News Photo by Steve Schulwitz Former Alpena City Manager Greg Sundin, left, raises his right hand swearing to tell the truth before taking the witness stand during the first day of the civil trial between Alpena and Alpena Township.

ALPENA — Attorneys for Alpena Township believe the Alpena Municipal Council didn’t raise water and sewer rates on city customers in 2013 to the degree that was recommended by a consultant who did a rate study because of political motivations.

City officials said the move was made to soften the blow to resident’s wallets while the country was coming out of a recession and the economy was still on edge.

The township purchases water from the city and, for years, the township paid far less than residents in the city, despite the fact that it was benefitting from a significant development boom.

The township lawyers also questioned whether the city’s former staff was qualified to set rates.

During the first day of the civil trial between Alpena and Alpena Township on Wednesday in the 26th Circuit Court, former city officials Greg Sundin, who was city manager, Rich Sullenger, former city engineer, and Mike Glowinski, a utility manager, all took the witness stand to explain why and how the city increased water and sewer rates on Alpena Township.

The township purchases water from Alpena and for years the city used a formula in a contract from 1977 to set rates. Beginning in 2013, the city elected not to use the formula any longer saying the deal had expired, which was the beginning of the more than decade-long disagreement over water rates.

In order to get a better read on how much investment was needed and what rates should be to cover the cost of water and sewer system improvements, the city hired Gosling Czubak to review its systems and put an amount on future operation and capital costs.

In its report to the council, Gosling Czubak said the city needed to increase water and sewer revenue by about $3.5 million a year to make up for lost ground on the aging system, but the proposed rates were more than what the council was comfortable with and it ordered staff to give it other options.

The rates the council did pass would only generate about $1.5 million, so township attorney Eric Conn accused the city of increasing rates on the township by using the township to subsidize city customers who, for years, paid much more in water and sewer rates than the township did.

Conn said if the council would have raised rates on city customers sooner, the city wouldn’t have fallen behind on maintenance and depend on the township to pay more to make up the needed revenue.

“The city should have known, before Gosling Czubak came on board, that it was undercharging its residents,” Conn said.

At times, Conn became aggressive with Sullenger while the former city employee was on the stand. After Sullenger explained how he crafted the rates in question and the resources and data he used to make sure the revenues could cover expenses and capital projects, Conn dug into him and pointed out that Sullenger was not a rate-making expert and he should have offered the council a rate option from the amended 1977 agreement.

While Sullenger was on the stand, he said he set the rates based on a set of three-year averages. He said when figuring out possible rates, he took the expenses and the amount of water sold from the year the city was in, as well as the previous year. He also used projections from expenses and water production for the following year.

Sullenger said there were other charges added: one to help pay off debt from large projects, one to use for capital projects, and one billing fee.

The new rates were for all customers, including the township, which considered itself a wholesaler. The township balked at the higher rates and paid the old rates, which it still does today.

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.

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.

Day two of the trial begins at 8:30 a.m. today in Circuit Court in Alpena.