IURC: Ballard Administration Allowing Veolia To Rape Indianapolis Water Company

I've been telling you for months now about the self-dealing and corruption that surrounded the purchase of the Indianapolis Water Company and the subsequent operating agreement the City entered into with the French-owned company, Veolia, to manage it. Top Democratic lobbyists with close ties to former Mayor Bart Peterson were hired to help ink the deal, which nets the company more than $40 million a year, and which represents 80% of the water company's maintenance and operating budget.

An IURC order this week scaling back a 17.6% emergency rate hike sought by the Ballard administration has some scathing observations about the administration of Veolia's management agreement. The IURC winced at a 5% scheduled payment increase to Veolia approved by the Ballard administration. The IURC says the administration told it the management fee could not be reduced, although it admitted it had never attempted to renegotiate the contract with Veolia. Jim Steele told the IURC that Veolia wasn't to blame for the variable rate bond fiasco so it shouldn't be asked to sacrifice any fees.

The IURC found it disturbing that the administration had made no effort at cost-cutting before seeking the emergency rate increase. "If the Department operated the utility through its own employees, the Commission would expect the implementation of cost cutting measures related to those employees, such as a freeze on pay raises, and other costs that are embedded in the Veolia management fees," the order said. "The Commission certainly would not anticipate a proposed increase in salaries in the face of an emergency financial situation," the order reads. "The evidence is undisputed that the Department has made no attempt to contact or negotiate with Veolia on maintaining the 2009 management fees at the 2008 level or postponing any increase given the Department's current financial situation." The Commission then ordered to management agreement altered to the extent it allows for higher fees to be paid to Veolia.

There's more. The IURC concluded that the management agreement with Veolia is "profoundly disturbing." In 2007, the water company amended the management agreement with Veolia to increase its fees without notifying the IURC, a requirement imposed by a 2002 order issued by the Commission. That 2007 amendment requires the water company to pay $5 million to Veolia for "past unexpected increases incurred during the years 2002 through 2006." Two of three payments of that amount have already been paid to Veolia; the Commission ordered the third payment of $1.667 million halted until the Commission can determine that the payment is "reasonable and in the public interest."

Further, the IURC questioned "incentive payments" being paid to Veolia that may not be supported. Although Veolia has claimed 90% of its eligible incentive payments, the Commission said the record lacked evidence "Veolia ha[d] been able to reach or exceed the performance metrics in the first few years." Even more disturbing is the Commission's discovery that 60% of potential incentive payments were being paid out to Veolia "before it is technically determined that those payments have in fact been earned." The final payment each year is described as an "incentive true-up." "To characterize compensation for which there is somewhere between a 60% and better than a 90% probability of being paid, and for which that can be determined almost a year in advance, as being 'incentive' compensation which is purportedly 'performance based' stretches credulity at a minimum and approaches disingenuousness," the order reads. "If the intent of the agreement is simply to expand Veolia's compensation by an amount little short of 25%, on top of the fixed fee amount, then the Commission suggests that the agreement should have simply said so."

As I previously reported, the water company's original consultant, Carlton Curry, opposed a number of incentive payments being claimed by Veolia early on in the contract. If he denied the payment, Veolia simply went behind his back with its powerful lobbyists and got the payments it wanted whether it earned them or not. Curry's guardian role was effectively nullified by the Peterson administration.

The Commission's order also halved the more than $12 million the Ballard administration sought in capital improvement funding as part of the rate increase. The Commission noted that the water company's budget for funding extensions and replacements is higher than comparable budgets over the past five years and the highest experienced in the last three years. The Commission approved capital project needs the administration was able to document with evidence.

The findings contained in the IURC's latest order should be deeply disturbing to the public, which ultimately has to foot the bill for the operation of the water company. Mayor Ballard promised an investigation into the water company deal when he ran for mayor in 2007. Like so many of his promises, that one got swept away. In its place, we have an administration being operated for the benefit of big campaign contributors, city contractors and lobbyists. The taxpayers are the big losers. As a Republican, it is very disillusioning to see the City continuing to be operated in the same fashion it operated during the eight years of the Peterson administration. Hats off to the IURC for doing the job the Ballard administration failed to do.