Indiana Utility Regulatory Commission and City Government and Local Government and Sewer and Energy & Environment and Water and Utilities and Government & Economic Development and Government

City lands $13.8M more than expected from water deal

August 19, 2010

The city of Indianapolis has received $13.8 million more than originally expected from a bond issue secured by the pending sale of its water and sewer utilities to Citizens Energy Group.

The bond proceeds of $153.8 million compare with $140 million originally anticipated as one of the chunks of money from selling the utilities. The money will be spent on street, bridge and sidewalk projects, under the city’s “RebuildIndy” program.

That would bring total proceeds from selling the utilities—before subtracting fees and other costs related to the sale—to $504.4 million, from $490.6 anticipated when the City-County Council approved the sale last month.

“We now have a half-a-billion-dollar deal,” said Chris Cotterill, Mayor Greg Ballard’s chief of staff.

Indianapolis’ AAA bond rating from all three rating agencies—Moody’s Investor Services, Fitch Ratings and Standard & Poor’s—resulted in the larger-than-expected bond proceeds, city officials said.

“The city’s strong credit rating leads to greater opportunities,” said Deron Kintner, executive director of the Indianapolis Bond Bank.

Indianapolis is one of three cities of comparable size or larger with such high ratings from all three ratings agencies, city officials said.

The bond is secured by more than $650 million in so-called payments in lieu of taxes, or so-called PILOTs, that Citizens will make through 2039.

The sale of the utilities faces one more hurdle: approval of the Indiana Utility Regulatory Commission, which has yet to deliberate on the request.

“For some reason if the [Citizens] deal does not go through, those same PILOT payments will be made by the Sanitary District as it currently does,” said Kintner.

After paying expenses of the $1.9 billion sale of the utilities to Citizens, the city expects to receive, excluding the additional amount raised in the bond issue, between $434.7 million and $459.7 million.

One variable will be whether escrow the city set aside for Citizens to cover lingering legal and contract claims is tapped over the next two years.

Meanwhile, Citizens has revised upward its anticipated “synergy” savings of tucking the water and sewer utilities in with its gas, steam and chilled water divisions.

Citizens had estimated annual savings of about $43 million. “A more thorough analysis now indicates that combining the five utilities may yield annual savings of up to $60 million after a three-year integration period,” said Dan Considine, spokesman for Citizens Energy.

Citizens is also assuming more than $900 million in Department of Waterworks debt.

Mayor Ballard said the deal frees up millions of dollars for necessary capital projects in the years ahead without tax increases.

Opponents of the deal have called it a hidden tax increase, saying Citizens ratepayers ultimately are footing its purchase of the two utilities from the city.

Work on more than $50 million in construction projects from bond proceeds is to begin by the end of the year.

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