The City Council could vote on a path tonight that might lower Davis’ water rates by 8 percent at the same time an initiative to throw out the rates is on the June 3 ballot.
City staff is recommending that the council authorize consultants and the newly formed Utility Rate Advisory Committee to review the current rates and determine if they can be reduced or modified.
City officials say the relationship to the timing of the Measure P vote on June 3 is entirely coincidental. The council had a standing order all along to look for any way to lessen the impact of the Sacramento River water diversion project on Davis ratepayers. The project will cost Davis $107 million or $129 million, depending on how money is measured over time.
“Even if (the initiative) was not on the ballot, we would go forward and look at what we could do to reduce the rates,” said Harriet Steiner, city attorney.
The report says the savings are accomplished through cost efficiencies gained by hiring the same engineering firm, CH2M Hill, to design, build and then operate the river water diversion system. They are also managed by organizing financing costs.
“To be straightforward and honest at the time of Measure I, we did not want to underestimate the rates in any way,” said Mayor Joe Krovoza.
Measure I, which authored Davis’ participation in the joint water project, was approved by local voters in March 2013.
The recommended 8 percent reduction is the limit that city staff believes can take place right now without shirking financial obligations to service millions of dollars in bonds.
Yet the report — authored by Herb Niederberger, the city’s general manager of utilities development and operations — also serves another of the council’s purposes: being specific about the city’s interpretation of costs to Davis if Measure P is approved.
The report states that the measure would limit Davis’ ability to meet deadlines in the Woodland-Davis Clean Water Agency Joint Powers Agreement to the point where the city could trigger a terminations clause. And termination would cost millions of dollars.
The city already has spent $25 million for the project and Davis is on the hook for $36.5 million over 24 years for the purchase of water rights from Conaway Preservation Group. Finally, damages to Woodland would be $50 million.
But there’s the possibility of interim financing to cover the costs Davis would need to pay to avoid default in the joint powers agreement. The council will learn more about that tonight.
There’s more. If Davis misses out on the opportunity to use low interest rates to finance the project, the potential price tag to the city and its ratepayers would be $100 million in “long-term project costs,” and Davis would not be able to meet the demands of state water regulators for selenium and other water treatment hurdles.
“The water system is an enterprise fund that is funded through water rates,” the report reads. “City staff cannot determine with any certainty the impact on the city’s water rates if Measure P is adopted and the aforementioned default and penalty payments are incurred and Davis no longer participates in (the water diversion project).”
Due to the risks of the June 3 election, city staff were pointed in their advice to the council.
“Given the potential significant costs to the city’s ratepayers, staff believes that (the) city must do whatever it takes to avoid the possibility of defaults on the (water project) and the consequence of penalty payments to either Woodland or the (Woodland-Davis Clean Water Agency),” the report reads.
In addition, the report recommends that, if Measure P passes, the city waste no time in initiating a new Proposition 218 rate-setting process.
“Measure P should run its course on June 3,” Krovoza said.