UIL Holdings’ Offer For Philadelphia Gas Works Has Already Cost $20M

The parent of two of Connecticut’s gas companies has run up a $20 million tab since March to tie up a deal to buy Philadelphia Gas Works, the nation’s largest municipally owned gas utility.

UIL Holdings Corp said Wednesday in regulatory filings that ongoing acquisition costs have amounted to $19.9 million, mostly in fees paid for a loan it secured from Morgan Stanley.

UIL Holdings owns United Illuminating, Southern Connecticut Gas, Connecticut Natural Gas and Berkshire Gas in Massachusetts. It employs more than 1,800 people in New England.

Movement on the nearly $2 billion deal for Philadelphia Gas Works and its nearly half a million customers has slowed as City Council reviews the deal. In a statement, City Council president Darrell Clarke said the council’s careful due diligence is for “the households directly impacted by privatization of PGW and the hard-working men and women of PGW, who have made this utility the prized asset it is today.”

Philadelphia Mayor Michael Nutter has framed the sale around it being a fix for its underfunded pension system, the city saying as much as $424 million from the deal could support those liabilities. When the sale was first announced he said there was a time when cities owning utilities made sense, but “that time has long since passed.”

Weeks ago, the two parties crossed an initial deadline that would allow UIL Holdings to walk away from the deal with the city.

The company’s chief executive James Torgerson made the decision to stick around and pursue the deal. Analysts have said the deal could prove lucrative as Philadelphia’s pipe stock is largely the cast iron vintage being replaced around the country.

So far, the deal has cost UIL $5.6 million in “legal, investment banking, and due diligence costs,” the company said in regulatory filings, as well as $14.3 million in loan fees.

The company expects the sale to close in the first quarter of next year.

The deal will shift UIL Holdings’ center of gravity away from Connecticut and New Haven where it is headquartered. The company has agreed to establish a second headquarters in Philadelphia if the sale goes through.

Torgerson, announcing the company’s second quarter earnings Wednesday, said he expects city council to take up the deal when it reconvenes in September and has received its independent report on the sale. “We remain ready to assist the City Council in its assessment of the sale of PGW, including the essential public dialogue of what we believe is a valuable economic opportunity for Philadelphia,” he said.

Profits were lower in the quarter even excluding the about $5 million in costs from the acquisition, the company said. Factoring out the Philadelphia expenses, UIL Holdings made $14.3 million in the quarter, down from $17.9 million in the same period last year.