Nov 9, 2007

Pennsylvania Bills Seek Gas Surcharge, Bonds for New Pipelines

By Adam L. Cataldo

Pennsylvania monthly natural gas bills may rise to pay for new pipelines under measures before the Legislature, elected officials said at a public hearing today in Philadelphia.

One bill calls for asking voters to approve a $1 billion bond referendum to help finance spending on the pipelines. Other legislation would allow local utilities to charge customers a special fee, with money going to pay for capital spending.

“We have very old infrastructure, and we have to figure out how to make more investments if we want this state to grow,” Representative Dwight Evans, a Democrat from Philadelphia, said in an interview. He is the lead sponsor of the bill to charge natural gas users the new fee and testified at today’s hearing.

The legislation is needed to help replace the estimated 13,000 miles (20,917 kilometers) of corroded pipes used to deliver natural gas around the state. That figure also includes wooden pipes still used in Philadelphia and other parts of the state. The cost of replacement is estimated at $9 billion to $16 billion, said Johnna Pro, an Evans spokeswoman.

“We have a couple of incidents a year of houses blowing up and people getting killed because of gas leaks,” Pro said. “It is not a safe situation.”

Joseph Preston, chairman of the House of Representatives Consumer Affairs Committee and a Democrat from Pittsburgh, is proposing the sale of bonds to start the Natural Gas Pipeline Replacement Program Fund. Natural gas companies would apply for grants and low-interest loans to replace underground pipes.

Debt service on the bonds would be paid for by an annual appropriation from the Legislature, according to a summary of the bill.

Philadelphia Gas Works

Evans’ bill would also give the state public utilities commission the authority to take over Philadelphia Gas Works, a city-owned distributor of natural gas to about 500,000 customers in the state’s largest city.

Joseph Fichera, chief executive officer of Saber Partners, a financial adviser to state utility commissions, said the secure source of revenue a fee would provide would help the gas works better manage its finances.

Any attempt to sell bonds backed by that fee wouldn’t guarantee the lowest possible cost because of the bill’s language, Fichera said in prepared testimony before the committee. Saber, based in New York, has worked with utility commissions on securitization of about $8 billion of bonds.

“It is unlikely that the bonds issued pursuant to this statute would achieve the highest possible credit rating available or if it did it would achieve the lowest possible costs from the marketplace,” Fichera said in the testimony.

Bill Collections

The legislation is a response to the financial woes of Philadelphia Gas Works, which has struggled for several years amid difficulties collecting payments from its customers.

The annual collection rate from customers in 2006 was 96.6 percent, up from 86.6 percent in 2003, according to a March report by Moody’s Investors Service. Philadelphia Gas Works has about $1.2 billion of debt, according to Joseph R. Bogdonavage, the company’s senior vice president for finance. Moody’s rates the gas distributor’s bonds Baa2 two levels above junk bond status. The outlook is stable.

–Editor: Williams (mzw)
To contact the reporter on this story:
Adam L. Cataldo in New York at +1-212-617-5227 or acataldo@bloomberg.net.

To contact the editor responsible for this story:
Beth Williams at +1-212-617-2307 or bewilliams@bloomberg.net.