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Charlestown residents challenging sale of water utility

March 6, 2019

As the United States Supreme Court grapples with the extent of water regulations on a federal level, a case possibly going before the Indiana Supreme Court could have serious implications on water quality in a southern Indiana town.

A group of residents from Charlestown is challenging the sale of the local water utility to Indiana-American Water, a transaction that comes with a $13.4 million price tag. Charlestown officials say the sale will improve the local water quality in the long run while mitigating rate increases, but the challenging residents claim the opposite.

According to NOW! Inc., the nonprofit fighting the sale, Charlestown water customers could see their rates increase by as much as 150 percent with no immediate improvement to their water quality. What’s more, the city has long been plagued by brown water, a fact that is central to the administration’s plans to sell its utility to a company that specializes in water distribution.

Both the Indiana Utility Regulatory Commission and the Indiana Court of Appeals have signed off on the sale, but NOW has announced plans to seek transfer to the state’s highest court. The challenge, residents say, is not just about a rate increase, it’s also about a loss of local control and concerns over government collusion.

The proposal

Attorneys representing Charlestown and Indiana-American Water did not respond to requests for comment about the sale of the Charlestown water utility to the Greenwood-based company, but evidence submitted to the IURC shows the brown water episodes trace back to at least 2000, when Mayor Bob Hall first took office.

According to Hall’s testimony, as submitted to the IURC, “(i)n 2000, it was not uncommon to have 2-3 water leaks and 15-20 brown water complaints per day.” Hall said his administration immediately began trying to improve the water utility at the outset of his tenure, resulting in a decrease to only “2 to 3 water leaks per month … and 8-10 brown water calls per month.”

But the brown water episodes have continued, Hall said in his testimony – which was submitted to the IURC in 2017 – and an engineering company estimated it would cost another $7.2 million to make additional improvements. Meanwhile, Indiana-American approached Charlestown about a potential sale in the spring of 2016, and the Charlestown City Council approved the sale in July 2017.

Hall’s testimony outlined several reasons why he believed the sale would be beneficial to the city, chief among them being the fact that Indiana-American could spread the cost of the $7.2 million in improvements over its entire customer base, which is larger than the 2,900 utility customers the city had in 2017. Additionally, Hall said Charlestown planned to use tax increment financing, or TIF, funds to help pay for improvements to the water system and to at least partially offset rate increases.

The challenge
 

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But according to J. David Agnew, the New Albany attorney representing NOW, the problem with the proposal is that utility rates would be guaranteed to go up without any immediate improvement in water quality. According to the IURC’s order approving the sale, NOW presented testimony that certain customers would see their monthly rates increase from $18.03 to $44.17.

Further, Agnew said Indiana-American sought the ability to recover the full $13.4 million sales price in future ratemaking, a request that the IURC approved.

“Add that all up, and customers are looking at a huge increase in rates, immediately guaranteed future increases, but losing any real control over how the utility is governed or how rates are being set,” said Agnew, of Lorch Naville Ward LLC.

From a water quality perspective, Agnew conceded that the issue with Charlestown’s brown water is largely aesthetic. Even so, he said NOW! presented testimony that there were simpler, cheaper alternatives to remedy that aesthetic problem, including a “proper regimen” of flushing and cleaning the existing system.

“Really, if the city was a little more careful about maintaining the system, the problem would go away,” he said.

But pointing to Indiana-American’s testimony about its plan for the water utility — which includes addressing water age issues and investigating source water — the IURC found that “Indiana-American will make reasonable and prudent improvements to ensure Charlestown’s water customers will receive adequate, efficient, safe, and reasonable service.”

The result

NOW also challenged the sale to Indiana-American on procedural statutory grounds, and the IURC agreed that Charlestown did not exactly follow certain statutory requirements regarding public notice and the availability of appraisal documents. However, the commission determined Charlestown’s statutory shortcomings did not “adversely impact the parties or these customers” and found the sale to be in the public interest.

The residents then took their case to the Indiana Court of Appeals, which agreed the city did not fully comply with all statutory requirements. But like the IURC, the appellate court found the city had substantially complied with the statutes in question. Further, the COA agreed that the $13. 4 million sales price was reasonable.

Agnew said the nonprofit plans to appeal to the Indiana Supreme Court, but he declined to discuss the issues that would be raised in NOW’s petition to transfer.

Collusion?

Also wrapped up in the challenge to the sale of the water utility are allegations that the transaction is intended to benefit a local developer who has a positive relationship with Hall’s administration. According to Agnew, the city has entered into an agreement with developer John Neace to create a new neighborhood known as Springville Manor, and the development agreement references the sale of the water utility as a potential source of funds for the Springville Manor project.

Neace also features in another legal challenge brought against the city of Charlestown by its residents. A group of landlords recently sued the city for its use of allegedly “draconian” tactics to force low-income residents out of their homes in the Pleasant Ridge neighborhood. According to the landlords’ complaint, Pleasant Ridge homeowners have allegedly been forced to sell their homes for $10,000 to Neace or face fines for noncompliance with code violations.

“It’s like a triangle,” Agnew said of the connection between Neace, Pleasant Ridge and the sale of the water utility.

Hall seemed to address the “collusion” argument in his testimony before the IURC, explicitly noting that “proceeds of the Proposed Transaction are not earmarked to subsidize, to offer incentives to, or otherwise benefit any individuals, companies, developments or other people or projects that Charlestown may be considering.” Additionally, the IURC said NOW failed to present evidence substantiating its claim of collusion.

Agnew acknowledged that the connections between Neace and the city’s redevelopment plans were not directly at issue in the case challenging the sale to Indiana-American, instead saying those considerations were collateral concerns.

A special judge issued an injunction against the city’s code enforcement policies in the Pleasant Ridge case, but the Indiana Court of Appeals overturned that injunction last September.

At IL deadline, a petition to transfer in the water utility case, NOW! Inc. v. Indiana-American Water Company, Inc. and the City of Charlestown, Indiana and Indiana Office of Utility Consumer Counselor, 18A-EX-844, had not been filed.•
 

 

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