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Water treaty on tap: Mediated agreement calls for Carmel to pay Indy $36.2M

December 5, 2005

Carmel and its big-city neighbor to the south have a truce in hand to end a 3-1/2-year war over what Carmel will pay to buy Indianapolis-owned water distribution lines serving 6,000 customers in the Hamilton County community.

The proposed purchase price: $36.2 million, according to documents recently filed with state regulators.

Carmel officials say the deal eventually should improve water pressure and lower fire insurance rates, and make it easier to plan for growth. It also would give affected residents a voice in managing their water service.

The two cities have been battling over the price and terms since shortly after Carmel Mayor Jim Brainard and Indianapolis Mayor Bart Peterson announced in March 2002 that Indianapolis would sell the water distribution lines in Carmel and Clay township.

Carmel has its own water utility, which plans to splice the Indianapolis lines into its own system over the next five years.

Indianapolis sued Carmel last year in Marion Superior Court, asking that the 2002 plan be scuttled. Indianapolis accused Carmel officials of dragging their feet in issuing work permits the Indi- anapolis utility needed to build another water main in Hamilton County.

Carmel denied it was an attempt to gain leverage, countering that Indianapolis hadn't done enough to calculate the impact the main would have on water pressure.

Enough was enough. In October, the Indiana Utility Regulatory Commission approved a motion by the Indiana Office of Utility Consumer Counselor that required the warring cities to submit to mediation.

According to a hand-scribbled memorandum of understanding signed Nov. 3 by representatives of both cities, Carmel will pay Indianapolis $2 million in the first year: $350,000 at closing and $165,000 per month beginning in March.

After the first year, Carmel will pay $1.8 million a year for 19 years. In the first five years of the deal, Carmel could have its payments reduced by the amount of water it buys from Indianapolis through the new lines. If it buys $500,000 in water, for instance, its $1.8 million tab would shrink to $1.3 million.

Carmel will not issue bonds. Rather, Indianapolis "will act as Carmel's financier," according to testimony filed by James P. Higgins, an accountant for London Witte Group LLC representing Carmel.

"The acquisition will be self-funding and will not be subsidized by Carmel's other ratepayers located outside the acquired service area," Higgins said.

According to documents filed with the IURC, both cities have agreed that when Carmel buys water from Indianapolis, Indianapolis will charge Carmel the rates in effect at closing, even if they increase later.

Higgins testified that Carmel anticipates it will take five years to prepare the lines to supply the city's own water to those Hamilton County customers now being served by the Indianapolis water system.

Indianapolis acquired the Hamilton County lines in 2002, when the city bought back the Indianapolis Water Co. from Merrillville-based NiSource Inc.

The proposed sale is subject to potential modification: It still must get the nods of Indianapolis' Department of Waterworks board as well as the Indianapolis City-County Council and Carmel's council and board of works.

In addition, Carmel has asked the IURC for financing and rate approval. A hearing is scheduled for Dec. 6.

"I guess I would call it the beginning of the end" of the dispute, said Andrew Klineman, general counsel for Indianapolis' Department of Waterworks. "I don't want to presume anything, [but] obviously this is a step in the right direction."

If the agreement is approved, Indianapolis will seek to dismiss its lawsuit against Carmel, he added.

In testimony filed with the IURC, Carmel utilities head John Duffy said the deal would make it easier for his city to plan for growth.

"Carmel has been hamstrung attempting to plan appropriately sized infrastructure because Carmel could not be certain whether it would serve none, some or all of Indianapolis' current service area."

Duffy said the agreement serves the public interest by giving Carmel control over the water utility within and adjacent to its boundaries. He said utility customers also will gain voting rights to elect those who control the utility.

Another benefit, he said, is that fire insurance rates may go down, as average line pressures increase and become more uniform. When the transition is complete, Carmel customers will receive water that already has been softened at the city's water-treatment facilities.
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