A fair proportion of fixed costs

By From page A6 | February 28, 2013

Bob Dunning’s Sunday column complains that it’s unfair to vary water rates to cover fixed costs that are pretty much the same for every ratepayer. Then he lists the costs that he sees as being fixed: “… the water connection to your home, personnel costs, billing, having someone read your meter … it costs the city the same amount to install your water meter and read your water meter and bill you and hire consultants and attorneys and all the rest of it whether you use one gallon a day or 100 gallons a day. They still have to put that 46-cent stamp on everyone’s envelope, big users and small users alike.”

Apparently, Mr. Dunning hasn’t actually read the proposed rate structure. Right there is the “distribution charge.” It includes the costs for connecting a household, installing and reading the meter, creating and sending the bill with that 46-cent stamp, and even paying for the attorneys and consultants. The distribution charge only varies with the size of the meter connection (and I can use my 25-plus years of utility work to show Mr. Dunning the finer points of why a business creates more costs than a residence) and not at all with the usage or any other demand measurement.

Yet Mr. Dunning left off his list the fixed costs that do vary with peak summertime demand — the size of the river outtake, the water treatment facility capacity and the pipeline diameter. These are the “fixed” costs that are allocated by the supply charge. All of these fixed costs determine the ability to “supply” water during the period of peak demand. They can’t be changed after the system is built.

The beauty of the consumption-based fix rate supply charge is that is varies the proportion of fixed costs that each customer bears depending on their relative share of that peak summertime use. That’s where fairness comes in. Why should I pay for the larger water treatment facility required to fill my neighbor’s pool, or to irrigate their sidewalk after their daily lawn watering? The fair approach is for each of us to pitch in for the share of those costs that actually vary with peak demand during the summer.

Richard McCann

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