Unlike regulated utilities, such as electric and gas, sewage treatment fees and rates are not subject to state oversight. As a result, many manufacturers have seen their sewer bills skyrocket, without any corresponding changes to the manufacturing process or products. In some cases, these manufacturers are double-billed for the same services with one charge from the city and one from the utility; in some cases, the rates are arbitrarily tweaked to charge double, triple or even quadruple the current rates for sewerage of the same or better quality than residential users; and in some cases, new charges are being invented altogether.
One of our manufacturing clients has a manufacturing plant in New Jersey that regularly incurred substantial sewer bills. Its national headquarters routinely approved the disbursements, until the recession required cutbacks in operations and the furloughing of its employees. Despite declining production levels and corresponding reductions in the company’s impact to the sewer system, its bills continued to rise precipitously. This raised a red flag for local plant management, who alerted headquarters of the potential billing inequity.
Upon investigation, in addition to costly municipal accounting errors, the manufacturer had been the victim of an arbitrary billing system for years. Its bill was calculated by a different formula almost every year, with the rates changing to ensure that the manufacturer subsidized the costs generated by residential users and smaller local businesses. In addition to the fluctuating rates that were charged, the bills for sewerage outflow were based on the manufacturer’s intake of city water, despite its internal use of on-site state-of-the-art metering. By using water intake to calculate the bill, the local government was able to cut its own administrative costs but completely discounted the water that evaporated in the manufacturing process and was absorbed in the final product. As a result, the manufacturer paid for more sewerage than it actually generated, and at arbitrarily inflated rates.
The local government didn’t limit its overreaching to the fluctuating rates and inaccurate quantities. In addition to these use charges, the local government assessed a flat 10% administrative fee, amounting to hundreds of thousands of dollars annually and nearly two-thirds of the total municipal sewer operations’ administrative sewer budget. While New Jersey sewer authorities are authorized by statute to charge administrative fees, these fees must have some relationship to the administrative costs actually incurred by the billing entity. In this case, the local government relied on a regional authority to treat and test the sewerage, leaving the local government with only extremely limited “administrative responsibility” — creating and distributing their bills. As this process requires equal administrative resources for each user, regardless of whether the user is a single-family home or a large manufacturer, we argued that the manufacturer should not be forced to single-handedly fund the bulk of the cost. As the local government learned of the manufacturer’s furlough of the plant, it became concerned that the plant would close permanently and the local government would lose its deep pocket forever. To protect itself in the event of a closure and to ensure that the voters would not be slapped with a sudden steep increase in their own sewer payments, the local government invented a termination charge, wherein any industrial user terminating its use or converting its premises to a dissimilar use would be forced to pay a one-time fee of 300% of the user’s last annual bill. In our case, the manufacturer faced a termination fee of more than $6 million at the time when it could least afford to pay it.
[pullquote]By resisting these illegal and inequitable charges, the manufacturer was able to avoid the termination fee in its entirety, win a partial refund of the sewer-use fees it previously had paid, and secure a credit toward present and future assessments. The plant managers who identified the problem were heroes with headquarters, as they successfully recaptured millions of dollars when the company and the plant needed it most.
Plant and facility managers are uniquely equipped to protect their companies from illegal charges because they fully understand their manufacturing processes and the resources needed to implement them. To ensure that your company is not being overcharged, consider adopting the following best practices:
- Know how your government rates, fees and taxes are statutorily authorized
- Track the offices where governmental bills and notices of action relevant to those bills are sent within your company
- Arrange either directly through the governmental entities or within your company to have a copy of bills and notices from your plant’s local government sent to your plant
- Subscribe to the official newspaper of the municipality where your plant is located and systematically review legal notices for new ordinances changing billing rates or adding new charges (you often have only weeks or even days to challenge a new charge before it becomes law; it’s important that you review the legal notices and act promptly if you suspect that your company will be negatively impacted)
- Be suspicious of amendments or overhauls to the billing system (look for changes in rates, changes in billing formulas, new fees or charges to be assessed at the discretion of a local administrator or official; and question rates and fees that are hastily imposed and that aren’t supported by scientific or accounting studies)
- Review your bills closely (look for administrative fees, additional charges, penalties or fluctuations in the amount due)
- Understand the rates that are applied in your bills (does the local government average your use over a number of years, apply seasonal rates, apply different formulas for different user classes, or ignore quality or quantity of impact?)
- Perform objective testing of your sewerage discharge
- Understand your manufacturing process and its impact on the sewer system (consider whether you have a pre-treatment process, as manufacturing pre-treatment processes often go beyond minimizing your impact on government resources and actually help the local government cut costs in serving other users, as well; and determine whether your manufacturing process absorbs or evaporates water, as your business may be charged for its sewerage based on its water intake — you may be charged for quantities well in excess of what you actually discharge)
- Know your neighbors, understand how your use and impact compares, and, when advantageous, work together.
Your business expects to pay its fair share for government services, but it shouldn’t have to subsidize the costs of these services for other users through inflated and discriminatory charges. If you suspect that your business is being overcharged, contact an expert to pursue an analysis of your assessments, and, if appropriate, your challenge.
Katharine Muscalino is an associate and Peter Wolfson is a principal of Porzio, Bromberg & Newman,. Contact Muscalino at (973) 889-4051 or [email protected]. Contact Wolfson at (973) 889-4366 or [email protected].