Thursday, April 24, 2014

Water-rate fairness? That’s what we’ve delivered

By Matt Williams

I’d like to respond to points made last week by Bob Dunning about the water rate model recommended by Davis’ Water Advisory Committee, on which I sit as an alternate member. I’ll use the point/counterpoint set-up, quoting from Dunning’s Tuesday column.

POINT (Dunning): I come not to bury the Water Advisory Committee, but to praise it … or maybe the other way around … I’m not sure … all I know is the recommendation the WAC made to the City Council about water rates is confusing in the extreme, even in a town where half the town has a Ph.D. and the other half thinks it should … the plan is one of those only-in-Davis, first-in-the-nation things that makes me wonder if it was adopted for its rationale or simply because it allows our town to stake another claim to worldwide greatness … I’m not sure I want to be a guinea pig when it comes to the cost of water …

My fear is fueled by one committee member who said “This is Davis. This is something for us to do, something innovative, and if someone is going to innovate this type of reform, I think that we should be the ones to do it.” … with all due respect to innovation and to being first on the planet to institute a water rate structure no one else has dreamed of, I’d much prefer fair and affordable when it comes to my family’s water bill … save your experiments for the Primate Center …

COUNTERPOINT (Williams): The new rate structure uses the consumption-based fixed revenue rate model, which is designed to provide fiscal stability for both customers and the water system by recovering 100 percent of the water system’s fixed costs in each year of the rate structure’s five-year period. By recovering 100 percent of the system’s fixed costs, water consumers will see reliable, proportional, stable and sustainable rates for the whole five-year period.

Rate structure comparison: To put this new rate structure into perspective, it is useful to look at Davis’ current rate structure, which is made up of two components:

* Charges that cover the costs the city must pay that were incurred to build the existing ground water sources (wells) and the water distribution system (mains and pipes and meters and treatment and customer service); and

* Charges that cover the variable costs that the city incurs each day to run the water system and provide reliable water to each and every consumer whenever they need that water.

The new water rate structure is made up of three components that reflect the new conjunctive use water system (ground water and surface water) approved by the Water Advisory Committee and the City Council. Those components are:

* Monthly charges that cover the costs the city must pay that were incurred to build the existing ground water sources (wells) and the water distribution system (mains and pipes and meters and treatment and customer service);

* Monthly charges, called the consumption-based fixed revenue fee, that cover the fixed costs incurred to build the 12 million-gallons-per-day (mgd) surface water plant; and

* Monthly charges that cover the variable costs that the city incurs to run the water system each day and provide reliable water to each and every consumer whenever they need that water.

Why the new middle category? Going to a more reliable conjunctive use water system means incurring a whole new category of fixed costs that are isolated and recovered in the middle component of the new rate structure.

POINT (Dunning): One huge drawback to the WAC-approved plan the council will now grapple with is that the fixed-rate portion of your bill will be based on the previous year, which significantly discourages conservation because no matter how much you cut back, your rate is based strictly on what you used last year if you had a particularly bad year water-wise — maybe Grandma and Grandpa came to live with you — you continue to pay a significant penalty for a long period of time

COUNTERPOINT (Williams): Let’s first deal with the drawback that Bob believes exists. The period of time of the increased fee is not long. It is a year. The consumption-based fixed rate will be adjusted each year based on the most recent summer usage.

Why choose the summer period for this adjustment? If you have ever experienced an electrical brownout (or, God forbid, an electrical blackout), you know there are times for public utilities where demand can exceed the system’s capacity to reliably deliver electricity or water. In designing the Davis water system, the engineers have worked hard to create enough capacity to avoid a “drip out.”

How do they do that? They simply look at the aggregate consumption history of all the 16,000 customers and see what the maximum usage is, and then design the plant to meet that aggregate usage plus some room for growth. They also add some capacity (almost double) to deal with the “peaking” that happens between 4 and 6 a.m. when the vast majority of the city’s irrigation systems turn on to keep Davis green.

If that method is the best way to design reliability into the system and avoid “drip outs” for all the system customers, why isn’t it the best way to pass on to all the customers their fair share of the construction costs?

Why the annual adjustments? Why not set the share of the construction costs for everyone once and then charge them that way forever? The answer for that is straightforward. If a consumer frees up a portion of the system capacity by conserving, then 1) they are making the system more reliable and less susceptible to “drip outs” and 2) they “creating” additional capacity in the water system that can be used to satisfy new customers or increased demand from existing customers without having to incur the cost of expensive capital upgrades to the system.

The annual adjustment of the consumption-based fixed revenue fee rewards customers who create that kind of extra plant capacity. It also passes on a fair share of capital costs to those customers who increase the amount of water use load they are placing on the plant capacity.

One other aspect of the summer peak that is worth noting is that in Davis the amount of water used for irrigation is close to three times as much as is used inside a household or business. So, Grandma and Grandpa are much less expensive that an irrigation zone in the typical Davis lawn.

