By Martin Kidston/Missoula Current
Mountain Water Co. must pay roughly $22 million in contract obligations owed to local developers from proceeds it will receive in the city of Missoula’s purchase of the utility, a District Court judge ruled on Tuesday.
Issued by District Judge Leslie Halligan, the ruling settles a long-standing dispute over which side will pay the developers, who fronted money to Mountain Water over the years to extend service lines to new projects.
The outcome also held sway over what utility rates the city would set once it launched Missoula Water.
“Mountain Water presents no facts or law that would compel, or even suggest, that it be relieved of its obligations due to the condemnation,” Halligan wrote. “Indeed, Mountain Water is set to receive from the city the full market value for those assets. The court finds that Mountain Water remains obligated under the contracts despite the condemnation.”
In her ruling, Halligan said that while the 2015 condemnation case provided a fair market value of $88.6 million for Mountain Water, it did not explain how a panel of independent commissioners arrived at its verdict, nor did it break down the elements adding up to the amount, including the contract obligations.
While the basis for the commissioners’ report was unknowable, Halligan said, it was a matter of “indisputable fact” that the contract obligations were included in evidence considered by the commission as it set fair market value.
“Mountain Water has taken the position that the refund obligation follows the assets and the refunds are to be paid by revenue generated by water sales,” Halligan wrote. “The fact that condemnation will strip Mountain Water essentially of all its assets and eliminate its ability to generate revenue from water sales puts Mountain Water’s future ability to pay in grave doubt.”
Because of that doubt, Halligan said the court must take steps to ensure payment within the bounds of the law. When the city pays its condemnation award, it will do so in two deposits with the court rather than paying Mountain Water directly.
Halligan said the first payment will consist of the $88.6 million valuation award.
“The second account shall be an amount to be determined in further proceedings, and is designed to set aside enough funds from the condemnation award to pay the remaining balances of the (contracts),” Halligan said.
With the court’s ruling once in question, the city last week announced two possible models to fund the utility’s operation, including an “expected” scenario and a “conservative” scenario.
Under the expected scenario, the city envisioned no rate increase for the first three years. Under the conservative model, however, a rate increase of 5 percent in 2018 would have been necessary, followed by a 3 percent increase each year after.
With the court’s ruling in hand, the city is closer to realizing the expected scenario.
“The money to pay developers will come from the $88.6 million the city will pay for Mountain Water’s assets,” Mayor John Engen said. “This is a very good ruling for the city of Missoula.”
Contact reporter Martin Kidston at email@example.com