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Missoula, Carlyle Group Must Now Negotiate Mountain Water Price

Mountain Water Company, Missoula, MT.
Cheri Trusler
Mountain Water Company, Missoula, MT.

Missoula's mayor says he's glad a judge agrees with the city that public ownership of the local water utility is better than private ownership. But John Engen says there’s still a lot of work to be done , not the least of which is determining a fair price for Mountain Water Company."And we will do so with humility and diligence," says Mayor Engen.

District Judge Karen Townsend ruled this week the city of Missoula did prove that its plan for a city-owned water system is more necessary than its current use as a private, for-profit enterprise.

Mountain Water is currently owned by global equity firm, The Carlyle Group.

Carlyle rejected the city's previous offers to buy the utility for $65-million and $50-million. The company has suggested Mountain Water is worth up to $126-million.

Natasha Jones is part of the legal team representing the city of Missoula in this case. Jones describes the order as "thorough and well-reasoned". She adds she was particularly pleased Townsend noted:

"That the priorities of a municipality do not change over time. They don't change with investors, with markets, with profit motivations. That to me was a very important part of her order," Jones said.

Carlyle now has 30 days to present to Missoula what it believes to be just compensation - a price tag - for Mountain Water. The city then has 20 days to respond. If no agreement can be hashed out after those 50 days, a three-member panel is appointed to help reach a negotiated settlement.

"The door is open if Carlyle would like to negotiate a purchase, we're happy to have that conversation," says Mayor Engen. "In the meantime we're going to continue to do what the court has set in motion here and that is pursue acquisition through condemnation."

Engen offered these words of reassurance to Mountain Water employees:

"These are people we want working for the city of Missoula. And we also believe, based on what we know they're paid, that we can pay them what they're getting paid today. We've made a commitment to doing our best to make these folks whole and to keep them employed. That's a promise I made a long time ago and I continued to deliver it. In fact, I delivered it under oath in district court in Missoula Montana."

Mountain Water president John Kappes declined our request for a taped interview, but did provide this written comment.

"We obviously disagree with the ruling of the court. We will review the decision and then proceed to take the next steps to exercise our constitutional rights as private property owners in Montana. In the meantime, we will continue to provide our customers with high quality water service as we have for over 130 years."

Mountain Water’s parent company, The Carlyle Group, hasn’t said whether they’ll appeal the ruling. They declined our request for comment for this story.

Missoula Mayor Engen says the city continues developing and refining its plan for fixing Mountain Water's leaky underground pipes. He doesn't yet know what that could cost.

"We have to know what we're paying for the system, right? So we have to understand what our debt service is in order to understand what our capital program looks like.  There are variables at play there," Engen says.

This case so far has cost the city over over $3 million in legal fees. According to Engen, the costs shouldn't affect rate-payers.

"We will be able to roll this into the larger acquisition costs, so there should be no tax implication for anyone. Nor do we believe, based on our analysis, that there should be a rate implication for rate-payers in the system."

Attorney Natasha Jones  points out it will require tens of millions of dollars to fix the the utility's leaky underground pipes.

"The Court specifically addressed the fact that it comes down to whether the fix comes at cost plus profit, or just cost to our citizens." 

Jones concedes Carlyle may choose to appeal, but is confident that Judge Townsend's ruling  will - as she puts it - "be well received by the Montana Supreme Court.".

Edward O’Brien first landed at Montana Public Radio three decades ago as a news intern while attending the UM School of Journalism. He covers a wide range of stories from around the state.  
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