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Ballard’s Billion Dollar Deal

Indianapolis Mayor Greg Ballard this hour is announcing a nearly $2 billion partnership deal with Citizens Gas over the city’s water and sewer treatment facilities which he says will generate more than $400 million for infrastructure improvements.

If all goes according to plan, Citizens Gas would assume operational control of the city’s water and wastewater utilities and in exchange would pay  Indianapolis  $426 million in cash and assume the $1.5 billion in debt associated with the both entities.

The plan would need approval by the City-County Council, Board of Waterworks, Board of Public Works and Indiana Utility Regulatory Commission.

City officials also say that with Citizens Gas at the helm rates will be 25% lower in 2025 than they would be under their control.   The city’s water and sewer system face $4 billion in upgrades as part of a 2006 consent decree with the U.S. EPA.   And locals have expressed outrage over recent rate increases.

In 2002,  the Peterson administration bought the water company from NiSource for nearly $550 million.  Critics say the city paid too much to the tune of $250 million.  French-based Veolia Water and United Water have both manged the water and sewer facilities respectively.   

The City plans to file an ordinance next month transferring control of the utility to Citizens Gas.  Officials say they plan to hold several public hearings on the deal.  Full approval is expected later this year.

The way the payment breakdown is expected, Indianapolis would receive a $262 million payment.  $171 million at closing and another $92 million in October 2011. The City would get an addition $50 million from the wastewater fund.  And an increase in payment in lieu of taxes totaling $140 million.   And since Citizens Gas is a not-for-profit public trust, it can assume the $1.5 billion debt without having to refinance its own debt.

  • varangianguard

    Not surprised that the Mayor took this path, considering how the Wishard deal went down.

    The one major difference is that this deal has to pass muster at the IURC, which is likely out of the Mayor's control. For anyone who doesn't like this “take it or leave it ” leadership, the IURC is going to be the best place to express your doubts and/or concerns.

    All of the rest of the approval process is under the Mayor's sway, and you'd likely be wasting your breath complaining to any of them.

  • GP38-2

    Maybe under private control, the sewers will at long last be fixed so that raw sewage isn't dumped into the River every time it rains more than a sprinkle.

  • Nick

    Call any investment banker and they will valuate this deal and tell you the sale price is way too low.

    Just a quick calculation of sales price as a multiple of earnings and debt to equity are very telling.

    Hope several competing bids come out of this.

  • Nick

    Is anyone willing to say my “not-for-profit public trust” is better than yours??????

  • melyssa

    I'm thinking back to the 2007 Ballard campaign and I swear I remember him saying over and over again that he was opposed to backroom dealing and would create transparent government.

    Is that what this deal is about? Transparency?

    How much is Barnes & Thornburg going to make off the deal?

  • Nick

    WANTED:

    Smart Utility/Engineering/Urban Planning Executive

    Pay: Outrageous

    Become incredibly wealthy if you can structure a better “not for profit public trust” for Indianapolis's water and sewage companies.

    Sweet Job Description:

    Land this deal, manage the upgrades, and collect the previously scheduled utility rates increases.

    Benefits:

    No profit pressure, since your shareholders are your customers.
    Local political shakedowns get pushed to the side.
    Burt Servaas and Bart Peterson get pegged as crooks and bad managers.

    Challenges:

    Keeping Consumer water rates low while not gouging high volume Industrial water users.
    Managing large scale construction project.
    Keeping costs in line with budget.
    Eliminating all “water emergency” days that appear to happen every year about between July and September.
    Taking all the shit out of our drinking and swimming water.

  • Nick

    Oh yeah, I forgot something:

    If our Federal/State/Local representatives and their paid influence consultants finally do get the billions of Federal money required to fulfill the $4 billion in unfunded federally mandated sewage/water upgrades, then you get to pocket the extra cash as executives bonuses for a job well done and shift some of it to a good cause projects staffed with people who helped you get the job done.

  • Taxpayer 834512

    While we're perhaps enjoying the upside of money for roadwork from the toll lease arrangement, I'm concerned about episodes like the CIB and the recent Wishard referendum. Granted, we need streets and sidewalks fixed- big time. Granted, any big entity wants the power if they take the “risk”. However, the suppossed check on rate increases and performance of this is the governor-appointed IURC, and 'Citizens' operation as a theoretical non-profit, public, charitable trust. As such, they get the ability to “issue tax-exempt debt”.

    Does that mean they get to issue bonds when they see fit, like the library? Are the members of the IURC as beholden to special interests as the CIB members are? How much real “risk” is there to 'Citizens' if they are relatively free to charge what they like for rates? How good a deal is this if there was not competitive bidding? Doesn't this make zero sense without at least one other competitive bid?

