City of Philadelphia moves forward with plan to sell its regulated gas division

by Saul Ewing LLP
Contact

Summary

The Mayor of Philadelphia recently announced the hiring of two investment bankers to start the solicitation process for selling the city’s gas division. As a unique feature of this transaction, the gas division is regulated by the Pennsylvania Public Utility Commission. The Commission will play a major role in determining the final terms of the transaction and potential buyers should be prepared to meet the Commission’s requirements.

Transaction

On April 25, 2013, the city of Philadelphia announced that it had engaged JP Morgan and Loop Capital to seek a buyer for Philadelphia Gas Works (“PGW”), the largest municipally-owned gas utility in the United States. PGW serves 500,000 customer accounts, representing a population of 1.2 million people, and has been valued, under various scenarios, at amounts approaching $2 Billion. City officials are planning to receive offers for the gas system this summer in response to solicitations that will be managed by the investment bankers.

While most municipal systems are not subject to rate and service regulation by a statewide commission, PGW is unique. PGW is regulated by the Pennsylvania Public Utility Commission (the “Commission”), which imposes its own separate requirements on transactions involving a change of control of a public utility. Accordingly, this transaction will raise many regulatory issues in addition to the customary issues and approvals associated with an M&A transaction. The Commission will play a major role in determining the key terms of the transaction, and potential buyers should be educated and prepared to meet the Commission’s requirements.

Legal/Regulatory Requirements

In Pennsylvania, the legal prerequisite to a transfer of control of a public utility is that the utility obtain a certificate of convenience (“Certificate”) from the Commission. Under the Pennsylvania Public Utility Code (the “Code”), a public utility cannot transfer possession or use of any tangible or intangible property to another party without authority. To receive authority, the utility must file an application with the Commission and meet the burden established by the Pennsylvania Supreme Court, showing that the transaction is necessary or proper for the service, accommodation, convenience or safety of the public. Those seeking approval for a transfer application must demonstrate, by a preponderance of the evidence, that the change of control will affirmatively benefit the public interest in some substantial way. This standard is applied by weighing the benefits and detriments of the transaction to all affected parties, so the applicant must present a case to the Commission that is substantial and compelling.

To ensure that applications for a change in control are in the public interest, the Commission may impose conditions on its approval of the transaction. The Code permits the Commission to impose such conditions as it may deem to be just and reasonable. In past transactions, the Commission has attached various conditions to its approval, including rate moratoriums, consumer education programs, staffing commitments, customer service commitments and investments in green energy. Every transaction is different, so potential buyers should understand and be prepared for the various scenarios under which the new owner of PGW may have ongoing obligations.

Although the Public Utility Code does not impose a timeframe on the proceedings, it usually takes about nine (9) months to receive approval. Typically, the approval process includes: (1) filing the application; (2) discovery; (3) hearings (both evidentiary and non-evidentiary) before an administrative law judge (“ALJ”); (4) issuance of the ALJ’s decision; (5) exceptions to the decision, if any, and (6) the final Commission order.

Strategic Preparation and Planning

Regulatory approval is the biggest hurdle Acquisitions in the non-regulated sectors are mainly assessed in terms of investor value, with little to no reference to the public interest. However, for acquisitions of regulated utilities in Pennsylvania, the public interest test requires an applicant to meet its burden with particularity. This type of evidence requires specialized skills and reliable insight into the application approval process. Parties interested in purchasing PGW will need to begin assembling their teams and planning their strategies for winning the bid and obtaining the required regulatory approval.

Saul Ewing’s Energy and Utilities Practice includes the former Chairman of the Pennsylvania Public Utility Commission, as well as other attorneys with extensive experience in transactional and regulatory matters involving regulated utilities. Feel free to contact any of the authors for more information about the PGW sale or other issues affecting your energy or utility business.

 

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Saul Ewing LLP | Attorney Advertising

Written by:

Saul Ewing LLP
Contact
more
less

Saul Ewing LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.