PSC not authorized to regulate private utility sale, Mountain Water says

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By Martin Kidston/MISSOULA CURRENT

The sale of Western Water Holdings to Liberty Utilities Co. was beyond the jurisdiction of the Montana Public Service Commission, which is limited to regulating transactions between public utilities, Mountain Water Co. contends.

In comments submitted this week to the PSC, Mountain Water argues that a deal struck between Western Water and Liberty represents a private transaction and, therefore, is not subject to PSC approval.

“The Commission’s jurisdiction is expressly limited to the supervision and regulation of public utilities in Montana,” the company said. “The statutory definition of a public utility does not include individuals or entities owning public utilities in Montana. As a result, the commission’s jurisdiction does not extend to an out-of-state transaction involving only out-of-state entities.”

Last month, the PSC said it was surprised to learn that Liberty had purchased Mountain Water without the commission’s review or approval. In response to the announcement, the commission sought comments from several parties, including the city of Missoula and those involved in the out-of-state purchase.

In comments submitted through the law firm Holland and Hart, Mountain Water said further PSC action is unnecessary since the sale of Western Water stock has no impact on the ownership of Mountain Water and its assets.

The company also said the transfer will have “no impact on the rates Mountain Water is authorized to charge its customers,” adding that it won’t “increase the risk that Mountain Water’s customer will receive inadequate service.”

“We also want to make it clear that Mountain Water was regulated before this and we’ll still be regulated after this,” Mountain Water President John Kappas said Thursday. “Nothing has really changed. We’re still regulated for rates and services. Nothing in this transaction – the acquisition costs – will result in increases to the customer.”

During the valuation hearing last November, Robert Dove, managing director of The Carlyle Group, said nine top-level executives of Carlyle and its three utilities, including Mountain Water, would receive special stock in the utility’s sale, with the reward increasing the higher the sale price.

Kappas said the stock reward has not influenced his opinion about the sale to Liberty or the way he plans to run the utility under Liberty’s ownership.

“What I was charged with was to have a utility that continued to serve this city good water service,” he said. “I stayed around for the future owner (Liberty). I wanted to make sure the future owner and us were on the same page. Liberty is allowing us to do that. They believe in local, responsive and caring service. They’re leaving local decisions at the local level.”

Liberty also submitted comments this week, saying it “fully understands and respects” the PSC’s jurisdiction to regulate Mountain Water’s rates and service. As the utility’s long-term owner, Liberty said, it intends to maintain “a constructive relationship of mutual respect” with the PSC.

Like Mountain Water, Liberty said it sought the PSC’s approval for the sale in good faith. Liberty said it devoted considerable resources in an effort to participate in the commission’s review process.

But that process saw the PSC’s proceedings delayed several times for various reasons, including the city of Missoula’s successful effort to stay the review while it worked to acquire Mountain Water through condemnation.

“The District Court’s stay placed the (application) in regulatory limbo and created significant risk for the overall transaction,” Liberty said in its comments. “In light of the stay, as well as the City’s litigation tactics, it became doubtful that the commission would be able to review the (application) in a manner that would allow timely closing of the transaction.”

In light of the stay, Liberty withdrew its application and closed the deal with Western Water. It said the change in ownership will not change local service.

“That change in upstream ownership does not affect Mountain Water’s assets or the water utility services it provides to the people of Missoula,” Liberty wrote. “Mountain Water will continue to operate ‘as is’ in providing water service to customers utilizing the same employees, using the same local management and using the same utility assets and facilities.”

The PSC is scheduled to discuss the comments at a work session planned Friday afternoon.

In another turn in the case, the Montana Supreme Court agreed Wednesday to hear oral arguments in Mountain Water’s appeal of a District Court ruling on necessity in the condemnation case that occurred last June.

Kappas said he welcomed the chance to present Mountain Water’s case.

“The Supreme Court does not hear oral arguments on every case that it takes up.,” he said. “Despite the efforts by city officials to paint themselves as the inevitable future owners of the water system, we believe this opportunity allows us to highlight the legitimate questions in our appeal.”

Missoula Mayor John Engen said the city was also looking forward to oral arguments.