Thirsty for answers: Mayor's plan to sell water co. raises questions 

Like many cities across the United States, the infrastructure of Indianapolis is in need of some major repairs and upgrades. Topping the list of needed improvements are aging and ailing water and wastewater systems that have reached a crisis point after decades of development without investment in needed upgrades and repairs along the way.

Indianapolis has owned the water company and its assets since 2002, when then-mayor Bart Peterson purchased the Indianapolis Water Company for $515 million and awarded a lucrative management contact to USFilter, a subsidiary of French water conglomerate Vivendi Environnement, now known as Veolia. As part of the deal, the Peterson administration negotiated a five-year freeze on water rates, promising residents of Indiana better service at the same rates.

Despite promises to improve customer service and water quality, customer complaints doubled within the USFilter's first year of managing the system; and little progress has been made on the EPA-mandated plan to stop the city's wastewater system from discharging raw sewage into residential areas, causing pollution and health risks such as E. coli outbreaks.

A recent report by the Environmental Working Group, a non-profit watchdog, recently ranked water quality in Indianapolis 90th out of America's 100 largest cities, finding concentrations of 11 chemicals that exceeded federal health guidelines.

Local politicians and consumer groups agree that the city's current approach to managing its water and wastewater systems is not working, but no one seemed to have a solution until this past spring when the city's current mayor, Greg Ballard, announced his plan to sell the water company and extricate Indianapolis from the public utility business. Ballard plans to sell the the water and wastewater utilities to Citizens Energy Group for $425 million and use that money to fix other city infrastructure problems.

Since it was announced in March of this year, however, not everyone thinks his plan is what's best for the residents of Indianapolis - particularly when it comes to something as crucial as drinking water. Selling a public asset as large as a city's water system produces a lot of political fodder and public questions, even as the mayor's office claims it is working diligently to depoliticize the water utility and make the sale transparent.

1. Why is it necessary to sell the water company?

According to Michael Huber, the city's deputy mayor for economic development, there are three main reasons the city decided to sell the water and wastewater utilities to Citizens Energy Group.

First, the water and wastewater systems need $3 billion in infrastructure upgrades and repairs that the city simply cannot afford. Second, the city needs money to finance other types of infrastructure projects, such as repairing roads, bridges, and sidewalks. Third, Huber says that transferring the utilities to Citizens will protect them from political influence.

The mayor's office began looking into potential solutions to problems with the water and wastewater utilities more than two years ago. In July 2009 the city issued a "Request for Expression of Interest" asking firms to offer proposals to address the city's water and wastewater problems. Twenty-four proposals were received, and Citizens' proposal was selected from those.

According to Huber, the city was not interested in privatizing the utilities, although French water giant Veolia expressed interest in making the purchase. When the city's agreement with Citizens was announced on March 10 of this year, Mayor Ballard said "With this agreement, I am rejecting private ownership of our water and wastewater system while embracing the benefits that come from private sector efficiency and expertise, and putting water and wastewater utilities under a public trust."

2. Why sell the water company now?

Under the terms of the deal,Citizens Energy Group will pay a total of approximately $425 million for control of the water and wastewater utilities, money which the city says will be used for infrastructure upgrades and demolition of condemned houses. Opponents of the proposal have questioned its timing, raising questions about the city's need to make improvements ahead of the 2012 Super Bowl.

"Is this the Super Bowl scrub, shining up the city on the backs of ratepayers?" asks City-County Councillor Angela Mansfield.

In order to get the Super Bowl in Indianapolis, the city had to agree to invest money in some of its poorest neighborhoods. However, Robert Vane, the mayor's director of communications, denies that the timing of the Citizens deal is related to the need for infrastructure improvements in time for the Super Bowl: "It's easy to make that statement, but it's not backed by facts."

Concerns have also been raised about the timing and transparency of the decision-making process. Grant Smith, executive director of Citizen's Action Coalition, a consumer and environmental rights group, says the public should have been included in the process long before Citizens' proposal was selected.

"This deal was done behind closed doors. We were basically presented with a fait accompli or done deal," says Smith. The mayor's office has held numerous public meetings on the deal, but only after the Citizens Energy Group proposal had already been selected. "This process has been done completely backwards, which raises a lot of red flags. Why wasn't the public involved?" asks Smith.

