Despite operating at the reduced rates imposed on Mountain Water by the Montana Public Service Commission several years ago, the city of Missoula has been able to acquire, operate and improve the water system over the past year, and it doesn’t foresee any rate increases, city officials said Wednesday.
At the same time, the city continues to pay legal bills related to three outstanding court cases as the utility’s former owner, the Carlyle Group, appeals several District Court rulings related to attorney fees, interest and property taxes.
“We reserved $25 million for potential additional claims related to interest of the acquisition, attorney fees and property taxes,” said city CAO Dale Bickell. “They’re in a separate account. As we wind down this litigation, these will go away.”
Bickell joined the city’s legal representative and public works employees to offer members of the City Council an update on the utility’s transition under public ownership.
While the legal matters wind their way through various courts, the city continues to make upgrades to the system, from pump improvements to water meters. Several million dollars in capital improvements are planned over the coming year, including the extension of new mains and the replacement of leaking water lines.
“The former Mountain Water employees hit the ground running once they had a new employer who was willing to put some money into the system,” said John Wilson, the city’s public works director. “We’re on track to do about $6.5 million of capital improvements. You’re going to see construction throughout the summer and fall all throughout town.”
As the utility evolves from private to public ownership, Missoula Water has made note of needed policy changes, including an assistance program to help residents replace leaking service lines and a move to a fully metered system.
Changes could also alter water main extension agreements, marking a change from how Mountain Water funded infrastructure to feed new development projects. A rate study for all city utilities is also underway, Wilson said.
“The water facility plan should be completed in late summer or early fall,” Wilson said. “Once it’s completed, we’ll be able to complete the rate study. We don’t have any plans for a rate increase, but we’re going to take a look at the cost of service and make sure we’re distributing the rates equitably to reflect the service people receive.”
The cost of acquiring the water system and making improvements remains within the city’s estimated financial figures, even as the interest rate on the short-term Series A bond has ticked up in recent weeks from 2.82 percent to 2.98 percent.
Bickell said the 6 percent rate reduction imposed on Mountain Water by the Montana PSC several years ago hasn’t hindered the city’s ability to run the system, and a rate increase isn’t in the works.
“Even at 2011 Mountain Water rates, we’re able to buy the system, pay all our attorney costs, do all that capital improvements in our five-year model, and we’re able to do this under this lower rate,” Bickell said. “We don’t have a rate increase in our five-year model. Right now, we can stand on that rate and do everything we want to accomplish.”
The city’s legal bills sit at $9.2 million while the defendant’s legal bills stand at $3.9 million. With a purchase price of $87 million, the total cost of acquisition remains roughly $104 million.
Other costs, such as a reserve for capital expenditures, cost of issuing debt and capital improvements planned over the first three years – along with that $25 million reserve to pay for any additional legal claims – the bond notes total around $138 million.
Tasha Jones, an attorney who has represented the city in court throughout the acquisition process, remains optimistic that the legal matters are winding down. The city settled with Liberty Utilities last year after it illegally purchased Mountain Water from the Carlyle Group.
“Our settlement agreement covered 99 percent of the litigation,” Jones said. “What was left were these issues controlled by the Carlyle Group. There were a few ancillary matters that Carlyle had continuing control over, and Liberty didn’t have the legal ability to settle those parts of the case.”
Carlyle has appealed several dated court cases, including reimbursement for its attorney fees, interest and property taxes. Those cases should be decided this year.
“We were able to reach an entirely global settlement with Liberty,” Jones said. “We got possession of the system. We’re the owners, and nothing about the pending legal matters will change that.”