Mountain Water Company: Next Steps

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Local Water - Local Ownership

Last December, the Montana PSC voted 3-2 to approve the sale of Missoula's water utility, Mountain Water Company, to the Carlyle Group.

We believe public ownership of Mountain Water is the best way to support Missoula's irreplaceable water resources and our need for clean, safe, affordable, and reliable water far into the future. Between the stipulations in an agreement between Clark Fork Coalition, the City of Missoula, and Carlyle, as well as PSC's regulatory authority to protect the public and Montana's strong water laws, there are safety mechanisms in place to ensure Carlyle is a responsible stepping stone on the path to public ownership. We believe this sale is the best option for achieving City ownership of our water utility.

For a full explanation of the CFC position, download the CFC Post-Hearing Brief 10/31/11.

This sale is a once-in-a-century opportunity for the people of Missoula to control their own precious water. Between the stipulations in the September 22nd agreement between CFC, the City and Carlyle, PSC's regulatory authority to protect the public, and Montana's strong water laws, there are safety mechanims in place to ensure Carlyle is a responsible stepping stone on the path to public ownership. The three-way agreement gives CFC assurances that the Rattlesnake is safe, Missoula’s water stays home, and the people of Missoula have a legitimate shot at becoming the next owner of the water.

Next steps: PSC approved the sale 3-2 on December 13, 2011. When you're out in the community, we hope you'll help CFC relate these important facts on the sale:

1. The PSC cannot order Mountain Water to be sold to the City at this time.

2. The current owner was not willing to sell to the City.

3. Carlyle is willing to sell to the City.

4. The agreement signed by the CFC, the City, and Carlyle gives assurances that #3 will happen.

The PSC held a public hearing September 26-27, 2011 in Missoula. Check out the in-depth Missoulian series, or view TV coverage from KECI here.

VIEW archive video of the hearing from MCAT.

Want to read more about the Coalition's position, view our data requests to Carlyle Group and Mountain Water Co., or view the testimony we've submitted to the PSC? Download the documents below:

Final Order 12/14/11

CFC Post-Hearing Brief 10/31/11

CFC Responses to PSC Data Requests 8/17/11

CFC Responses to PSC 051-055

Additional Issue Testimony of Karen Knudsen

Testimony of Charles Rial

CFC Data Request 047 to MWC

CFC Data Requests to Carlyle

CFC Data Requests to Mountain Water Co.

Download Executive Director Karen Knudsen's recent KUFM commentary on the Mountain Water sale

What's happened to-date:

>> Mountain Water is a privately owned water utility that provides drinking water to 50,000 Missoula-area residents, and owns water rights to tap the aquifer and to use Rattlesnake Creek water.

>> The company plans to sell to the Carlyle Group, the world’s largest private investment firm.

>> In June, the Montana Public Service Commission (PSC) decided it will review this sale.

>> The Coalition asked for and received intervenor status in April to give Missoula citizens a voice in who owns and manages an aquifer and a watershed that are essential to our livelihoods. Other intervenors in the case are the Montana Consumer Counsel, the City of Missoula, and the Carlyle Group.

>> As an intervenor, the Coalition spent the past 4 months vetting the sale. We consulted with financial experts and attorneys to review Carlyle's intentions for the water utility:

> Our main concern is that Carlyle will be the first in a series of short-term investment buyers with short-term planning horizons, managing the community’s drinking water system and aquatic assets primarily to earn money for investors.

> This type of “revolving door” ownership scenario introduces uncertainty and risk, and hinders long-range planning and management, which are essential for ensuring Missoula has clean, safe, reliable, and affordable drinking water into the future.

> The Coalition believes that better results for consumers and Missoula’s irreplaceable water resources could be achieved under municipal ownership, with City government’s deep roots in the community, its long-range view, its track record of community service, and its accountability mechanisms that put the common good at the forefront.

>> Given the fact that Park Water (Mountain Water's parent company) will not sell the utility to the City of Missoula, the Coalition believes this sale will give the community the means of progressing toward municipal ownership of our water.

