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Did Mountain Water try upping rates to pay back taxes?

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On Oct. 24, the deadline passed for parties to intervene on Mountain Water Co.’s current rate increase proposal before the Montana Public Service Commission (PSC). The private water utility wants to increase its Missoula area fixed fees and metered rates by as much as 16.9 percent on some services in response to rising energy costs and a need to repair infrastructure.

Yet, tax records collected from the Missoula County Treasurer’s Office on that same day show Mountain Water owed Montana $433,985 in back taxes, all delinquent since the end of May. As the PSC prepares to hear the rate increase matter sometime next month, critics wonder whether Mountain Water aimed to heap its tax debt onto ratepayers.

“No,” answers Arvid Hiller, vice president of the utility. “We got our tax statement on [Oct. 24] and it wasn’t reviewed until [Oct. 27]. Much to our chagrin, we, for the first time in 29 years, missed making the payment in May. It was not our intentions or inability that caused this—it was an accounting oversight.”

Hiller attests that the rate increase proposal went to the PSC long before the company knew about its outstanding tax liability. Some consumers remain skeptical.

“That’s quite an accounting error, isn’t it?” says Kathy, a member of the Low-Income Group for Human Treatment and a Missoula business owner who declined to provide her last name. “If I didn’t pay my property taxes, I’m sure a little red light would go off periodically.”

Even without the tax debt issue, the proposed rate increase is likely to draw a great deal of attention when it reaches public hearing. Though increases of this sort pass through the pipe every few years, Mountain Water’s 2008 request proves exceptionally large. Comparatively, the utility’s last application, in 2005, barely topped 10 percent and was then considered a hefty hike.

Meanwhile, Mountain Water customers—about half of Missoula County, according to government officials—already pay some of the highest water rates in the state. The utility’s proposal cites the need for infrastructure repairs and also rising taxes, income and otherwise, as justification for the adjustment beyond the swelling costs of electricity and fossil fuels.

The “otherwise” turned out to be the kicker. The delinquent sum of $433,985, which included more than $24,000 in interest and penalties, came from 2007 property taxes owed the state on Mountain Water parcels within Missoula County. Mountain Water paid the amount due on the afternoon of Oct. 27, hours after the Independent contacted the utility.

Whether or not the utility intended to transfer its debt to ratepayers, that concern appears a moot point now. Mountain Water has a constitutional right to adjust its rates to adapt to changes in the cost of operation, but, in exchange for monopolistic control of area water services, any attempt by the company to draw more revenue from customers passes under the scrutiny of the PSC. With the matter before the board, strict parameters dictate what rate revenue can be applied toward, and what it cannot.

For example, Montana Consumer  Counsel attorney Mary Wright explains the utility cannot increase rates to recuperate losses retroactively; it can only anticipate for future cost increases. The law should therefore ideally shield ratepayers from assuming the company’s former tax debt along with correlated interest and penalties.

Still, the rate increase remains on the table and has reportedly generated a good deal of consumer feedback on the amount alone.

“Everybody’s questioning why this water company needs 16 and change when they’re not getting anything like that in wage increases, ” Wright says. “That’s a common theme in all rate cases, but particularly with Mountain Water. Unfortunately, not all rate increases are unlawful.”

Hiller responds that the utility generated its rate increase proposal based on the test year 2007. The amount takes into account that property taxes went up during that period and anticipates that they will continue to rise.

“We have not filed a rate increase for three years as capital expenditures have gone in and expenses have increased,” says Hiller. “It is a big one, but it essentially comes down to our goal over the past 20 years not to exceed increases of about 5 percent per year. We’re slightly over that.”

This won’t be the first time this year Mountain Water has appeared before the PSC. Members of the board—particularly vice chair Doug Mood, a Republican from Seeley Lake—quarreled with the company when it tried to pass $425,000 in lost revenue onto metered customers in January. The shortage stemmed from a successful 2007 argument by the city of Missoula before the PSC to relieve the cash-strapped municipal government of the burden of paying hydrant fees.

Unable to draw that money from the city coffers, the company put together a rate increase request that controversially placed the entire burden on metered customers. The PSC eventually spread the weight over a greater mass of the rate-paying public. Both developments met with opposition on grounds of double taxation.

Mood scolded the utility then on its reportedly high rate of water loss within the system. He says that’s water under the bridge now, as he considers this rate increase an entirely separate matter. Though, the commissioner was unaware as of Oct. 24 that the company owed the state of Montana slightly more than the amount contested on the hydrant fees in January.

Mountain Water, a subsidiary of California-based Park Water Co., constitutes somewhat of an anomaly in Montana. The company acquired rights to the aquifer from Montana Power in 1979 and, not long after, faced an unsuccessful takeover attempt by the city of Missoula under then-Mayor John Toole.

City Attorney Jim Nugent confirmed rumors that Mountain Water’s old nemesis would intervene on the rate increase hearing, but wouldn’t commit to a position or specify any particular qualms with the proposal.

“This just allows [the city] to be a party, to receive all the information that goes back and forth,” he says.

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