Staff recommends Council approve the Settlement Agreement with the County Water District of Billings Heights (CWDBH).

The City converted to a new utility billing software in January 2015.  In 2017, the City performed an in-depth review of water bills and found a significant discrepancy between the volume of water produced at the water treatment plant and customer bills. It discovered the actual production was higher than what was being billed.  Typically, this is caused by an undiscovered leak in the water distribution system.  After spending several months trying to find leaks in the system, it was determined that the missing water was accounted for and caused by an incorrect conversion factor within the new billing software for the specific type of water meter used only by the CWDBH; no other customers were affected by the software conversion billing error. As a result, CWDBH was underbilled by $2,970,599.35 since the software conversion took place from February 27, 2015, until December 15, 2017. With interest, the total amount owed as of October 2020 was approximately $3,965,327.49. 

There is no dispute on how much water was provided to the CWDBH, only how much CWDBH should pay for water they sold to their customers.  The District was underbilled for consumption by approximately 40%; however, they continued to bill their customers for the full consumption utilized.  Once the error was corrected, CWDBH began paying the full amount but refused to pay for the undercharged amounts. 

Since the fall of 2018, the City and CWDBH attempted to resolve this dispute informally and then again through formal mediation in November 2020 but were unable to reach an agreement. In December 2020, the City filed a Complaint against the CWDBH asserting a breach of contract for unpaid amounts due under the contract plus interest.

Because the City and CWDBH are long term partners and not competitors serving Billings citizens, negotiations resumed after new board members were seated on the CWDBH board.  Representatives of the City and the CWDBH met several times between October 2021 and February 2022 to discuss the dispute and finally reached an agreement in February.  The agreement provides for the parties to stipulate to the dismissal of 1) the City's claim for breach of contract for the underbilled amount; 2) CWDBH's counterclaims for negligence and declaratory relief related to the underbilled amount; and 3) CWDBH's counterclaim related to franchise fees.  The agreement requires CWDBH to pay $2,936,251.80 within 30 days of the agreement to the City for the water that was underbilled from 2015 to 2017.  Since CWDBH has agreed to pay the amount owed in full rather than over a two-year period, the original amount was reduced by $34,347.55 to reflect the interest CWDBH would have earned if it had made payments over a two-year period. 

City of Billings residents
County Water District of Billings Heights water customers

City Council may:

• Approve the Settlement Agreement to resolve the ongoing lawsuit; or,
• Not Approve the Settlement Agreement. If Council does not approve the settlement agreement, then the litigation will continue which will result in additional costs and attorney fees.  

This agreement provides that CWDBH to pay $2,936,251.80 to the City of Billings within 30 days after the approval of the Settlement Agreement.

CWDBH board will consider this agreement for approval on their March 16 agenda.  It is expected to be approved.  Staff recommends Council approve this agreement to end this litigation. The City and CWDBH are long term partners, and it is in the best interests of Billings residents to finally dispose of this matter.