Press Release

PUC Gives Conditional Approval to Agreement for UGI to Purchase PG Energy

Published on 8/17/2006

Filed under: Gas

HARRISBURG, Pa. – The Pennsylvania Public Utility Commission (PUC) today gave conditional approval to the settlement agreement for UGI Utilities Inc. to purchase and PG Energy, taking exception with the portion of the settlement dealing with gas supply issues.

The Commission voted 3-2 to approve a motion by Vice Chairman James Cawley that made approval conditional on the parties to the case accepting changes to the gas supply portion of the settlement. The other six issues addressed in the settlement were approved without condition. Commissioner Terrance J. Fitzpatrick made a statement in support of the motion. Commissioner Kim Pizzingrilli also made a statement.

“Given the Commission’s commitment to retail competition, it would be inconsistent for the Commission to approve the gas asset management plan in a proceeding in which other natural gas suppliers are not parties,” Vice Chairman Cawley said.

Commission Chairman Wendell F. Holland and Commissioner Bill Shane supported approving the settlement as presented and voted against the motion.

“Under this settlement, the rate increase requested for PG Energy customers is significantly reduced, jobs and pensions are protected and the company’s corporate headquarters is returning to Pennsylvania,” Chairman Holland said. “This merger clearly promotes economic development. The public good of this settlement overshadows the gas supply issue.”

Chairman Holland and Commissioner Shane said in a joint statement, “While we appreciate and share the concern the majority has regarding the gas supply issues, due to the risk that the parties will withdraw completely from these proceedings, this action is not warranted.”

Under the gas supply issue portion of the proposed settlement, the new PG Energy (UGI Penn) would have entered into a gas asset management agreement with an unregulated natural gas marketing affiliate of UGI for the management of its natural gas supply assets used to provide service.

Attached to the settlement was a draft asset management agreement between UGI Penn and a UGI affiliate. The draft did not allow for due process to be afforded to all parities in the case, according to the motion.  In lieu of approving the asset management agreement, the companies may file an affiliated interest agreement for consideration by the Commission, the motion said.

The Commission determined that the remaining six issues in the settlement agreement are in the public interest because it will ensure continuous and reliable service to PG Energy customers. PG Energy’s parent company – Southern Union – had indicated it wanted to cease operating a natural gas public utility in Pennsylvania. The parties have two business days from the entry date of the order to determine if they accept the settlement as amended by the Commission action.

The settlement places terms and conditions on the agreement to protect consumers including:

• UGI and UGI Penn will provide annual reports on the quality of customer service.
• UGI will work with low-income advocates to consider program design, spending and budget levels for its consumer assistance program, which help low-income consumers pay their bills.
• UGI will increase spending on its Low-Income Usage Reduction Program (LIURP) to .2 percent of jurisdictional revenues.
• The companies will provide payment arrangements and billing options that may exceed the protections allowed under the utility shut-off law for customers affected by billing errors or delays associated with these changes.

Other terms and conditions include:

• The Utility Workers Union of America (UWUA) contract agreement with PG Energy will be extended for one year until March 31, 2008 with a 3.5 percent wage increase. No UWUA workers will be laid off through the end of the one-year extension.
• UGI and UGI Penn will maintain the current level of community charitable giving for at least five years.
• UGI-Gas and UGI-Electric will not apply for a rate increase for two years.
• Southern Union will fully fund the unfunded accumulated benefit obligations under the PG Energy pension plan.
• Adjustments will be made to the PG Energy rate increase request that is pending before the Commission including the reduction of pension expenses from $9.2 million to $2.5 million per year. The rate case will continue to be considered as a separate filing by the Commission.

The settlement agreement was reached between the companies and the parties who filed formal complaints against the proposal including the state’s Office of Consumer Advocate, Commission on Economic Opportunity, UWUA, AFL-CIO, UGI Industrial Interveners and PGE Industrial Interveners. The settlement was non-unanimous with the state’s Office of Small Business Advocate and the Commission’s Office of Trial Staff opposing it.

On Feb. 16, 2006, UGI Corp. filed with the Commission to acquire PG Energy from Southern Union Co. for about $580 million. PG Energy, based in Wilkes-Barre, serves 158,000 customers in 13 counties in northeastern and central Pennsylvania including Scranton and Williamsport. UGI serves 307,000 natural gas customers in 14 Pennsylvania counties including Harrisburg, Lancaster, Reading, the Lehigh Valley and their surrounding suburbs.

The Pennsylvania Public Utility Commission ensures safe, reliable and reasonably priced electric, natural gas, water, telephone and transportation service for Pennsylvania consumers, by regulating public utilities and by serving as stewards of competition. For recent news releases, or more information about the PUC, visit our website at www.puc.state.pa.us.

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Docket No. A-120011F2000

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