PORTLAND — After six months of negotiations, the city and Shipyard Brewing Co. have not come to an agreement over how the company could make back payments for an estimated $1.5 million in sewer bills that the company never received.

The two sides have agreed to bring in a third party to settle the impasse, according to city spokeswoman Nicole Clegg.

An independent arbitrator is expected to hear arguments from both the city and the brewery and render a binding decision, likely by the end of March, she said.

“Both parties have agreed to await the decision of the arbitrator before commenting publicly on the matter,” Clegg said in an email Wednesday. “We believe that this approach will help resolve the issue in a timely and fair manner.”

Fred Forsley, president and co-owner of Shipyard, declined to comment on the matter.

The city is seeking back payments for a 6-inch water line installed in 1996, for which the brewery was never billed. The brewery was only making payments on about 9 percent of its water usage.

The water line was installed around the same time Shipyard began receiving a break on its property taxes. The 12-year tax increment financing package returned more than $700,000 to the business from 1996 to 2007.

The sewer billing error was discovered in 2011, when the city was working with businesses to reduce their water usage. An analysis by the Portland Press Herald estimated that the error cost the city up to $1.5 million. The city has never released its own cost estimate of the billing error.

The city’s public meeting calendar shows the City Council held closed-door meetings about Shipyard on July 16 and Sept. 5. Clegg said the July 16 meeting was moved to July 9 and the council also met in closed sessions on June 4 and Aug. 6, and a negotiating team has met with brewery representatives “on several occasions.”

Clegg said the two sides agreed to binding arbitration on Sept. 14.

After the error was discovered, the city hired attorney Bryan Dench to investigate. Dench found no evidence of intentional wrongdoing, but couldn’t pinpoint the cause of the error, because of poor record-keeping and the deaths of two city workers involved.

The city later discovered that another dozen commercial and industrial consumers were never billed for sewer fees. The city estimated those errors cost nearly $47,000.

At an April council meeting, Forsley asked the council not to seek back payments, noting his monthly sewer bill had jumped from $15,000 to $50,000. It would be difficult to recoup those costs, he said, because they weren’t built into the beer price.

The Portland production facility currently employs 60 people, Forsley said, and another 600 people are employed at Shipyard brew pubs statewide.

During peak production, the Newbury Street brewery produces 144,000 cases of beer a day. In 2011, the company shipped 1.78 million cases of beer, according to its website.

Mayor Michael Brennan said he is encouraged that both sides agreed to resolve their differences through binding arbitration.

“I am pleased we’ve arrived at a mutually agreed-upon process to resolve this issue,” Brennan said.

Staff Writer Randy Billings can be contacted at 791-6346 or at:

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