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UIL DEAL TO PURCHASE PGW MYTHS/TRUTHS 11/05/2014 Revised

1.) MYTH: The Administration did not consider any options for PGW other than a sale

TRUTH: NOT TRUE

All options for the maximization of potential for PGW were considered through two separate Lazard studies

Both studies concluded that a sale of PGW would provide the highest and best value to the City. Page 6 of the

Lazard February 2012 report states, "Lazard believes that, of the potential privatization structures, a strategic

sale would likely generate the greatest expected potential synergies from a transaction, and therefore maximize

proceeds to the City.” See also pages 16-18

City Council was briefed on the Lazard recommendations in 2012, before the start of the sale process and again

in 2013 (after the sale process had started) on the second Lazard report. Council was also briefed during the

PGW sale process by the City’s brokers. (See list of attendees at end of document). And Council staffers were

briefed on the APA and the Ordinance in April 2014.

A lease or public / private partnership would not rid the City of its environmental and its other post employment

benefits “OPEB” liabilities, PGW debt, nor provide net proceeds for the pension fund

2.) MYTH: The existing deal with UIL cannot be amended or changed

TRUTH: NOT TRUE

The Ordinance could be changed or amended to address deal points of interest to Council

Section 8.1(b) of the APA provides as follows: City Council Approval. The Council of the City of Philadelphia

shall have enacted, and the Mayor of the City of Philadelphia shall have approved, an ordinance to authorize

and facilitate the transactions contemplated by this Agreement in substantially the form set forth on Section

8.1(b) of the Seller Disclosure Letter, provided that Seller may amend, revise or add to the ordinance so long as

such amendments, revisions or additions do not adversely affect Buyer and Seller shall consult with Buyer

regarding any proposed amendment, revision or addition to the ordinance and take into account Buyer’s

reasonable comments and provide a copy of the ordinance to Buyer prior to submission to City Council of

Philadelphia, which ordinance shall include the repeal or modification of any previous ordinances of the Council

of the City of Philadelphia in order to effect the transactions contemplated by this Agreement and the Related

Documents (the “Ordinance”), and the Ordinance shall remain in full force and effect.

Clearly there is a real and reasonable ability of Council to amend the sale ordinance.

3.) MYTH: The deal is not a financial win for the City

TRUTH: NOT TRUE

The sale price ($1.86bn) actually exceeds the estimate of value given by City Council’s own advisors, Concentric,

($1.39bn-$1.80bn), and is at the highest end of range provided by the City’s Financial Advisor, Lazard

There is no negative financial impact to the City from loss of $18mm/year franchise fee because the amount of

money that will be saved annually due to lower mandatory pension contributions is projected to be over $40mm

per year as soon as 2017

The sale of PGW will allow the City to strengthen its severely underfunded pension fund through net sale

proceeds estimated to be between $419 and $630mm

Based on the APA, all OPEB and environmental liabilities are transferred to UIL and the City will have no future

liabilities related to PGW (estimated at $1bn)

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4.) MYTH: The deal with UIL doesn’t protect workers

TRUTH: NOT TRUE

Employment level of 1,350 with no layoffs for 3 years is guaranteed, the highest guaranteed employment level

offered by any bidder that submitted a binding bid for PGW, this is a stronger protection than employees at

PGW currently have. (While there are some restrictions on layoffs in the current CBA, there is not a strong “no

layoff” clause as in the UIL APA)

Wages and benefits will be the comparable or higher than they are now

PGW’s pension will be fully funded at closing of the sale, protecting its workers and retirees

UIL has offered additional guarantees to PGW’s workforce, including the Union, above and beyond what was

outlined in the APA that it will put in writing (such as allowing eligible employees to continue with their current

retiree medical plans)

UIL will commit in writing to invest in training and development programs in Philadelphia to create jobs for

Philadelphians

5.) MYTH: Programs for the poor and elderly will be cut under UIL ownership

TRUTH: NOT TRUE

Such programs are approved by the PUC which has control over the future of these programs.

