By the end of this month, the Philadelphia Gas Works will pay off half of a controversial $45 million city loan that bailed out the utility in perhaps its darkest hour seven years ago, Mayor Street said yesterday.

Many, including the Pennsylvania Intergovernmental Cooperation Authority, questioned whether the city-owned gas works would ever be able to repay the loan.

"This was a company that you could hardly give away in the beginning because of its high debt and customer-service problems," Street said. "But now, it's repaying its loan, and frankly most people thought we'd never see that money again."

Street said the PGW board had presided over a "miraculous metamorphosis" that has turned the company around.

"Its customer service is better than it's ever been," Street said. "Its bond rating has been increased. Labor relations are better now than they have ever been. This is a company that is now worth something. It has a lot of debt, but it's worth something."

And at the helm almost from the start has been Thomas Knud-sen, PGW president and chief executive, who had been a frequent critic of the company as a consultant working for the public advocate on rate cases.

"We were adamant that we would pay the money back," Knudsen said. "This is the first step of the rebuilding of the company's finances."

By Dec. 28, the company will shift $20.5 million to the city treasury. Earlier this year, the company paid $2 million back. By next August, Knudsen said the rest of the loan will be paid.

In late 2000, PGW was teetering as the cost of natural gas shot up and its bill collections plummeted, Knudsen recalled. The fiscal crisis was so bad that PGW was facing a situation in which it could not pay its own January gas bill.

Seven years later, PGW is appealing a $25 million base-rate hike granted by the state Public Utility Commission. PGW originally sought a $100 million increase, but still Knudsen said the company is beginning to generate enough cash flow to repay the debt.

Knudsen said the company has identified $30 million in annual savings but would need to spend $20 million for computer changes and expert advice to achieve the efficiencies.

Thanking the PGW board members with Philadelphia Bowls - the highest honor given for contributions to the city - Street said, "This company has survived and thrived."

The board members are chairman David Hyman, the Rev. Thomas J. Ritter, Harold Sorgenti, Gerald T. Davis, Seth Adam Shapiro, city Finance Director Vincent Jannetti, and Street's chief of staff, Joyce Wilkerson. Street also praised former board member Joe Rauscher for his service. *