NOTE TO PUC: DON'T FORECLOSE ON PGW

THE COUNTRY'S current foreclosure crisis is driven in part by high-priced loans people took out against their homes. These loans, often used to make home repairs, enticed people with low "teaser rates," which quickly exploded into much higher rates that borrowers were unable to pay, and which stripped them of any equity they had in their houses.

That crisis is similar to one faced by PGW, which for years has had to borrow money to make improvements to its system. And the city-owned utility has been meeting its staggering debt obligations - now at $1.2 billion - by taking on more debt.

Despite the improvements in its management, collections and operations, the company, with its huge population of low-income ratepayers, has few options for stabilizing its operations.

That's why it has requested a large rate increase from the Public Utility Commission, which is expected to make a decision next week. PGW is requesting a rate increase of $100 million, which translates into about a 9 percent rate boost for its customers. PGW wants to use part of this increase to pay down its debt and help the company become more stable over the next five years. This could also make the utility attractive to a buyer.

But a recommedation to the PUC made by a group of its administrative law judges calls PGW's proposal fatally flawed, and recommends a rate increase of only $25 million.

We hope the PUC does not adopt this recommendation.

We certainly don't like advocating a position that results in people having to pay higher gas bills. PGW's customers already pay some of the highest rates in the state.

But PGW has made a compelling case that a larger increase now is a prudent strategy for being able to finally put the utility on some path that doesn't lead to ruin.

The bottom line is that customers are going to pay - either now or later. We're convinced that the bill for paying now will be smaller and do less damage than what happens if PGW finds no way out of its current problems.

For example, PGW says that without the increase, it is at serious risk of a major financial crisis that could lead to the company being downgraded to junk-bond status and unable to make critical infrastructure investments.

Junk-bond status would make future borrowing even more expensive.

The PUC judges and the state's consumer advocate, all of whom advise against this increase, say they can't look into future projected costs when making rate determinations. Rates must be based on current income vs. revenue.

They argue that the PUC's job is to regulate rates, not help run utilities. But this seems a restricted and overly narrow view. It essentially builds a box that leaves PGW no room to adequately face the harsh realities that it alone faces.

Without the solution of a rate boost, that box could quickly become a coffin. The problem is, that will be a crowded coffin, once the city and all its gas customers are forced into it. *