POINT (Dunning): Worse yet, the plan dramatically reduces the amount of water a household may use before moving into the punitive tier system, where the cost of water spikes considerably …

COUNTERPOINT (Williams): It sounds like Bob has a suggestion imbedded in that observation. Maybe he wants to propose a different tier break point?

To put Bob’s observation into context, in the new rate structure the cost per hundred cubic feet of water (ccf) in Tier 1 is proposed to be 40 cents and the cost per ccf in Tier 2 is proposed to be 50 cents. The old tier break is at 18 ccf, and the tier break recommended by the city’s water consultants, Bartle Wells, is at 10 ccf. That is a difference of 8 ccf.

So the math teachers in the Davis schools can create the following word problem for their students, “If one group pays 40 cents per ccf for 8 ccf of water and the other group pays 50 cents per ccf for 8 ccf, how much more did the second group pay?”

POINT (Dunning): The plan does not take into account household size before beginning the punishment, which is unfair in the extreme … simple fairness — not to mention the 14th Amendment to the U.S. Constitution — demands that each citizen of this town should have the right to a basic amount of water for regular daily needs at the exact same price every other citizen of this town is charged … tiers, meant to punish water wasters, should never be instituted before household size is taken into account …

COUNTERPOINT (Williams): I actually agree with Bob on this issue, and that is one of the key reasons that the consumption-based fixed revenue fee is the exact same price per unit of water for every citizen in Davis. The challenge in achieving what Bob is looking for on the variable fee is that it will take nine to 12 months to gather the information to produce water budgets (that is what he is asking for) for all Davis customers that are fair and proportional.

Given that challenge, if the City Council agrees with Bob (and me and many others) that water budgets are the best way to go, then the council needs to direct staff to begin collecting the necessary data to build the budgets. If the council does that, then all Bob needs to do is recommend what the tier levels should be in the period between now and when water budgets are implemented. So the ball is in Bob’s court on this point.

POINT (Dunning): With the unreasonably low threshold for moving a household into Tier II ratepayers’ hell, large families or those who have taken in foster children or an ailing relative will automatically be paying more per gallon than their neighbors, no matter how much they conserve

COUNTERPOINT (Williams): As noted above, the Davis math students are hard at work on calculating exactly how much the Tier II taxpayers’ hell actually costs, and the answer is 80 cents per month. Dante would be proud.

POINT (Dunning): It makes complete sense that a larger household should have a proportionately larger water bill than a smaller household … what doesn’t make sense is why the larger household must also pay more per gallon than the smaller household … simple fairness says that onerous feature must go …

COUNTERPOINT (Williams): As noted above, this onerous feature needs only a specific proposal from Bob and it will go away immediately.

POINT (Dunning): A GALLON IS A GALLON IS A GALLON … this whole notion of charging one Davis citizen more for the same gallon of water than is charged to another Davis citizen is puzzling at best … last time I went to the gas station, it was nearly 4 bucks a gallon … the attendant didn’t poke his head in the car and say “Oh, you have six kids in there, so it’s 8 bucks a gallon for you.” … obviously, if you use more water than your neighbor, you should pay more … if it’s a dollar a gallon and your neighbor uses 2 gallons, he gets charged $2 … if you have a large family or a bunch of house guests and you use 10 gallons, you get charged $10 …

But this system adds a penalty to the second group, under the presumption that they’re water wasters … and I’d feel this way if I had 10 kids, two kids or no kids at all … a gallon is a gallon … fair is fair … why the different price per gallon depending on the size of your household? … If we use more water, we pay more … and if we use less water, we pay less … just like the way we get charged for bread, butter, milk, gasoline and pot roast …

COUNTERPOINT (Williams): Anyone who has purchased gasoline near the Mace overpass knows that while a gallon is a gallon is a gallon, if you pull into the Chevron station, your pocketbook will take a much bigger hit than if you pull into the Shell station, and even less of a hit if you pull into the Valero, and if you are into long-distance traveling and mosey all the way over to the Arco station, your pocketbook will feel even fatter. A gallon is a gallon is a gallon, but there are still choices for getting that gallon.

In the water world, once you start using outdoor water you are beginning to add to that incremental cost that the engineers have to take into consideration when designing the system to avoid “drip outs” and that is especially true if 1) your sprinklers go on between 4 and 6 in the morning when the maximum demand exists in the water system, 2) your sprinklers are set so that they water the gutter rather than your grass or 3) you have a leak that you haven’t gotten the city to come and find and fix.

Does anyone disagree that all three of those categories of use are more costly to the community?

— Matt Williams, an El Macero resident, is an alternate member of the Davis Water Advisory Committee and created, with committee member Frank Loge, a water rate structure that was recommended by the committee.

Special to The Enterprise


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