Administration did not invite Council to participate on the deal
team and did not tell City Council about the sale until UIL was selected


City Council had representation on the steering committee for the first Lazard
engagement that determined a sale of PGW was the best option for the City
(refer to list of meetings beginning on page 4)
The Council President was asked to have a member of his staff on the steering
committee for the sale process but he declined the offer
Briefings on the sale process with individual members of Council and their
staff took place on June 24th, July 8th, August 22nd, and September 11th of
2013 (refer to list of meetings beginning on page 4)
Council President Clarke met privately with the 6 short-listed bidders on
December 9th and December 11th of 2013, where he had the opportunity to
hear their proposals, provide input, and offer suggestions of how the deal
could be made palatable to the Council

City Council Found
8.) Fact: The Administration did not invite Council to participate on the deal
team and did not tell City Council about the sale until UIL was selected


There was no representation from City Council on the steering committee.
Council was invited to the steering committee when the decision was already
made to sell PGW. Council was not invited to explore alternatives other than a
sale.
All briefings of Council and staff took place after the decision was made to sell
PGW.
Council President met with bidders after the decision had been made to sell
PGW.

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The Administration Claims
9.) Myth: PGW has been profitable for the City

From 2004 – 2010, PGW did not provide the annual $18mm franchise fee to
the City. (Total loss to City of $126mm)
In 2000, the City had to give PGW a $45mm loan, which was repaid much
later than originally scheduled due to PGW’s poor financial condition

City Council Found
9.) Fact: PGW has been profitable for the City



PGW was recently upgraded to A- by S&P because of its strong performance.
UIL is rated as BBB.
PGW, as City owned, can issue tax-exempt debt, which a private company
cannot do and which is cheaper than taxable debt.
PGW is in a strong position and continue to make its $18 million per year
franchise fee payments.
PGW has improved its financial condition exponentially in recent years.

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The Administration Claims
10.) -Myth: Council has decided not to sell PGW

There is no legislation pending in the Council and many members indicated
that they had not read Council’s Concentric report
It is known that a losing bidder, their lawyer and their lobbyist, have been
actively engaging in potentially illegal discussions with Council members-which may violate the confidentiality agreements in this transaction-- in an
effort to block or defeat the current proposal
The City administration chose the best financial and operational deal for the
City, which was supported by Council’s own consultant, Concentric

City Council Found

10.)- Fact: Council has decided not to sell PGW

City Council does not endorse this deal.
Concentric opined it’s the best deal on the table given the objectives that the
Mayor sought. This does not include any objectives of City Council.

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The Administration Claims

11.) Myth: Council was not involved in the PGW sale process

The Administration offered to involve Council at every step in the process –
from when Lazard was engaged in 2011 to briefing Council and its staffers in
the spring of this year
Additionally, the Council President met with 6 final bidders in December of
2013 and was offered the opportunity to fully participate in the complete
vetting process that ultimately led to UIL being selected as the winning bidder
in February of 2014

City Council Found

11.) Fact: Council was not involved in the PGW sale process



Briefings were held to advise Council members of decisions already made by
the Administration.
There was no meaningful input from City Council.
Briefings were simply informational updates by the Administration about
what they were doing to sell PGW.
City Council was not involved in any part of the process that shaped the RFP.

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