ALPENA — In reports to the state’s environmental department, Alpena classified Alpena Township as a wholesale customer.

During day two of the trial between the two municipalities over water rates, in the 26th Circuit Court, a former Alpena Engineer Rich Sullenger confirmed the city had named the township as a wholesale customer in water quality reports and even in an application for a loan from the state’s revolving fund.

Eric Conn, an attorney for the township, told The News in a break during the trial that the city considered the township, its largest purchaser of water for many years, and didn’t stop reporting the township as a wholesaler until after the litigation began.

Since the city refused to renew a contract that was in 1977 that outlined how water and sewer rates were set for the township in 2012, the city has said the township is not a wholesale customer.

After not renewing the long-standing contract, the city began to set its own rates with its own methodology, which the township is challenging in court.

During cross examination on Thursday morning, Conn got Sullenger to concede that when he was crafting the new rates, he didn’t incorporate percentages on how much of the city’s water and sewer system the township actually needs to receive water and send out waste.

Conn said the township and its customers should not have to pay for repairs and maintenance for portions of the system that are not viable to them.

Sullenger said he believed the township should pay the same as in-city customers because any improvement to the water and sewer systems, even if they are not directly linked to the township, still benefits the township customers.

“Things like more accurate readings, and lower replacement and maintenance costs impact every customer, no matter where they are,” he said.

The township, which purchases water from the city and resells it to its customers, is considered its own utility company and is responsible for repairs, maintenance, and billing for its own system. Conn asked Sullenger if he believes it would be fair for the city to help pay those township costs, the way the township helps cover costs for things the township doesn’t utilize.

Sullenger provided a one-word answer.

“No,” he said.

Litigation began in 2014 and as the litigation moved forward, the two parties continued to bargain on the side but made little to no progress over the years.

The two sides have spent millions of dollars on attorney and consultant fees, but the township is represented by three primary attorneys, with a local attorney and consultant on call in the gallery.

City Attorney Bill Pfeifer is the lone attorney acting on behalf of the city, but local officials had hired an outside consultant early in the process.

In 2017, the circuit court ordered the two sides into mediation. That lasted only one day, however, as city officials didn’t see enough progress to continue.

A settlement appeared likely early in 2018, however, both governing boards voted to approve “principle terms” for an agreement. That vote wasn’t for a deal on rates, but on seeking a process for establishing rates that could end the dispute.

After continuing negotiations failed to yield a deal, the local court essentially ordered the two sides to adhere to the terms they’d reached earlier in the year.

Shortly after, the township appealed a portion of that ruling to the Michigan Court of Appeals, and the city filed a cross-appeal. The appellate court also ordered mediation, which again yielded no agreement.

The appeals court then ruled that the proposed agreement was non-binding, which the township appealed to the state Supreme Court. The state’s highest court declined to hear the case and sent it back to the circuit court in Alpena.

During the initial hearing in circuit court, then-judge Michael Mack ordered the opening of an escrow account in the name of both governments. Mack required the township to deposit into that account the difference between the old rates the township had paid and the higher rates the city set for all of its customers.

The township’s latest audit shows $3.6 million in that account as of March 31, 2023.

The audit says Alpena wants the township to pay about $13.5 million in late fees.

Over the last few years, the two municipalities have worked together toward establishing a new authority that would oversee water and sewer operations for both governments.

The two sides reached a draft agreement on a water and sewer authority early in 2022. However, in July, that plan fell apart, setting the stage for the trial.

The trial resumes today at 8:30 a.m.