Wednesday, March 10, 2010

Ballard Goes J.G. Wentworth on Us, But Does Deal Hold Water?

It seems these days that no Republican politician can avoid "the lure." They get offered lump sum cash for an asset now, and they sell out control, which is ironic because it runs completely contrary to all their smug talk about accountability and the Shepard-Kernan Commission's report as well.

Just like Governor Daniels did with the Indiana Toll Road, Ballard has worked a deal to sell the city's water operations to Citizens Gas for $1.9 billion with promise of infrastructure improvements. (Actually, the Toll Road was a 99-year lease; this IS an actual sale).

From the outset, because the Mayor has kept everybody in the dark until the deal was done, I haven't had time to really study it yet.

But here's what I already don't get. I'm told that the upside for Citizens Gas is that it's a charitable trust, not a company that has to appease stockholders. This means that IF it makes profits, the result is either reduced rates or reinvestment in infrastructure. I'm also told the Board members are fiduciaries, which means they have to act in the best interests of the ratepayers. Yaaaay!

Except what happens when Citizens makes a bad business decision? Say for example that something that seemed a good idea at the time, such as Coke Manufacturing, turns out to be a huge error (p. 62) and the company has to take a substantial hit because it can't find a buyer for the dismantled enterprise and now it has ongoing remediation costs? Did the fact it's a charitable trust ensure that mistakes don't result in rate increases? Well, no.

Can the Mayor fire anybody? Not anymore.

So can we hold someone responsible at a charitable trust if the trustees go completely outside of their core competency, for example, by taking control of a completely mammoth and unrelated enterprise? How could they? The public has no say in who the trustees are, nor in who they appoint to the Citizens Board, nor in who that Board hires or fires.

At least with the Mayor, there was a modicum of accountability if things got screwed up.

Harry S. Truman had a plaque on his desk that read: "The Buck Stops Here."

Greg Ballard just auctioned off that entire spirit so that he can fill the potholes he's left gaping and the sidewalks he's left crumbling.

He might even use some of that as a parlor trick to tell you he achieved the 10% cut in spending that he pledged he would achieve as a condition to his seeking re-election.

The real tragedy is that if the Democratic City-County Council voted as a block, this deal could not pass. But my prediction is that when somebody is told they can get some new sidewalks and look like heroes at re-election time, one or more D's will fall off the wagon and join the Mayor in selling out because, just like the Mayor, they probably won't even BE in office when the excrement hits the oscillating unit.

Hey, Mayor, have you thought about selling the Health & Hospital Corporation to Clarian?


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5 comments:

Anonymous said...

The other reason this is a bad deal is that citizens don't have other options. At least with the toll road, if the private entity makes bad decision and raises the toll to a point where you can't afford it, you can take some other non-toll roads. With water, there is no choice. We will be backed in a corner. This is very short term thinking on the Mayor's part. We will suffer as a result at some point down the road.

Anonymous said...

Isn't it also possible that this deal makes sense? Citizen's is a company that delivers a resource to consumers via pipes buried underground. This is common to both water and gas (albeit with different types of pipe). With their thermal unit, Citizens even transports steam and chilled water to locations downtown for heating and cooling. So it would seem that with their duplicate warehouse facilities, maintenance crews, work management systems, and knowledge of the city's streets, there are clear efficiencies to be achieved. To me, this deal sounds like it makes a lot of sense.

And you can knock Citizen's for the ultimate failure of the Coke division, but that was due more to the collapse of the US Steel industry than anything else. They worked hard to place the workers they could elsewhere in the company, and continue to work on remediation of the site. Mistakes do happen, and not every decision is always perfect, but it's how the mistakes are handled and how the parties accept responsibility that matter. All in all, I think they're a pretty responsible member of the Indianapolis business community.

iPOPA said...

Anon 2:44:

I'm not knocking Cit Gas's citizenship. I like that they're a "green" company working Keep Indianapolis Beautiful (KIB).

I know businesses make mistakes. But anybody who didn't see the steel collapse coming two decades ago and get us out of coke manufacturing before the 2000s chose poorly. Who was held accountable? Who took a pay cut? Who got fired?