>> Over 200 local businesses have joined us to ask the PSC to set a course toward public ownership of our drinking water.

>> The Coalition, the City, and Carlyle signed a settlement agreement on September 22nd that: 1) ensures Missoula's water will stay in the watershed, 2) ensures Rattlesnake Creek water rights will only be used as emergency back-up supply, and 3) gives the City the chance to make an offer on Mountain Water at any time, and 120 days to make an offer when the utility (or any of its parts) is sold by Carlyle.

>> The PSC public hearing was held September 26-27 in Missoula, with testimony from Carlyle, the Montana Consumer Counsel, the City of Missoula, and the Clark Fork Coalition. Dozens of citizens also submitted public comment.

>> On December 13, 2011, the PSC voted 3-2 to approve the sale of Mountain Water to the Carlyle Group.

Our goal: A chance for Missoula to own its water supply

We believe public ownership of our drinking water utility in Missoula would better support dependable management of our water supply far into the future. Municipal governments around the state have shown great stewardship of water resources through their management of publicly owned water systems-- and the City of Missoula, an experienced utility operator, would demonstrate similar stewardship. We're working to help put the City of Missoula on the path to public ownership of its water resources.

Unfortunately, Mountain Water’s current owner will not entertain an offer from the City. However, we believe that-- if properly structured-- the sale to Carlyle could provide a “stepping stone” on the path toward municipal ownership of Missoula’s water system. Missoula Mayor John Engen made a convincing case for publicly owned water in a Missoulian guest column recently– you can read it here.

During the PSC’s review of the sale of Mountain Water, we have urged the Commission to find the best possible result for the Missoula community and its irreplaceable water resources.

Mountain Water Company FAQ

When news broke in December that Mountain Water was in the process of being sold to The Carlyle Group, our phones started ringing with questions from concerned members about what Missoula’s water future might hold. We've consolidated some of the most frequently-asked questions about the players and the asset for sale to give members a general idea of the knowns, the unknowns, and the issues at stake.

Q: Is Mountain Water Co. privately owned? Yes. Sam Wheeler, a resident of California, bought the utility from Montana Power Co. in 1979 for $7.5 million. Wheeler and his adult-age children also are majority owners of two water utilities in southern California. The three utilities together make up Park Water Co.

Q: How do Missoula’s water rates compare? Missoulians pay on average some of the highest water rates in the state. Metered water users pay an average of $46 per month. That contrasts with Billings, where the average water user pays $22.42 per month, and Helena, where bills typically run $31. These cities have municipally-owned water utilities. Missoula is the only major Montana city that does not own its own water system.

Q: How many people does the sale affect? Mountain Water Co. provides water to about 55,000 Missoula residents and businesses.

Q: Has Mountain Water ever been owned by the public? No. The City of Missoula—which was first founded in the 1860s as a trading post—has never owned its own water system. In 1871 “One-Eyed” Riley hauled water door-to-door on a donkey. Pipes and mains followed, and the system changed hands about half a dozen times over the years. Past owners include: C.P. Higgins and Frank Worden, the Missoula Mercantile Co., Copper King W.A. Clark, Missoula Light and Water, Montana Power Co., and Sam Wheeler. The City has mounted campaigns for public ownership in the past, with former mayors championing the idea that a municipally-owned utility would maintain a better system, deliver superior service, and charge cheaper rates. The best-known run at public ownership was in 1985 when the City attempted to use the condemnation process. Mountain Water challenged the action, with the Montana Supreme Court ruling in favor of the company.

Q: What makes Mountain Water Co an attractive investment for private-equity firms like the Carlyle Group? Mountain Water, like most regulated water utilities, holds a monopoly over water service in the Missoula area and is guaranteed a stable rate of return. With Mountain Water’s recently-approved 8.77% rate increase, it will be guaranteed a 10% rate of return. The company also claims to have a right to pump from the aquifer or divert from Rattlesnake Creek somewhere between 60% and 80% more water than it now uses. While Missoula’s aquifer does hold an abundance of water, new water rights are in short supply and are difficult to come by. If water is indeed the oil of the 21st century, then an investment in a water utility like Mountain Water makes a lot of sense.

