locally owned since 1854

Suez surcharge will remain, panel rules; average bill increases $72 annually for water, sewer

By Dan Miller

danmiller@pressandjournal.com

717-944-4628
Posted 7/31/19

Middletown has lost another battle in its legal war against Suez regarding Suez’s 50-year lease of the borough’s water and sewer system.

An arbitration panel July 10 handed down a …

This item is available in full to subscribers.

Please log in to continue

Log in

Suez surcharge will remain, panel rules; average bill increases $72 annually for water, sewer

Posted

Middletown has lost another battle in its legal war against Suez regarding Suez’s 50-year lease of the borough’s water and sewer system.

An arbitration panel July 10 handed down a final ruling upholding the 11.5 percent surcharge Suez has been adding to monthly water and sewer bills since April 2018, when Suez imposed the fee to recoup money from a water sales shortfall that occurred from Jan. 1, 2015 through Dec. 31, 2017.

The surcharge had increased the average Middletown water and sewer bill by 20 cents per day, or by roughly $72 a year, Suez has said.

The panel also upheld Suez being able to impose a separate surcharge on water and sewer bills each year, to recoup the cost of annual replacement of water and sewer lines, according to a press release about the arbitrator’s ruling that the borough posted on its website on July 24.

The borough in the release said it will continue exercising a watchdog role going forward to ensure that future surcharges imposed by Suez are not excessive.

The ruling by the arbitration panel cannot be appealed, as the lease agreement between the borough and Suez calls for binding arbitration, Borough Manager Ken Klinepeter told the Press & Journal.

“Now that the arbitration is over, we look forward to collaborating with the borough of Middletown in this next phase of our partnership,” Suez spokeswoman Ghilianie Soto said in an emailed statement to the Press & Journal. “While there were no investments made into the system during the arbitration, Suez has already begun the process of prioritizing and planning for critical upgrades to the system this year. Our plan is to follow the obligations stipulated in the (lease) for the implementation” of the annual capital projects.

In March, a federal judge dismissed a lawsuit that the borough had filed against Middletown Water Joint Venture LLC, which includes Suez, regarding changes the borough sought to make in the 50-year lease.

That agreement, which went into effect on Jan. 1, 2015, was the result of borough council and the former borough authority approving entering into the 50-year lease with Suez — then known as United Water — in September 2014.

In return for council and the former authority approving the lease, the joint venture paid Middletown $43 million which the borough used to retire its pension obligations and debt.

The lease agreement calls for Middletown to receive additional payments totaling $45 million from the joint venture over the 50 years.

The lease also directs that Suez make annual capital improvements to the water and sewer system, such as replacing water and sewer lines. However, no capital improvements have been done since 2015 due to Suez and the borough failing to agree on a plan for improvements.

With the federal lawsuit and the attempt to gain relief through arbitration now gone, the borough in its press release said that its only remaining recourse through the courts is the lawsuit that the borough filed in Dauphin County Court in June 2018 against the borough’s former solicitor, McNees Wallace & Nurick, and its former financial advisers, Susquehanna Group Advisors.

“In light of the malpractice suit still pending, I can only say that it’s disappointing that the decision didn’t go in our favor,” Council President Angela Lloyd told the Press & Journal.

In the lawsuit, which is pending, the borough alleges malpractice regarding the advice from both entities that the borough says council and the former authority relied upon in deciding to approve entering in the lease with Suez.

To date, the only tangible relief that the borough appears to have obtained through its legal battles with Suez is a $150,000 reduction in the amount of the three-year shortfall.

Suez initially based the 11.5 percent surcharge on a three-year water sales shortfall that according to Suez totalled $1,922,754.

The arbitration panel agreed to reduce the shortfall amount by $150,000, based upon what the borough contended were faulty meter readings involving one major customer that Suez relied upon in calculating the three-year shortfall.

Suez did not respond to a request from the Press & Journal regarding the impact on water and sewer bills, if any, of reducing the shortfall amount by $150,000.

The 11.5 percent surcharge is to remain on Middletown water and sewer bills through 2020.

However, the borough in court documents has said it anticipates Suez being able to impose a surcharge to recoup past water shortfalls throughout every year of the 50-year lease.

According to the borough, the borough cannot avoid a water sales shortfall the way the lease is written, resulting in what the borough contends is a financial windfall for Suez and the joint venture throughout the lease.

The borough sought to change language in the lease pertaining to the water sales shortfall, to make the terms fairer to the borough. However, the borough failed to accomplish that in the federal lawsuit and has now failed in the arbitration.

Through July 2, the borough’s attempt to amend the lease with Suez through the federal lawsuit and arbitration has cost the borough $893,806.47 in legal fees paid to Dilworth Paxson LLP, a law firm borough council hired in March 2018 as “special counsel” in the litigation concerning Suez and the joint venture, according to Press & Journal Right to Know requests.

To date, the borough has spent another $65,080.95 in legal fees to Gibson & Perkins, a law firm council hired on May 1, 2018 to pursue claims that led to the pending lawsuit in Dauphin County Court against McNees Wallace & Nurick and Susquehanna Group Advisors.