mountain water reservoir

Mountain Water's 1 million-gallon dome reservoir sits on the north side of Missoula next to the Waterworks Hill trailhead.

KELSEY JAE WARDWELL, Missoulian

The legal bill in the city of Missoula’s condemnation case against Mountain Water Co. and the Carlyle Group has reached an estimated $3.5 million, according to the parties.

The city could be on the hook for all of it, win or lose. The trial is nearly three months away, and an appeal is likely.

“I recognize that these numbers are large, but the long-term cost of not owning this utility for this community is hundreds of times what we’ll be paying here,” Mayor John Engen said last week.

Mountain Water president John Kappes, however, said legal expenses will continue to mount at least through 2016, with appeals and other court proceedings. He called on the city to refocus its resources on needs instead of wants.

“Win or lose, it’s going to prove to be unaffordable to the city,” Kappes said. “And it’s really the city that has the choice to continue this fight or to end it.

“Now would be a good time for the city to look and refocus its dollars and energy for community needs instead of having to cover the costs of unnecessary and unaffordable wants.”

***

Last spring, the city of Missoula took Mountain Water Co. and global equity firm Carlyle to court to force a sale of the water company to the city. The eminent domain action is pending in Missoula County District Court.

Legal costs are growing, and both the city and the water company are managing their cash flow to make the payments. If the city wins, it anticipates it will repay those dollars through utility revenue.

Eventually, Kappes said, the city also will pay the defendants’ legal bills, as per Montana’s eminent domain law. “From a budgeting standpoint, we’re expecting these costs to be repaid under the statute.”

As of last week, the city had paid an estimated $1.4 million in the condemnation case, according to a tally of its recent bills. Mountain Water’s legal costs had hit $1.4 million, too, and Carlyle’s were at some $700,000, according to Mountain Water.

Mayor Engen, though, said the court may award “reasonable” costs to defendants, not necessarily all the money their lawyers are spending. He also said public ownership would save the city – and ratepayers – millions of dollars.

Earlier, the mayor estimated the city would save some $157.5 million over 20 years if the water utility was under municipal ownership. The amount comes from dividends currently paid to Carlyle, deferred maintenance, and other expenses.

“We’re going to continue to litigate this case until we prevail because I think we will,” Engen said.

***

The city initially estimated the total transaction costs in condemnation would run $4.24 million, including legal fees for itself and defendants. However, the bill ran up more quickly than the administration projected.

According to Kappes, the city could have saved in legal costs if it had taken only Mountain Water Co. to court. Carlyle has proposed to sell Mountain to Liberty Utilities, he said, so it is irrelevant to the eminent domain proceeding.

“The only reason we can see (Carlyle remaining as a defendant) is so the city can perpetuate an illusion that this is about the local community fighting against this huge corporation, when in fact it’s the city attacking and hurting a local community water company,” Kappes said.

The sale to Liberty Utilities is still pending regulatory approvals. That company is owned by an energy and utilities conglomerate based in Canada, Algonquin Power and Utilities Corp.

Mayor Engen said his team had lengthy conversations about which parties to name in the lawsuit: “We didn’t feel we had a choice to single out Mountain or Carlyle. We felt that we had to cover all of our bases.”

Carlyle also has argued it should be dismissed from the case as an “upstream owner,” rather than the property owner in Montana. The judge disagreed, however, saying the firm’s rationale would require the court to “adopt novel and creative legal arguments with scant support.”

Carlyle has tried to make the same argument again, and its motion is pending.

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Reporter for the Missoulian