    My head is spinning. While I confess ignorance, I have experience with what happens when something appears to be too good to be true. What do YOU think these days when you are presented with a new “non-profit” project, “good for the community”, that will make a lot of money for some very large law firm(s)?

    I don't know. I do know I don't want to hear of a sudden large “emergency” utility repair (like Wishard's busted pipe or whatever), causing shaking of heads, Tsk-Tsking all the way that we can avoid this if we just approve this for the “good of the city”……..

  • Nick

    If Melina Kennedy wants to be our next Mayor, she needs to show us how Bart Peterson's current water/sewer structure needs to be improved or used correctly.

    If Brian Williams and the others are so smart, then they need a competing plan that is CLEARLY better.

    THE RACE IS ON!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

  • ibviral

    This deal was put togeather by the same brain trust that sold $100,000 worth of naming rights to Kentucky Fried Chicken for $5,000 for the City of Indianapolis. The City sold it's soul for $5,000 when it should have gotten $100K.

    Now this deal does not look so good does it.

    There were no competeing bids. Just like there were no competeing bids for the contract that KFC won.

    Melyssa, you are correct, there are lots of back room deals happening. Someone is making a lot of cash on this one. I also assume that either B & T or Ice is makeing a bundle off of this.

  • Nick

    Funny they thought had a press release and a Mayor conference on a $5,000 KFC branding deal that showed how underpowered their team was in evaluating and approving deals.

    Scary they are dealing with real money now.

  • Think Again

    GP you clearly don't understand the proposal. Citizens is a publicly-owned utility. We own it. Nothing private about it.
    Here's a thought, Abdul: IWC, Veolia and Citizens all spend a lot of money on lobbying, entertaining, sponsorships and advertising/PR. Pray tell why they need it if they're a monopoly. It's not stockholder money–it's ratepayer money they're spreading around. And I'm as charitable as the next guy, but it galls my soul to see Citizens donating ratepayer funds to big causes…and sending their executives to the black-tie charity affairs. And the Colts/Pacers suites.
    As part of their approval of the deal, the CCC ought to enact very strict ad/PR/lobbying regulations for the newer, larger Citizens. They don't need to spend our money on frills. Do the basic service, get me my water and sewers, and that's it. Do it professionally. Don't send the CEO to a Colts' suite on ratepayers' backs.

  • wilson46201

    That wonderful $400 million Ballard boasts about is just a hidden backdoor tax increase. Citizens Gas will now just jack up utility costs here in Indianapolis to generate that amazing $400 million in “found money”. Those roads and sidewalks WILL cost citizens — the payments are just deferred until after Ballard tries to get re-elected.

    That way Ballard can boast about lots of expensive achievements without admitting to raising taxes to pay for them.

  • Think Again

    Wilson, I don't think he's that smart.

  • barnard

    The real problem with this deal is that ratepayers have no recourse or other options if things get out of control. At least with the toll road LEASE, if the private company raises tolls too high, we have an option of taking a non-toll road. Also, the toll road is used by something like 75% of people from out of state. Options! With the city in control of the water company, ratepayers can vote for another candidate at election time, etc. The way this deal is structured, if Citizen's screws it up, we are just stuck. Can't vote for someone else, can't change where we get our water from, we have absolutely no recourse.

    This deal is simple minded, linear thinking. Either a total lack of understanding of the value of an asset on your balance sheet and how you need to use that asset in the future or just plain and simple weak negotiating. Either way we lose.

  • John Howard

    I like how they predict a 20% 'savings' off the predicted cost increases in the future. Evidently, if you make up numbers by basing your guess on other made up numbers, then the two SWAGs make a fact?

  • blackirishman

    So, does the city plan to raise water/sewer rates 80% to cover the “hundreds of millions” needed to fund the enginerering and construction of the deep tunnel system or did the good ole boyz at Citizens Gas include building the sewer tunnels in their mega-$2 billion sweetheart proposal??? I doubt it! That's wahy we're receiving the wishy-washy reporting on the subject…by all sides – Folks a gigantic taxpayer “kick in the butt” is looming – masive tunnel construction costs – who and how will they be paid for?? gouge the taxpayer, again. At least for $2B we'll have safe sidewalks for the mailmen to use while delivering our out-of-control $500/month water and sewer bills. Bullroar! It's ALL collision and collusion.

  • Dobie

    We all read about the coming rate increases for water and sewer. Having bills go up over 400% (in the case of sewer) is just not acceptable. This is the only plan I have seen that will reduce that -though it looks like we are still looking at rate increases of 300% – which isn't that much better. However I haven't seen anyone come up with other ideas on how to hold down the increases. Have I missed any?

