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Latest news, thoughts and points of view from the Chariot Companies and its subsidiaries

THE BOND BUYER, May 1, 2015

P3 Discussed for Philadelphia Gas Works

Though the City Council rejected privatization plans for the Philadelphia Gas Works last year, the future of the nation's largest municipally owned gas utility is back in play and a public-private partnership could be part of the vision.

Philadelphia Mayor Michael A. Nutter announced in March 2014 he had struck an agreement to sell the gas works operation to UIL Holdings Corp. for $1.86 billion, but the city council voted down the proposed sale in late October.

Had the transaction been approved, the city was expected to have $420 million to $630 million deposited into its pension fund after using other proceeds to pay off Gas Works debt.

PGW's senior-most bonds are rated Baa2 by Moody's Investors Service.

"Financial and public policy risks associated with the sale proposal outweighed the stated benefits to the city of Philadelphia and PGW customers," the City Council said in a statement after voting down the mayor's privatization proposal.

This March 13, the city council's Special Committee on Energy Opportunities held a hearing where testimony was heard on the viability of a P3 for PGW. The nine witnesses at the hearing discussed opportunities for expanding the role of PGW in Philadelphia's energy future and proposals for energy-related P3s.

Folasade Olenipekun-Lewis, chief financial officer for the Philadelphia City Council, said no proposal for the PGW property is currently being pursued, but the council is open to considering a P3 plan in the future. City Council President Darrell L. Clark said late last year he favors a P3 for PGW in which the city would retain ownership of the utility.

"There are absolutely good opportunities for a P3 where you can get value from the asset without completely disposing it," said Olenipekun-Lewis. "We have seen other successful P3s in the state."

Olenipekun-Lewis emphasized that it is up to PGW and companies who want to partner with the utility on a P3 to present ideas to the city council before any proposal will be considered. She said with Nutter's term expiring at the end of the year, the matter likely won't come before the council until after the new mayor takes office.

The PGW press office did not respond to calls seeking comment.

PGW manages a distribution system of 6,000 miles of gas mains and service pipes that supply roughly 500,000 customers. Its operations are managed by the Philadelphia Facilities Management Corporation, a non-profit entity.

It operates one of the nation's largest liquefied natural gas storage facilities, and some of the P3 ideas for the utility would take advantage of those capabilities.

Michael Krancer, an energy leader at Blank Rome and a former secretary of the Pennsylvania Department of Environmental Protection, said the Gas Works' location in the midst of major ports could lead to increased tax revenue and jobs if its liquefied natural gas facilities are properly built out. Krancer added that PGW benefits by being located close to the Pennsylvania's Marcellus Shale rock formation, a source of natural gas.

"Philadelphia can be an energy hub," said Krancer. "A public private partnership could be what the doctor ordered."

William Rhodes, chair of the public finance department at Philadelphia-based Ballard Spahr, also sees potential for the city leveraging its energy resources.

"Our attorneys certainly believe Philadelphia faces a bright future as a national hub for the natural gas energy industry (and innumerable indirect industries), for both export as well as domestic markets, given our East coast presence, our deep port, and very competitive rail service offered by three major railroads," said Rhodes.

One of the witnesses from the March 13 hearing was John Henry, CEO of Philadelphia-based Chariot Companies, a minority-owned community development entity that is proposing a P3 plan for PGW that would involve building a Summer Energy Academy

Henry said the plan would create workforce development programs providing tailored science, technology, engineering and math educational platforms to meet the growing employment opportunities in the energy industry. He added that the vision would provide a boom to the Philadelphia economy while also empowering the city's working class and minority residents, but did not have an estimate yet of what the potential revenue impact would be.

"I think a P3 is the best approach for PGW," said Henry, a former public finance attorney at Ballard Spahr. "We're eagerly awaiting the next steps."

Henry stated during his March 13 testimony that the proposed 1.2 million-square foot Summer Energy Academy would be housed in Stadium Village, a proposed $260 million transit-oriented development initiative along 45 acres that would generate more than 3,0000 full-time and temporary jobs. In addition to providing middle-income housing and commercial businesses, the facility would also house Chariot Labs, a workplace education program that teaches skills to low-wealth youths and young adults.

"Chariot is answering the call on an energy hub that considers not just the economics of a P3, but also the role of education and workforce development systems," said Henry in his written testimony to the city council. "I encourage City Council to look squarely at the PGW P3 as a means to catalyze a workforce renaissance, grow new revenue streams and shore-up operational challenges,"

A study prepared for the Philadelphia City Council by Concentric Energy Advisors released in October said a P3 is one approach that would mitigate risk of PGW expanding its liquefied natural gas liquefaction capacity.

The Concentric report said bringing in a private entity could bring financial, operational and marketing expertise to the venture, but that LNG sales under this arrangement could face challenges from the Pennsylvania Public Utility Commission.

A Concentric Energy spokeswoman said the company is not commenting on its work related to PGW.

Villanova School of Business professor David Fiorenza said while a P3 plan could prove beneficial for Philadelphia, it would still be a missed opportunity to rid itself of a city property while also providing cash infusion for the city's pension plan.

"This is an opportunity to shed a public function and sell the assets to not only infuse the city with cash for the pension plan but also be out of the business of the gas works," said Fiorenza. "The City has enough services and demands and one less, the gas works, will give Philadelphia the ability to concentrate on other fiscal priorities."

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