Q: Who is The Carlyle Group? The Carlyle Group is the world’s largest private investment firm, with nearly $150 billion in assets and offices in 19 countries. Established in 1987, Carlyle holds a diverse portfolio in a wide range of sectors, including aerospace, defense, energy, transportation, healthcare, and technology. It does not hold any water utilities. The Mountain Water purchase (along with Sam Wheeler’s two California utilities) would be its first foray into the water industry.

Q: What are the CFC's major concerns? At the Coalition, we’re invested in all aspects of clean water—and we want to ensure that Missoulians have access to clean, reliable, and affordable drinking water as our community continues to grow. So, this potential transfer of ownership to Carlyle has us asking a lot of questions. What does this global firm plan to do about the current 40% leakage rate in the system? Does Carlyle view our aquifer as an asset to “flip” in another 5 years? What is the group planning to do with the water rights it will inherit on Miller Creek, Rattlesnake Creek, and eight wilderness lakes? Are there other potential corporate buyers in line behind Carlyle?

Q: How long would a group like Carlyle be invested in Missoula’s water? It’s hard to know. But what we do know is that Carlyle’s goal is to create value and generate superior returns with their investments. Their asset managers typically hold companies for about three to seven years before selling them.

Q: In buying Mountain Water, what would a new owner get? Mountain Water owns water infrastructure, as well as rights to water resources in the Missoula Valley and Rattlesnake Creek and Miller Creek watersheds. In terms of the physical system, Mountain Water’s assets include 37 wells, 47 boosters for disinfection, and 24 storage facilities, with a total capacity 9,344,000 gallons. Mountain Water also holds the majority of senior water rights and storage rights to 8 lakes in the Rattlesnake Creek watershed. They sit in a glacial moraine 12 miles north of downtown Missoula and hold a combined total of 785 million gallons. The Rattlesnake used to be Missoula’s primary water supply until giardia turned up in the creek in 1983. Now, it is considered the emergency back-up, although the company says it is studying its options for treating Rattlesnake water and reintroducing it as a viable supply.

Q. What is the condition of the water system? Mountain Water’s pipes have an estimated 40% leak rate, meaning that two gallons of every 5 pulled out of the aquifer never reach their intended destination. Compared to other water utilities around the country, this leakage rate is extremely high and ultimately uses more energy and costs ratepayers more money. The company says at least half of the water leaked is flowing out of pipes that consumers are responsible for maintaining—namely those that connect the house to the main. Mountain Water also says an aggressive infrastructure overhaul is difficult to do because it would require substantial rate hikes to fund.

In The News: The Mountain Water Sale

Missoulian article 12/13/11: PSC approves sale of Missoula's drinking water to Carlyle Group

Missoulian article 12/9/11:PSC staff recommends approval of Mountain Water sale to Carlyle Group

Missoulian extensive in-depth series 9/22-9/26: 'Selling Missoula's Water"

Missoulian 8/22: Carlyle Group: PSC's 'additional issues' in Mountain Water sale 'unreasonable'

Missoulian 8/11: Mountain Water Co: Public speaks out in favor of city bid for utility

KECI Missoula: PSC Testimony On Water Utility Raises Concerns About Carlyle Buy

Missoulian 8/2: Witness says Carlyle Group has future plans to sell Mountain Water Co.

Missoulian 7/18: Mayor Engen's recent op-ed from 7/18/11.

Missoulian 6/22/2011: "Mountain Water Sale: PSC Demands More Information on Buyer"

Missoulian 3/23/2011: "Clark Fork Coalition Granted Intervenor Status in Mountain Water Sale"

Missoulian 3/21/2011: "Clark Fork Coalition Fights for Intervenor Status on Mountain Water Co. Sale"