  • Think Again

    My kingdom for a couple of solid business journalists in this community, to fully analyze the deal. On the surface, it looks like Ballard sold out cheap. But how the hell would he know, without being told by lawyers from Ice Mille or B-T, how much the dela is worth?

    Lesson Number One in most good business schools: send in lawyers to write the deal up AFTER experts in the particular business, have analyzed price. Lawyers are generally lousy price negotiators.

    Barnard, Citizens has a decent track record. No utility in America has a competitor–the basic market forces indicate the infrastructure is just too expensive.

    The difference here is: investor-owned utilities spend as much ratepayer funds as possible, as little stockholder equity as possible. Public corporations are using our money entirely. Always.

    And did anone else get a little sick seeing the Citizens' CEO on TV last fall, bragging that he'd be online one whole hour per week to talk to customers? Whuptee doo. Six figure ad budget to promote his face. He and IUPUI Chancellor Bantz can get in a boat and sail off together somewhere—we do not need to promote individuals at public expense. Ever. Some PR genius, who made a huge fee, tells these folks that it's great to have CEOs as the face of the company. And teh CEOs made the decision to spend the moeny. Geniuses. Well, if you're playing with private dollars, have at it. But we spend too much money in this town promoting the wrong angle on things.

    The money spent on Likens and Bantz alone would pay for a few teachers, or police officers. It was stupid.

  • blackirishman

    Why didn't Ballard and boyz in their RFP “require” Citizens Gas and other posers to include options to build the tunnels in their socialistic take-over of the dept? Is it because they like the city have no real clue of where the tunnel costs will end up? All well, does it really matter, it's a pass-thru back to the taxpayer, yup we will take the hit regardless of how massive the cost overuns. May be 300%, 600%, or 800% increase – Gawd only knows who knows how much we'll be asked to swallow over and above this $2,000,000,000.00 hit!

  • ibviral

    You are assuming that there was an RFP. The mayors staff has a history of issuing RFIs and not RFPs.They then take that informaiton to their friends.Siince they are not official RFPs which must include contractor financials they can do what ever they want.

    Do you really think that the streets will see any of this money.It wil all go to pay off the cities debt.It will go helping the Pacers and the Colts

  • pogden297

    To me it is scary that they thought the KFC deal publicity fest was a good political move.

  • guy77money

    Ahhh we have come full circle!! This is where the water company should have been (under the trust) in the first place. But Bart and Bert decided that they needed to control who got the contracts for all of the water company infastructure work! Oh well it only cost the water company customers a 1/2 of billion dollars. Now you know why I cringe when the Federal government wants to deal with health care.

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  • Nick

    To be fair, Burt & Bart considered the trust structure when they bought the utility, but chose the current “municipal utility” structure with the belief that the trust structure would disqualify our community from FEDERAL funding for unfunded EPA mandates.

  • Think Again

    Wow, Abdul, I don't tweet, but I'm reading your tweets posted on this site…you've really got to back away from the Ballard pipe re: the true original cost and benefit of the water company deal. Stop it. Really.

  • Indiana_Barrister

    I don't think so. If my Democratic friends are going to offer criticism of the deal, which is totally fair, they should also come up with alternatives. Just like the GOP at the national level. Saying no just ain't enough.

  • Think Again

    I'm saying your cricitism of the original Peterson/IWC deal is straight out of Ballard Talking Points 101. Because it is. And it's not accurate.

    I've got another stipulation as a taxpayer/ratepayer for this deal: NO ONE on he 25th floor, Corp Counsel office, or Waterworks Board office, can work at the new utility for 5 years.

    Feathering your own nest is never pretty. It's especially ugly in the public sector. I smell that activity taking place now. Huber on your show this morning is Exhibit 1 in that argument. He had all the trick phrases down-pat.

  • indiana_barrsiter

    I don't think so! And I have no problem with no one on the 25th floor going to work at the new utility. Maybe some Peterson people should have done that as well.

  • Think Again

    Good Lord, Abdul, are you so far up Ballard's rear end that you feel the need to parrot his staff's snipey anti-Peterson nonsense? What Peterson person went to work at the utility? THE PETERSON STUFF IS NOT HELPFUL, even if it is accurate. Build a bridge and get over it already. You sometimes act as if you had a personal stake in the 2007 election and Bart Peterson's defeat. Believe it or not, he defeated himself all by himself, without your help.

    Your facts regarding the initial acquisition are wrong. Basically, the Ballard folks are re-writing history.

