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Water committee recommends untested rate structure to bill ratepayers

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From page A1 | November 16, 2012 |

Going first. It just seems to be the Davis way.

The Water Advisory Committee voted 8-2 Thursday to recommend a consumption-based, fixed-rate water structure to the City Council, a revolutionary way for public agencies to bill ratepayers to recover the fixed costs of its water utility system.

It’s so revolutionary, in fact, that the structure, which actually was invented this year by WAC members Frank Loge and Matt Williams, has never been tried before in California.

But while that didn’t stop the committee from eventually voting for the structure, it took almost three hours of heated debate over multiple types of billing systems to finally reach near-consensus.

The Loge-Williams system works by tracking how many gallons of water a customer uses in the previous year, comparing that amount to how much the rest of the residents in the city used and then charging the customer for their percentage-use of overall water consumption.

This, however, only determines the majority of the fixed costs, or the costs of physical water utility system.

In addition to the CBFR, residents would be charged a variable rate through an inclining tiered structure to pay for the actual water they use.

There would also be a base fixed fee that the city’s rate consultant calls a “readiness-to-serve” fee that residents have to pay simply for access to the system, regardless of how much water they consume.

So, to simplify the entire structure, if there were 100 water customers in Davis and the city water system’s fixed costs were $100 per year after the meters were accounted for, a customer who used five percent of the overall water the previous year would pay $5 for their fixed costs.

Then, they’d pay a certain amount per gallon of water consumed, plus a nominal base fixed fee for their water meter.

Extrapolate that by a $116 million surface water project, 16,000 ratepayers in Davis, other infrastructure improvements that need to be made and stretch it out over five years, and the result is the rates that residents will see when they open up their water bills in the coming years.
That is, if residents approve the project through a public vote in March.

But the complexity of the recommended structure has city staff concerned.

Ratepayers will be asked to approve the structure and the corresponding rates through the Proposition 218 process where the city sends out notices informing them of proposed rate increases and the structure by which they will all be charged.

Normally a simple one-sheet explanation, city staff members have expressed that residents could very well turn down the structure because they don’t understand it. The complexity of the structure could also make it eligible for legal challenge.

If the rates aren’t approved by the public, or if a court deems them unlawful, the city will not have the revenue stream the fees produce to pay for the surface water project.

“If the city chooses to move forward with using this model, we will need to work on the language in the Prop. 218 notice regarding the basis upon which the fees were calculated,” wrote Best, Best & Krieger’s Kelly Salt in her analysis of the structure in an email to the committee.

Salt said that the language Williams and Loge have in their explanation needs to clearly state which component of the structure, the innovative CBFR part, the base fixed rate and the variable rate, pays for what part of the water utility.

The other concern the city has, as Doug Dove of Bartle Wells Associates — the city’s rate consultant — said Thursday, is that an untested system could harm the quality of financing it receives from creditors to pay for the project.

This essentially could mean higher interest rates to pay off the debt service and subsequently higher water rates.

“The rating agencies aren’t going to be looking at that favorably if we have a rather new, rather innovative, yet untested rate design going forward,” the city’s General Manager of Utilities, Development and Operations, Herb Niederberger, told The Enterprise last week.

Davis, in the past, has billed ratepayers with an inclining tier structure where all customers pay a flat fee for fixed costs based on the size of their water meters — regardless of how much water they use — and a variable fee based on water consumption.

According to the city’s rate consultant, the tiered water rate system is the most widely used in California. And it has well-established industry standard language that appears on the Prop. 218 notices.

In the end, the decision falls to the City Council, who must make a decision on the rate structure before it sends out Prop. 218 notices in January.

If the council opts to go with the advisory committee’s recommendation, it will be up to the city’s legal staff to develop language that is clear enough for ratepayers to understand.

“We do think there’s a lot of benefits to it,” said City Attorney Harriet Steiner at the meeting. “But we do need to make sure that (the language) is tight as it goes forward.”

Perhaps the most stirring argument of the night for the Loge-Williams plan came from committee member David Purkey, who urged his colleagues to push Davis into the forefront of this innovative idea.

“Nothing about this project we’ve done is innovative,” Purkey said. “(But) 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.”

Committee member Alf Brandt, a water resource law expert in the Legislature, said that the question of proportionality for fixed rates has confounded the industry for years, but that the structure Williams and Loge have developed could change that throughout the state.

“From people I respect, people who know water and know Prop. 218 inside and out, lawyers that are experts in this field say this could work,” said Brandt, who originally did not vote for it because he was afraid of the legal challenges it presented. “It’s very intriguing to me.”

Others also were skeptical.

Committee member Michael Bartolic said he was not comfortable with voting on something he did not fully understand. Bartolic left the room before the final vote was taken.

In the end, committee members Mark Siegler, Bill Kopper, Helen Thomson, Steve Boschken, Jim West, Jane Rundquist, Purkey and Brandt voted in favor of the structure. Committee chair Elaine Roberts Musser and member Gerry Adler voted against it.

The city produced sample rates for the committee members to look over Thursday that could come as a result of the rate structure.

Starting on May 1, the average single-family home would pay $6.96 as its base fixed fee, $37.08 for the CBFR fee based on an average of 18 hundred cubic feet of water the previous year and if they used 24 ccf for the month, $11 for their variable water usage.

This would result in a monthly water bill of $55.04. (Eighteen ccf is about average for single-family homes in Davis.)

By 2018, using the same amount of water use, the average bill would be about $145.51.

— Tom Sakash at tsakash@davisenterprise.net or 530-747-8057. Follow him on Twitter @TomSakash. Follow all Davis water news using #daviswater.

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Tom Sakash

Tom Sakash covers the city beat for The Davis Enterprise. Reach him at tsakash@davisenterprise.net, (530) 747-8057 or @TomSakash.
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