FORT WAYNE – The vote on whether to pursue a city takeover of Aqua Indiana’s southwest water system may be delayed, but the issues haven’t changed.
Fort Wayne City Council members had been scheduled to hear 45-minute presentations from both City Utilities and Aqua Indiana officials on Tuesday, and then vote on whether to condemn the private utility that serves about 12,000 people in Aboite Township.
That is now on hold indefinitely.
The council had been planning to vote Jan. 22 on the matter, but that afternoon Aqua officials announced they were close to a deal with the city. That surprised city officials, who said they were not close to a deal but would take it as a good sign that Aqua was optimistic an agreement could be reached.
So the council opened the public hearing on the issue and took testimony from the public that night, but delayed the official presentations and the vote until Feb. 5. Thursday, the council pushed it back again.
Everyone involved wants to give the negotiations every opportunity to succeed. As long as constructive discussions continue, a bit of additional time to get things resolved makes sense, said Kumar Menon, director of City Utilities. We remain optimistic that a resolution of the water service issues in southwest Fort Wayne can be found.
Aqua Indiana President Tom Bruns said he hopes a deal can be worked out.
It’s looking more positive all the time, he said. There’s still a ways to go on some details, but we have made good progress.
City officials have not, however, withdrawn the condemnation bill from council consideration – and have no plans to do so: The imminent threat of condemnation, officials say privately, has moved negotiations forward in ways not seen in years.
Bruns said Aqua is not trying to delay a condemnation. But pushing it back does create advantages for the firm.
For one, Aqua Indiana is a private company, a subsidiary of Aqua America, so every day the utility operates is another day its assets are making a profit. Aqua America, according to its 2011 annual report, had a profit margin of about 20 percent, making about $143.1 million in profits in 2011, up 15 percent from 2010.
Every day it staves off condemnation is also another day the Indiana Supreme Court could issue its decision in the case over the city’s takeover of Aqua’s north system.
In that case, the court is deciding whether the method used to appraise the north system when the city condemned it several years ago was the correct one. The city valued the utility at $16.9 million; Aqua officials have said it was worth about $40 million, but did not offer a value in the condemnation hearing.
If the court says the method the city used was correct, then the case could be closed; if not, then the Wells County court hearing the case will have to set the price, which could be higher than the $16.9 million the city paid.
That would also give Aqua new leverage in price discussions for its southwest system, which it contends is worth about $60 million. City officials say it is worth a fraction of that.
In fact, complicating the negotiations for the purchase is both sides’ desire to hammer out a deal for both systems at once.
It is more complicated, but that’s certainly an attractive opportunity if we can get it done, Bruns said.
Aqua officials have hired the Asher Agency to help make their case, saying the city should get a professional appraisal of the system before condemnation to ensure the price is not so high it forces rate hikes on the rest of the city’s customers.
City officials say the first step in the condemnation process is a professional appraisal anyway, and that if the price comes in too high, the City Council can simply vote to stop the condemnation.
City Utilities officials say they want the debate to be over service Aqua Indiana provides Fort Wayne residents, not the company itself.
The issue, they say, is that good quality water is so vital that if Aqua cannot provide it, the city has an obligation to step in. They contend City Utilities can provide better quality water at higher pressures and with capacity far beyond the peak needs in the area, and at rates 25 percent lower than Aqua’s rates.
Aqua officials say they do provide good quality water, that they have solved their capacity issues and that their rates are competitive.
But the differences between the two providers are stark.
The biggest is that, as a for-profit company, Aqua America’s first obligation is to maximize profits for its shareholders, while any profits City Utilities makes are invested back into the system.
And when it comes to maximizing profits, Aqua America has done well: It has increased the dividend it pays shareholders 21 times in the last 20 years. According to the annual report, its 2011 dividend was 66 cents per share.
As a private company, it also rewards its executives for their performance: According to its 2012 Proxy Statement, CEO Nicholas DeBenedictis was paid a salary of $599,346 in 2011, and got a $729,006 bonus. With pension, stocks and other compensation, he earned $4.1 million that year.
Executive Vice President David Smeltzer and Chief Administrative Officer Roy Stahl each had total compensation of $1.1 million in 2011, and executive vice presidents Karl Kyriss and Christopher Franklin had total compensation of $861,019 and $773,283, respectively, according to the proxy statement.
City Utilities’ Menon, by contrast, was paid $99,817 last year.
Bruns said those complaining about Aqua’s profits miss the real story.
The story is our rates are not higher because we’re favored on Wall Street, Bruns said. They’re higher because we spent money – money from our shareholders – to improve a system that was in dire need of repair.
That, he said, is in contrast to City Utilities, which has a 100-year-old system that officials admit is behind on repair and replacement.
They’ve said in testimony their water main replacement program is woefully inadequate, Bruns said. He also said it is unfair to compare a company that pays income and property taxes to a municipal enterprise that does not.
Aqua America had 966,126 customers in 11 states in 2011, making it one of the largest private utilities in the country, and Aqua officials say that growth has been fueled by buying other systems.
(Aqua’s) aggressive growth-through-acquisition strategy has resulted in nearly 200 acquisitions and growth ventures in the last ten years, its website says. These growth ventures have allowed Aqua America to achieve its growth goals and has had a favorable impact on its financial performance.
And unlike City Utilities, Aqua America can diversify: According to its 2011 annual report, it sees great future profits in its venture selling water to hydraulic fracturing companies in north-central Pennsylvania.
Commonly known as fracking, the drilling technique uses high-pressure water and chemicals to release natural gas trapped in rock formations deep underground. Critics say it can pollute irreplaceable aquifers.
Aqua America had been selling water by the tanker truck to fracking operations, but according to the annual report, it has entered into a joint venture with Penn Virginia Resource Partners to build and operate a private pipeline to the drilling sites.
Bruns said Aqua has studied the issue closely, and its pipeline has prevented the need for thousands and thousands of tanker trucks to haul water to remote drilling sites through small towns and on back roads.
We think it’s a good partnership and environmentally sound to reduce the number of tanker trucks on the road, Bruns said. And while the practice is controversial, we’re a water provider, we’re not the drillers.