Water System Acquisition February 15, 2017

Municipal Ownership Water is an essential public resource, and maintaining the quality of that resource is in the public interest. City ownership adds long-term stability to the water system. City ownership provides increased accountability and accessibility for utility customers. City ownership will improve capital investment into the water system, which currently has a leakage rate near 50%. Money will be reinvested in water infrastructure, instead of distributed to shareholders.

Water Purchase History December 2010: Carlyle announces intention to buy Mountain Water. September 2011: City Council adopts Resolution 7657. Supports municipal acquisition of water. Includes letter agreement giving City opportunity to purchase water if it was sold. December 2011: Carlyle completes transaction with PSC approval. January 2013: City begins assembling informal offer to Carlyle. February 2013: Carlyle rejects informal offer

Water Purchase History October 2013: City Council approves Ordinance 3509. Authorizes negotiation and condemnation as necessary. November 2013: Carlyle rejects City’s restated $65 million offer. May 2014: City files eminent domain lawsuit. November 2014: City Council approves Ordinance 3535. Amends and expands the scope of Ordinance 3509 June 2015: Montana District Court issues Preliminary Order of Condemnation. November 2015: Valuation commission sets value at $88.6 million. August 2016: Montana Supreme Court upholds condemnation order.

Condemnation Status Preliminary Order of Condemnation: City’s right to take possession of water system Issued by Montana District Court June 15, 2015 Upheld by Montana Supreme Court August 2, 2016 No appeal filed with U.S. Supreme Court before October 31, 2016 deadline No further appeals possible There are no further possible challenges to City’s right to take possession.

Pending Matters Defendant Legal Costs – a pending order from the District Court will determine the amount of the defendant’s legal fees the City will pay. It is expected to be approximately $5.4 million. Post-valuation Improvements - a pending order from the District Court will determine the amount of capital improvements made after the valuation the City will pay. It is expected to be approximately $3.2 million. Developer Extension Agreements - Developers seeking $23 million to honor existing agreements. City and Mountain Water are both defendants. City believes this amount is included in the $88.6 million valuation. City is seeking an order to ensure these contracts will be paid from the proceeds of the sale of the utility.

Utility Creation Ordinance 3576 adopted June 20, 2016 Established water utility system. Set rules and regulations. Included standards and specifications. Set rates consistent with Mountain Water’s existing rates.

Estimated Acquisition Cost Purchase Price $88,600,000 Defendant Legal       5,400,000 Post Valuation Improvements       3,200,000 City Legal       8,500,000 Total Estimated Acquisition Cost $105,700,000 Rates adopted in June 2016 are expected to be sufficient for acquisition, obligations to employees, payments in lieu of taxes, and capital improvements.

Water Utility Employees Discussions with employees continue. City will make offers to Mountain Water employees. City compensation and benefits will closely approximate Mountain Water employees’ existing compensation and benefits.

Payment in Lieu of Taxes City will compensate other local jurisdictions for loss of property tax revenue. Program will phase out over five years. Payments will be made from water utility’s operating budget under existing rate structure.

Capital Expenditures Lack of capital investment in the past has led to leakage rates nearing 50%. City plans capital improvements of $29.5 million in the next 5 years. City will invest here locally, creating jobs and bringing the system to industry standards.

Rates We are able to accomplish this all under the current rate structure. Next presentation will discuss the financing and financial pro forma of the system.