3. What is Citizens Energy Group and what is its track record?

Citizens was founded in 1887 by Indianapolis leaders including Colonel Eli Lilly and Benjamin Harrison, who wanted to protect the city's natural gas supply from the threat of takeover by large corporations such as Standard Oil.

Citizens Energy Group occupies a unique status under Indiana Code as a "public charitable trust." Dan Considine, Citizens' manager of corporate communications, says the company "was created and functions for one reason - to provide reliable, affordable utility services to the people of Indianapolis."

Today Citizens provides natural gas, as well as steam and chilled water services, and while it is described as operating "like a not-for-profit" Citizens also has a for-profit arm called Citizens Resources, which includes ProLiance Energy, a company co-owned by Citizens and Vectren that supplies and markets natural gas.

What is the financial relationship between Citizens' non-profit and for-profit arms? Considine says that Citizens' for-profit businesses, including ProLiance, provide income to the public charitable trust, which is used for community redevelopment efforts and energy assistance programs for low-income customers. In the past ten years, Citizens has invested $50 million in community redevelopment projects, such as the Martindale on the Monon mixed income housing development.

Citizens' image of responsible corporate citizenship may have been tarnished somewhat by a 2009 case in which ProLiance was fined $3 million by the Federal Energy Regulatory Commission for violating federal rules governing the purchase and sale of natural gas. ProLiance was fined for "flipping" gas supplies, which entails illegally manipulating the market in order to increase profits.

Despite its growing portfolio of utilities, Citizens does not have any experience in managing a large municipal water system. Considine says this lack of specific experience won't be a problem: "while Citizens' underground utility systems are very different than water and wastewater systems, Citizens staff has operating and management skills that are applicable. Citizens senior management team has a combined 150 years of utility leadership experience here in Central Indiana."

Citizens Energy Group is governed by a five-member board of trustees and a seven-member board of directors. The exclusive function of the board of trustees is to appoint members of the board of directors, who oversee the management of the company. Critics of the deal are concerned that Citizens' board of directors is not accountable to the mayor or city council, and that there are few opportunities for public input.

However, at a town hall meeting held last month, Yvonne Perkins, Citizens' Vice President for community relations, said "we have an open door policy" and that members of the public are permitted to attend Citizens board meetings, and that Citizens is included in Indiana's laws on access to public records.

Citizens made headlines in 2005 when they requested an unprecedented 35 percent raise in gas rates, amounting to more than $39 million in additional revenue, which sparked outrage from customers and consumer groups. "Even though Citizens is a public charitable trust, they act very much like any other utility company," says Grant Smith, who testified in the case on behalf of consumers. Smith suggests that Citizens' track record of requesting large rate increases is no guarantee that water rates will go down as promised in the deal.

Proliance Energy's participation in a natural gas pipeline project known as the Heartland Gas Pipeline, which would transport natural gas from the western U.S. and Canada to Indiana has raised environmental concerns. Last month the National Wildlife Federation issued a report warning of the potential environmental hazards associated with long-distance oil and natural gas pipelines of the type Proliance is building (however, Proliance was not specifically cited in the report).

4. What do customers get out of this deal?

Indianapolis' water and wastewater customers have been promised three benefits from this deal: lower water and wastewater rates than projected by 2025; infrastructure upgrades; and apolitical management of utilities. However, these proposed benefits come with some clear trade-offs.

Deputy mayor Huber admits that water and wastewater rates will have to go up--what the Citizens plan promises is that rates will be 25 percent lower than projected, due to cost-saving "synergies" Citizens expects to achieve through running multiple utilities. According to Citizens VP Yvonne Perkins, by 2025 the average water bill would have risen to $63 a month under the current system, but under Citizens' control the expected average bill would be $39.

"It's not unreasonable to think we can achieve savings," Perkins told a group of community members at a town hall meeting last month. However, Councilor Mansfield, who is also a certified public account, questions whether these savings are guaranteed: "If you look at the deal, the projected savings are based on a lot of assumptions about whether Citizens can create these synergies and whether they will in turn pass those savings on to customers."

Another major selling point of the deal is the estimated $425 million the city will receive, and says it will spend on much-needed infrastructure repairs and upgrades. Huber says that the mayor's office will hold community meetings in order to give neighborhoods a voice in what improvements they think are needed.

In addition to repairing roads, bridges, and sidewalks, Ballard has been emphasizing plans to tear down as many as 10,000 abandoned homes throughout the city. Between 1,000 and 10,000 new jobs will be created as a result of the infrastructure spending, according to Ballard's chief of staff Chris Cotterill.

