Citizens Energy Group and Hamilton County and Westfield and Citizens Water and Sewer and Energy & Environment and Regional News and Water and Utilities

Citizens' Westfield utility acquisition will help with broader system needs

October 6, 2012

Citizens Energy Group said it has strategic reasons for offering to buy Westfield’s water and sewer utilities for $91 million just a year after swallowing Indianapolis’ utilities in a $1.9 billion deal.

Executives of the public charitable trust that looks more like an investor-owned utility with each new deal say they aren’t ruling out additional acquisitions, either.

citizens_factbox.jpgWhat’s not apparent in the Westfield deal is the benefit for Citizens’ Indianapolis water utility, said Aaron Johnson, vice president of corporate development at Citizens.

Westfield’s water infrastructure will help Citizens more efficiently distribute water, because it will serve as a bridge of sorts between Citizens’ existing customers to the northwest and northeast of Indianapolis, Johnson said.

Mandatory water restrictions during last summer’s drought were brought on in part by challenges in moving water between Citizens’ various reservoirs and wells around the region.

“There have been distribution constraints,” Johnson said.

Before the plan to acquire Westfield’s utilities, Citizens was planning several miles of new pipelines and storage tanks north of Indianapolis to help it move water.

“We’ll have a cheaper approach to that now. … This is a great benefit to the Indianapolis system.”

Johnson declined to quantify the estimated cost savings of shelving distribution system improvements, pending a filing with the Indiana Utility Regulatory Commission.

Westfield leaders last month said the deal will help the city pay off its utility infrastructure debt of $45 million. The rest of the proceeds will be used for road improvements.

Using sale proceeds to cut debt and improve roads was core to Indianapolis Mayor Greg Ballard’s case for selling the water and sewer utilities to Citizens last year.

Another issue missed in the Westfield deal, Johnson said, is that new ownership will put Westfield in a better position to deal with future water supply constraints. The fast-growing Hamilton County town grappled with supply issues before a deal about eight years ago, when it joined Carmel in buying parts of a small utility in the county.

But that isn’t adequate for Westfield’s long-term needs, Johnson said. Citizens, on the other hand, has been working on a long-range supply plan that contemplates options such as intake pipelines to the Ohio and Wabash rivers.

“Westfield now will be included as part of the master plan for the [regional] water supply,” Johnson said.

As for how Citizens plans to finance the acquisition, “obviously, there will be debt involved,” Johnson said.

Citizens took on a heavy debt load to buy and upgrade Indianapolis water/sewer utilities. That includes $718 million in 30-year bonds to pay off the city’s existing debt on the wastewater system and to put toward a $1.7 billion cost of complying with a federal consent decree to address sewer overflow problems.

Johnson said Citizens won’t rule out additional acquisitions.He noted that other municipalities with budget pressures are likely to contemplate selling their utilities.

Unfortunately, said Kerwin Olson, executive director of Citizens Action Coalition, that is indeed a trend.

“Municipalities desperately need money for many things, and both parties toss around the political football known as taxes. Nothing gets done because no one wants to raise taxes, or be blamed for raising taxes,” Olson said.

The bigger utilities that buy them can be the “villains,” instead of public officials, because the utilities will be responsible for going before the IURC to request rate hikes, he said.

Olson questioned why ratepayers of Westfield should be forced to pay down public debt. He also questioned Citizens’ “newfound” interest in water and sewer utilities.

“Expanding services beyond Indianapolis and outside the trust amplifies that question in my mind.”

The trust was established by city leaders, including Col. Eli Lilly, in 1887 as a way to protect Citizens gas company assets from being taken over by a corporate monopoly or from political patronage.•

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