Waterworks board wants outside review of mayor’s utility plan

What had been steady sailing for Mayor Greg Ballard toward approval of his $1.9 billion plan to sell Indianapolis Water and the city’s
wastewater utility may be slowed by an outside review being sought by the city’s waterworks board.

The Department of Waterworks this month asked the Indiana Utility Regulatory Commission for approval to spend $50,000 to
hire accounting firm BKD LLP and prominent law firm Bose McKinney & Evans to pore over the terms of the deal.

The commission on April 20 declined the request, citing a lack of documentation. But the waterworks board is filing an amended
request to persuade regulators to sign off on the review.

Barely a paper clip can be purchased by Indianapolis Water without IURC permission because the Department of Waterworks is
seeking a 35-percent rate increase for the utility to pay for urgent capital improvements.

How long it will take the board to get the IURC to OK the hiring of BKD and Bose McKinney nobody knows. Meanwhile, City-County
Councillor Mike Speedy on April 19 filed Ballard’s utility deal with the council for consideration.

Could the waterworks board’s outside review of the deal now delay it?

Possibly, said Chris Cotterill, Ballard’s chief of staff, adding: “I don’t think that’s the board’s
intention.”

 “We’re in a bit of a tough spot,” nevertheless, he said.

That’s because, on one hand, the mayor doesn’t want anyone to think the administration is trying to cram the
deal through without allowing ample opportunity to study it, said Cotterill. He noted the mayor has conducted about 25 public
meetings in an effort to fully explain the deal and answer questions since proposing the plan on March 10.

On the other hand, the administration said it merely asked the waterworks board, and the Department of Public Works, to review
the deal to see if it was worthy of referring to the City-County Council. The DPW has already signed off.

Cotterill also said the City-County Council is hiring its own advisers to analyze the terms before voting.  If the council
approves the deal, it would need IURC approval to begin transferring city water and sewer assets to Indianapolis-based Citizens
Energy Group.

Cotterill said he understands the desire of the waterworks board to thoroughly vet the deal. In the past, the board has been
criticized for a lack of oversight, particularly in supervising French-owned Veolia Water, which operates Indianapolis Water
under a contract with the city.

Matthew Klein, executive director of the Department of Waterworks, who left Bose McKinney last year to accept the position,
said the waterworks board in recent years “was criticized by the commission for sort of getting into things without
much forethought.”

Klein said the board, which would no longer exist after the sale, “wants to do the right thing and ensure they’re
getting enough advice.”

The waterworks board wants Bose McKinney to determine whether the transfer of assets, as defined in a memorandum of understanding
the mayor struck with Citizens, “is legal.”

The review is also to determine if the proposed transfer process “is fair and reasonable.”

BKD would examine the cost-savings estimates under Citizens’ ownership, its rate-mitigation plan and “would review
the valuation of the asset transfer to determine if it is reasonable.”

The board apparently wanted the review conducted in short order; the proposed contracts with the two firms would expire May
31.

The IURC, however, said the request to hire the firms “lacks sufficient support and justification for entering into
either of the two transactions.”

The April 20 order by the commission also states that the waterworks board “fails to demonstrate the level of professionalism
and experience which would be represented by parties contemplated in the validation of such transactions.”

One attorney involved in the water company rate case said the waterworks board in the last day or two had filed the professional
background of BKD and Bose McKinney employees with the commission in an attempt to gain OK to hire them.

 “We intend to file another notice [request],” said Klein.

Mayor Greg Ballard proposed the utility deal last month as a way to mitigate future rate hikes, to remove more than $1.5
billion in city debt and to generate more than $425 million in cash and bond proceeds to the city. The city plans to put the
money toward more than $4 billion in infrastructure improvements such as roads, bridges and sidewalks.

The mayor and Citizens have estimated the synergies/efficiencies that would result from Citizens' controlling numerous
utilities and consolidating back office functions would help reduce rates by 25 percent from what they would be by 2025 versus
other options the city had been considering for the water and sewer utilities.

Indianapolis Water plans $111 million in capital projects in the next few years, of which about $23 million would go toward
unfunded federal mandates, including new water-disinfection systems.

In 2002, the city, under then-Mayor Bart Peterson, bought Indianapolis Water from Merrillville-based NiSource. Critics say
a number of necessary capital improvements were delayed by the city for years to keep rates pallatable, prompting the need
for the 35-percent rate hike.

If approved by the IURC, the average residential water rate would rise $8 a month, to $31.

Ballard’s team said it received proposals from 24 firms interested in the city’s water/sewer utilities. Among
the finalists was an offer by Veolia, which proposed that the city sell the water system to a not-for-profit entity that would
be created. Veolia would continue to operate the system.

But the city said Veolia’s proposal would have generated only an estimated $7 million a year in savings, versus about
$40 million a year estimated under Citizens’ plan.

The mayor’s team also said the city would still be issuing debt under the Veolia concept.

As a public charitable trust, Citizens Energy can issue its own debt on a tax-exempt basis, much as the city does.