Path clears for the Mountain Water takeover. Now about that bill... 

With a recent Montana Supreme Court ruling denying a stalling tactic from Mountain Water, the city of Missoula now has a slightly clearer path to assuming ownership of the utility. On Jan. 26, the Supreme Court opted not to intervene in a district court judge's order that requires Mountain Water to hand over customer and employee data.

City Councilman Bryan von Lossberg says that paves the way for the city to transition smoothly into ownership.

"I was glad to see the ruling," von Lossberg says. "It feels like a dance we've done a few times before."

Even if the Supreme Court had intervened, that wouldn't have changed the fact that Mountain Water lost the city's eminent domain case in August 2016. Von Lossberg suspects that the utility's corporate owner, Liberty Utilities, is directing Mountain Water's continuing opposition to the city.

"There's every reason to be skeptical and wary about the actions that Liberty will take," von Lossberg says.

Aside from legal correspondence, Mountain Water is maintaining silence about the transaction. Michelle Halley, the utility's business administration manager and media contact, says she can't offer further comment on the condemnation process.

"I point to Mountain Water's filings that state our position on these items," Halley says.

Setting condemnation proceedings aside, a bigger question remains on the city's horizon: how much the long-contested utility will cost. A valuation panel determined last year that the utility's fair-market price is $88.6 million. But a group of developers including Edgell Building, Mostad Construction and Shelter West filed suit against Mountain Water and the city in 2015 in judge Leslie Halligan's court, claiming they're collectively owed more than $22 million for investments they made to extend the utility into new subdivisions. If Halligan decides that the valuation panel failed to take those obligations into account, that $22 million could be added to the $88.6 million before a final cost is reached. Halligan's decision is due at any time.

click to enlarge Missoula city officials hope this is the year they can finally take ownership and begin operation of the long-contested water utility—but important financial questions remain unresolved. - PHOTO BY KATE WHITTLE
  • photo by Kate Whittle
  • Missoula city officials hope this is the year they can finally take ownership and begin operation of the long-contested water utility—but important financial questions remain unresolved.

Meanwhile, the city's financial advisers are developing a plan to compensate Mountain Water with a short-term financing package called a "bond anticipation note"a temporary loan tendered in anticipation of a long-term bond replacing it. City Communications Director Ginny Merriam says city staffers are still working out details of the loan, which will be issued by London-based Barclays Financial Services.

Mountain Water has sharply critiqued the city's financing plan. In a letter presented to city council in December, Mountain Water management detailed a laundry list of concerns about the short-term package, comparing the scheme to the sub-prime housing loan crisis of the mid-2000s. "If you can't get the financing you need now, it's a dangerous gamble to buy it on a short-term variable interest rate note today on the hope you can refinance it with traditional long-term fixed rate debt in a few years when interest rates are likely to increase," the letter warns.

The city defends its short-term strategy, which is intended to provide flexibility while the ultimate cost of Mountain Water is still unsettled, according to Merriam. Besides the developers' agreements, the city anticipates discovering additional costs once it takes possession of the utility.

"The amount that we know about the system is only what we learned through going to court about it," Merriam says. "We know it delivers water reliably and has a leakage rate of about 50 percent. In terms of what needs to happen with improvements to the system, the city won't know that until we're allowed to be hands-on with it."

She says the city's financial advisers, including city staffers, Barclays and Minnesota-based consulting firm Springsted, feel confident that in a few years the city will be in a better position to refinance the loan and take on a 30-year financing package. Mayor John Engen has stated that the utility's profits will go toward repaying the loan.

Merriam says she expects the proposed short-term financing package to come before a council committee sometime in mid-February. Von Lossberg says council members are eager to approve a financing plan.

"We're anxious to get back to that point where we've got something to make a decision on and go forward," von Lossberg says. "The sooner the better."

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