Among the pitches Citizens Energy Group made to buy the city’s water and sewer utilities was that it, unlike for-profit operators, could access low-cost borrowing under the federal Build America Bond program.
It touted that the stimulus financing tool could be 1.5 percent cheaper than traditional tax-exempt rates. That was if Citizens could get the $1.9 billion deal approved first by the City-County Council and then by the Indiana Regulatory Commission before Dec. 31, when the bond program is to expire.
“Not utilizing Build America Bonds,” Citizens warned this summer, “would needlessly add more than $3 million per year to the cost of the utility transfer or about $100 million over the 30-year life of the bond issue.”
Though the council approved the deal this summer, Citizens concedes the IURC won’t make a decision by year-end. Citizens is playing down the importance of the Build America Bond deadline, saying Congress is talking of extending the program into next year and that the bonds aren’t any longer such a deal, anyway.
“Recent improvements in the traditional tax-exempt financing spreads combined with an excess of supply of Build America Bonds has dramatically reduced the benefit of [BAB bonds] over tax-exempt bonds, which will be available to Citizens to finance the transaction,” Dan Considine, Citizens’ spokesman, said in a statement.
Regardless of the Build America Bonds, he added, Citizens still expects to save $60 million a year after three years by combining the utilities with Citizens Gas and with Citizens’ steam and chilled water utilities.
“The [bond] financing arrangements… will not require us to adjust the purchase price” for the utilities, Citizens said.
Those who’ve opposed the sale aren’t reassured.
Ultimately, “it comes out of the ratepayers’ pockets,” said City-County Councilwoman Joanne Sanders, a Democrat.
Not obtaining BABs won’t necessarily soil the deal terms financially, but it could undermine confidence in the complicated and politically charged deal championed by Mayor Greg Ballard, a Republican.
The deal’s opponents howled in October when Citizens announced that the current private operator of the water utility for the city, Veolia, would have no role in operating the utility under Citizens ownership, but was to receive a $29 million contract termination fee.
The Ballard administration said the payment would not affect utility rates because the fee will come from a $40 million escrow account funded by the sanitation district general fund.
Critics wondered if the payment to Veolia wasn’t a foregone conclusion when the deal was struck. The escrow account was set up last summer supposedly to cover unanticipated costs of selling the city utilities.
Had the escrow not been tapped, the city could have, after two years, kept $25 million of it.
“These costs just keep adding up,” said City-County Councilwoman Angela Mansfield, a Democrat.
Citizens counters that the sale is expected to generate more savings than originally projected when announced last March: $60 million versus $43 million.
Opponents are hoping the deal collapses. For one, all those infrastructure projects are concentrated in certain parts of the county, having a disproportionate benefit, says Mansfield, who represents the far-northwest side.
More fundamentally, Mansfield said, the city should have first looked at how it could have generated utility operational savings while remaining under its ownership.
Another of the objections to the sale is that the city will lose direct oversight—leaving the IURC effectively as the sole watchdog. Proponents said they wanted to remove city politics from utility operations and that the IURC was sufficient. But Sanders points to a recent scandal involving the state agency, with Gov. Mitch Daniels firing IURC Chairman David Lott Hardy for not removing an administrative law judge from Duke Energy cases while the same judge was seeking a job with Duke.
It’s hardly been a secret that the IURC for decades has been a revolving door of employment to and from utilities. E-mails showing a cozy relationship between Hardy and Duke executives have only underscored doubts.
“With everything happening at the IURC, that certainly gives me pause,” Sanders said of the upcoming loss of city oversight.•