Is It Sewer or Stormwater – and Who Pays?

Superior Court Affirms Greater Augusta Utility District’s Rate Model as Equitable

What’s in the pipes? Is it sewer, stormwater, or both? Which customers pay for upgrades and administration costs?

The ME Superior Court recently tackled these issues following a dispute involving the City of Hallowell and several sewer customers who filed suit against the Greater Augusta Utility District regarding how costs were divided between sewer and stormwater customers. The crux of the litigation was charter language requiring GAUD to equitably allocate operating costs between sewerage service and stormwater service, with ratepayers in Augusta paying all costs of stormwater service. After rejecting all three challenges of the plaintiffs, the court affirmed the 2011 rate allocations as equitable under GAUD’s charter.

History of Greater Augusta Utility District

GAUD was formed in 2007 by merging assets of the Augusta Sanitary District, the Augusta Water District and the Hallowell Water District’s wastewater operations. The utility district operates a sewer collection system, stormwater system and a secondary wastewater treatment plant that accepts wastewater from Augusta, Hallowell and three other communities. Because GAUD does not provide stormwater services to the City of Hallowell, GAUD’s charter requires that costs be equitably allocated between sewer service and stormwater service, and that the costs of stormwater service must be borne by the ratepayers of the City of Augusta. Although the ME Public Utilities Commission regulates water rates, sewer and stormwater rates are governed by GAUD’s charter.

New Rate Model

In 2011, the GAUD board of trustees adopted a new rate model that reflected increases of more than 30 percent for sewer and stormwater customers. Shortly thereafter, the City of Hallowell and several sewer customers from Hallowell sued GAUD, alleging that GAUD did not equitably allocate rate increases between customer classes. The plaintiffs challenged the allocation of the costs of improvements to eliminate combined sewer outflows along Bond Brook in Augusta. The project cost more than $13 million and had a significant impact on the rate increases.

In addition to challenging the allocation of the overall cost of combined sewer outflow project, the plaintiffs attacked the underlying allocation of flow measured by GAUD at the treatment plant—literally, how many gallons are generated by sewer customers, and how many gallons originated from stormwater flow. The allocation of flow was key to the distribution of operations and maintenance costs to the different customer classes. The plaintiffs requested that the court delay any increase in rates, vacate the board’s decision to adopt the rate model, and require GAUD to utilize new and “objectively verifiable” cost allocation methodologies.

GAUD argued that the board followed GAUD’s charter and reviewed all costs in detail to ensure that stormwater-only costs were charged to stormwater customers. Because the Bond Brook project had only a small portion of the cost dedicated solely to stormwater control, only that portion of the project cost was allocated entirely to stormwater customers. The remaining costs of that project were allocated based upon the estimated pro rata flow of sewer and stormwater, measured system wide, as were most other operating and maintenance costs. There is no ideal means to measure the flow of stormwater and sewer separately in a combined system; GAUD used more than 10 years of flow data, based upon an educated estimate of “wet days versus dry days” to allocate costs fairly, rather than simply dividing the costs based on an arbitrary formula.

The Court’s Decision

After a trial of the facts to further supplement the record before the trustees, the court rejected the plaintiffs’ challenges and affirmed every aspect of the 2011 rate model. The case demonstrates that when districts make an informed decision to allocate costs among customer classes based on accepted professional methodologies and the best available data, a court will be reluctant to “second-guess” the rate model upon appeal.

A copy of the decision is available here.

GAUD was represented by Bernstein Shur attorneys Lee Bragg, Mike Hodgins and N. Joel Moser. If you have any questions regarding water, sewer, or stormwater rate model allocations and procedures, please contact N. Joel Moser, at 207 228-7155 or jmoser@bernsteinshur.com.