Two years and $14 million later, Missoula wins right to buy Mountain Water

Missoula mayor John Engen atop Water Works Hill

Missoula mayor John Engen atop Water Works Hill

On Tuesday afternoon, the Montana Supreme Court upheld a district court decision forcing the sale of Mountain Water to the city of Missoula by eminent domain. It was the culmination of a fight that has lasted almost two years, beginning when the city offered multinational private equity fund The Carlyle Group $50 million for our water system in 2014. After Carlyle refused and Missoula started preparing its eminent-domain suit, the city estimated the total legal cost of condemnation at $400,000. As of this writing, we’ve spent $6 million, and we’ll likely be held liable for Carlyle’s $8 million in legal costs, too. But the important thing is we bought the water company—not for the $50 million we considered a fair price in 2014, but for $88.6 million. But we won, and Mountain Water is a good deal at any price, as the mayor expressed in this tweet yesterday:

That’s kind of infuriating. At a City Club forum in January of last year, before the value of Mountain Water had been established by a district court, I asked city council members at what threshold the purchase price of the water company would no longer save ratepayers money over the life of a 20-year bond. They didn’t know. The city had not run the numbers to determine at what point Mountain Water stopped being a good deal. Fifty million was a good price, apparently, and $50 billion would be too much. But within that range, no one could say exactly where a smart investment would turn dumb. Then-Councilman Adam Hertz said no such detailed financial analysis was available.

Engen insists this deal will save ratepayers money, and he admonishes us to study before we tweet. But he did not study before he embarked on the largest purchase in Missoula’s history. His insistence that those who criticize him base their arguments on careful examination of the numbers ignores the fact that he committed to this plan without studying those numbers himself. It’s a bad look, and so is the lawsuit alleging that the $8 million Carlyle spent on legal defenses was excessive. The city is going over Carlyle’s expenses with a fine-toothed comb, looking out for taxpayer dollars in the matter of dinner at Hooters, for example, when it overshot its own estimated legal bill by 1400 percent. You can read all about it in this week’s column for the Missoula Independent.

I’m glad we won City of Missoula v. Mountain Water. It will be good for this town to own its water system. But I don’t know whether it will be good for ratepayers to have bought it for $89 million plus $14 million instead of $50 million. Apparently, neither does anyone in city government. That’s the problem. The city didn’t perform its due diligence on this deal, and now we have committed to a massive investment that may or may not save us money over the next two decades. It doesn’t matter. We just did it.

What is the Carlyle Group doing with our water company?

The Mountain Water Company (artist's conception)

The Mountain Water Company (artist’s conception)

If you do not live in Missoula, you may be but dimly aware of the city’s struggle to buy the Mountain Water company. In June, Judge Karen Townsend ordered The Carlyle Group to sell the town’s water infrastructure to the City of Missoula as eminent domain. It was valued at $88.6 million, a number the city briefly appealed before withdrawing on January 6. On January 11, Liberty Utilities announced that it had finalized purchase of Mountain Water, along with two other water works in California, by purchasing its parent company, Park Water.

Ordered to sell Mountain Water to the city of Missoula six months ago, Carlyle just sold it to somebody else. The move took everyone by surprise, including the city and the Montana Public Services commission. The PSC has to approve every utility sale in the state, and they didn’t approve this one. But Liberty utilities has reserved the right to “raise jurisdictional issues” if the PSC tries to overturn the deal. Because Liberty acquired it in an “upstream transaction,” Mountain Water still has the same owner: Park Water. It’s just that Park Water is now owned by Liberty Utilities instead of the Carlyle Group.

So now the City of Missoula still buys Mountain Water from Park Water for $88.6 million, right? Liberty just deposits the check instead of Carlyle. Maybe—unless the Montana Supreme Court finds for Carlyle in its appeal of the eminent-domain condemnation, and as long as the PSC doesn’t make Mountain Water the object of an interstate lawsuit among two regulatory agencies and a hedge fund, and as long as Liberty doesn’t add any new lawsuits of its own.

The city will have to hire lawyers to represent its interests in all these cases. So far, our bill for this process comes to $4 million. That’s 5% of the purchase price. At want point does the cost of doing business exceed our willingness to buy? If the answer is never, Carlyle can easily take us into deep water.

The Carlyle Group took in $962 million of revenue in 2014. It’s possible Mountain Water has generated more income during than it cost to keep it tied up in court. There are a lot of reasons to interpret the multinational equity fund’s bizarre move last week as part of a war of attrition. You can read all about ’em in this week’s column for the Missoula Independent.

This quagmire is becoming a boondoggle. If you’re just catching up to this story, now is a good time to jump in. The Indy’s own Kate Whittle wrote this handy explainer describing the chronology and salient issues in the case. We’ll be back tomorrow with Friday links!