Indiana Utility Regulatory Commission and Indianapolis Department of Waterworks and Veolia and Citizens Energy Group and Energy & Environment and Water and Utilities and Government & Economic Development and Government

Group opposes city plan to pay water manager Veolia $29M

December 20, 2010
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A group of Indianapolis Water customers has asked regulators to block the city’s plan to pay the utility’s operator, Veolia Water, a $29 million contract-termination fee ahead of the planned sale of the city-owned utility to Citizens Energy Group.

Consumer Ratepayers’ request, filed this month with the Indiana Utility Regulatory Commission, alleges that Veolia committed numerous contract violations since 2002 that would entitle the city to terminate the management contract “for cause.”

As such, the city “would not have been obligated to pay Veolia any termination fee. None,” Consumer Ratepayers attorney John R. Price wrote in the Dec. 17 filing.

The IURC this month OK’d Consumer Ratepayers' request to intervene in the case, in which the city seeks state approval to sell Indianapolis Water to Citizens Energy for $1.9 billion.

The ratepayers group consists of 11 Indianapolis Water customers: Andrea Campoli, William Curry, Sheila Curry, Bill Maxson, Teresa Maxson, Steven McGann, Betty McGann, Don Miller, Vincent Perkins, Mari Perkins and Tom Plummer.  Plummer is identified as a long-term employee of the water utility.

Mayor Greg Ballard proposed the sale of the city’s water and sewer utilities to Citizens last March as a way to generate more than $425 million for city infrastructure improvements.

Proponents said the sale would remove the utility from city politics and save $60 million a year by consolidating the water utility under Citizens’ gas, steam and chilled water operations.

Opponents say city oversight is crucial and that a sale leaves it solely in the hands of the IURC, which has been rocked by an ethics scandal in recent months.

Last October, the city announced it would pay Veolia a $29 million contract-termination fee for improvements it made to the water system since it began operating it for the city in 2002. Veolia's contract was to have expired in 2022.

Consumer Ratepayers alleges Veolia effectively defaulted on the management contract on numerous occasions, including failing to maintain operable fire hydrants, refusing to pay costs of a water-quality program mandated by the state, failing to properly manage the utility’s financial affairs and terminating non-bargaining unit employee benefits.

“Veolia’s termination of employee benefits, if without authorization by the city, and Veolia’s failure to properly manage cash needs of the water works, would either one have been another clear instance of default under the management agreement,” Price wrote.

Veolia officials plan to file a detailed response to the motion, said company spokesman Paul Whitmore.

“We think the claims in the motion are baseless and some are factually inaccurate. We believe the settlement agreement represents a very fair resolution of the contract and right now are focused on a smooth transition,” Whitmore said.

Chris Cotterill, chief of staff for Mayor Ballard, acknowledged that the city and Veolia have had “ups and downs” over the years. But Cotterill said the underlying priority in its termination with Veolia was to maintain a “safe, smooth and thoughtful transition.”

He said Veolia initially sought more than $29 million, and the amount was agreed upon through mediation. The alternative was the cost and time of litigation.

“Those kinds of arguments are really great for lawyers and really bad for customers,” Cotterill added.

The city has not yet responded to Consumer Ratepayers’ Dec. 17 filing with the IURC.  City officials hope the commission will approve the deal in the first quarter of next year.

The termination agreement provides that Veolia will continue to manage the water utility on a temporary basis until the deal is closed.

Citizens said it expects to hire “substantially all” of Veolia’s 436 employees at the water utility.

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