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State College Accuses UAJA of Overcharging Borough for Sewage Treatment, Files Counterclaims in Billing Dispute

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Responding to a lawsuit filed by the University Area Joint Authority, State College accused the Centre Region’s primary wastewater treatment facility of overcharging the borough by millions of dollars now and in the past, and improperly imposing new rates for wholesale sewage treatment.

Attorneys from State College’s special counsel Salzmann Hughes wrote in the late November filing that UAJA artificially inflated the borough’s charges to subsidize retail customers and unilaterally decided to bill the borough at an “unreasonable” rate beginning earlier this year.

The response comes after UAJA filed a complaint on Oct. 26 in Centre County Court of Common Pleas seeking a judgment for the $406,088 in service charges and late fees that the borough has withheld in 2022.

State College has its own sewage collection system and transports it to UAJA for conveyance, treatment and disposal. As such, the borough is UAJA’s only wholesale customer. Since 1990 the borough and the authority operated under service agreements that billed State College based on actual metered wastewater flow at a rate sufficient for “reasonable” administrative and operating costs to “fairly and proportionally allocate the costs associated with UAJA’s wastewater treatment facilities to the borough,” State College’s attorneys wrote.

Those agreements expired in 2020 and UAJA subsequently declined a memorandum of understanding offered by the borough to continue under existing rates until a new agreement could be reached. While UAJA continued billing State College at the old rate throughout 2021, its board voted last November to enact a new billing rate based on equivalent dwelling units (EDU), a method that charges a rate for capacity instead of actual flow that the authority uses for its retail customers. Under the new rate, the borough is being charged at $66 per EDU each quarter.

Borough officials raised concerns about the new rate before the first quarter bill arrived but say they did not receive a satisfactory explanation to justify what would become a substantial billing increase. UAJA billed State College $1,098,900 for the first quarter of 2022 (and each subsequent quarter), which according to the November filing was $94,466 greater than the 2021 fourth quarter invoice and a $200,000 increase over the first quarter of 2021.

UAJA says the Municipal Authorities Act gives it the sole power to determine rates. The borough contends that the two parties were governed by a service agreement and UAJA cannot unilaterally decide the new rate. State College has paid $1,035,911 each quarter this year, while also accruing late fees and other charges, and held the remaining invoice balance in escrow.

The authority claims in its lawsuit that the borough’s “unilateral withholding” of payments is “unlawful and unauthorized” under the Municipal Authorities Act. State College counters that UAJA’s rate is void on its face because it is not reasonable and uniform, and that the interest and penalties it levied also exceed those allowed by law.

The matter escalated through the summer and fall, as borough officials said they were frustrated by a lack of negotiations, while UAJA Executive Director Corey Miller said the missing budgeted revenue could soon have a detrimental impact of the authority’s debt service and trigger a rate increase.

Meetings between the two parties took place on Aug. 30 and Sept. 2. The borough alleges that at the latter Miller “was disruptive at best and, at worst openly hostile to trying to reach a resolution.”

On Oct. 19, the UAJA board, with two members dissenting, voted to direct its counsel to file the complaint in equity, which seeks payment of the outstanding charges and an injunction requiring the borough to make full payment on future invoices.

In the response to the lawsuit, attorneys for State College wrote that the substantial increase in the bills led the borough to suspect “that UAJA is now and historically had overcharged the Borough for wholesale wastewater services.”

“Stated simply, UAJA established rates for the borough based upon an improper overallocation of costs to the borough for costs associated with operating the wastewater system that are in no way attributable to the borough or are not attributable to the borough in the measure applied by UAJA,” they wrote.

The borough’s review of past billing allegedly found that State College has been overcharged by more than $6 million.

UAJA, according to the borough’s filing, requires State College to pay for costs associated with all of UAJA’s conveyance facilities, “rather than only the miniscule portion the orough utilizes.” The borough is charged expenses associated with 18 pump stations when it only uses one, the State College attorneys wrote.

State College also pays for costs related to industrial pre-treatment, even though the borough has no industrial users, and is “paying for administrative costs that exist solely to benefit retail customers,” according to the filing.

“By failing to treat the borough as a true wholesale customer, UAJA is using the borough as a way to subsidize its remaining rate base and to support various projects and debt service costs UAJA has incurred to the benefit of no one,” the borough’s attorneys wrote.

“Collectively, the borough is paying millions of dollars each year in costs for which it receives no benefit.”

The new rates were “arbitrarily determined,” State College argues, and “wildly out of proportion” to the services the borough receives.

The borough requested dismissal of UAJA’s claims and filed six counterclaims against the authority, seeking an order declaring that UAJA’s new rate invalid, that UAJA may only charge State College for services used, and that UAJA refund money the borough claims it was overcharged.