The Pennsylvania Public Utility Commission announced it will hold a hearing in Philadelphia on the future of Philadelphia Gas Works (PGW) on Friday, Nov. 14, 2014.

"The PUC has questions about the next steps for PGW," said Commission Chairman Robert F. Powelson in a letter inviting speakers. "The PUC was waiting to discuss these issues while it appeared a sale was actively under consideration. Given recent developments, the Commission now would like to evaluate those concerns."

"The Commission's concern emanates from the very core of its mission – providing safe, reliable utility service at a reasonable price," Chairman Powelson said. "The Commission's unease with PGW's current structure is well documented."

While none of the PUC's cited concerns relate directly to default service, the concerns do relate to the current high costs of service at PGW, coupled with the need to undertake expansive pipeline replacement (which will only further strain capital and/or increase rates). As noted by RetailEnergyX.com last week, removing PGW from the default supplier role, to free up capital devoted to serving this function, including the capital required to engage in managing a sales service supply portfolio, has previously been proposed as a solution to ease capital challenges facing PGW.

While the current climate does not support eliminating PGW entirely from default service, PGW's default service could look a lot more like electric default service, where various wholesale suppliers take on the load serving function and relieve PGW of related capital requirements. While this could work with a wholesale-style system, the Ohio retail-style SCO auctions would achieve the same goal.

And unlike one-time retail auctions which are "dead" in Pennsylvania post-Polar Vortex, the recurring SCO auctions provide the PUC with oversight of pricing, with an annual opportunity to change the process if needed.

The PUC has already approved a de facto retail auction, with a sole bidder, when it approved Duquesne Light's POLR V default service plan, in which Duquesne Light simply proposed to serve customers at a fixed rate, set in advance, for the duration of the plan (some 29 months), rather than conducting competitive procurements for supply. Establishing rates in an SCO auction, with multiple bidders, would not be dissimilar to this Duquesne Light process.

In any case, the PUC's concerns with PGW include:

• In 2013, it cost PGW about $1.4 million to replace one mile of pipe.

• About 49 percent of PGW's pipeline (1,994 miles) is considered “at risk” and is in need of replacement.

• At the current rate of pipeline replacement, it will take about 80 years to replace all at risk pipe.

• Prior to beginning collection of the distribution system improvement charge (DSIC) in 2013, PGW was on a pace to replace the at risk pipe in 110 years.

• PGW's rates are the most expensive in the Commonwealth. Residential heating customers pay about $225 a month, which, on an annual basis, translates into almost $600 more than residential customers of other gas utilities. Similarly, Philadelphia's largest employers pay almost $20,000 a year more in natural gas rates compared to the similar customers of the next most expensive natural gas company in the state. Compared to the state's cheapest natural gas rates, this number jumps to $45,000.

• PGW customers pay about $183 a year to support customers participating in the company's low-income programs, which is about $128 more than the natural gas utility average.