Provisions in 2011 Mountain Water sale prompt PSC inquest


When The Carlyle Group took ownership of Mountain Water Co. in 2011, a provision tucked away on page 22 of the final order stated that a full review by the Montana Public Service Commission was required prior to any future sale or transfer of company property worth more than $1 million.

Whether that and other “ring fencing” provisions were violated when Carlyle quietly sold Mountain Water to Liberty Utilities Co. last month will be front and center when the PSC takes up the issue this week.

Eric Sell, spokesman for the PSC, said the regulatory board placed the matter on the docket several weeks ago to investigate whether Mountain Water’s rates were just and reasonable. He said the review was initiated shortly after Liberty announced that it had purchased Mountain Water from Carlyle without the PSC’s review or approval.

“There were some ring-fencing provisions in the last sale and transfer, and there’s a question of whether they had violated some of those provisions,” said Sell. “There’s some concern because Mountain Water was sold without the commission’s approval, and there could be violations of those provisions.”

The 2011 order states that PSC approval was required prior to Mountain Water “transferring, selling or otherwise disposing” of any water rights, or any rate-based utility property, with a net book value in excess of $1 million.”

“This condition is important because it ensures that there will be no disputes regarding the commission’s authority concerning disposition of utility property of significant value,” the provision states.

Sell said the PSC will discuss that and other provisions this week. The commission will also discuss who can join as a party to the docket, along with Mountain Water’s response to the PSC’s recent data requests.

“Back when we held the work session regarding Liberty’s unauthorized purchase, the commission initiated a docket to investigate Mountain Water’s rates to ensure they were reasonably adjusted,” said Sell. “The commission will discuss whether it wants to impose an interim rate until the investigation is completed.”

Sell said the Montana Consumer Council has suggested that Liberty’s cost of capital was lower than what it was under Carlyle. He said “that could potentially be reflected in rates.”

Over the past few weeks, Liberty has been running full-page ads in the Missoulian saying the city and its taxpayers were piling up a “mountain of debt” by continuing their pursuit of the water system. The city has responded, calling the ads propaganda and a “mountain of lies.”

The Montana Supreme Court is also scheduled to take up the case of necessity in May. It was last year that District Court Judge Karen Townsend ruled that public ownership of the water system was more necessary than private, for-profit ownership.