Once this deal is done, we have NO accountability to any public entity.

Even so, I said I'd keep an open mind. My skepticism comes from the Mayor's secrecy. Good ideas don't need hiding.

But some stuff just doesn't add up. Maybe if you can answer my ?s, I'll feel better:

1. I'm a Cit Gas "ratepayer." How can Cit Gas pay $480 million and absorb $1.5 billion in debt without raising my rates? It already pays 5.5% of all revenues for debt service. If the rate goes to, say, 10.5%, that means my gas would have been 5% lower but for this purchase, right?

2. If my gas doesn't drop when it could have, has Cit Gas violated its fiduciary duty with this purchase? If there's a debate, it shows you how nebulous and unenforceable a "fiduciary duty to a ratepayer" is as a governing principle. It might be true that, in the aggregate, Marion County residents will pay less at some point in the future than they would with no deal. But that changes the definition of "ratepayer," doesn't it?

3. Why couldn't we just turn the water company into a separate "charitable trust" and have it absorb its own debt?

4. If this is because you think we could save more money with the merger, tell me how. You act like maintenance on gas and water lines is the same thing. (Sounds like a dangerous assumption). But I'll give you the benefit of the doubt as your clearly know more than the layperson about this industry. But give me concrete data on how many jobs will get cut and facilities abandoned by this takeover? What would be the ACTUAL savings in operation costs over 1 year, 5 years, 20 years, and fifty years? If you don't know, you can't be for this deal anymore than I can be against it because it could be all downside.

5. What company buys an asset that won't make it money? None? So explain how this isn't simply the Mayor pocketing up front money and the City losing dollars it should have had later?

6. Who valued the company for the city? How do we know it's not worth more than $1.9 billion?

7. What restrictions will be put in place regarding rate hikes. Immediately after the Toll Road went private, the rate for travel more than quadrupled. The city could just raise its water rates and probably make $400 million, then it would be in the exact same place, except it would still own its equipment and future rates, right?

Frankly, my first thought was that the Mayor wanted to hand over control so WHEN (not IF) that sewer hikes kick in, he can act like it wasn't him. Also, I'll be you a cheese steak that there's an agreement somewhere that in exchange for this deal, there will be no rate hikes until AFTER November 2011.

Anonymous said...

My home is currently on septic. My neighborhood was scheduled to be switched over to sewer in the next 2 years under the city's plan to get rid of the old septic systems throughout the county. The reason for the switch was that the city government did not want septic systems overflowing into our creeks and rivers in the city.

Citizen's may be a great company, but why would they want to continue this project? It doesn't seem to be in the company's interest or in the interest of existing sewer customers. Switching my neighborhood from septic to sewer is good for the environment which is the City's interest, but it will be costly and could impact citizen's bottom line. And even thought Citizen's isn't out to make money, it still worries about the bottom line.

Anonymous said...

And where precisely, do you think Citizens Gas obtains the "steam" which it sells?
Citizens delivers gas to customers they don't burn the stuff to "create steam".
The steam that Citizens Gas sells is created by IPALCO and Citizens has a contract with IPALCO to sell and distribute that steam AT A PROFIT.
I am old enough to remember a time when the steam created by IPALCO from burning coal for electricity was distributed FREE to every building in the Mile Square.The steam was a by-product of of the electrification proces and as a result IPALCO effectively cut the gas company out of making money off supplying gas for heat to downtown Indy. So IPALCO not only had a monopoly on lighting up downtown they also controlled the heat as well.
Then someone figured out that the steam was worth serious money as energy costs rose and Citizens Gas challenged IPALCO's monopoly on electricity AND the "free" steam heat.
So a deal was cut and Citizens Gas took over the steam generated by IPALCO. The losers were those in the Mile Square who lost their free heat. The winner was Citizens Gas who then proceeded to charge for that steam, with IPALCO taking a cut of the $$ of course.
Do we see a patttern here folks with what Ballard is doing now?
When this deal go down Ballard will have a half billion dollars to dole out to his elite cadre of whores who are stealing this town blind.
You can take it to the bank, you're gonna see water and sewage rates go to the moon. You will have no choice but to pay or move out of the city. I know what I'm going to do.