Indiana Utility Regulatory Commission and Regulation and Energy & Environment and Water and Utility rates and Utilities

Citizens Energy projects greater, faster savings from deal

February 28, 2012

Citizens Energy Group says savings from combining the city’s water and sewer utilities will be 13 percent higher than expected and come two years sooner than previously predicted.

The company Tuesday said it expects to record savings of $68 million—$8 million more than initially projected—by September of this year rather than in 2014.

Citizens, which bought the city’s water and sewer utilities last year for $1.9 billion, said the improved outlook is based on financial results through Dec. 31.

Critics of the deal had argued that many of the savings projections were bogus and that local oversight of the utilities would be relegated to the scandal-plagued Indiana Utility Regulatory Commission.

Indianapolis Mayor Greg Ballard successfully pitched the sale on grounds that it would generate more than $425 million in proceeds for the city. Most of that money has been pledged to road and bridge repairs.

Citizens said many of the savings would come from eliminating duplicative functions and through savings from joint material purchasing, for example. The deal also reduced employee headcount. The utility now employs 995 people compared with 1,200 full-time workers prior to the sale.
  
“We publically promised that the transfer would add value to the community through safe, affordable utility services … By achieving annual savings two years ahead of schedule, we’re putting that promise into practice,” Citizens CEO Carey Lykins said in a prepared statement.
  
Citizens said the projected savings should help temper future rate increases, expected in part due to federally mandated projects to eliminate raw sewage overflows into waterways.
 
Indianapolis’ combined sewer/storm water system is being modified to include a deep tunnel to be bored beneath the city to capture storm water. 
 
The IURC last year approved a 26-percent water-rate hike to help pay for the project. Sewer bills are to rise at least 10.75 percent.

The $1.9 billion sale of the utilities has been a boon for lawyers and consulting firms. For example, prominent Indianapolis law firm Ice Miller stands to collect at least $3.42 million in fees.  Also, the city paid the previous operator of the water utility, Veolia, a contract breakup fee of $29 million.
 
 

 

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