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Tampa Bay Water Ordered to Pay $20M in Legal Costs

BRADENTON, Fla. - Tampa Bay Water was ordered on Monday to pay more than $20 million in legal costs to an engineering firm the regional water supplier unsuccessfully sued earlier this year.

Federal district Judge James Whittemore called the amount of legal fees and costs “extraordinary,” and said the judgment reflects a highly complex engineering professional liability case that may be the largest of its kind.

Whittemore pointed out in his ruling that Tampa Bay Water’s contract with HDR Engineering Inc., called for the prevailing party in any litigation to be entitled to recover legal fees.

HDR had been hired to design a 15.5-billion gallon reservoir, the largest in Florida. Shortly after it opened cracks began to appear, and TBW filed suit against the engineering firm.

In April, a jury ruled that HDR Engineering was not responsible for the reservoir’s problems. Whittemore subsequently denied TBW’s request for a new trial.

The award of legal fees will be appealed, Tampa Bay Water general manager Gerald Seeber said Tuesday.

“First of all, what’s important for the public and the bond market to know is that ratepayers will not see an increase in rates as a result of this ruling,” Seeber said. “Money is budgeted in reserve accounts to pay the costs.”

TBW will move funds from a nearly $33 million rate stabilization reserve to operations in order to pay court-ordered legal fees, if need be, he said.

Seeber also said he expects the appeal of legal fees will eventually be combined with an appeal of the underlying case, which has already been filed.

Tampa Bay Water has paid $11.63 million in its own legal fees and costs so far. The appeal, which could take up to 16 months to pursue, is expected to cost another $250,000, according to Seeber.

“We’re fortunate from a financial perspective that our utility is well prepared to deal with an unforeseen circumstance like this,” he said. “We’re hopeful we will prevail.”

TBW has a $165.2 million budget for fiscal 2013, and $1.68 billion of outstanding debt through 2039 rated AA-plus by Fitch Ratings and Standard & Poor’s, and Aa2 by Moody’s Investors Service.

The adverse legal judgment is a concern, though not expected to affect Tampa Bay Water’s credit because the agency consistently maintains solid liquidity and cash balances, according to Fitch analyst Andrew DeStefano.

 “On a short-term basis it is a concern when that much money goes out the door but they have the wherewithal to deal with it, without negatively impacting operations and financial performance, and most likely not affecting their rating, either,” he said.

Over the longer term, dealing with repair of the reservoir could be more of an issue than the legal judgment, DeStefano said.

TBW officials said in August that repairing the drinking water storage facility is expected to cost $129.4 million. The governor board voted to issue up to $85 million of revenue bonds to fund some of the repair costs and finance other capital projects.

The debt is expected to price in early January with Bank of America Merrill Lynch as the book-runner.

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