More troubled water 

Problems plague Indy's water company

Problems plague Indy's water company
Nearly two troubled years have passed since Indianapolis purchased the waterworks and turned over management to a French-owned company, USFilter (USF). Those two years have seen cuts in employee benefits, two pending lawsuits, sell-offs of corporate divisions, labor unrest with the federal labor board (NLRB) issuing an extraordinary 16 complaints against the company, frozen hydrants, billing errors, customer dissatisfaction and declining employee morale. Most recently, a $6 million sludge facility designed and built by USF was shut down for safety reasons. Critics charge that the facility was poorly designed, has never worked properly and now represents an explosion hazard.
USF has addressed the problem of a deteriorating image in the old fashioned way — it changed its name. Thanks to high-priced consultants and focus groups, USF Indianapolis is now Veolia Water Indianapolis. According to the company, the change was made to “more closely identify with the parent company Veolia Environnement (VE).” Former USF CEO Richard Heckman boasted in the Membrane & Separation Technology News in April 1999 that one day his company would be the “Wal-Mart of Water.” That dream went down the drain when Vivendi bought USF in 1999 for $6.2 billion. Since then, Vivendi has been selling it off piece by piece to pay down its massive debt. Not long after the winning of the Indianapolis contract, three large divisions were sold. The Financial Times reported that USF had not been as profitable as expected and Vivendi was depreciating its value by $2.3 billion. The Culligan division is currently up for sale. Non-union employees saw their benefits slashed as soon as USF took over in 2002. The accounting firm of Isenberg & Chivington estimates that cuts in retirement, health care and other benefits will cost employees $50 million over the 20-year term of the contract. The IRS has notified Veolia that it cannot approve the company’s plan to terminate the valuable defined-benefit pension plan due to pending litigation. In spite of the IRS ruling, a defiant Veolia advised its employees in a March 5 memo, “… because we view the Indianapolis litigation to be merit less … we will begin the process making distributions within 30 days.” Late last year over 150 veteran Indianapolis employees received separation/severance offers. The buyout offers include 26 weeks of pay, but warn employees, “If you … sign the Agreement, you will waive and give up both your right to participate in [the pending federal] lawsuit and your right to recover any benefits or damages in the event the plaintiffs … are successful.” It should be noted that this is the same lawsuit the company told the IRS was “merit less.” According to Veolia spokesperson Carolyn Mosby-Williams, the company said the offers were made “in response to employee requests” and so far over 20 employees have taken the offer and have been given departure dates. To date that means that over 60 veteran employees including geologists, draftsmen, operations supervisors and directors have left or will leave soon. Only a few have been replaced and an internal memo orders managers to only fill vacancies that are “absolutely essential.” The memo warns that even “essential” positions must be “overwhelmingly justified.” Former IWC President Joseph Broyles worries that the utility has already lost its ability to respond in a crisis. Managers with decades of experience at this utility have left. “We don’t have the depth of backup to handle a crisis,” Broyles states. Mosby-Williams contends that “our business is well-staffed and well-managed … when and if a decision needs to be made on filling open positions, qualified internal candidates will be considered first.”
Employee benefits cut
Veolia is trying to get the union to agree to the same benefit cuts that non-union employees were forced to take. The offer decreases health care and eliminates the valuable defined benefit pension for new hires. On Feb. 24, the Firemen and Oilers Union voted 164 to 7 to reject the company’s “last, best and final” contract offer. Union President Robert Reed said the company’s offer represents a “wedge to slowly erode unity in the union.” This means there are currently two distinct and unequal benefit plans at the company (for hourly and salaried employees). Former President Broyles points out that since the union has superior benefits, there is no incentive for anyone to ever leave field operations and join management. This “guarantees that lower level management will not know the business from the inside,” Broyles explains. Broyles reflected on the near disaster years ago when a collapsed canal threatened the Indianapolis water supply. All the department heads were on the West Coast at a conference and crisis management fell to second tier personnel. Those competent people responded admirably and saved the day. That level of backup is lacking in the present structure, Broyles contends, and the situation is growing worse with each new departure. An inside source who wants to remain anonymous states that people are being replaced with automation. This is consistent with what Michael Warburton of the Public Trust Alliance told NUVO a year ago. “USFilter tends to come in, get rid of local expertise and substitute remote judgment; in many cases local capacity to supervise is lost and system failures with far higher costs are possible … USFilter is known for taking shortcuts to maximize profits.” So far all their shortcuts haven’t resulted in any profit for the corporation. In its first year, the company lost $7.8 million with $6 million in red ink estimated last year. It is becoming clear that in its haste to land the biggest contract of its kind in the country, the inexperienced USF team underestimated the cost of running a large utility. The New York Times reported that when Vivendi bought it in 1999, USF lacked experience and had run very few municipal water systems. This may explain why the company that partnered with USF in the bidding process here withdrew. Nick DeBenedictis, president of Philadelphia Suburban, told NUVO that his company realized they couldn’t make any money with the bid USF was proposing. DeBenedictis said USF “bid low and hoped that if they achieved certain things [improved water quality, customer service, etc.] that’s where their profit margin was.” When asked if eliminating employees was a way that USF planned to save money, he replied, “That’s how they all do … that should be no surprise to anyone … this is the real world.” City officials are also struggling to make ends meet with their newly acquired waterworks. Out of estimated revenues this year of $109 million, over $34 million goes toward bonds used to purchase the waterworks in 2002. The USF management contract plus other operating expenses takes another $60 million, which leaves only $14 million for capital improvements, according to the April 2002 Umbaugh Report. According to Broyles, only a few years ago the waterworks capital improvement budget was $50 million to $60 million annually. The current strategy seems to be to add new hook-ups into surrounding counties to sell more water and increase revenues. Unfortunately, that requires even more capital for pipes, mains and pumps. So where will all that capital come from? Recently, the City-County Council approved a $50 million bond issue to extend service to outlying areas including the Precedent development at 96th Street, owned by Mayor Peterson’s family. Some observers suggest a whopping rate increase may be just around the corner. Jack Miller is a free-lance writer and co-author of To Market, To Market: Reinventing Indianapolis. He is also the volunteer board president of Hoosier Environmental Council, one of the organizations supporting local public control of the Indianapolis Water Company.

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