UIL Explains Why It Wants to Purchase Philadelphia Gas Works — and What it Intends to Do With It
The city has set up the website exploringthesale.com. UIL has made a couple promises with regards to PGW, that there are going to be no reductions in the workforce for three years —
And I would call those commitments.
They are commitments, not promises.
I meant no disparagement by that terminology. That the workforce won’t slide under 1,350 workers at a time, that you’re going to keep the current leadership team in place, and that there are even no rate hikes until 2018. Are there any short-term plans to make any kinds of changes or exploit the asset that is PGW? Or is it coming along pretty well on its own?
As we always say, we’re not corporate raiders. Our investment is for the long-term. If the idea was to take an asset today and immediately make sure that it’s generated revenue for our bottom line, that’s not our approach. And that’s why we have the investors that we have, and that’s why Wall Street has responded, in terms of our continuing to try and educate the investor community about why this is a good deal. It’s all about long-term opportunity. So we’re not looking for a fast buck. And there are no fast bucks in this deal.
Of the 33 bidders that put in for this, I think we were selected because we took the most care in looking at the proposal. We were thoughtful, in my opinion, about how we wanted to respond to some of the things that were put into play. The city did not ask for dual headquarters. Our CEO made that commitment (to establish corporate headquarters in both Philadelphia and Connecticut) because he felt, “Let’s make sure they understand how serious we are about this particular project and not for the short term.” So for us, it creates a larger footprint. We deliver natural gas and electrical services, and we’ll do that here in Philadelphia.
If you’re a PGW customer, are you going to notice the change? Is there going to be anything different about your service or the company?
I think what you’re going to find, you know we expect to accelerate the investment. The current plan is for [it to take] 88 years to replace the [city’s] 1,500 miles of cast iron pipe. We plan to do it in half the time. So what you’ll see as a customer is increased investment, fast-paced, if you will, changing of the infrastructure to the newer technology that exists today. And doing it, by the way, at a cost that’s not as impactful to you day one as it is today with PGW.
I want to get a little bit of clarification on that. And this may be based more on what I’ve seen in the media than anything you’ve said. Because Philadelphia does have one of the oldest and leakiest gas infrastructures in the United States of America, certainly among big cities. And you just talked about how PGW’s got a nearly century-long plan to replace that and your company said that it could double that rate. Are you committing, then, to doubling that infrastructure replacement? Or is that just something that is on the shelf as a possibility?
That’s one of the reasons for acquisition, to make that investment. So as an example, before in Connecticut, before we purchased those companies, they were replacing about 15 miles of cast iron and bare steel services a year. We increased that, in the first two years, to about 22 miles. And last year we did 30. So the intent is to make the investment, it’s not sort of a general theme. It’s real, and capital expenditures have almost doubled — in many cases, more than doubled — because that’s what we do. That’s the core business.
An example I gave is in the current scenario, the easiest way to sum it … people have used a mortgage example, but I sum it in three words: Debit or credit. If you ever try to rent a car on a debit card, you gotta have the money ready, available, for them to even allow you to take the car. PGW operates on a cash basis. It’s like a debit card. We have a credit card. And our credit is such because we’ve proven to the business community and investment community that we can make these investments and get the return on that. So is there a percentage we pay just like you pay on your credit card? Sure, but we can do a lot more a lot faster and now have the same impact on customer rates as it would if you were doing it under the same PGW structure.