Wednesday, August 20, 2014

Fixed rate is system’s ‘mortgage’

From page A10 | February 15, 2013 |

By Matt Williams

On Valentine’s Eve, readers of The Enterprise were exposed to some creative accounting by columnist Bob Dunning. I thought it would be interesting to take a further look at the example he provided on Davis’ proposed water rates.

Specifically, let’s look at another commodity that we all value … our home. Since almost everyone who is a ratepayer is also the owner of a home (or business), there is a very direct parallel between our decisions about home ownership and our decisions about water use.

* For both home ownership and water use, we start by deciding what our level of need is;

* We then choose to buy the amount of house/water that meets our need; and

* With respect to our house, we have periods of peak use and we have periods of off-peak use.

Many Davis residents are empty nesters living in a house with three or four bedrooms. Unless we have visiting family, our use of our home is almost always “winter” use. Only when friends or family come from out of town to visit do we find ourselves in a “summer” use pattern with bodies in all three or four bedrooms.

When we took out a mortgage when we bought our house, did the bank ask us what our relative proportions of “winter” and “summer” use of the house were going to be? No. The price of the house essentially assumed we would make optimum use of the house 365 days of the year, otherwise we would be buying a different house with less “summer peak” capacity. The monthly mortgage payment for the house we bought is the same month after month regardless of how much of our house we use.

Further, anyone who reads The Enterprise on a regular basis knows that Bob Dunning and his family go on vacation to his beloved Oregon each year. Whether the vacation is a weekend or multiple weeks, Bob’s use of his house drops to zero. Does Bob’s monthly mortgage payment drop even a penny?

If any one of us tries to convince a bank that our mortgage payment should adjust each month based on how often we take vacations or how often we have house guests, the bank will laugh and say we are playing fast and loose with numbers that have no relation to reality.

Using the water math Bob provides in his column, the cost of a mortgage on a per-day basis is “two times as high” during a month where the owners are on vacation for two weeks. That rises to “four times as high” if the vacation extends to four weeks … and if you rent, the exact same situation applies. The only difference is that the monthly payment is for rent rather than for mortgage.

The supply charge in the consumption-based fixed rate structure is simply each ratepayer’s mortgage payment for the peak water system capacity that the ratepayer decides is needed during the summer irrigation season.

With a house or apartment, the mortgage/rental payment doesn’t change based on month-to-month usage changes. The only way we can reduce our mortgage/rental payment is to downsize to a smaller house with less “summer” capacity, and when we do, our monthly payment goes down.

The supply charge in CBFR works the exact same way. If a ratepayer decides to downsize his use during the May-to-October irrigation season (when all the metaphorical bedrooms are full of bodies), then his monthly supply charge mortgage payment the next year will be lower each and every month. Why? Because, just like moving to a smaller home/apartment, he will have downsized his use of the water system’s peak capacity.

Those are the facts, ma’am … only the facts.

— Matt Williams, an El Macero resident, is a member of the Davis Water Advisory Committee. He drafted the consumption-based fixed rate structure with fellow WAC member Frank Loge.



Special to The Enterprise

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