Missoula Water Rates to Jump “as High as Double” If Eminent Domain Successful, Says Rate Analyst

Back in 2014, as the City of Missoula was making its case to the public on why it should use eminent domain to obtain the Mountain Water Company, Mayor John Engen told the public that rates would stay the same under city management.

“We have done extensive due diligence on our ability to afford and operate Mountain Water knowing what we know,” said Engen. “We believe that we can afford to operate it through existing rate and we believe that we can pay the debt.”

Leeroy Beeby was the rate analyst for the Montana Public Service Commission that prepared the rates that Mountain Water has used since 2012. Beeby says that if the city obtains Mountain Water Company for the expected $88 million plus legal fees (he rounds to $100 million) that Missoula rate payers will have to pay more for their water.

“It is going to be a healthy increase,” Beeby said. “It could be as high as double if not more. If they have to debt service on $100 million... round that to $3.5 million for debt service alone... plus the expenses of operating where in the situation with private ownership it is about half of that. It is going to be more.”

Beeby says actions by the city after ownership could drive up the rates even more. For example, if the city attempts to plug the leaks in the system as it has inferred it would do, or if the city can't run Mountain Water Company with current employees and equipment and must pay for new employees or infrastructure, or if the legal costs bloom beyond expectations requiring a larger general obligation bond.

One of the arguments that the city has made during the course of its pursuit of Mountain Water Company, is that it will be able to capture the overhead costs and put that money back into infrastructure. However, Beeby says the city’s interest costs alone will outweigh the amount of capturable overhead.

“In this situation, if you take the debt service alone for Mountain Water the debt service is going to be well over 3, 4, 5 million dollars a year,” said Beeby. “If you took $87 million at 3.5% which is probably what your municipal rate is going to be. That money doesn’t stay in community, that goes to the banks. [The banks] are sitting there drooling, literally, because of the commissions of it.”

The City of Missoula’s eminent domain case to obtain Mountain Water Company will be back in court this week when the Montana Supreme Court hears arguments on Friday.

See More of Beeby's Math Behind Missoula Rates