Proponents of Missoula’s efforts to take over the local water system erupted into celebrations this past week with the news that the Montana Supreme Court had upheld the city’s right to use eminent domain to purchase Mountain Water Company.
The Supreme Court’s 5-2 ruling now leaves the way clear for the city to buy the water company. City leaders were right to celebrate this milestone decision, and understandably eager to begin the utility’s transition to city control as soon as possible.
However, this victory comes at a cost. Missoula taxpayers and Mountain Water ratepayers deserve to know exactly how those costs will be paid – and how much it will end up costing them.
The Carlyle Group, a major global investment firm, bought Mountain Water as part of a package of water companies it acquired when it purchased Park Water Co. for $102 million in late 2011. The city of Missoula lent its official support to that sale with the stipulation that Missoula would have the opportunity to buy its water system at some point in the future. But Missoula’s initial offer to buy Mountain Water for $65 million was rejected – twice. Unsurprisingly, a third and final written offer – for $50 million – was also dismissed.
Thus ensued a complicated, lengthy and costly court battle.
The city formally filed condemnation proceedings in Missoula County District Court in April 2014. Carlyle vowed to give the city a run for its money in court, then within months announced that it had sold Mountain Water, along with two other water utilities in California, to a Canadian utility company for a total of $327 million.
The eminent domain trial in district court ended in the city’s favor with Judge Karen Townsend’s June 2015 order, but that order was appealed and was only one of several issues that needed hashing out.
The tangle of stakeholder parties, court proceedings and legal arguments that led to last week’s ruling could fill a book. Indeed, they could probably fill an entire bookshelf. City leaders and residents can breathe a sigh of relief at having finally entered the final chapter.
You have free articles remaining.
But wait: there’s a sequel. The city has announced an intention to file a “bad faith” complaint alleging Carlyle and Mountain Water representatives engaged in unfair dealings and misled the city regarding its intention to sell the water company. For that aspect of the legal proceedings, lawyers have agreed to work on a blended contingency fee basis of reduced rates plus a percentage of costs recouped from the defendant, assuming the city is again victorious. Also assuming the city wins its bad faith case, it may expect to recover a portion of the costs it incurred fighting for control of Mountain Water.
And so the fight continues.
Nevertheless, Missoula’s victory this past week means the war has been won, the legal expenses will soon stop piling up and the city will soon start having to pay down a mountain of debt.
The city is, after all, on the hook to pay not only its own legal fees, but also those of the defense. The defendants have submitted filings requesting reimbursement for more than $7 million in expenses they consider “reasonable and necessary” to making their case in court, although the city disputes that figure and says it is closer to $3.5 million. The city’s own legal expenses have topped $6 million.
Meanwhile, previous legal haggling has pegged the cost of actually buying Mountain Water at $88.6 million.
Missoula intends to transition the water company to city control as quickly as possible, and Mayor John Engen has said that current rates will remain in place for the time being. However, he anticipates that water bills will eventually increase.
But how much – and how quickly – will rates increase? How much of that increase will be reinvested in the water system, which sucks up millions of dollars in maintenance and repairs each year and yet has a leakage rate of nearly 40 percent? How much will be used to pay off legal bills? Operating expenses?
If it hopes to keep its new customers happy, the city of Missoula must take pains to inform its customers about its plan to pay the bills at every step of the way.