17 June 2015

And from the Socialist Paradise of Montana ……… Wait? What? Montana?!?!?! ……… Whiskey Tango Foxtrot?!?!?!?

The city of Missoula, Montana has apparently had enough of mismanagement of their water infrastructure by its Carlyle Group owned private water company, Mountain Water Company, along with the normal private equity hijinks, so they tried to buy it.

The Carlyle Group refused, and so the city condemned the company, and seized it by eminent domain, and now Missoula has won a court victory confirming their right to seize the utility:
Missoula won its legal fight to take ownership of Mountain Water Co. and the city’s drinking water system Monday.

In a 68-page decision, Missoula District Court Judge Karen Townsend said the city "carried its burden of proof" and showed that "its contemplated use of the water system as a municipally owned water system is more necessary than the current use as a privately owned for-profit enterprise."

"Based on credible evidence at trial, the Court concludes that the object of this condemnation proceeding, the use of the water system, is a public use for which the right of eminent domain may properly be exercised" under Montana law, Townsend said.

The judge said she “considered the broad range of circumstances,” and weighed “the benefits to be derived from the proposed public use against the impairments to the existing use.”

Her conclusion: “The proposed public use is more reasonable” and “proper.”

The city made its case, she continued, and proved that “the taking is a more necessary public use.”

The city did try to purchase Mountain Water Co. from its owner, global equity firm The Carlyle Group, Townsend said, “and the final written offer was rejected.” It is now, she said, Missoula’s “right to acquire” the water system by exercising its power of eminent domain.
Basically, Mountain Water Company is not performing timely maintenance on the infrastructure (after all, some resources have to go toward paying inflated private equity "Management Fees"):

The water system pumps groundwater from the Missoula aquifer through 37 wells and 327 miles of water main. The system serves 23,500 customers, with 1,500 of them outside the city limits. The city of Missoula estimates that an investment of $66 million to $95 million is needed to bring the system to industry standards.
  • Nearly 50 percent of the mains are more than 45 years old. Twenty percent of the mains have exceeded their useful life.
  • While 81 percent of the system is metered, only 40 percent of the water is measured through meters. The average age of the meters is 20 years and will require $16 million to $20 million to achieve industry standards.
  • Nearly 75 percent of the service lines are galvanized steel and have exceeded their useful life. The cost to bring the lines up to industry standards is roughly $25 million.
  • Rattlesnake Dam and the intake dam have not been maintained and show problems with erosion, slope and stability, requiring $3 million in repairs.
  • The water system leaks at a rate of 50 percent. An estimated 8,000 gallons leak every minute, well above the national Infrastructure Leakage Index.
A 50% leakage rate?  Seriously?  In a locality that is already abnormally dry, and in a world that is drawing down its aquifers at an alarming rate?

And the Carlyle Group thinks that this is all hunky dory?

And then there is the attempt by the Carlyle Group to represent the purchase of a $945.00 coffee maker as a capital expenditure.

Clearly, the private sector is not working the way that all those free market mousketeers would lead us to believe.

Full disclosure:  I worked for a few years at United Defense, which was owned by the Carlyle Group, before it was sold to BAE Systems.

H/T Naked Capitalism.


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