Sunday, December 05, 2010

The Ballard Lies Just Keep Piling Up

When the Ballard administration first touted its plan to transfer control of the city's water and sewer utilities to Citizens Energy and charge the publicly-owned utility a several hundred million dollar fee, in addition to assuming nearly $1.5 billion in debt, critics like myself questioned whether the claimed annual savings from Citizens' operation could be achieved as long as the privatization agreements for the utilities remained in effect with Veolia (water) and United Water (sewers). We were told the agreements were ironclad and could not be broken without paying a huge penalty. Months after the deal was consummated we learned the City had secretly negotiated to pay a $29 million break-up fee to Veolia out of the proceeds from the transaction. No problem the Ballard administration insisted because the break-up fee was being paid out of $40 million in escrowed funds and would not effect utility rates, hinting that the Ballard administration knew at the time of the deal's approval a break-up fee would be paid to Veolia, even though a pending class action lawsuit suggests the city had valid grounds for cancelling the agreement for cause.

A second major argument forwarded by the Ballard administration for approving the Citizens Energy agreement was the availability of Build America bonds that could be tapped by Citizens Energy to finance the deal. We were told it was urgent the deal be approved immediately to ensure the availability of the bonds, which we were told would save ratepayers about $100 million over the long haul as opposed to the cost of issuing traditional tax-exempt bonds. This never seemed to make sense to me because in 2009 Matt Gutwein insisted the Health & Hospital Corporation had no choice but to conduct a costly special election referendum in November of last year to seek approval of the construction of a $700 million county hospital in order to qualify for Build America bonds. Gutwein said if HHC had waited until this year's May primary to conduct the referendum, it would not have been able to tap Build America bonds. Recalling Gutwein's argument, I asked how the Citizens Energy deal could be approved in late spring of this year, still need IURC approval and yet manage to qualify for the Build America bonds. No problem the Ballard administration insisted. Time still remained to get the deal done and qualify for the bonds.

Nearly six months later we learn from a story in the latest edition of the IBJ, those Build America bonds will not be available because the IURC had not acted on the deal before the end of the year when the bonds program is set to expire. The IBJ's Chris O'Malley reports on this latest change:

Among the pitches Citizens Energy Group made to buy the city’s water and sewer utilities was that it, unlike for-profit operators, could access low-cost borrowing under the federal Build America Bond program.

It touted that the stimulus financing tool could be 1.5 percent cheaper than traditional tax-exempt rates. That was if Citizens could get the $1.9 billion deal approved first by the City-County Council and then by the Indiana Regulatory Commission before Dec. 31, when the bond program is to expire.

“Not utilizing Build America Bonds,” Citizens warned this summer, “would needlessly add more than $3 million per year to the cost of the utility transfer or about $100 million over the 30-year life of the bond issue.”

Though the council approved the deal this summer, Citizens concedes the IURC won’t make a decision by year-end. Citizens is playing down the importance of the Build America Bond deadline, saying Congress is talking of extending the program into next year and that the bonds aren’t any longer such a deal, anyway.

“Recent improvements in the traditional tax-exempt financing spreads combined with an excess of supply of Build America Bonds has dramatically reduced the benefit of [BAB bonds] over tax-exempt bonds, which will be available to Citizens to finance the transaction,” Dan Considine, Citizens’ spokesman, said in a statement.

Regardless of the Build America Bonds, he added, Citizens still expects to save $60 million a year after three years by combining the utilities with Citizens Gas and with Citizens’ steam and chilled water utilities.

“The [bond] financing arrangements… will not require us to adjust the purchase price” for the utilities, Citizens said.

Those who’ve opposed the sale aren’t reassured.

Ultimately, “it comes out of the ratepayers’ pockets,” said City-County Councilwoman Joanne Sanders, a Democrat.

Not obtaining BABs won’t necessarily soil the deal terms financially, but it could undermine confidence in the complicated and politically charged deal championed by Mayor Greg Ballard, a Republican . . .
“These costs just keep adding up,” said City-County Councilwoman Angela Mansfield, a Democrat.

Citizens counters that the sale is expected to generate more savings than originally projected when announced last March: $60 million versus $43 million.
Opponents are hoping the deal collapses. For one, all those infrastructure projects are concentrated in certain parts of the county, having a disproportionate benefit, says Mansfield, who represents the far-northwest side.

