Indianapolis Department of Waterworks and Indiana Utility Regulatory Commission and Regulation and Veolia and Local Government and Sewer and Water and Utilities and Government & Economic Development and Government

Industrial support for utility sale to cost $1.5 million

April 29, 2011

The price to get big industrial firms to support the sale of the city’s water and sewer utilities to Citizens Energy Group: at least $1.5 million.

Documents the city and Citizens filed Friday with the Indiana Utility Regulatory Commission show that the city agreed to make the one-time payment to resolve concerns of the so-called Water/Sewer Industrial Group.

The group consists of Eli Lilly and Co., National Starch LLC, Rolls-Royce Corp. and Vertellus Agriculture & Nutrition Specialties.

A letter sent to the industrial group by city and Citizens officials noted the big wastewater customers were concerned with increases they pay in the form of an “excessive strength surcharge” that amounts to more than $11 million annually.

Besides the one-time, $1.5 million payment to industrials, which will come out of a $40 million escrow fund the city set up last year for the deal, Citizens agreed to work with industrials on a cost-of-service study to be presented in an upcoming rate case.

“I believe it is a reasonable resolution of the issues the industrial group raised regarding the proposed acquisitions and a fair outcome for the [Citizens Water Authority] and ratepayers, especially in light of the fact the payment it contemplates will be made by the city from the escrow account to be funded with cash the city receives as a result of the wastewater acquisition,” Citizens CEO Carey Lykins said in a prepared statement.

Citizens and the city on Friday filed testimony with the IURC supporting a proposed settlement announced earlier this month involving industrials, the Office of Utility Consumer Counselor and suburban communities served by the utilities.

Among terms of the settlement, Citizens agreed to document savings generated by the transfer.

The IURC is expected by the end of summer to OK the sale of the water and sewer utilities to Citizens—a deal worth $1.9 billion.

Citizens said it expects the sale will bring $60 million in annual savings, and combined water and wastewater rates 25 percent lower than currently projected.

The city plans to use $425 million in proceeds to make infrastructure improvements and to tear down abandoned houses.

The proposed deal is turning out to be a moneymaker for several local professional firms. For example, Indianapolis law firm Ice Miller LLP has billed more than $3.4 million for legal services to Citizens – the bulk of the $7.1 million in profession fees Citizens has incurred so far.

The city has incurred more than $9 million in transaction costs, including more than $2 million to local law firm Baker & Daniels LLP. Citigroup Global Markets will pocket at least $5 million.

Also, the city is paying current Indianapolis Water operator Veolia a contract breakup fee of $29 million.


 

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