Despite a fierce recession and record unemployment, far fewer Philadelphia Gas Works customers have received low-income heating grants this year, and the municipal utility says it is facing a multimillion-dollar shortfall.

About 11,523 PGW households have received federal heating grants this year, about a third as many as last year. The utility says it had received $2.8 million in grant income so far this heating season, about $9 million less than it had at the same time last year.

The drop-off in grants, which utility and social-service advocates attribute to changes in the way the Pennsylvania Department of Public Welfare administers the federal program, has far-reaching consequences.

The Pennsylvania Public Utility Commission reported today that 17,037 Pennsylvania households would begin the winter with their heat-related utility service cut off, an 18.5 percent increase over last year. PGW accounted for most of the increase, which it blamed partly on the decline in grant availability.

The decline in grant income to PGW is also likely to contribute to higher rates for all of its 500,000 customers, whose bills are already about 20 percent higher to cover low-income subsidies. PGW is expected to file for a rate increase before the end of this month.

PGW is not the only utility affected by the reduction in grants doled out under the Low-Income Home Energy Assistant Program (LIHEAP). Peco Energy Co., which provides electric service in Philadelphia and four surrounding counties and gas service in the suburbs, says that 4,000 of its customers had received grants by Dec. 1, down from 19,000 a year ago.

Last year, Peco processed more than 66,000 grants providing almost $28 million. PGW, which has more low-income customers, had 97,536 grants totaling almost $35 million, or more than 4 percent of its total revenue.

"There are multiple impacts to the reduction in grants," said Steven P. Hershey, PGW vice president of regulatory affairs. He said more customers were likely to face cutoffs at the end of this winter without the aid.

Stacey Witalec, spokeswoman for the Department of Public Welfare, said the number of families eligible for grants fell this year because the state reduced income eligibility from $44,443 for a family of four to $33,075.

The state reduced the eligibility level from 210 percent of the poverty rate to 150 percent because it had less federal money to distribute. The federal government has allocated $275 million to Pennsylvania out of the $4.6 billion program. Last year, Pennsylvania had $330 million to distribute.

Linda Blanchette, deputy secretary for the state Welfare Department, said the timing and flow of payments were different this year, but she cautioned that it was "too early in the program to be evaluating whether our spending is going to be more or less than last year."

PGW's Hershey complained that the state was late to change the terms of the program and that the utility suffered despite its "aggressive" effort to communicate the new rules to customers.

LIHEAP grants are administered in two parts - cash grants for low-income customers, and so-called crisis grants for customers facing a shutoff. The maximum cash grant is $1,000.

One significant change this year is that the state will not accept crisis-grant applications until Jan. 4. In effect, that means electric and gas customers may not be eligible for the money because they will not face shutoffs in the deep winter. Regulated utilities are prohibited from terminating customers before April.

But customers who get heating oil or propane deliveries - and who live disproportionately in rural areas - get no such state protection from winter terminations.

"It looks as though the state is trying to change the allocation from urban to rural because it appears that utility customers are being discriminated against at the benefit of customers who get deliverable fuels," Hershey said.

Blanchette said the principal aim of the program was to keep people from losing their heat in the winter. "We don't get down into that fray of competition among utilities," she said.

"There is a great need out there, and our obligation is to help as many people who are in the most need to get these grants," she said.

Contact staff writer Andrew Maykuth at 215-854-2947 or amaykuth@phillynews.com.