23 Firms Eyeing Indianapolis Superutility

In big water privatization news, Indianapolis has received expressions of interest from nearly two dozen firms seeking to restructure the city’s water and sewer systems into a massive, combined utility with a value that may top $3.5 billion. Mayor Greg Ballard’s administration is seeking to merge the two utilitiesââ?¬â?which are both currently under long term contracts with separate private operatorsââ?¬â?in order to generate hundreds of millions in long-term cost savings that would be used to hold water/sewer rates down and generate up to $400 million to invest in citywide infrastructure improvements. Bill Ruthhart at the Indianapolis Star writes:

About two dozen companies, including Citizens Energy Group, have expressed interest in owning or operating the systems, which city leaders said could generate as much as $400 million to build roads and sidewalks and make other improvements while potentially protecting customers from large rate increases. […]

By 2025, the city expects to spend more than $4 billion to make upgrades to the water and wastewater systems. Those improvements are expected to increase water rates by 112 percent and wastewater rates by 427 percent during that time period.

Under those projections, today’s average water bill of $28.07 would increase to $59.64, and the average sewer bill would go from $19.89 to $104.83 during the same period.

Robert Vane, Mayor Greg Ballard’s deputy chief of staff, said the mayor’s goal is to help reduce those future costs by either partnering with private companies or signing off on Citizens Energy’s acquisition of the utilities. He said it was too early for Ballard to offer a specific goal for how much future increases could be reduced.

Other potential bidders include prominent industry players like Veolia Water, United Water, Macquarie Capital, CH2M Hill, and Black & Veatch. The trade publication Public Works Financing reports separately that the city plans to issue a Request for Proposals next month, with bidder selection likely slated for early 2010.

Matthew Tully at the Indianapolis Star comments on the politics of the proposal, speculating that Indy Mayor Greg Ballard’s focus on core infrastructure is likely to be viewed favorably by voters:

Cash-strapped cities such as Indianapolis have few options in addressing massive infrastructure backlogs. Typically, annual city budgets for street repairs don’t even keep pace with new problems. And so, cities fall further and further behind every year.

With that in mind, the mayor is aiming for a “once-in-a-generation effort to address what are generation-old infrastructure problems,” spokesman Robert Vane said Monday. […]

The money gained from the initiative wouldn’t come close to solving all of the city’s infrastructure problems. But there would be a one-time infusion of cash that would allow the city to plow through years of backlogged projects.

If he can do it, Ballard would put a serious dent in a problem that has turned city streets into third-rate roadways and has left many residents waiting decades for new sidewalks to replace the crumbling messes outside their homes. He’ll have helped address a depressing gap in quality between streets and sidewalks within the city and those in suburban areas. He also will have focused on exactly the type of issues mayors should target. […]

The “un-mayor,” as he was once called, was elected to address the nuts and bolts of local government. Nothing is more nuts and bolts than fixing streets and sidewalks. If he can find a way to pump an extra $150 million or $200 million into those problems, he will have tackled a matter that affects the daily life of every Marion County resident.

Reflecting back to my recent commentary on the use of upfront proceeds from transactions like this, I’d say that the proposal as shaped thus far would score high on the fiscal responsibility meter, as it would re-invest the bulk of the transaction proceeds back into long-lived infrastructure. As I’ve said before, it’s great to see Indianapolis re-embracing privatization under Mayor Ballard’s watch, and this particular initiative has the potential to be as groundbreaking as Indy’s managed competition was in the early 1990s.