Missoula mayor's support of Mountain Water sale draws scrutiny - The Missoulian
Despite his undeniable popularity, Mayor John Engen appears to be directly at odds with his constituents in throwing his support to the proposed sale of Mountain Water Co. to The Carlyle Group.
On Tuesday, the second and final day of the Montana Public Service Commission hearing on the deal, Commissioner John Vincent pointed out the breach. The vast majority of the Missoula public testified in opposition to a sale to the global investment firm, he said, yet top elected officials in Missoula support it.
"What do you say to them? What do you say to the people?" Vincent said.
Engen said he understands people don't want a multinational corporation owning Missoula's water system. But the next question is whether people want the city to own it. That answer is yes, and Engen believes a signed letter of agreement among the city, Carlyle, and the Clark Fork Coalition gives Missoula that chance.
"I think the majority of the folks I serve in the city of Missoula support the sale if - and here's the if - if this agreement has real weight," Engen said. "I think it does."
The mayor knows the letter isn't as much security as some people want, even as much as some commissioners might want. But he believes it's Missoula's best shot, and he has faith Carlyle and its lawyers will heed it.
"This is difficult for a number of my constituents to believe. I trust Robert Dove in this matter," Engen said of the Carlyle Group managing director. "I trust that what we have is an agreement he will honor, that Carlyle will honor."
***
On Tuesday, commissioners heard testimony about whether Missoula water customers would see rate hikes, the best way to protect Mountain Water from being leveraged for other Carlyle interests, and the security of jobs at Mountain Water.
Both Monday and Tuesday, testimony covered that letter of agreement among the city of Missoula, the Clark Fork Coalition and Carlyle. The letter intends to give the city first dibs on any Carlyle sale of Mountain Water in the future and give the coalition assurance local water will remain in Missoula.
Maybe most important given the many comments from residents calling for municipal acquisition, the letter also was meant to make public ownership a moot point before the Public Service Commission. It means the city and the water watchdog coalition back the pending deal.
On Tuesday, Dove said he met before the hearing with Mountain Water employees, who are concerned he is selling out the business to the mayor. He told them that's not the case; rather, Dove said he signed the agreement so a sale to the city is "off the table at this hearing."
In the letter, Carlyle agrees to consider offers from Missoula "in good faith," and Monday, Commissioner Travis Kavulla pressed Dove on the weight of that language. Carlyle attorney Thorvald Nelson advised Dove against answering the legal question. Dove did so anyway, but it remained clear the phrase is open to interpretation.
Kavulla was absent on Tuesday, and witnesses who signed that letter said it wasn't perfect, but it was a beginning. Engen said he wants to follow up the letter with a more detailed contract with Carlyle, but before the letter, he believed a sale to the city was impossible.
"I believe that this document gets us somewhere between possible and probable," Engen said.
***
One obvious concern among people in Missoula is that any sale will bring on rate hikes.
Indeed, in earlier testimony, economist John Wilson concluded Mountain Water customers could be harmed with large increases in their water rates in the deal. But since then, Wilson, who testified on behalf of the Montana Consumer Counsel, was able to review Carlyle's financial model.
Under questioning from Commissioner Gail Gutsche, who represents Missoula, Wilson said his concern was "somewhat mitigated."
"The financial model does incorporate additional capital investments, but those additional capital investments are not dramatically larger than what Park and Mountain Water have been doing historically," Wilson said. "They are somewhat larger. But there isn't, for example, any massive replacement of mains policy. It's just not there."
If anything, Wilson said he believes Carlyle's model errs on the side of being aggressive in the returns its investors might actually see. He said Carlyle will make its big money on the deal when it sells off the water company.
"The major components of that expected return are the anticipated resale price at the time of exit. I think that's probably the biggest one. And also some payment of dividends over time prior to exit," Wilson said.
***
Should commissioners agree to a sale, Wilson also urged them to restrict Mountain Water assets for the Missoula water utility, or to "ring fence." He said protecting the financial integrity of the Missoula system and guarding it from being leveraged for investments outside Missoula is particularly important with Carlyle, whose expertise is in finding capital.
"I don't think you want to be in a position of permitting the use of Mountain Water assets, Mountain Water facilities, as collateral for future financings that are then used by an upstream entity to buy a turnpike in Oregon or to buy another water company in California," said Wilson.
Keeping the value of the company intact is especially important to a party - in this case the city of Missoula - wanting to acquire the company, Wilson said: "If I had a right to acquire an asset, I'd want to make sure that asset was going to be reasonably protected and preserved during the time over which my right extended."
Such conditions put the phrase "trust but verify" into action, and they also are meant to deal with the unforeseen, Wilson said. If Carlyle Infrastructure goes south, in other words, Mountain Water remains unhurt.
Mountain Water's John Kappes said the company would agree to some such provisions, but not all the ones the Consumer Counsel recommends.
***
At the hearing, Commissioner Vincent tried to get some assurance that Mountain Water employees will retain their salaries and benefits in a sale to the Carlyle Group. He asked if Dove would offer "legally binding" protections.
Dove said he believes Mountain Water employees are more concerned about city ownership than a Carlyle acquisition. But he said he would be willing to provide some assurance, depending on the format.
"I feel I have a great relationship with the employees of Mountain Water today. I think they trust me," Dove said.
Carlyle lawyer Nelson, though, cautioned Public Service commissioners against getting too far into the management weeds - and afield of their role as regulators.
"To try to inject the commission to say that at one point in time this business must preserve a set of salaries or a set of benefits is frankly bad public policy, and that ought to be an issue that's left up to the management of the company to decide subject to the assurances Mr. Dove has already provided," Nelson said.
***
Parties in the case will file final briefs Oct. 18, and Commissioner Gutsche said she must reserve judgment until all testimony is in. She expects the PSC will issue a ruling either late this year or early in 2012.
Mountain Water noted in the public hearing it will appeal a rejection of the sale. And in closing statements, Clark Fork Coalition lawyer Barbara Hall asked the PSC to approve the sale given the much-discussed letter of agreement the coalition and city believe will usher in a locally owned water company for Missoula.
"It seems the community of Missoula is once again at a critical juncture in our struggle to gain control of our water, our most precious resource," Hall said.
Reporter Keila Szpaller can be reached at @KeilaSzpaller, 523-5262, keila.szpaller@missoulian.com or on MissoulaRedTape.com.
28 Sep, 2011--
Source: http://news.google.com/news/url?sa=t&fd=R&usg=AFQjCNGhtsKEL8qTjIiTfwNRwvhjr_jfOA&url=http://missoulian.com/news/local/article_bfcdcabc-e983-11e0-a010-001cc4c03286.html
~
Manage subscription | Powered by rssforward.com
