State sipping on answers from Veolia Water utility: Regulators wonder if capital spending is adequate

August 8, 2005

About one-third of the 30 questions state regulators sent to Veolia Water Indianapolis in June relate to whether the operator of the city's water system has designated enough money for capital improvements to meet demand and sustain water pressure during dry spells.

"Please identify and provide the details for all capital improvement projects, system improvements and master plans, including proposed plans, for IW. When were those plans, if any, last revised?'' read a typical question from the Indiana Utility Regulatory Commission.

The agency launched its inquiry because it was concerned by a string of water-conservation requests Veolia issued to customers in June. Such requests usually don't come until late summer, when prolonged dry and hot weather has put the most strain on reservoirs.

Veolia said capital spending during the 2-1/2 years it has been managing the cityowned utility exceeds $102 million.

That contrasts with more than $163 million in capital improvements reported by previous operator NiSource Inc. in the three-year period from 1997 through 1999, according to the Merrillville company's filings with the Securities and Exchange Commission.

Yet Veolia, in its response to the IURC, blames NiSource for some of its woes. Veolia sent the IURC an internal memo from Indianapolis NiSource managers that referred to a meeting where they discussed minimizing expenditures on the utility.

According to the March 2001 memo, NiSource managers were trying "to determine what would be the most effective way to reduce our capital spending to comply with the directive that we spend only the amount of cash that we generate."

Veolia said its predecessor "reduced drastically its commitment to improve and even proactively maintain the water system." The company claims that between 1998 and 2001 the utility replaced less than two miles of pipe per year, far less than the industry standard. At that rate, Veolia said, it would have taken NiSource 1,500 years to replace the entire system.

There's been plenty of finger pointing these days involving Veolia and its level of service.

In June, 23-year employee Roger Edlin filed a lawsuit alleging he was fired as a scapegoat for a Jan. 6 incident that put untreated water into the system and forced residents to boil their water.

Veolia blamed the January incident on an employee's data-entry error that caused the improper mixture of chemicals.

Edlin's allegations got the attention of Republican City-County Councilman Jim Bradford, who has called for a city investigation of Veolia.

But it was not Edlin's complaint that piqued the IURC's interest, said commission spokeswoman Mary Beth Fisher. Rather, she said it was the half dozen water conservation notices Veolia put out in June.

At one point in June the system pumped 225 million gallons a day vs. the 150 to 160 million gallons typical for that month. Some customers complained about low water pressure.

"We do have six staff members who have been going through their answers," Fisher said.

Veolia told the commission that despite an 8 percent increase in metered customers and 13 percent rise in fire protection customers between 2001 and 2005, it does not have problems meeting water demand via its reservoirs and underground wells.

In recent years the company added three wells at its White River plant, two at its Fall Creek station and is in the process of adding wells at its Geist surface water treatment plant.

It also said there is "adequate pressure to supply demand" but plans to improve pressure monitoring throughout the system. It anticipates 2005 capital spending of $42.3 million.

"The IW system is not presently overloaded and therefore capable of supplying water to its customers in the foreseeable future," said Veolia Water Indianapolis President Tim Hewitt.

But to avoid a future overload Hewitt provided a long list of projects to improve water pressure, including new elevated storage tanks in McCordsville and New Palestine.

Tim Hewitt, president of Veolia Water, inside the company's Waterway Boulevard pumping station. The utility is in hot water over low-pressure problems.
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