Water Attorney Analyzes Loge-Williams Water Rate Structure Proposal

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Last month, an article ran on an innovative new rate structure proposed by WAC member Frank Loge and alternate member Matt Williams, who have come up with “a proportional fixed-fee structure based on water consumption history that could balance water bills in Davis” – a system that has never been tried before in California.

Reported the Davis Enterprise: “Like many public agencies in the state, Davis uses a tiered water rate structure where customers pay a fixed rate based on the size of their water meter and then a variable rate based on how much water they use.”

The problem is that Professor Loge and Mr. Williams believe that this type of system does not adhere to Prop. 218 requirements.

The two write: “While meter size-based fixed rates seem proportional and fair at first sight, they are a simplistic, indirect and inexact measure of proportionality.”

They add: “Meter size-based rate schemes are … based on the potential demand, rather than the actual demand a consumer places on the (water) system.”

“Thrifty and extravagant water users pay the same fixed fee, but derive entirely different benefits from the system they fund with their fixed fees,” they write. “The thrifty user’s fixed fees cover some of the fixed costs the wasteful user imparts on the system, in effect subsidizing the water waster.”

Last week, water rate attorney Kelly Salt with the Best, Best and Krieger firm wrote a note to the WAC and she gave the Loge-Williams proposal good and positive feedback.

“I think conceptually this can work,” Ms. Salt writes.  “This is similar to the approach that Davis and a number of public agencies use for approximating flows for sewer service.”

“In that instance, winter months’ water usage is used to approximate wastewater flows because that time period is when the least amount of water is used for outdoor water usage,” she notes.  “Hence, most water use is returned to the sewer through indoor domestic water use and is the best approximation of the amount of wastewater flow a property generates annually.”

“Here, the argument is that the amount of annual water use is the best means of approximating the demands that a water user places on the water system.  Once you know the demands (based on water use) you can allocate a portion of fixed costs to the water user.  In other words, since you use more water you should have to pay a greater portion of the fixed costs of the system because your demand generates more fixed costs,” Kelly Salt continues.

She adds, “This is similar to what is done with most fixed charges where the size of a water meter is used to allocate fixed costs.  The theory in that instance is that the larger the size of the meter, the more demands the water user places on the system (i.e., the more water potentially flowing through the meter to the property, the greater the share of the fixed costs allocated to the water user).”

There are a few issues however, that Kelly Salt believes need to be potentially addressed if the WAC moves forward with this plan.

She notes first that, due to the university, Davis has a large transient population.  “There are fairness issues that may be raised by individuals who move into a property and are saddled with water rates based on the prior occupant’s/property owner’s annual water use for the prior year,” she writes.

This is an issue that others have noted as well, and it is the same issue that arises with respect to the city’s sewer rates.

She suggests, “If you do proceed with this that you establish an appeal procedure whereby the new occupant/property owner is given an opportunity, after he/she demonstrates over a given period of time that their actual water use is less than the prior occupant/property owner for that given parcel, to have their fixed fee reduced.”

Second, she writes, “Your fixed fees are not necessarily related to how much water a customer uses.  For example, the cost of having a meter read, a bill mailed, or debt service payments made does not change based on the amount of water used.  Consequently, an argument can be made that there is no nexus between the service provided and the amount of the fee or charge imposed.”

She adds, “Having said that, the same argument could be made that using the size of a meter to set the amount of the fixed charge raises this same issue.  But you may need to flush out this analysis a little more since this is a new approach that is likely to generate a number of questions.”

She suggests, “I would suggest that there be workshops in the community to educate the public on this new approach, what this means for their bills.  Change is always hard, but getting buy-in goes a long way to making the transition easier.”

Third, she notes, “On a going forward basis this method of determining the fixed charge for each customer may require more staff time and/or changes in your rate program to generate bills.  So the cost implications should also be analyzed (i.e., does this increase fixed costs and should those costs be incorporated into the analysis/financial data for the rates?).”

She also suggests that, before proceeding, the data and analysis be independently verified by both the rate consultant and internal staff.

Finally, “If you do move forward with this, we will need to work through how the Prop 218 notice would show what a person’s rate will be for the fixed charge.  First and foremost, Prop 218 requires that the notice include the ‘amount’ of the fee or charge proposed to be imposed.”

She writes, “It isn’t clear to me from the Power Point how to represent this in the notice since you are talking about a 5-year rate case, a person’s fixed charge is based on a percentage of the overall fixed costs on an annual basis, and that percentage may fluctuate from year to year.”

“In the end,” she concludes, “I think it is an interesting approach, believe it conceptually is workable, believe that it is a variation of budget based rates, and could encourage more efficient water use within your community.  An open question is whether that water efficiency message will carry over to your transient community.”

Last month, when this proposal came out, there seemed to be an indication that staff were balking at this proposal.

For example, the Davis Enterprise reports that Herb Niederberger, the city’s general manager in charge of, among other things, this water project, “has concerns that Williams’ and Loge’s proposal might be difficult to run in Davis.”

Mr. Niederberger told the Enterprise: “Rates based upon historical consumption patterns are difficult to employ in communities with a high number of rentals and transient populations… Most college communities meet this description.”

He adds: “It is much easier and more industry-acceptable to employ a rate structure that features a fixed charge based upon service or meter size, and variable charge based upon consumption, with inclining blocks to encourage conservation.”

Meanwhile, City Manager Steve Pinkerton “recognizes that the structure Williams and Loge have developed has potential and says city leaders will keep an open mind about it.”

At the same time, the Davis Enterprise reports, “Pinkerton also believes that implementing the system in the short time frame the city has to put a surface water project and a corresponding rate structure to a vote could be difficult.”

“We just don’t want to make a $10 million mistake,” he told the Enterprise

However, the analysis by Kelly Salt may act to assuage the city, especially when the analysis by Mr. Loge and Mr. Williams seems to indicate that there may be more of a problem with disproportionality than the city was previously willing to admit.

—David M. Greenwald reporting

About The Author

David Greenwald is the founder, editor, and executive director of the Davis Vanguard. He founded the Vanguard in 2006. David Greenwald moved to Davis in 1996 to attend Graduate School at UC Davis in Political Science. He lives in South Davis with his wife Cecilia Escamilla Greenwald and three children.

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1 Comment

  1. Matt Williams

    [i]”However, the analysis by Kelly Salt may act to assuage the city, especially when the analysis by Mr. Loge and Mr. Williams seem to indicate that there may be more of a problem with disproportionality than the city was previously willing to admit.”[/i]

    In fairness to the City (and for that matter all California cities), until Frank and I did our analysis no one had any knowledge of what the “tried and true” meter-based fixed rate method was doing to proportionality and fairness. If you don’t know something is happening or has happened, it is hard to “admit” to it . . . even impossible to admit to it.

    Further, Dianna Jensen as the WAC liaison has been very proactive in pursuing this issue once it came on the radar. In my opinion the City is handling this in a very positive way . . . weighing both the risks and the benefits thoroughly.

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