A circuit judge has ruled that the City of Mountain Home did not breach its contract with the Northeast Public Water Authority by overcharging for water the authority purchased from the city.
Judge Gordon Webb filed his 10-page order in the case Thursday.
The water authority, which has about 2,000 customers and has an office on Florence Drive just off U.S. Highway 62/412 East, filed a lawsuit against the city in November 2015 contending the city had overcharged for water it sold to the authority.
The contract between the city and Northeast Public Water Authority calls for the city to sell potable water in an amount not to exceed 250,000,000 gallons per year under a formula that establishes the per-one-thousand gallon purchase price for the water. The formula takes a number of factors into consideration, including the buyer’s share of expenses the city incurs in connection with the production and delivery of water.
City Attorney Roger Morgan comments on the ruling.
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Just what expenses are to be counted or not counted in arriving at the wholesale purchase price is one of the main points of contention in the dispute between the city and Northeast.
The authoritys lawsuit contends that the existing rate calculation is improper and far exceeds the water purchase price as contemplated in the contract.
The city denied that the authority had been overcharged and that it has violated the terms and conditions of the contract in arriving at the water purchase price. The city has used the rate formula, which is calculated by the citys engineering firm, for decades.
The disagreement over the rate arrived at under the formula has been a matter of dispute between the city and the water authority for a number of years.
While the water authority objected to some items that were included by the city under general and administrative expenses for purposes of calculating the water purchase price, Judge Webb found that the wording of the contract between the city and authority allowed the city to include items which were not directly related to the actual production of the water it sold to the association.
Morgan told KTLO News in April that, in addition to the actual expenses incurred in the delivery of water to the meter, such items as salaries and expenses of the Mountain Home City Council, Planning Commission, City, Attorney, Clerk, Mayor, Treasurer and Human Resources Department – were included. Morgan said those expense were included to represent the approximate percentage of time various officials spent on specific issues dealing with the Water and Sewer department. Morgan said it was the citys position that the expenses were legitimate administrative costs associated with the production and delivery of water under the contract with Northeast.
Judge Webb agreed. In fact, the judge sent a letter to attorneys for both sides prior to a one-day bench trial in early March in which he wrote that he was of the opinion that the language of the contract appeared to be an unambiguous attempt to allow the inclusion in the rate formula of a very broad range of expenses that the City of Mountain Home incurred in connection with the production and delivery of water to the Northeast Public Water Authority.
Judge Webb wrote in his ruling filed Thursday that the city did not breach its agreement with the water authority and that the price charged by the city for water purchases was permitted by the agreement and was appropriate.
At one point, the Northeast Public Water Authority lawyers indicated that the authority was seeking almost $660,000 from the city.
After finding for the city, Judge Webb wrote that as the prevailing party, the city was entitled to an award of its attorneys fees incurred in defending against the water authority’s suit.
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