Jury sets water system value at $20.3 million

DANVILLE – A jury of six Hendricks County residents took less than three hours to determine the fair market value of the Mooresville water system is $20.3 million.

The Town of Mooresville had filed for condemnation of the water system and set the value at $9.5 million.

The company that owns the system, Indiana-American Water Company, had it valued at $27.4 million.

After the jury made its decision following the four-day trial, company president Alan DeBoy said “We respect the jury’s verdict and we are happy with it.”

Mooresville Council member George Watkins, who attended all four days of the trial, said he would have no comment about the jury’s decision until next week. When asked if the decision would stop the town’s takeover of the system, Watkins said any decision on that would have to be made by the entire council.

In his instructions to the jury, Hendricks County Circuit Court Judge Jeffery Boles told jury members he had decided the town does have the right to condemn the water system and purchase it. He said the jury has to determine what the town would have to pay for it.

“The law says the company should receive just compensation for their property. You have to decide what the fair market value of that property is,” the judge said.

In final arguments, attorneys for the water company said the company should receive just compensation for its property. They said the town deliberately did not assign value to a large amount of the water system. They listed those items not accounted for by the town. The elevated water tank, which was built in 1955 and totally refurbished in 2012, was judged by the town to be worth less than 25 percent of its value. The attorneys said the experts hired by the company gave an accurate evaluation of the assets of the water system.

Attorneys for the town argued the water company experts used accounting practices that are not allowed by the state in determining fair market value. They said the company wants to buy low and sell high to the town. They said the price per customer being asked for by the company was three times what it had paid for other water companies.

The average, according to the town’s attorneys, that was paid by the water company was around $2,400 per customer. The attorneys allege the water company is asking for a price per customer of around $7,000. The town concluded the fair market value of the water system is $9.5 million.

After the jury delivered its verdict, the judge set a July 22 date for a hearing to determine what sanctions the court should impose on the water company for “poisoning the jury pool of Morgan County residents for sending out information in an attempt to influence possible jurors.”

Thursday’s testimony

During testimony Thursday, an appraiser for the town and an IAWC employee testified.

Witness Jeff Henson, senior development manager for IAWC, said he testified before the IURC for the company’s asset purchase of the Yankeetown water system. Which is in the southern part of Indiana and was added to a rate group that included Newburgh.

He said the purchase price was just less than $2 million, which averages out to an investment of $3,152 per customer — with 633 customers in the system. Henson finally admitted that in his IURC testimony, he said that was a “significantly greater value than the usual $2,400 IAWC usually paid per customer.”

Conner objected to the Yankeetown acquisition being compared to the Mooresville water system. Judge Jeffrey Boles clarified this for the jury, saying this was not directly related to the value of the Mooresville system. He also said Henson might be called back as a juror, thus he was issuing a separation of witness order. That meant that Henson would not be allowed to discuss the case or his comments with anyone besides his attorneys.

Witness Judith Cleland, a Purdue graduate and 39-year veteran environmental engineer, said she was hired by the Town of Mooresville in the fall of 2012 to come up with a water utility value. She’s had experience in water and waste water design studies, planning for water mains, lift stations and treatment plans. She has determined values through other appraisals and said she starts with an asset list.

Cleland said she finds out how much it would cost to replace these assets, measures depreciation by the age of the property and subtracts depreciation from the value of the current system. Cleland had worked for HNTB, an architectural, planning and engineering firm, and had a map of the Mooresville system and a report from 1990. She said she also obtained information from the Indiana Department of Environmental Management. At the time, Cleland said she had not received information from IAWC.

She did get information from the water company in December 2013 and was able to view the plant onsite, the booster pump station and elevated storage tank. She said IAWC employees did not share information on the system’s value at that time.

Cleland said she drove Mooresville Town Council members to look at water hydrants to determine how and when they were installed. She said she made assumptions based on her experience and other firms’ appraisals — even when IAWC was the buyer.

Cleland prepared an exhibit for the jury that showed a grading system she made for the water pipes: ADC, 6 to 8-inch pipe; ADD, 10-12 inch pipe; and ADB, smaller pipe that was constructed in older subdivisions. But she had assumed a larger main had been installed and financed by IAWC – it was actually privately constructed for a development.

On cross examination, Cleland said she used information from the study done by Beam, Longest, and Neff, which had been hired by the water company to do a valuation of the system.

Cleland said she excluded around 24 miles of water pipe, 162 fire hydrants, more than 400 valves, and other items from her study.

She said “someone” from the town or representing the town asked that those items be excluded.

Cleland said she normally makes around $5,000 to $6,000 for her work. She said she had been paid $20,000 for her work in this project.

Michael Lady, who owns the company that did the actual valuation of the water system for the town, was the last witness.

Lady went through three procedures he used to calculate the fair market value of the system. Those values ran from $9.29 million go $9.9 million. The average of the three procedures, he said, was $9.5 million.

Lady said there were problems at first obtaining records of the water company and inspecting the property. But he said in the end, they were able to get what they needed to determine the value of the system.

Under cross examination, Lady he used the study done by Cleland as the basis for some of his calculations.

Lady said he did not have all the information about the system when he made his calculations about it’s value but that information would not have affected the final numbers.

Lady stood by his depreciation figures that some of the pipe and other items in the system was considered nearly worthless because of its age.

by Keith Rhoades | Reporter | Published June, 7th 2014 in The Reporter Times