Referencing Franklin Roosevelt's New Deal labor programs, Robert Vane says "this isn't the WPA, but it is thousands of jobs going to the urban poor at a crucial time." However, Councillor Barbara Malone observes that "$425 million won't go a long way" relative to the city's overall infrastructure needs.

The Mayor's office has also emphasized that transferring the water and wastewater utilities to Citizens will prevent the utilities from being used as a tool in partisan political struggles. However, once elected officials are no longer involved in running these utilities, customers will lose the ability to hold officials accountable.

5. What do customers lose?

Critics of the deal say that this loss of transparency and accountability is one of their main concerns. "We will absolutely have less control under this deal. As Citizens' boards are both self-appointed, there is really no accountability," says Councilor Mansfield. Under the current system, "both the council and the mayor have authority. We have to listen to our constituents, which gives the public a voice."

"What has political control gotten you? Skyrocketing rates, and a management infrastructure that everyone agrees is broken," argues Vane. He says that Citizens will still respond to calls from city councilors once they take control of the water utilities. Michael Huber adds that Citizens will still be regulated at the state level by the Indiana Utility Regulatory Commission, and at the federal level by the EPA.

Another concern is that the public will lose access to the canal, canal tow path, and Morse and Geist reservoirs, which will be transferred to Citizens as part of the deal. "We're giving up these valuable assets forever," warns Mansfield. Chris Cotterill counters that "losing public access to greenways would be a dealbreaker." However, the contract between the city and Citizens does allow Citizens to restrict public access "if is necessary for the prudent operation, safety or security of the System." Grant Smith of Citizens Action Coalition says the language of the proposal is too vague: "what does is mean to maintain access? They could still develop those valuable areas."

6. What if we don't like how Citizens manages our utilities? What can we do about it?

With so many questions raised by the proposal, even Michael Huber is willing to admit the deal has some flaws: "We'd be intellectually dishonest if we said this was a perfect solution," he says. However, if the deal passes a final vote in the City Council on July 26 and is then approved by the Indiana Utility Regulatory Commission, the city's water and wastewater utilities will be permanently in Citizens' control.

Barbara Malone cautions that "once we turn over these assets to Citizens the city no longer has a hammer to enforce things. That's a real concern that needs to be addressed." She warns, "once we put it into this irrevocable trust, we can't get it back"

Angela Mansfield remains concerned by the speed with which the deal has proceeded: "they're ramming the deal through, but it's a short term fix."

When asked what customers could do in the future if we decide that we don't like the way Citizens manages our water utilities, or they raise the water rates too high, Robert Vane suggests, "if it's apocalyptic situation, you can take Citizens to probate court." Huber clarifies that "the water and sewer assets would belong to CEG, but if they are found in violation of their fiduciary responsibility, [the assets] would revert back to the city."

Grant Smith says it's never too late for the public to voice concerns about the deal. "People were not given an opportunity to be engaged while the deal was being made, but there's always a way. People can still weigh in during the IURC approval process." Smith suggests that people contact the state's Office of Utility Consumer Counselor, which represents the interests of the state's utility customers, to express their concerns about the Citizens deal before it is considered by the IURC later this year.

One thing all sides in this debate seem to agree on is that water is a vital resource, one that will likely become scarcer and more costly throughout the 21st century. "People have to understand that water rates will increase," says Smith. "But we need a mechanism for reasonable dialogue. The health and welfare of the city should be a bipartisan issue."

LEARN MORE:

Next board meeting of Citizens Energy Group open to the public: July 14th at 8:00 a.m. in the auditorium of the Citizens Energy Group building, 2020 N Meridian St.

Next City Council meeting on the proposal: Monday July 26 at 7pm, in the City-County Building, 200 East Washington Street (http://www.indy.gov/eGov/Council)

Mayor's office website on water utilities proposal: www.indy.gov/utilities

Citizens Energy Group: http://www.citizensenergygroup.com

Public database of documents relating to the proposal: ftp://ftp.indygov.org/utilities/ (username: public, password: public)

Office of Utility Consumer Counselor: http://www.in.gov/oucc/

Indiana Utility Regulatory Commission: http://www.in.gov/iurc/

Environmental Working Group water quality report: http://www.ewg.org/tap-water

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