By Robert W. Ballenger

and Philip A. Bertocci

A recently released report recommending a sale of the city's gas utility identifies no significant benefits for its 440,000 residential customers.

The proposed requirement that the buyer maintain Philadelphia Gas Works' programs for low-income residents is not meaningful, as the programs are already protected by state law and regulations. And since PGW does not expect to raise rates until after 2016, a proposal to require the buyer to freeze rates until that year is also of questionable value.

Moreover, privatization may set the stage for future rate increases to satisfy demands for increased profits and dividends that don't exist under municipal ownership.

Instead of predicting improved services or other customer benefits, the city-commissioned report, by Lazard Freres & Co. L.L.C., focuses exclusively on the market conditions for a sale. And the bar for a sale is set very low, at a price sufficient for the city to divest "at little or no cost (and potentially a profit)."

Nor does the report support the conclusion that the city would more than break even on a sale of PGW if a buyer is found. Any sale would require the city to pay off $1 billion in long-term debt and another $350 million in other liabilities. The report alluringly speculates that the sale price "could" range as high as $1.85 billion or more, yielding substantial profits for the city. But it also shows that when it comes to PGW, this is not a seller's market.

The report did not come about because the city was getting inquiries from potential buyers. Rather, the state Public Utility Commission has for several years been urging the city to consider a divestiture of PGW, in the hopes that an investor-owned utility might have greater resources to upgrade infrastructure and be less vulnerable to credit markets. In Philadelphia, meanwhile, those who oppose municipal ownership on ideological grounds have joined forces with those who hope the sale will address increasing city deficits.

In recommending that the city pursue a sale, Lazard suggests that the utility would be most attractive to a buyer capable of achieving substantial operational savings or "synergies" by folding PGW into an existing utility business. Lazard describes the number of potential buyers as "finite." "Infinitesimal" might be closer to the truth.

Lazard reports on a poll of six supposedly representative entities targeted as potential buyers of PGW, only four of which might be capable of achieving any synergistic savings. Given such a small market, we wonder whether any buyer would be willing to pay more than the city's minimum, break-even price.

Through their gas rates, PGW customers have historically covered all the utility's expenses, including debt service, while usually providing millions of dollars a year to the city's general fund. Now these customers have paid another $200,000 through their rates for this preliminary Lazard report. And they will likely have to bear many times that cost to retain financial, legal, and other advisers to find a willing buyer for PGW and determining whether acceptable sale terms can be reached.

PGW's customers, who have funded this publicly owned asset for 175 years, would get nothing from a sale. They should not be convinced or enthused by this report.

Robert W. Ballenger and Philip A. Bertocci are lawyers with Community Legal Services who serve as public advocates for residential customers in Philadelphia Gas Commission proceedings.