News Photo by Steve Schulwitz 26th Circuit Court Judge Ed Black, left, and Alpena City Attorney Bill Pfeifer conduct business on Friday, the third day of testimony during a trial over how much Alpena Township should pay Alpena for water and sewer services.

ALPENA — An expert said Friday the rates Alpena Township pays Alpena for water and sewer services are too high because the city failed to factor in certain data when the higher rates were crafted in 2014.

That claim came on the third day of a civil trial in Alpena’s 26th Circuit Court over how much the township should pay the city for water and sewer services. The township buys water from the city to provide to many of its residents.

The trial began this week after more than a decade of negotiations and court battles between the two governments.

Andrew Burnham, an engineer and water rate analyst hired by the township who sits on multiple committees for the American Water Works Association, said his analysis of the rates and the water and sewer system indicates Alpena officials did not factor in infrastructure depreciation and other variables when they designed the methodology used to determine the rates charged to the township.

Burnham said he considers the township a wholesaler because the township fits all of the criteria established by the Water Works Association.

The township has argued throughout the dispute that the city should treat the township as a wholesale customer because of the volume of water the township buys from the city.

For years, the city and township set rates using a formula established in a 1977 contract, which was amended in 1987.

That contract was allowed to lapse and both municipalities agree a new formula to set rates is needed, but the two sides have not agreed upon new ratemaking tools.

Burnham testified municipalities should take three primary steps before raising or decreasing water and sewer rates.

They should first collect accurate revenue data to find out how much income is needed to cover operations.

Then, he said, they need to make a comprehensive customer database so officials know who their largest retail customers are and what portion of the overall cost they pay for. He said small users should be charged less than places such as factories that are large consumers who often have larger infrastructure needs.

The third step, Burnham said, is to determine how to collect the revenue to cover expenses, such as raising rates, taking out loans, or seeking bonds for capital projects.

One of the sticking points in the dispute is what percentage of Alpena’s water and sewer systems the township uses.

To make matters even more complicated, some residents who live in the city depend on township infrastructure on State Avenue for sewer services, and some township residents count on city water infrastructure.

Many of those topics have likely been debated behind closed doors during the last decade as the two sides pushed toward an agreement that never came.

The two sides have spent millions of dollars on attorney and consultant fees.

In the trial, 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 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 as 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 at 8:30 a.m. Tuesday and could wrap up by the end of that day.

The city intends to put its ratemaking expert on the stand on Tuesday and Judge Ed Black told attorneys for both municipalities he would like to hear closing arguments afterward.

After nearly a week of long and complex testimony, Black said he is ready to put the matter to rest.

“To be blunt, I just want to be done with this,” Black said. “You guys can drive ahead however you want, but I want this over with.”

No matter how Black rules, one side or the other could appeal the ruling.

Meanwhile, the Alpena Township Board of Trustees scheduled a special meeting for 4:15 p.m. Monday.

The only item on the agenda is a closed session to discuss the water and sewer litigation.