U.S. Mayor Article

Indianapolis Forges Public-Private Partnership to Assure Clean Water Supply

By Indianapolis Mayor Bart Peterson
September 9, 2002

In May 2002, the city of Indianapolis purchased the Indianapolis Water Company, beginning what I believe will be a highly successful public-private partnership.

To understand why the city of Indianapolis undertook this massive effort, some history is required. During the summer of 2000, NiSource, the parent company of the Indianapolis Water Company (a utility that had been privately owned for 130 years), announced a multi-billion dollar merger with Columbia Energy Group of Virginia. Under the federal law that regulates public utility holding companies, NiSource was ordered to divest all water utility assets, including the Indianapolis Water Company.

I was immediately concerned about the sale's impact on our community. Would rates soar? Would water still be available to us in abundance? Would customers continue to receive high-quality, responsive service?

These concerns were enough to propel my administration and our city-County Council into action. In a completely bipartisan effort, we took a close look at what was at stake. Like safe streets, effective neighborhood services and excellent schools, good water is essential to the quality of life and business climate in Indianapolis. And, because the water company's service area encompasses a 25-mile radius around Indianapolis, the effect of its sale would reach throughout our entire metropolitan area.

Too much was at stake for us to sit idly by and hope for the best.

Because the water company was originally permitted to operate in Indianapolis under a franchise from the city in 1870, the city had always retained a legal right to reacquire it. But we didn't want to run the water company as a government bureaucracy. We wanted to privatize its operation.

As this water privatization was to be the largest in North America, the city-County Council and I appointed a bipartisan Board of Waterworks to oversee the water company. Through a competitive and open process the board selected USFilter, an internationally known firm with a proven track record, to manage the daily operations at the company.

The basis of the public-private partnership with USFilter is a unique, incentive-based contract that uses the free enterprise system to encourage improvements in our Indianapolis water system. For example, if performance measures like customer service, water quality, operations and management, and community involvement are met, the city of Indianapolis will pay USFilter an incentive fee.

Under this incentive-based contract, several key areas like quick customer response, improved water taste and odor, increased participation of minority and women-owned businesses, and the creation of a citizen's advisory group are ensured for all Indianapolis water users.

While the city's purchase of the water company has resulted in an excellent board and management team, ultimately this transaction benefits the people of Indianapolis and Central Indiana.

For starters, the people of Indianapolis and Central Indiana will continue to see low rates on their monthly water bills. How? The city of Indianapolis doesn't answer to private owners - it answers to our citizens. A municipally-owned water company will not pay state and federal income taxes. And, we will keep our operating costs low because the water company will be able to borrow money at a lower, tax-exempt interest rate than a private owner.

In addition to continued low rates, we have succeeded in keeping the decision-making power, the all-important customer service functions and a major corporate headquarters here at home.

Now that the transaction is complete, I-m pleased with the outcome. Bipartisan collaboration, a performance-based contract, low rates and local control - all contributing to protect a vital natural resource for future generations.

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