And, of course, there has been the ensuing scandal at the IURC involving the control Duke Energy obviously exercised over key decisionmakers. A third argument advanced by the Ballard administration for the deal was that ratepayers would be protected from unfair rate increases and other dealings with Citizens Energy because the IURC approval process would protect them from overreaching by Citizens Energy. It’s hardly been a secret that the IURC for decades has been a revolving door of employment to and from utilities," the IBJ notes. "With everything happening at the IURC, that certainly gives me pause,” Sanders said of the upcoming loss of city oversight.

I don't think the idea of the IURC rejecting the deal or requiring substantial changes in the agreement is so far fetched, particularly in light of the black eye the IURC has received from the scandal involving the hiring of the IURC's general counsel by Duke Energy while he participated in administration decisions directly impacting the utility. There is a lot of pressure on the IURC to prove it is an independent, objective regulatory agency to reassure a skeptical public it is charged with protecting. I'm also wondering if the Star's Dennis Ryerson and other proponents of the Citizens Energy deal who were so critical of those of us who opposed the deal will give us our due for warning about all of these things that have proven the validity of our arguments against the deal. None of this would have mattered if the Ballard administration had simply been up front about the deal and terminated the Veolia operating agreement before it sought approval of the deal in light of the IURC's blistering criticism of an operating agreement it deemed too one-sided in favor of Veolia. And the same would have been true if the Ballard administration had simply agreed to a straight up transfer without requiring a several hundred million dollar payment from Citizens in order to finance public infrastructure improvements entirely unrelated to the utilities' operation, which is effectively a new hidden tax in the form of higher utility rates.


Downtown Indy said...

The IURC *MUST* reject the proposal, seeing as how it was founded on bogus assumptions. If they have a shred of integrity, that is.

Citizen Kane said...

Government officials always lie; they just call it public relations or public information. One would hope that the IURC (with the input of the Utility Consumer Councilors) would seriously review the deal, particularly in light of their previous skewering of the Veiola contract and the current scandal. I am crossing my fingers, but I have virtually ceded that corruption, thievery and lying is so endemic to government, that there is no hope of anything occurring that would benefit anyone but the lying thieves.

Indy4U2C said...

I am wondering if Mayor Ballard took a class by Ball State "Professor" Bart Peterson....and got an "A"???

Can anyone confirm?

dcrutch said...

Isn’t the Wishard deal a house of cards from day one? What's to be expected from a state assembly deal (please advise if I’m recalling incorrectly), introduced late in a session, at night, with no preliminary study, testimony, or fanfare, by a tag team of: Rep Crawford and Senator Kenley(?). There's not reason to smell a rat?

Funding based upon (at least in-part), existent, publicly-acknowledged “overpayment” of something else (nursing home care?) from the Federal government. Again, millions in funding based on the theoretical steady pipeline of being overpaid from a level of government under enormous pressure to reduce spending. What isn’t wrong with this picture? To start with, if it were your kids- wouldn’t you tell them to stop depending on money from a source that may well dry-up when the overspending is discovered? Where am I misrecalling or misstating?

If Daniels wants to recover from the broadsides he's taken on FSSA, jobs numbers, and most recently the IURC, he could make sure the IURC gives what is perceived as a thorough, scrupulous, and non-partisan look. If this goose is already cooked, it would at least be a better holiday for taxpayers if IURC gives their rubberstamp before the end of year and the cheaper bonds are vamos.

I'm going to get a Shelia Seuss-Kennedy T-shirt. I may disagree with her at least as much as Juan Williams, but she hit the jackpot on privatizations sometimes being mere political escapes to evade tax increases and potential election ouster. Peterson was at least upfront with his tax increase late in his administration. Conservatives have rough sledding when a privatization deal is as foul and wretched as the other party's fantasical and short-sighted government expansion. How are you going to compete with "free" stuff if your purported support of transparency, accountability, and frugality is none of the above? Both major parties may be grotesquely self-serving and deceitful, but if you're the "party of No" and the other guy is "…for the children", you pepetually got some 'splaining to to do. You’ve got to truthfully cite examples of the consequences of government overspending, reinvigorate taxpayer vigilance and continued volunteering for those in need, and reiterate that all boats are historically better raised with imperfect free enterprise capitalism versus imperfect egalitarian socialism.

As with Lugar's vote against prohibiting pork-barrel spending, sooner or later we're talking about real money. When our public servants forgot that, it’s time for new public servants. The attitude of not to worry about potentially losing millions on Wishard bonds is amazingly smug, on a frigid day in a city that can't keep libraries open but finds bucks for a new Pacers scoreboard.