City approves settlement agreement with owner of Mountain Water

By Martin Kidston/Missoula Current

In a special meeting Thursday, the Missoula City Council approved a settlement agreement with the owner of Mountain Water Co., along with a bond resolution to pay for the system's purchase, expected to take place later this month.

Mayor John Engen used the occasion to praise the diligence of his staff and the majority of the city's elected officials, and to place a political punctuation mark on a process that has taken several years to resolve (read his full statement here).

“A privately held monopoly operating a water system for profit and the benefit of distant investors will never serve the long-term interest of the public it should serve,” Engen said. “What we've seen under global corporate management is increased rates, higher profits taken from the community, and decreased investment in the critical infrastructure that supports Missoula.”

The agreement reached between the city and Liberty Utilities Co. effectively ends all litigation pending in Missoula District Court and lays the groundwork for a smooth transition of the utility from private to public ownership.

However, the agreement does not preclude the former owner, The Carlyle Group, from appealing interest and attorney fees, nor does it stop Liberty from appealing a Montana Supreme Court ruling on property taxes.

The city also reserves its right to pursue appropriate claims against Carlyle.

“It ends everything that is pending in District Court right now,” said Natasha Jones, an attorney representing the city in the case. “What is left are reserved claims by The Carlyle Group, and those will proceed to the Montana Supreme Court for eventual resolution on interest, attorney fees and taxes.”

Jones said she is confident the city will prevail before the state's high court.

“We're highly confident in the outcome of the Supreme Court and believe the result will be similar, in that every time this case has been presented to the Supreme Court, the court has been favorable to the city,” Jones said.

The settlement agreement includes $93.2 million to cover acquisition and other costs. Of that, Mountain Water will receive $83.8 million for the purchase while area developers who invested in the system will receive $6.8 million.

An additional $1.1 million will be placed in escrow to cover Carlyle's attorney fees – an amount the global equity firm is protesting before the state's high court. Other fees cover additional aspects of the deal.

“What Liberty has agreed to do is assist the city as we transition ownership,” Jones said. “That's everything from the telephone services in place, billing, and setting up the city's own independent customer service and billing software system,” Jones said.

That agreement will last for 60 days following possession, which is expected to take place around June 22. The city's attorneys plan to file motions in Missoula District Court on Friday to get the court's approval on the agreement and close the case.

The City Council also approved two separate bond resolutions in a principal amount not to exceed $140 million. That includes roughly $2.9 million to cover any unexpected litigation costs in the event Carlyle prevails before the Supreme Court, and the cost of future capital improvements to the system.

In a statement delivered before Thursday's hearing, Engen maintained that Carlyle had long neglected the system, shifting profits back to corporate stock holders instead of investing in the utility.

As it stands, he said, the system needs $100 million in investments to bring it back to industry standards. He said the city will make such investments as the new owner of Missoula Water.

“Because of public ownership, and the commitment to raise rates only when necessary to operate and improve the system in the public interest, those investments will be made over time,” Engen said. “The system will operate to the appropriate standards, and the public will be served for generations to come by local, accountable elected governance.”

Contact reporter Martin Kidston at info@missoulacurrent.com