Any owner of PGW, including the City or UIL, is required to work with the PUC to maintain these programs in

their current form

Any owner of PGW, including the City or UIL, is required to ask the PUC to maintain the hardship fund and

energy efficiency program

All other privatized utilities in the State of Pennsylvania have similar programs

UIL has similar customer programs in the utilities it currently owns in Connecticut

Collections and shut offs for PGW would still be regulated by the PUC under UIL ownership and UIL would not be

able to operate differently than PGW currently operates without PUC approval

6.) MYTH: Rates will go up

TRUTH: NOT TRUE

Customer bills will actually go down immediately based on a return on capital methodology versus a cash flow

methodology

City Council has stated that if PGW remains under City ownership they want to increase the DSIC charge

immediately which will be an immediate increase in cost to the customer

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7.) MYTH: PGW can do everything a private buyer can do

TRUTH: NOT TRUE

PGW has significant barriers to operating like a private utility and its own management team has said it is

hindered to invest in the business or explore new business opportunities, not to mention that changes to the

City Charter and the State Constitution would be required to accomplish this goal

UIL has access to capital that allows them to replace cast iron mains significantly faster that PGW currently can,

which will increase jobs in skilled labor and trades

City Council’s own consultant concluded that expansion of LNG and NGL sales could not be pursued by PGW

under its current governance structure

A privatized PGW has the best option of creating an energy hub in Philadelphia due to its ability to expand the

business through access to increased types and levels of access to capital.

If this were true why isn’t PGW “doing all of the things a private company could do” now?

8.) MYTH: The Administration did not invite Council to participate on the deal team and did not tell City Council

about the sale until UIL was selected

TRUTH: NOT TRUE

City Council had representation on the steering committee for the first Lazard engagement that determined a

sale of PGW was the best option for the City (refer to list of meetings beginning on page 4)

The Council President was asked to have a member of his staff on the steering committee for the sale process

but he declined the offer

Briefings on the sale process with individual members of Council and their staff took place on June 24th, July

8th, August 22nd, and September 11th of 2013 (refer to list of meetings beginning on page 4)

Council President Clarke met privately with the 6 short-listed bidders on December 9th and December 11th of

2013, where he had the opportunity to hear their proposals, provide input, and offer suggestions of how the

deal could be made palatable to the Council

9.) MYTH: PGW has been profitable for the City

TRUTH: NOT TRUE

From 2004 – 2010, PGW did not provide the annual $18mm franchise fee to the City. (Total loss to City of

$126mm)

In 2000, the City had to give PGW a $45mm loan, which was repaid much later than originally scheduled due to

PGW’s poor financial condition

10.) MYTH: Council has decided not to sell PGW

TRUTH: NOT TRUE

There is no legislation pending in the Council and many members indicated that they had not read Council’s

Concentric report

It is known that a losing bidder, their lawyer and their lobbyist, have been actively engaging in potentially illegal

discussions with Council members-- which may violate the confidentiality agreements in this transaction-- in an

effort to block or defeat the current proposal

The City administration chose the best financial and operational deal for the City, which was supported by

Council’s own consultant, Concentric

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11.) MYTH: Council was not involved in the PGW sale process

TRUTH: NOT TRUE

The Administration offered to involve Council at every step in the process – from when Lazard was engaged in

2011 to briefing Council and its staffers in the spring of this year

Additionally, the Council President met with 6 final bidders in December of 2013 and was offered the

opportunity to fully participate in the complete vetting process that ultimately led to UIL being selected as the

winning bidder in February of 2014

Furthermore, a full schedule of meetings held over two years with various City officials and others is delineated

below:

July 2010: City administration hires Lazard to perform Strategic Assessment October 2011: Meetings with Lazard, City’s Financial Advisors Reviewed Lazard draft and the group gave comments about areas that it thought Lazard should emphasize. Derek Green Janet Parrish December 2011: Meetings with Lazard, City’s Financial Advisors Lazard presented its draft report and opportunity was given for people to weigh in. Lazard recommendation was that the time was right to sell Marion Tasco Alan Butkovitz Curtis Jones Derek Green Janet Parrish February 6, 2012: At the Greater Philadelphia Chamber of Commerce luncheon, Mayor announces

upcoming release of Lazard report and the potential sale of PGW to a private entity to the Chamber of Commerce

February 12-13, 2012: Mayor personally calls Council President Clarke and Councilwoman Tasco to notify them of the expected release of the Lazard Strategic Assessment and that he expects to proceed with the sale process based on that report.

