Liberty Energy Trust L.L.C., founded by a Russian-born, Harvard-trained former Enron executive, had several strikes against it when it bid to buy the city-owned Philadelphia Gas Works.
Liberty has no assets and no utility operating experience. Its offer to buy PGW was $160 million shy of UIL Holdings Corp.'s winning $1.86 billion bid.
It finished out of the running.
But Liberty had one winning quality that seems to have intrigued members of Philadelphia's City Council: political juice.
Founder Boris Brevnov, who lives near Middleburg, Va., and his local partner, Charles E. Ryan, say they spent months in 2013 lining up support from labor, business, and civic leaders, including Philadelphia Energy Solutions chief Philip Rinaldi and Richard Worley, a prominent investment banker who is chairman of the Philadelphia Orchestra.
Liberty's brain trust says it has done nothing to interfere with the process since it was outbid. But its continued interest in working out some kind of deal in Philadelphia's dynamic energy sector seems to have cast a long shadow over the sale process.
On Oct. 27, Council President Darrell L. Clarke halted consideration of the UIL deal without a vote or public discussion, saying Council had no appetite for a deal. Instead, he scheduled hearings, set for Thursday and Friday, to consider alternatives to selling PGW.
Nutter, in an interview, said he has not surrendered hope that Council will give the UIL sale a hearing. He did not hide his irritation with Liberty.
"I think you've had a fair amount of skulduggery and this kind of interference in the background, all this chitchat about, 'We can do this, we can do that,' by folks who have never run anything," the mayor said.
Nutter said the city cannot simply pivot now and sell part or all of PGW to a second buyer without starting a new sale process. He doubts any serious bidders would participate after UIL spent $21.3 million on a deal Council summarily squelched.
"There is no Number Two, it's over," he said. "And we're not starting over. Based upon what's happened, no one is going to be interested in this, because they just watched a legitimate company spend $20 million and not get a hearing."
Council leaders say they nixed the deal because they were not sufficiently involved in the sale process and the mayor did not consider alternatives to a sale. The Nutter camp says that is untrue.
In 2010, at the urging of the Pennsylvania Public Utility Commission, the city hired the investment bank Lazard Frères & Co. to conduct a strategic analysis of PGW after the utility was forced to seek an emergency rate increase from the PUC.
Lazard's report, issued in 2012, concluded that an outright sale of PGW would yield the biggest benefit for the city, while relieving PGW of the most financial liabilities. The other options it examined were leasing PGW, forming a partnership with a private company, hiring outside managers, or selling stock in an initial public offering.
Based on Lazard's recommendation, Nutter launched the sale process. Bidders had to promise no layoffs and a rate freeze for three years, and to maintain current low-income and senior subsidies, with the PUC's consent.
"UIL won fair and square," said George W. Bilicic, the Lazard banker who worked as the city's financial adviser. "End of story. It provided the best price and terms, in our view. We don't see that as a close question."
City Council's own consultant, Concentric Energy Advisors, concluded that the sale process was competitive and that the sale price was reasonable. Clarke's office released the study - after he closed out public debate.
Bilicic said he was stunned that Council turned down UIL's $1.86 billion bid, which includes assumptions of PGW's environmental liabilities.
"It's quite frankly shocking to us, because how good this transaction is for the city and its stakeholders," he said. "It provides compelling value. It stabilizes the financial position of the city. It lets the city focus on other opportunities and challenges in the city and gets them out of a business that is not a core function of governments in the United States."
But Council seems more interested in pursuing a separate course than an outright sale of PGW, a direction that had been suggested early on by Liberty.
Brevnov and his partner Ryan, a Radnor High School grad who returned to Wayne in 2008 after nearly two decades as a deal-making banker in Russia - his last job was CEO of Deutsche Bank's Russian unit - had expended much effort on their PGW bid. Their "stakeholder approach" was a strategy that Ryan said had worked in Russia, where he engineered the privatization of some state-owned assets.
"We would solve the political problems up front," said Ryan, 47. "You could end up spending a whole lot of time and effort and end up with a bad outcome if you didn't know up front where all the key actors stood."
Liberty lined up labor support - the AFL-CIO's Ullico Infrastructure Fund made a $75 million commitment, and AFL-CIO president Richard L. Trumka wrote to Nutter on Jan. 29 endorsing Liberty's "growth strategy."
It also enlisted Rinaldi, the refinery executive, and Worley, who introduced the Liberty team to other investors.
"We made what we thought was a good offer, and we think it would have been a good outcome," said Worley. But he said Liberty was unable to match UIL's bid.
Liberty did not give up. Even before Nutter publicly announced UIL's selection, Liberty's lawyer, Stephen A. Cozen, wrote to Clarke and other officials protesting the mayor's choice.
"Perhaps it is time for City Council to come up with its own plan and to that extent, we would be happy and open to the proposition of working with City Council to develop an acceptable alternative to the mayor's apparent decision," Cozen wrote in the letter to Clarke.
At its hearings this week, City Council begins to come up with its own plan.