The world's second largest private investment firm may soon control the water flowing through Missoula's taps.
The Carlyle Group, which holds $97.7 billion worth of assets in countries across the globe, announced Dec. 22 that it intends to purchase Park Water Co., the parent company of Missoula's water supplier, Mountain Water Co. The unexpected news has city officials, citizens and policy experts wary of the acquisition's trickle-down effects.
"It would be naive to assume, 'Hey, this company is going to come in, and they're going to fix up our water system," says Peter Nielsen, supervisor of the Missoula City-County Health Department's Environmental Health Division.
If approved by regulators, the deal will mark Carlyle's first foray into the municipal water business. Since its inception in 1987, the Carlyle Group has invested in myriad industries including health care, defense and housing. The company owns a stake in several big-name name brands such as Dunkin' Donuts, Hertz Rent-a-Car and Baskin-Robbins. Carlyle has employed political heavyweights like former U.S. President George Herbert Walker Bush and his secretary of state, James Baker, along with British Prime Minister John Major.
In 2009, state pension funds constituted 37 percent of Carlyle's incoming investment capital. The California Public Employees Retirement System owns 5.1-percent of Carlyle, while Mubadala Development Company, owned by the government of Abu Dhabi in the United Arab Emirates, owns a 7.5-percent stake. The Saudi family of Osama bin Laden had financial ties with the Carlyle Group before severing them shortly after 9/11.
Carlyle's acquisition would mark the second recent investment in American water infrastructure by a private equity company. JP Morgan Chase & Co. last March signed off on a $275 million deal to purchase SouthWest Water Company.
"Privatization of water is a trend that's on a national and global level causing quite a bit of concern," says Nielsen, who before joining the health department 19 years ago served as executive director for the nonprofit Clark Fork Coalition.
Commoditizing such an essential resource doesn't sit well with Nielsen, who points out that when other necessities become more expensive, like wheat, for example, people can switch to a different grain. However, when water rates go up, there's no substitute.
"You really can't slash your water use in half," he says. "When rates do go really high, that affects health."
Concerns about Carlyle's influence over the utility are prompting Nielsen and other city officials to call on the Montana Public Service Commission (PSC) to aggressively vet the firm before signing off on any deal. But PSC has indicated that it doesn't yet know if it will have regulatory oversight because Park Water is based in California.
"It's possible that the company could argue that the PSC doesn't have jurisdiction," says PSC Attorney Justin Kraske.
If the PSC does exert jurisdiction, the agency will hold a series of public meetings to allow Missoulians the chance to discuss the purchase before it's finalized.
"We really are depending on the Public service Commission to regulate it," Nielsen says.
Missoula is the only major Montana city that doesn't own its water system, and its residents pay on average some of the highest rates in the state—$44.30 per month. That contrasts with Billings, where the average water user pays $37 per month, and Helena, where bills typically run $31.
Though Missoula pays more, Mountain Water Co.'s pipes are notoriously inefficient. According to the Montana Consumer Counsel, roughly 20 percent of water flowing through Mountain Water's lines is wasted due to leakage.
Missoula City Councilman Jason Wiener says high prices and inefficiencies can largely be blamed on the fact that the company is focused on generating profit, rather than sufficiently reinvesting into the system.
"This company is basically a cash cow at the expense of Missoulians," Wiener says.
Wiener now worries that a global equity company setting up shop in the Garden City will look for ways to bring home an even greater return on its investment, exacerbating Missoula's already compromised water supply system.
The frustrations aren't new. City officials have for decades coveted the utility, wanting to exert municipal ownership over and improve the local water system. Missoula even filed a lawsuit in the 1980s attempting to force sale of Mountain Water Co. The case made it to the Montana Supreme Court, where in 1989 the court sided with Mountain Water, refusing to force a sale. Then and now, decision makers have argued that locals would be best served by owning their own utility.
"I believe that local government ought to control its utilities," says Missoula Mayor John Engen. "When you have a privately held company whose primary concern is a return on investment, that's a much different priority than municipal goals."
Park Water never approached the city before announcing its plans to sell to Carlyle. Mountain Water Co.'s Vice President and General Manager Arvid Hiller says that's because company ownership wanted to sell to a large company with deep pockets. Hiller, a 31-year Mountain Water Co. veteran, says Carlyle's deep pockets are reassuring. The company's resources, Hiller says, indicate to him that it has the means to make necessary infrastructure improvements as needs arise.
"I think this is as good as an alternative for the water situation as you could look for," Hiller says. "The investor-owned utility operates on a whole different level."
Meanwhile, Carlyle spokesman Christopher Ullman says the company has no intention of eliminating staff or cutting corners.
"Carlyle believes Mountain Water is a well-managed company with terrific employees," he says. "(It) does not intend to make any changes."