Sunday, December 21, 2014

Understanding summer, winter water rates is key

Summer Winter graphW

By John Whitehead

Now that our city government is seeking a new rate structure for water billing, the reasons for the passage of Measure P need to be considered carefully to avoid a repeat performance.

The consumption-based fixed rate structure, rescinded by Measure P, was criticized for multiple reasons. A major objection to CBFR was that new residents during their first year would have to pay amounts based on the water consumption of the previous owner or tenant. A second criticism was that summer water would be billed at a much higher price per gallon than winter water.

These two features of CBFR were linked, in that the extra payments for summer water would be spread over the subsequent year, referred to as the “supply charge.”

In considering any new method for calculating water bills, we should appreciate that the concern over postponed payments is a separate issue from the relative pricing for summer and winter consumption. The size and cost of our water supply system depends on the peak usage, which occurs in the summer, so one perspective is that higher per-gallon summer pricing is really to pay for construction and maintanance of the infrastructure, rather than an extra charge for the water itself.

At the same time, higher summer prices provide a financial incentive to reduce landscape irrigation, which will become essential if drought conditions persist in California.

Selecting a new billing rate structure will inherently include a decision on the relative pricing of summer and winter water, so the accompanying graph is offered to shed light on this tradeoff. Points along the curves were calculated so that total money divided by total gallons remains the same for all cases.

Total money was calculated as summer consumption times the summer billing rate, plus winter consumption times the winter rate. The term “weighted average” applies. For the purpose of this analysis, “summer” is defined as the six months of highest water consumption, and “winter” is the rest of the year.

The horizontal line across the middle of the graph represents equal per-gallon pricing all year, while other possibilities are represented by pairs of curves, higher for summer and lower for winter. The curves show the potentially overlooked fact that winter prices are greatly reduced when summer prices are raised. Therefore, it is misleading to think of the difference as purely a huge summer surcharge added to the winter price.

The point labeled “A” in the graph shows that even if the summer-to-winter price ratio approaches infinity, the maximum possible summer price can only be twice the amount that we otherwise would have to pay as a constant rate all year. Actually, we have to follow the curves to the right, because summer water consumption exceeds winter consumption.

The points labeled “B” and “C” are more realistic possibilities for Davis, because overall consumption roughly doubles in the summer. Point B approximately represents the CBFR ratio, in which summer water was priced five to six times higher than winter water. While this may seem like an extreme discrepancy, the graph makes it clear that total CBFR payments per gallon for summer consumption would have been roughly only 40 percent more than the amount we would pay anyway for equal year-round pricing.

Assuming that the additional 40 percent is deemed too high, we can ask how much lower the ratio should be, while fairly covering infrastructure costs and providing an incentive for summer conservation. As one example, the summer price at point C is only 15 percent more expensive than the “equal” option. While this may seem reasonable, we still need to be wary of misleading criticism. As the graph shows, it would be correct but incomplete to state that the summer billing rate at point C is almost twice the winter rate.

For decades, our traditional tiered rate structure has had a higher average price per gallon in the summer, because many water bills have risen into the expensive second and third tiers. The graph is relevant for any billing method, which helps us appreciate that the relative pricing of summer and winter consumption is not a concern unique to the CBFR rate structure rejected on June 3 by Measure P voters.

— John Whitehead is a Davis resident who enjoys math and community interaction.



Special to The Enterprise

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