PHILLY.COM Op-Ed: Philadelphia’s unfunded city pension obligation is enormous: Morningstar estimates that $7,000 per household is required to fill the hole. And without some urgently needed extra cash, the city’s pension fund is likely to run empty in less than five years. This is why Mayor Nutter’s recent deal to sell Philadelphia Gas Works to UIL Holdings, a diversified energy company, is a much-needed boon for the city’s ailing pension system.
There are many other good reasons to favor the PGW sale, including the grim reality that old pipes pose a severe threat to the city’s safety and health. A PGW worker was killed and six others injured when a 71-year-old cast-iron pipe exploded in 2011, and the utility reported almost 5,500 leaks in 2012. Yet current management has stated that it would take 88 years to replace the old pipes, because there’s no money to speed up the process. The city cannot access the capital markets for this purpose. By contrast, a new owner would be able to borrow in the capital market and rapidly accelerate sorely needed repairs.
PGW is unique in that it is the nation’s oldest and largest city-owned public utility. But why should a city own a gas works? Indeed, its ownership posed extreme risk to the city’s budget when the utility almost collapsed in the late 1990s and early 2000s, having to be bailed out with large loans. So now that the utility can garner a competitive bid of $1.9 billion from UIL, the city should jump at the chance for a propitious, and profitable, sale. And while some worry out loud that utility rates may rise post-sale, UIL has committed to a freeze though 2018. Without the sale, rates will head up even sooner, as PGW has filed for a rate increase effective in 2017… (more)
EDITOR: If Philadelphia is to do this, and it seems to make sense, it should be part of a package of concessions from the unions and sensible adjustments for pension payments in the future.
