Tuesday, March 31, 2015

Q and A: Facts and fiction about water rates

From page A1 | May 16, 2014 |

Proponents of Measure P would throw out the city’s water rates and start over, based on arguments that paint the city’s water rates as unfair and illogical. Measure P opponents paint those arguments as silly and illogical.

It’s one thing to place those arguments side by side and compare the two, but really — who is right and who is wrong?

First, some background. The city’s new consumption-based water rate bases one of three parts of its cost on water consumption during the six dry months of the year, when water demand is highest in May through October. The city is currently charging people based on a more traditional two-part water rate while measuring the amount of water they use for billing cycles starting this January and changing each January.

Question: Under the consumption-based rates, does water cost 40 percent less per unit of measurement for apartments than single-family homes? Measure P boosters like former Mayor Sue Greenwald repeatedly point to this assertion. They use data produced by economist Mark Siegler, a member of the city’s Water Advisory Committee.

Answer: Assuming that Siegler’s math is right — and Measure P opponents say it is wrong — the argument that single-family homes with irrigation needs are subsidizing apartments and condos without irrigation needs falls flat.

Why? Let’s go to Siegler’s own April 12 written argument using two hypothetical accounts. One account is an apartment that uses a steady amount of water every month because, presumably, there is little to no irrigation, and a small single-family home.

To make Siegler’s math line up, that hypothetical single-family home has to be smaller than the apartment and have a yard, because Siegler assumes the home has outdoor irrigation. We’re also assuming the same number of people live in both units and they consume the same amount of water.

Under those conditions, the math Siegler did comes up with an annual average charge of $7.63 per month paid for each 100 cubic feet of water, of ccf, the standard of measurement for water bills. The apartment, however, pays only $5.47 per ccf. At the peak of summer, Siegler points out that the scenario has the single-family home paying 40 percent more for the same amount of water.

The implication is that apartment dwellers’ water use in the real world will be subsidized by residents of single-family homes. This is false based on the assumptions Siegler used to make his example.

Why? The hypothetical example is just that, a work of mathematical fiction. In reality, the vast majority of apartments in Davis are smaller than single-family homes. According to a 2013 UC Davis study, 46 percent are two-bedroom apartments and 31 percent are one-bedroom units. According to Zillow.com, the smallest home for rent or sale in Davis is three bedrooms. Those homes may come with a yard that probably needs water in the summer.

“All that differs between the two accounts is the timing of when the water is used,” Siegler says in his argument.

Timing is important. According to a Nov. 8, 2012, presentation to the Water Advisory Committee, outdoor water use climbs 350 percent during July and August, when homeowners water their yards the most. Indoor water use makes up only 22 percent of all water use during the summer peak.

The consumption-based rate is designed to encourage lower irrigation by financially penalizing people who water their yards as if 1950s-era water use never went out of style. It can do that because it measures water use during the summer months and charges people a rate the next year based on that usage.

Question: Should we pay for water gallon by gallon? This is a common argument heard in public forums from folks who promote Measure P. Opponents of the measure say it’s an indication of someone who doesn’t understand how the water system works.

The water system isn’t some magical thing that deals only with how much water you use in a given time period. It has to be built to accommodate the peak demand at the peak times of year. That means the capacity of the system must be built at or above the level needed to deliver on its promise of water at any time.

To do that, it must hire employees, it must lay pipe, fix pipe and maintain fire hydrants. If there was a gallon-by-gallon cost, the water system would go bankrupt because water use would plummet during the winter and not bring in enough money to run the system, especially during the summer.

Question: Will passage of Measure P cause the city to default on the surface water project?

Answer: Probably not, but it could cost ratepayers millions of dollars, and their eventual water rates most likely would not be much lower than they are currently.

Herb Niederberger, general manager of utilities at the city, posed the default scenario first on a list of options to City Council members as they directed city staff to work with a citizen committee to find ways to eventually shave 8 percent off the consumption-based rates for all customers.

The work to fine-tune the rates in moving ahead, acting as a timing bulwark in case Measure P passes, but the city maintains that the timing of Niederberger’s report is coincidental.

In an interview, Niederberger said once construction starts in earnest on the surface water project this summer, Davis will be on the hook for $5 million each month.

“We are holding on to a three-month operational reserve,” he said. That’s not enough to run the water system and do some sort of bridge-financing on the secondary market if Measure P passes.

Secondary market? Yes, lenders with 4.25 percent interest rates make up the primary market. A more expensive market offers 10 percent interest rates to deal with more risky investments, Niederberger said. That’s where Davis will be if its water rates continue to be placed in legal and democratic jeopardy, he added. The more mayhem surrounding the water rates, the more lenders will be scared to finance the water project.

If the city cannot secure bridge financing, the $50 million Niederberger estimates the city would owe Woodland — based on estimated construction costs that would be finalized later, according to Woodland Davis Clean Water Agency director Dennis Diemer — plus the $5 million per month the city would need to pay for construction must come from somewhere or the city could be in serious financial trouble.

— Reach Dave Ryan at [email protected] or 530-747-8057. Follow him on Twitter at @davewritesnews



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