Maine’s largest brewery, the Shipyard Brewing Co., has been billed for only a fraction of its sewer usage since 1996, an apparent oversight that has cost the city of Portland hundreds of thousands of dollars in lost revenue annually.

The owner said if the city decides to make the brewery pay the 15 years’ worth of back fees, the brewery will have to close.

The error was discovered a year ago, when city employees were working with Shipyard as part of an initiative to help city businesses reduce sewer usage.

Shipyard has been paying its full sewer bill since last March. The additional charges range from $17,000 to $41,000 a month, according to Portland Water District records provided in response to a Freedom of Access request by The Portland Press Herald.

Shipyard bottles more than 3 million gallons of beer annually.

Breweries typically discharge 2 to 6 gallons of water into the sewer system for every gallon of beer produced, according to Chris Swersey, manager of technical brewing projects for the Brewers Association, a national trade group.

City officials won’t say how much money the city has lost in total. The Portland Water District would not release Shipyard’s water usage data without the company’s approval because it is proprietary information, according to Ron Miller, the district’s general manager. He said the brewery will decide whether to release the data by Monday, the deadline set by Maine law for responding to the newspaper’s request for public information.

The city’s failure to collect sewer payments from Shipyard means that the brewery’s share of sewer system costs have effectively been paid by other users, including businesses and homeowners. The unbilled charges amount to about $300,000 a year, Miller said.

City officials say they are investigating how the mistake occurred and are working with the Portland Water District to make sure that all the city’s sewer customers are being billed properly, city spokeswoman Nicole Clegg said. Until the investigation is complete, the city is not prepared to make a decision about whether it will seek back payments, she said.

“Right now we need to understand what happened and why,” she said.

Shipyard President Fred Forsley said if the business had to make the back payments, they would be so large that the brewery would go out of business, and with it would go the 75 jobs it provides.

He confirmed the estimated figure as current, but said the charges would have been less in previous years because production volumes were significantly lower. He said he did not know the total amount he should have been billed. The company’s fluctuating production volumes, coupled with changes in the water district’s rates, make it difficult to calculate what Shipyard’s payment would have been without more specific information about its water usage since 1996, when a second water line was installed at the brewery.

Forsley said he has always paid his sewer bill and that he was never aware that the bill was only a portion of what he should have been paying. Forsley contends that the brewery is not responsible for making back payments for a service it was never billed for.

‘Brew water only’

The city is responsible for maintaining sewer lines. The Portland Water District is a quasi-municipal organization that provides water to customers in Portland and 10 other municipalities. It also provides waste treatment services to six municipalities, including Portland. Sewer bills are based on how much water a business or household uses. That’s because water usage acts as a proxy for how much wastewater a business or household produces.

The brewery operates in a building that is served by a metered 4-inch water line, which was installed in 1979. Shipyard has always paid the sewer bill on the account established for that line. In 1996, when Shipyard was the fastest growing craft-beer producer in the country, the brewery added a new 6-inch water line. A submeter was installed on that line to measure the volume of water coming in. The water district’s work order for the submeter, dated Sept. 3, 1996, specified that a sewer account would not be set up for the 6-inch line, according to district records.

At the time, a wastewater technician with the city named Dave Peterson told a Portland Water District employee, James Pandiscio, that the new water line did not need a sewer account because the service was for “brew water only,” according to a statement that Pandiscio, now retired, gave to the water district on Jan. 20 of this year.

As a result, the brewery never paid a sewer fee for the millions of gallons of water that flowed through the 6-inch water line between June 1996 and last March.

Miller, from the water district, said the district made an inquiry to the city in 2004 about the brewery’s sewer bill. He said new software for the district’s billing system flagged the 6-inch water line at Shipyard as a problem because the line had a submeter measuring water volume but there was no sewer account set up for the line.

Miller said the district contacted Peterson on Oct. 7, 2004, and told him the city was losing a lot of revenue. Peterson replied that he understood that the city was not receiving revenue. Miller said Peterson also told the water district to remove the submeter “on paper,” to eliminate the software problem while allowing the line to continue providing water without a sewer account.

It is unclear whether Peterson, the Public Services Department’s “outstanding employee of the month” for November 2006, was acting on his own initiative or following a directive established by someone with higher authority in City Hall. He died in 2007.

Change to structure

Other breweries in the city, such as the Allagash Brewing Company, determine a sewer fee by subtracting the volume of beer they produce from the total amount of water they use.

Forsley is now looking for the same kind of credit as Allagash for water that Shipyard bottles, according to a Sept. 14 email to the water district from Portland Public Services Director Michael Bobinsky.

Bobinsky said he is not offering credit yet “until a reasonable period of catch occurs.”

The city is not offering any credit to Shipyard for the bottled water.

Officials from the city and the water district met on Jan. 27 to discuss the issues. Miller said the city believes the water district is responsible for the mistake because it had never billed the brewery for the line, but Miller said the city bears responsibility because it never set up an account.

Forsley said Portland’s sewer fees are double that of fees charged to competing breweries in other cities. He said he will be focusing on wastewater reduction, with a goal of bottling a gallon of beer for every 3 gallons of wastewater the brewery produces. Forsley would not say what the brewery’s current beer-to-wastewater ratio is.

“In reality, we are putting a lot of water down the drain,” he said. “My goal is to minimize that.”

Shipyard makes about 15 types of beer under the Shipyard brand, including seasonal bestsellers like summer ale and Pumpkinhead Ale. It has acquired other brands, including Sea Dog Brewing Co. and Casco Bay Brewing Co., and makes non-alcoholic Capt’n Eli’s Soda. Shipyard also brews beer for other companies, like Peak Organic Brewing Co. and Gritty McDuff’s Brew Pub.

Company officials told the Portland Press Herald last year that its annual revenue was about $20 million. In 2000, its annual sales were $5 million, company officials said at the time.

Portland is home to five breweries. Dave Kleeban, one of the owners of the Maine Beer Co, said it’s important that every business in the city pay its fair share.

“It shouldn’t matter who you are,” he said. “I can’t image that there should be a special deal in place for one business in the city and not all the other businesses.”

Richard Pfeffer, co-owner of Gritty McDuff’s Brewing Company, said that the city shouldn’t make up for the mistake by forcing Shipyard to make back payments, “It will be a real shame if the city tries to squeeze that much money out of a successful business,” he said. “That’s not going to benefit the city or the Maine brewery industry.”