EDITORIAL: City water utility in over its head

As missteps by the city’s water utility threaten to drown local ratepayers with dramatically higher bills, Mayor
Greg Ballard’s administration is exploring a complete overhaul of the system. The mayor’s initiative—even
though it’s not driven entirely by the water utility’s woes—can’t produce results soon enough.

The city’s purchase of Indianapolis Water Co. in 2002 has clearly backfired due to lack of execution.

A consultant’s report filed along with the Department of Waterworks’ pending request for a whopping 35-percent
rate hike says the department was never adequately staffed to responsibly oversee the utility after it was purchased from
Merrillville-based NiSource.

When important decisions must be made, the city staff too often defers to consultants,
its own volunteer board and Veolia Water, the French firm that was hired to manage the utility, according to the report prepared
by a Colorado utility consulting firm hired by the city to assess the utility.

The damning report is part of the
case before the Indiana Utility Regulatory Commission, which must decide whether to grant the utility’s hefty rate increase.
The higher rates would pay for $111 million in capital improvements to the city’s water utility infrastructure.

If the rate hike is granted, it will be the second one this year. The IURC earlier approved a 12.3-percent hike to cover
more than $25 million in annual debt servicing costs caused by the utility’s overreliance on variable-rate bonds.

The Department of Waterworks already has taken some steps to get its house in order. In March, it hired the former
head of enforcement at the Indiana Department of Environmental Management to run the department. Since then, some key positions,
including chief financial officer, have changed hands, and there’s a greater emphasis on long-term financial planning.

More drastic changes are in the works.

In an effort to raise cash that could be used to pay for all
manner of city infrastructure needs, including a sewer system in need of $2 billion in upgrades, the city is exploring selling
the city’s water and sewer utilities outright.

The city’s Infrastructure Advisory Commission is considering
proposals from 23 firms that cover a range of options. Among them is a pitch from Citizens Energy, which supplies natural
gas here, to pay $1.5 billion for the water and sewer utilities.

The city must carefully consider which of the
proposals will maximize the cash that can be generated to fund the city’s considerable infrastructure needs. But equal
weight must be given to which proposal would result in responsible stewardship of the city’s water resources.

It’s unlikely the steep rate hike now being considered by the IURC would have been necessary had the utility’s
daily operation and long-term capital requirements been handled with sufficient city oversight.•

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