    Look, I think this acquisition is probably a good idea. And I'm not even going to scream about the excessive legal fees that will likely piggy-back this deal. I won't scream mostly because, I don't know a soul on the 25th floor who can carry this water. It needs to be done correctly.

    So, here are a few parameters for the proponents of this deal:

    1. The Ballard folks need to stop re-writing history re: 2002 IWC acquisition. It is not helpful.
    2. As part of No.1, they need to get over the Peterson mystique already. Greg beat Bart. We need to look forward, not back. And if we look back, it is disingenuous, at best, to re-create the facts about the original IWC deal. The deal specifics were broad and wide…the media, this blog included, haven't even begun to scratch the surface.
    3. Explain in very real terms, with as much specifics as possible, the deal terms.
    4. Allow for public input on those terms, and possibly modify some terms based on public input. There are some very smart citizens out there who cna be helpful.
    5. Not all original thought began and ended on the 25th floor. In 2002, or certainly now.

    Everyone take a deep breath. This deal has strong potential. Let's hope, for the mayor's sake, he sends soomeone out there to sell it who can do so with specifics, and without Peterson vitriol. That path is ugly and leads to zero success.

    But if that's the way it goes, it won't fly.

  • Indiana_Barrister

    Never said it did, big guy. And I'll repeat what I said on the air today. Criticism and healthy questions are good and encouraged. But if all you bring to the table is no and this is a bad idea, stay home and let grown folks do the talking.

  • Think Again

    OK, I don't want to fight with you, but: I think I offered healthy suggestions. I'm not bringing any “no” to the table–in fact, I'm calling out the Ballard folks, and you, who have mis-quoted specifics of the 2002 IWC deal.

    I don't think the 2002 deal is a helpful part of this discussion at all, except to learn from its good/bad points. But if it IS going to be discussed, I would insist that the facts be correct. Huber's, Ballard's, and now yours, are not. It wasn't a sterling deal, but it was what it was. For some reason, the Ballard folks have a huge chip on their shoudler about their predecessor. I don't get that. For God's sake they slayed the 800-lb. gorilla. They won. But they still take regular potshots at Peterson. It's just silly. Too often, it's inaccurate.

    “Grown folks.” That's funny. Dig into the specifics. I am. So far, it doesn't look all that bad. But it needs to be sold to the public, and the first two days of 25th floor-led media hits have been very discouraging.

    Try this: don't take anything that the 25th floor says as gospel…about this deal, or the 2002 deal. Ditto with any suggested modifications from the public.

    Utility regulation is haphazard in Indiana, on a good day. Our “Utility Consumer Counselor's Office” is a sad joke. Under-funded and ill-equipped to battle high-priced utility lawyers/consultants. Do you know anything about that process?

    So my top requirement is proper oversight of the new utility. I am comfortable with the CCC confirmation process for most of the committees and boards in this city. Both parties honestly try to do a good job there–they fail sometimes, but I don't think anyone woke up one day and said “How do I screw up the so-and-so-board?” I'll put my trust in that for the Citizens' board of trustees.

  • melyssa

    I'd like for the city to shop the lawyers who do this deal. I'd like for no lawyers to come from the big firms. And I'd like us to get this legal work done for no more than $100 per hour. There are tons of small shops who would love to have this business.

    Let's see Ballard do THAT if he wants us to think this isn't insider backroom dealing.

  • melyssa

    TA! I could KISS you smack on the mouth right now! Gosh, why don't they do this? If they are a public utility do their executives really need to attend black tie affairs and get the best the Colts have to offer at our expense?

    My $600 one month gas bill from Citizens' Gas includes a $155 “service and delivery” charge. When I asked them what this charge is they claim it is for admin costs and maintaining the lines.

    Ok, gas lines are not expensive to maintain. They are like copper plumbing lines. My gas lines have not needed to be touched since I bought the place in 1998. And if they did, it is no more expensive than hiring a plumber.

    By the way, Citizens Gas will turn your gas off in a heart beat if you don't come up with their service and delivery bogus charges. They'll do the same thing to your water.

  • varangianguard

    Kinda tough to offer alternatives when all the info was kept under the hats of the Mayor's minions.

    Citizens Gas isn't the worst choice, but all the slick thinking in doing the deal outside of the public eye, like as not, won't be as much of a boon as the little thinkers thought.

    This administration seems to think like former Mayor Peterson's second administration did – cunning, but vacuous. How did that work out for former Mayor Peterson?

  • blackirishit

    Will the public/taxpayer have the opportunity to review details and scoring/ratings of Citizens Gas and the competing proposals????

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