Staff recommends the City Council waive the requirements of Billings, Montana City Code (BMCC), Sections 26-203 and 26-204 that require annexation in order to provide sanitary sewer service to the Lockwood Water and Sewer District (LWSD) and approve the second amendment to the wastewater agreement with LWSD contingent upon the LWSD Board approving the expansion and the amendment to the agreement.

Since 2008, the City has maintained an agreement with the Lockwood Water and Sewer District (LWSD) for wastewater service, which was expanded in 2020 to include the Lockwood Targeted Economic Development District in the LWSD service area. A single 8.46-acre parcel located between the two approved service areas is now requesting inclusion in the LWSD service area. Staff recommends City Council waive the annexation and service requirements of BMCC Sections 26-203 and 26-204 following a public hearing, and approve a second amendment to the wastewater agreement to allow this expansion, contingent upon approval by the LWSD Board.

Since 2008, the City has had an agreement with the Lockwood Water and Sewer District (LWSD) to discharge to the City's wastewater treatment plant. The LWSD provides sanitary sewer service to the properties within its service area. This agreement did not expand the City’s service area; it simply allows LWSD to connect to the City at a single point to discharge its wastewater to the City for treatment. 

In 2020, the City approved the first amendment to the agreement to expand wastewater services to the Lockwood Targeted Economic Development District (TEDD). Again, this did not enlarge the City’s service area, it simply allowed LWSD to enlarge its service area.

A single parcel of 8.46 acres lies between the original approved service area and the TEDD service area which was approved in 2020. The parcel is therefore surrounded by the approved LWSD service area but not included in the service area. The owner of this parcel is seeking to include their property in the LWSD service area. The agreement has a provision that LWSD cannot expand its service area without the consent of the City. A second amendment to the agreement has been proposed to allow LWSD to include this parcel in its service area.

BMCC Section 26-205 requires an application for water and/or wastewater service area enlargements. BMCC 26-202 indicates the service area “is that area of the city within the boundaries of the city, any areas presently served outside the city and any subsequently approved amendments thereto.” BMCC Sections 26-203 and 26-204 require annexation of any properties included within the City’s service area unless Council waives this requirement. Following a public hearing (BMCC Section 26-206), Council may waive the requirements of BMCC Sections 26-203 and 26-204 if Council finds there are circumstances which make the requirements of those sections unnecessary or impractical.

Based on the information presented at the January 5, 2026 work session, Council indicated it wanted a waiver of the right to protest annexation and also directed staff to obtain a written application before it would consider this matter. The application is now included for Council’s consideration. The application is made by LWSD and not the property owner because the property owner is not asking to be connected to the City’s system, but rather to be included in LWSD’s service area. Pursuant to the 2008 agreement and 2021 first amendment, LWSD must obtain the City’s permission to expand its service area. 

Council is being asked to waive the requirements of BMCC Sections 26-203 and 26-204 regarding petitions for service and annexation and approving the amendment to the agreement between LWSD and the City. BMCC Section 26-203 requires that the property at the time of application for sanitary sewer service be contiguous to the boundary of the service area, entirely within the red area on the Limits of Annexation Map, and entirely within the City's facilities planning area. This section also requires that the applicant complete the annexation requirements outlined in BMCC Section 26-204. This section requires annexation or an attempt at annexation in order to obtain water or sewer service to a property, although a "waiver of right to protest annexation" may be accepted in lieu of annexation in the discretion of Council.  The City did not require any waivers to protest annexation of the properties within LWSD’s service area in 2008 or 2020. The most likely explanation for this is these properties were never connected to the City’s wastewater system, the properties are not part of the City’s service area, and LWSD is the entity that provides service to the properties. LWSD is contiguous to the boundary of the City’s service area but many of the properties served within LWSD are not contiguous to the City’s service area nor are they within the City’s facilities planning area or within the Limits of Annexation Map. Based on this information, it highly unlikely these properties will ever be annexed into the City.

After additional internal staff discussion, the City Attorney believes it is reasonable to conclude that Article 26-200 was not intended to apply to a county water/sewer district. However, given the description of “service area” in 26-202 and the fact that the City provides service (i.e. treatment of wastewater) to LWSD under an agreement which requires City consent to any expansion of LWSD’s service area, these city code sections are technically applicable under these circumstances.

Three alternatives have been included in the Alternatives section of this memo. The first two alternatives approve the proposed Second Amendment to Wastewater Service Agreement and allow LWSD to serve the 8.46 acre property. The difference between these first two alternatives is the condition of a waiver of the right to protest annexation. Staff initially did not recommend a waiver of the right to protest annexation given the remainder of the district was not required to provide waivers. Likewise, the application here is not a request to expand or enlarge the City’s service area. It does not appear to be necessary to require a waiver of the right to protest annexation given the circumstances stated above and the likelihood that the property will not be annexed into the City. 

A notice of public hearing was published on December 19 and 26, 2025, and January 2 and 9, 2026 in the Yellowstone County News and on the City's website.
 

The addition of the 8.46 acre parcel is expected to create a small increase to wastewater revenue funds. At this time, the wastewater volume is unknown but will contribute to the overall revenue generated by the LWSD Agreement.

City Council may:

• Grant a waiver to BMCC Sections 26-203 and 26-204 to provide sanitary sewer service to the aforementioned property without annexation and approve the amendment to the agreement with LWSD contingent on the LWSD Board approving the expansion and amendment to the agreement; or
• Grant a waiver to BMCC Sections 26-203 and 26-204 to provide sanitary sewer service to the aforementioned property without annexation, and approve the amendment to the agreement with LWSD contingent on receiving a waiver of annexation from the property owner of the aforementioned property and the LWSD Board approving the expansion and amendment to the agreement; or
• Not approve the waiver or the amendment. If not approved, the LWSD would not be able to provide sanitary sewer service to the aforementioned property.