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Tough opposition to city's sale of PGW

Mayor Nutter's venture to privatize the Philadelphia Gas Works, the nation's largest municipal gas utility, is encountering stiff resistance.

Mayor Nutter and Councilwoman Mirian Tasco
Mayor Nutter and Councilwoman Mirian TascoRead more

Mayor Nutter's venture to privatize the Philadelphia Gas Works, the nation's largest municipal gas utility, is encountering stiff resistance.

The Philadelphia Gas Commission, the regulatory body that reviews PGW's budget, has delayed approving $2.7 million in expenses to pay the team of financial, legal, and communications consultants Nutter hired to guide the city through the sales process.

Without a budget authorizing the expenses, the city can't sign contracts with the consultants and move forward with soliciting bids for the utility, which is expected to fetch more than $1 billion.

The city's public advocate and the utility workers' union urged the gas commission to block PGW from paying the fees, which are included in the utility's $697 million annual operating budget. With the fee issue unresolved, PGW has been without a budget since Sept. 1.

Mark McDonald, Nutter's spokesman, said the mayor was committed to exploring whether potential buyers - investment groups or other utilities - would offer an acceptable price to take PGW off the city's hands.

"What we want is a fair test of the marketplace," said McDonald, who blamed the delays on "a bunch of vested interests throwing up obscure roadblocks."

The commission is scheduled to discuss the fees Tuesday, but no vote is scheduled, said Janet Parrish, the agency's executive director.

The objections over the fees are among the many legal and political obstacles the Nutter administration must surmount to sell the 176-year-old utility, which has been restored to financial stability in the last decade. Lazard Freres & Co., the financial adviser, estimated the sale could fetch up to $1.85 billion and net the city as much as $496 million.

Several mayors and business leaders have long advocated a sale, saying private investors could run PGW more efficiently. But powerful constituencies, including City Council members, unionized employees, and advocates for low-income customers, have stymied privatization efforts in the past.

Community Legal Services (CLS), which acts as the city's public advocate, and Local 686 of the Utility Workers Union of America, which opposes privatization, have questioned whether PGW should pay any fees, because, they say, customers are unlikely to benefit from the process.

City Solicitor Shelley R. Smith has given PGW the legal authority to pay the costs, and Nutter considers that issue settled.

Smith, in an effort to break the impasse over the fees, released the unexecuted consultant contracts to the commission, but that appeared to have only provided more ammunition to skeptics.

Parrish, the gas commission's executive director, issued a 25-page paper to the commission last month questioning specifics in the contracts. Most of her concerns were focused on the $750,000 agreement with Lazard.

The solicitor dismissed worries that the contract failed to protect the city from potential conflicts of interest for Lazard, which does business with many of the firms that might bid to buy PGW.

More than $400,000 in fees to media consultants and lobbyists to build public support for the sale have also come under scrutiny. Councilwoman Marian B. Tasco, the gas commission chairwoman, had singled out those contracts earlier this year because the commission has never allowed the utility to pay such expenses.

Ceisler Media, which would receive the bulk of the $201,000 allotted for public relations, plans to pay $30,000 to a contractor to conduct four focus groups to assess public opinion about PGW and to help craft language to promote a sale. Ceisler would also spend about $10,000 to develop a website supporting the sale.

The advocates took special aim at the proposal by Kleinbard, Bell & Brecker, a law firm hired for $200,000 to lobby City Council members, who would vote on a sale.

The Kleinbard firm said its initial strategy would be to persuade City Council to "give positive consideration to the possibility of the merits of a sale and to not impede the process."

The proposal also said its aim was "to inhibit elected officials from criticizing the sale concept."

CLS lawyers Robert W. Ballenger and Thu B. Tran seized on the language, saying they were "deeply troubled" that PGW money would be spent to "inhibit City Council members from performing their duties."

James F. Runckel, a lawyer for the gas workers' union, mocked the need to "harass or cajole" elected officials.

The Kleinbard firm's government-relations practice is headed by former PGW board chairman David L. Hyman and former Councilman George R. Burrell.

Hyman said in an interview the process was aimed at generating an offer whose merits could be debated in public.

"Our efforts are designed to elicit the best proposals," he said, "and to maximize the opportunities available to our city and its citizens."

The city is searching for a broker who will identify potential buyers and manage the bidding. The city expects the broker to start by Jan. 21.