National Fuel Gas is claiming city charges excessive fees for cutting into streets during repair, construction jobs. Utility wants judge to issue injunction to end practice, invalidate city law.
The city of Erie is facing a legal challenge over a fee system that has bolstered its budget since the mid-1990s.
National Fuel Gas Distribution Corp. is suing the city in federal court, claiming the city is violating the utility's constitutional rights by charging what NFG says are excessive and unlawful fees related to NFG work that requires excavation of streets, sidewalks and other public rights of way.
NFG wants the city to return what it claims are $1.3 million that it paid the city in fees between 2014 and 2020.
It also wants a federal judge to enjoin the city from collecting "unreasonable" fees in the future and it wants the judge to invalidate the 1994 city ordinance that authorizes the city to impose what are known as degradation fees. The city says it collects those fees to recover expenses related to cutting or digging up streets and sidewalks.
A lawyer for NFG, John Mizner, filed the 49-page suit in U.S. District Court in Erie on Monday. Though the suit focuses on the Buffalo-based NFG, the outcome could have ramifications for contractors or other utilities that the city also charges degradation fees.
The city over the past several years has generated around $700,000 a year in degradation fees and other fees related to street excavations, according to city budget records. The city's 2021 budget lists $662,750 in revenue from degradation fees and related fees.
City Council in December 1994 passed the ordinance for street excavations, including the authorization of degradation fees.
In February 2020, council increased the degradation fees from $48 per square yard to $50 per affected square yard for degradation, or “street cuts” that happen within a roadway. Council increased from $23 per affected square yard to $28 per square yard the fees for degradation outside of the roadway, such as a sidewalk or curb.
Showdown with the city
Though NFG for decades paid the degradation fees and related fees without objection, it claims that changing city policies prompted the lawsuit. The suit does not specify why NFG is seeking recovery of fees no earlier than 2014, though the indication is that NFG has records dating to 2014.
One impetus for NFG's action, according to the suit, was the administration of Mayor Joe Schember's requirement, starting in 2020, that the city use "best practices" for tree management in approving permits for NFG excavation work. The city's best practices are meant to protect trees.
The city's reliance on those standards, according to the suit, led the city to demand that NFG "redesign its engineering and construction plans to relocate work away from trees" and into the street, forcing NFG to pay higher degradation fees.
NFG also claims that the city retaliated against the utility for its objections by ending the city's longstanding practice of allowing NFG to get permits for repair work in rights of way after the work was completed. Starting in May 2020, according to the suit, the city told NFG that "no work will be performed within the rights of way without a permit."
In addition to seeking a preliminary injunction related to the fees, NFG's suit asks for an injunction to stop the city "from imposing restrictions on the location" of NFG's facilities or utilities in the future. The suit claims that only the Pennsylvania Public Utility Commission can regulate utilities in the manner that NFG claims the city of Erie is trying to do through the use of the guidelines for tree protection.
Customer costs
NFG is claiming that the city's fees structure adds to the utility's expenses, forcing it to pass on the costs to customers, including those who live outside the city of Erie. The revenue that the city gets from the degradation fees and other related fees, according to the suit, improperly goes into the city's general fund instead of getting allocated for repairs or costs directly related to the streets and other rights of way.
"Simply put," the suit claims, "the Fee Structure raises revenue which the City of Erie can use on any expense paid for from the City's General Fund, and it is not fair to National Fuel's ratepayers outside of the City of Erie to contribute to the City's General Fund."
The suit states that the city has imposed degradation fees and permitting fees on NFG this year, but that NFG has withheld paying those fees "on the grounds that fees are illegal."
In a statement, NFG called filing the suit "a last resort" to resolving its concerns over the fee structure and other issues related to the utility's work in the city.
"Despite National Fuel’s best efforts over the last two years, repeated attempts to amicably and collaboratively resolve these matters with the city of Erie have proven unsuccessful," the statement said.
“Despite National Fuel’s best efforts over the last two years, repeated attempts to amicably and collaboratively resolve these matters with the City of Erie have proven unsuccessful.”
"National Fuel prides itself on exercising stewardship with respect to customer funds. Accordingly, National Fuel has filed a lawsuit to challenge excessive, arbitrary and unlawful fees and practices imposed by the city of Erie which undermine National Fuel’s ability to provide safe, efficient and reliable natural gas at fair and reasonable rates to customers."
The city will get a chance to respond in court. City Solicitor Ed Betza on Wednesday said he is reviewing the suit. The case is assigned to U.S. District Judge Cathy Bissoon, who is based in Pittsburgh but hears Erie cases.
Constitutional claims
NFG is claiming that the city has violated its rights under state and federal law, with its claims under the U.S. Constitution landing the case in federal court.
The city's fee structure, the suit claims, violates NFG's Fifth Amendment right against the taking of private property for public use without just compensation. The suit also claims the city has violated NFG's right to due process under the Fourteenth Amendment.
Regarding the Fifth Amendment, the suit states that federal courts have ruled that municipal fees must reflect a "fair approximation of the cost " of the benefits that the fees are meant to provide. Otherwise, the suit claims, the fees are excessive and violate what is known as the Fifth Amendment's clause regarding unlawful taking of property.
The suit claims that the degradation fees are excessive and unlawful because they do not comport with the actual cost of maintaining and repairing the streets or other public rights of way following NFG's work. Under the city's ordinances, according to the suit, NFG is already required to repair the street or other rights of way after finishing its projects.
The claim over the relation of fees to actual costs touches on a core element of the city's financial structure — the element based on fees.
The city in 2021 expects to raise about 2.29% of its $98 million in general fund revenue — or about $2.2 million — from licenses and permits, according to the budget. That revenue includes the $662,750 in projected income from degradation fees and related fees.
According to the suit: The fees related to street excavation "are not reasonably related to the cost incurred by the City," and the fee structure thus "wrongly generates revenue for the City of Erie to use in any manner it deems fit."
Original Article by: Contact Ed Palattella – epalattella@timesnews.com. Follow him on Twitter @ETNpalattella.