I found Dave Ryan’s “Q&A about Davis water rates” helped clarify some important factual issues. I will add one more important fact and describe an underlying concept that supports the current rate design.
The most important centerpiece of the Woodland-Davis water project is the 10,000 acre-feet a year (or 3.25 billion gallons) water right acquired from Conaway Ranch. Based on terms of that agreement and depending on the period used to recover the investment, this water supply costs at least 50 cents per ccf.
But the most important fact is that this cost is only for water delivered in the summer. The purchased water right only runs from April 1 to Oct. 31. Water used in the winter is free. That means that customers using water in the summer should pay at least 50 cents per ccf more just to cover the ongoing costs of the water supply.
Further, we need to consider how to allocate the costs of delivering that water to Davis. The reason why Sacramento River water is expensive in the summer and free in the winter is that water is scarce and in high demand during the summer.
How best to allocate costs when most of the demand happens over a short period can be best illustrated by looking at parking in downtown San Francisco. Parking structures are built with capacity to meet demand during work hours on weekdays. Work-hour parking can cost upwards of $30 per day, but on a weekend night when the area is empty, parking typically costs $5. These rates are set by private operators who are recovering their investments as efficiently as they can.
For the same reason, Davis must recover most of its investment in the water conveyance facilities from summer users — the plant capacity was built to meet their demand. A plant built to an annual average capacity won’t be sufficient in August. The current rate structure properly recovers those costs from those individuals who create the need for such a large investment.