Indianapolis Water's credit costs swell

Indianapolis Water's investment meltdown is hitting customers again. Moody's Investors Service cut the credit rating Friday on $920 million in bonds the utility had sold to lenders. Taking the credit rating down to A3 from A1 will raise future borrowing costs an undetermined amount for a utility that just increased water prices for its 1 million customers.

Moody's said the lower credit rating results in part from the recent decision by state regulators to allow only a 12.27 percent increase in water rates instead of the full 17.6 percent increase sought by Indianapolis Water. The utility had sought the emergency rate increase to make sure it had enough money to pay debts, carry out improvements and meet loan terms it had with bondholders.

The Indiana Utility Regulatory Commission approved a rate increase June 30 but refused the full 17.6 percent level. The commission said the water utility had not explained why the full increase was necessary. IURC also contended the water utility was poorly managed and should try to recover the money without burdening customers. Indianapolis Water was hammered when the meltdown on Wall Street set off a credit crisis in global markets. This in turn raised the utility's debt payments to $57.3 million a year from $32.1 million, Moody's reported.

The water utility's payments soared because it had earlier refinanced its debts in a way that allowed the interest on the debt to fluctuate with the market. But once the credit crunch set in, interests rate shot up automatically, not only for Indianapolis Water but for municipal agencies throughout the country.