Transfer of Indianapolis Water & Sewer Utilities to Citizens Energy

Prior to forming API, team members served as sell-side advisors to Indianapolis on its ~$2 billion transfer of its water and sewer utilities to Citizens Energy, the region’s nonprofit gas utility held in a community trust. This is a great case study on how optimizing infrastructure assets is a win-win for both customers and taxpayers.

Indianapolis was hit by a $2 billion EPA Consent Decree to bring its combined sewer overflow system into regulatory compliance and had inventoried $1.5 billion of other infrastructure needs across the city-county. Faced with this Decree and a property tax revolt that unseated over 70 mayors across the state, the newly elected mayor rejected the privatization option due to public concerns over higher cost of capital and losing the valuable Federal, state, and local government tax shield. Instead, the city embraced an asset optimization process that wholly preserved the tax shield and a cost-of-service rate regime and still generated robust bidder interest.

The city received responses from Veolia (Manager of the water utility), Suez (Manager of the sewer system), American Water, Citizens Energy, and others. The incumbent managers teamed with “not-for-profit” corporations to preserve the water and sewer system’s tax shield and to avoid higher costing investor-owned utility rate regimes. However, Citizens’ ability to capitalize on the synergies from combining three overlapping utilities was a decisive factor. Booz & Company, Citizen’s advisor, calculated annual synergy savings at ~ $45-65 million or an estimated $900 million on a present value basis over 50 years. These synergy savings were evenly split between new infrastructure investments across the city and mitigating future rate increases, making the sewer system improvements more affordable.