An expert witness on Monday suggested that a proposed Philadelphia Gas Works energy venture would not generate nearly as much revenue as the city-owned utility forecasts.
A utility consultant hired by the city's public advocate said PGW's estimated revenue of $4 million a year from a proposed liquefied natural gas (LNG) plant was based on projected high gas prices and sales volumes that were impossible to achieve.
"We were sort of unable to reconstruct that number," Robert Ballenger, a Community Legal Services lawyer who serves as PGW's public advocate, told a hearing Monday before the Philadelphia Gas Commission.
An official with the city-owned utility did not produce data to support the $4 million projection, but said that even if the proposed private venture generated only the minimum revenue guaranteed — $1.35 million — the money was risk-free and would help reduce the need for higher customer rates.
"Whether it is $1.35 million or $4 million in potential new revenues annually, this is real money that we can use to bend the cost curve and further delay future base-rate adjustments," said Raymond M. Snyder, PGW's senior vice president for gas management.
The gas commission is considering PGW's proposal to go into business with a private partner, Liberty Energy Trust, to build a $60 million LNG production facility at its Passyunk Plant. The project will require City Council approval.
LNG is a liquid form of natural gas that is in demand as fuel for ships, trucks, trains, and remote power plants. PGW already produces LNG at its Port Richmond plant to store gas for customers on peak winter days, and carries some LNG by truck to store in a tank it owns at its Passyunk site.
The new plant, which would use PGW's Passyunk storage facilities, would be a purely commercial venture.
LNG is produced by supercooling natural gas to 260 degrees below zero, transforming the gas into liquid. The project is expected to covert more than 2 billion cubic feet of gas a year to LNG.
Liberty Energy Trust, a Conshohocken firm that specializes in energy and infrastructure deals, would build the plant and share profits with PGW. The city utility would operate the plant for a fee, but would put up no money to build the project.
PGW's leadership had initially leaned toward building the project on its own, citing a strong market for LNG from power producers who must shut down or switch to costlier diesel and fuel oil during cold snaps, when residential customers have first dibs on natural gas supplies.
But key City Council members had little appetite for the risk of financing the project with city revenue bonds. So the utility chose a proposal put forth by Liberty Energy Trust, which will produce less revenue for the city but put no customer money at risk.
Scott J. Rubin, the public advocate's utility consultant, said it was "unlikely" that PGW would generate revenue beyond the $1.35 million in fees it was guaranteed under the contract. But the project's sponsors suggested that the consultant had not taken into account the dramatic prices LNG can fetch in markets like New England when winter supplies are constrained.
"Volatile winters are the ones most profitable for us," said Matthew Taylor, a Liberty Energy Trust partner.
Rubin also questioned whether Liberty Energy Trust has the expertise to market the LNG. The firm, which has bid unsuccessfully on two regional port projects, as well as a failed bid to buy PGW in 2014, has five employees and does not operate any businesses.
"All of their expertise is in finance, investments, mergers, and acquisitions," he said.
Liberty Energy Trust last year bought Northstar Industries LLC, a Massachusetts firm that has designed and built LNG projects, and would build the PGW project. Taylor said Liberty has negotiated an agreement with a major New England utility to buy LNG volumes that exceed the amount the PGW is designed to produce.
Some also questioned whether the $4 million PGW believes it can generate from LNG would make much difference for the utility, which generated $636 million in revenue in 2017. But since the new LNG revenue would flow directly to the bottom line, the utility believes an additional $4 million would boost its net income of $39.5 million by about 10 percent.
The gas commission is likely to vote on the proposal at its Dec. 4 meeting, and it will probably not come before City Council until January. Council President Darrell L. Clarke, in a conversation earlier this year with the Inquirer's editorial board, signaled that he wiould look favorably on the project.
Monday's hearing was attended by about 50 people, most of them members of the city gas worker's union, which favors the project.
But several environmental activists testified in opposition, saying PGW should not consider a project that would commit the city to fossil fuel when Mayor Kenney has established a policy to reduce greenhouse gas emissions.
"PGW's proposal for an LNG facility conflicts with the city's clean energy vision to drastically reduce greenhouse gases and transition to renewable energy," said Matt Walker, advocacy director with the Clean Air Council.