Spring 2012: Briefings with Council members in one-on-one sessions to review Lazard report Summer and Fall 2012: proceedings before Gas Commission for approval of sale advisor budget; RFP process for sale advisors, including communications, government relations and law firms. City performs appraisal of all PGW properties August 2012: City announces selection of sale advisors to assist with the sale September 2012: Lazard hired to draft Cost Benefit Analysis (second Lazard report). City Project Manager Saskia Thompson appointed to manage sale process November 26, 2012: Mayor makes a speech to the Executive Committee of the Chamber of Commerce regarding the sale of PGW

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Winter 2012: City administration working with actuary to refine pension and benefit numbers for inclusion in Lazard’s second report; sale advisors under contract; Broker RFP posted

February 2013: Mayor invites Council President Clarke’s staff to be part of Broker selection team; Council President Clarke declines April 24 2013: JPMorgan and Loop Capital announced as broker. May 21, 2013: Sale Process kick off: Chamber of Commerce meeting with Brokers

June 24, 2013: Meetings with J.P. Morgan and Loop Capital, Brokers for the PGW sale process. The purpose of the meetings was to explain the process the City would use to select a buyer. Bill Greenlee Kenyatta Johnson Sade Olanipekun-Lewis and Derek Green (Marian Tasco Chief Legislative Aide) Curtis Jones

July 8, 2013: Meetings with J.P. Morgan and Loop Capital, Brokers for the PGW sale process. The purpose of the meetings was to explain the process the City would use to select a buyer. Bobby Henon Maria Quinones-Sanchez Andy Maykuth, Inquirer Philadelphia Business Journal August 1, 2013: City posts RFQ to initiate the auction process.

August 22, 2013: Meetings with J.P. Morgan and Loop Capital, Brokers for the PGW sale process. The purpose of the meetings was to explain the process the City would use to select a buyer. Mark Squilla Blondell Reynolds Brown Cindy Bass Curtis Jones’ staff

September 11, 2013: Meetings with J.P. Morgan and Loop Capital, Brokers for the PGW sale process. The purpose of the meetings was to explain the process the City would use to select a buyer. Mayor announces response is “robust” in the PGW RFQ process. Alan Butkovitz Curtis Jones Gene Brown Janet Parrish, Gas Commission meetings Jan Ranson, Daily News October 2013: Lazard releases Cost Benefit Analysis (second Lazard report) October 16 2013: Lazard briefed Chamber of Commerce on the second Lazard report. October 18, 2013: Mayor issues press release that Cost Benefit Analysis shows increased value for sale of PGW.

November 19, 2013: Mayor issues press release that we have “narrowed the field of buyers”.

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December 5, 2013: Meetings with J.P. Morgan and Loop Capital, Brokers for the PGW sale process Philadelphia State Senate Delegation State Rep. Cherelle Parker December 9 and 11, 2013: Council President Clarke met privately with 6 short listed bidders

February 4, 2014: Preliminary review of final bids with City Administration, Lazard, Ballard Spahr, JPM and Loop February 6, 2014: Review of final bids with the Mayor

February 7, 2014: Brokers review of final bids with the Steering Committee (Council President Clarke declined to

participate on the Steering Committee)

February 18, 2014: In-person meetings with final 2 bidders and City Administration. Mayor addressed the Greater Philadelphia Chamber to offer an update on the PGW sale process. March 3, 2014: Mayor announces UIL as winning bidder March / April 2014: Council briefings on the sale ordinance and the deal points