Should the City of Peoria Purchase the Water Company?

(Peoria, IL, July 7, 2023) – The Business PAC of Central Illinois (“BizPAC”) is comprised of businesses located in the Greater Peoria area and we advocate on behalf of our membership. Like you, we are committed to the future of the City of Peoria. Like you, we are invested in determining whether acquiring the water company might be beneficial to the citizens and businesses of Peoria. We appreciate that the council has wisely invested in doing some initial due diligence into the potential purchase of the water company.

The BizPAC does not currently have a position on whether acquiring the water company is in the City’s best interest. We are eagerly awaiting the report from Woodard and Curran. As business owners and executives, we feel we have a unique perspective we can lend to the Council on making long term financial investments. Below are some basic investment questions we would really like Woodard and Curran and the Council’s help in understanding:

1. If the water company is to be appraised based on a methodology that establishes a value that the City can afford, how would the water company not be affordable for the City to purchase it? Doesn’t the very nature of the appraisal determine a fair price that the City can, by definition, afford to pay? How could an appraiser come to a fair value where the debt service for the bonds would be greater than the income available to service those bonds?
2. What is the impact of recent interest rate increases on the value of the water company? Have the recent increases reduced the likely purchase price of the utility in the last year because the city cannot pay as much for the water company due to higher debt service costs (therefore the appraised value has decreased)?
3. Would the appraiser take into account that the City would not have the efficiencies of scale that American Water currently possesses as one of the largest water companies in the world? Would the appraisal take into account that the City might need to pay a 3rd party to manage the water company most effectively and efficiently?
4. Are the citizens of Peoria ultimately responsible for financing the maintenance and improvements to the water company, regardless of who owns it? If Illinois American owns the water company, aren’t they able to pass along maintenance and improvement costs to the rate payers?
5. Has there been any 10+ year period in the last 100 years where the water company value went down? Can we establish estimated historical values of the water company over the last 100 years? Or at least what it was very roughly worth 100 years ago and what it is worth today?
6. In 2005 the water company value was pegged at $220 million. Is the value higher or lower now? If the City bought the utility in 2005 and then sold it today, how much in proceeds would be expected from cash flow from operations and the sale from both appreciation of the water company in value plus the paydown in debt? Since the City did not exercise the right to purchase in 2005, how much value was roughly captured by Illinois American Water and their shareholders? More or less than $150 million?
7. If the City acquired the utility, would the employees be government employees with government pensions that are more expensive than the current benefits received by Illinois American employees? Would the increased cost of pensions be factored by the appraiser into the establishing the fair market value of the water company?
8. It is well understood that it is financially prudent to buy a home if you are planning on living in it for 30 years. Does it also make financial sense then to acquire the local water utility if you are planning on buying water from it for the next 500 years? If this analogy is not valid, why is that?

We implore you to ask Woodard and Curran to briefly address these questions and we also will be following up with each of you as well to understand how you would answer these questions. We strongly encourage you to share your responses with the public so they can better understand your thoughts behind potentially investing in the water company.

Thank you for your service and your consideration of these important questions!

Sincerely,

The Board of Directors of the Business PAC of Central Illinois

For more information please contact info@bizpacillinois.com