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


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


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


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


5. What do customers


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


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."


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


Mayor's office website on water utilities proposal:

Citizens Energy Group:

Public database of documents relating to the proposal:

(username: public, password: public)

Office of Utility Consumer Counselor:

Indiana Utility Regulatory Commission:

Environmental Working Group water quality report:


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