Commentary: Reasonable Compromise, But Not the Most Fair System

Eliminating Tiers Widens the Shift of Subsidization to the Low Users – The Vanguard strongly supported the council adoption of the CBFR system, but there were compromises that were needed to get this system approved on the second pass.

The biggest and most obvious compromise is having approximately 20 months under the Bartles Wells Fixed Rate, with Inclining Block Rate.  While mitigated somewhat by moving from a system that relied on 50% fixed costs, down to 40%, you still end up costing the low-end users – the bottom 25% – between five and ten dollars per month in the first year, and somewhat more than that in the second year.

Second, by going to a CBFR with the uniform block rate, while the difference from the inclining block rate is exceedingly small, it still ends up costing 75% of ratepayers more money – we are literally talking a dollar or two, but it does cost slightly more money.

I bring this up, because, I have to wonder exactly what Bob Dunning was looking at when he wrote his analysis on Wednesday morning.

He argued, “It might have made more sense to eliminate tiers as well during the two-year transition period – council members seemed willing to go either way on this one – the Tier II break-off point was raised from 10 ccf per month to a much more family-friendly 18 ccf per month …”

What he fails to note is that eliminating tiers those years means that the bottom-end users end up paying a lot more than they do under CBFR.  $12 more for those using just 5 ccf of water a month.  But even for the highest user, the ratepayer pays more under BW uniform than under either BW inclining or CBFR.

So why would Bob Dunning espouse the view that it makes more sense to eliminate tiers when it costs everyone more money to do so?

“Had tiers been eliminated across the board for all five years, the water project itself might fare better at the ballot box in March,” he continues, but again, he is clearly not looking at the water rates when he writes this.

Here is the amazing part, as Mr. Dunning writes, “But what the council approved Tuesday night is a vast improvement on what was being considered just last week … it goes a long way toward putting all Davis water users on equal footing and gives them certainty about the size of their future bills and the steps they might take to control them … that option was not available in previous plans the council was considering …”

We can certainly agree that putting forward CBFR is a vast improvement over what the council was considering a week ago.

However, eliminating tiers does not do what Mr. Dunning thinks it does.  Eliminating the tiers actually makes it less equal.

To illustrate this point, we actually go back to the chart that shows cost per ccf.

There are two alternatives for Bartle Wells and two for CBFR on this chart.  Notice first of all, that in all systems, the lower user pays more per ccf than the highest users.

It is vastly more fair under CBFR than under BW.  But in each case, the inclining block rate is more fair than the uniform block rate.  It is not a huge difference, particularly in CBFR, but it is there.

Under CBFR, you are looking at a matter of cents per ccf difference in uniform and block.  However, only at the 90th percentile is the user advantaged by uniform over inclining, and even then the difference is only four cents per ccf.

The idea that tiers create a system where some people pay more per gallon of water is actually nonsense.  The fact that there are fixed costs in the system creates that fact, and tiers only act to mitigate that somewhat.

The differences are small enough, for CBFR, that I think the council could have justified going either way, but the more fair system would have been to include tiers and, once people saw the actual numbers, they would drop the argument that we have seen floated that tiers produce some sort of discrepancy.

The whole notion of tiers was summed up by Bob Dunning on December 11 when he wrote, “The problem with tiers in the WAC plan is that at a very low level of water usage you suddenly find yourself in the more expensive Tier II, where you are paying substantially more per gallon than you were in Tier I.”

Mr. Dunning argues the solution, “You simply charge each household, regardless of size, the exact same amount for each gallon of water used. We don’t care if there are 40 people in your household or four people in your household. We don’t care if you’re watering the lawn, filling your swimming pool or giving the kids a bath. It’s 10 cents a gallon (or whatever) for everyone. No exceptions, no questions asked.”

Sounds good, but given fixed costs, as we see in the chart above, there is no way to equalize the costs per gallon unless you go to a 100% variable system, which not only could they not get past the bond raters, but would not work well because there are costs to the system that exist even if you don’t use any water.

The way that council could have dealt with this problem would have been simply to raise the tier-break point to 18 ccf.  That would allow people to address their indoor needs and push for conservation in terms of outdoor usage.

The key here is to set up a system that does not end up punishing the people hardly using any water, and BW in five years would have done exactly that.

Mr. Dunning takes some umbrage at the notion that “low water user” and “low income” should not be used interchangeably.

He has a point here, but takes it a step too far when he writes, “While there are exceptions to every rule, in general, most ‘low water users’ come from smaller households and most water users in higher categories come from larger households … there are, without a doubt, some low-income people in both categories of water use and some in between, based almost always on household size …”

He adds, “While there are indeed low-income individuals in Davis, unfortunately, most of those people are not homeowners, and thus not ‘ratepayers’ in the Proposition 218 definition of the term …”

The problem is that there are really two variables that determine water use.  Size of the family is one determination, where a family of four would use about 10 ccf of indoor water and a family of eight perhaps 18 ccf.

But the bigger variable is not number of people, but outdoor usage.  So our neighbors have a huge house across the street, but only two people living there.  We have a small house for a family of five.  Who uses more water?  It’s not going to be particularly close, and it will be our neighbors.

If you look at the people using just 5 ccf a month, which is ten percent of water users, you are likely looking at seniors on fixed income, not wealthy people who can afford to have large gardens in their large yards.

The bottom line is that I would like to see the data there that illustrates the point that low income or fixed income individuals are not the users that coincide with the low water usage.  But even if they are not, why would we create a system that would charge someone who barely uses any water so much more per gallon than people who use tons of it?

As a final point, Mr. Dunning writes, “That $113 million is a fixed cost and someone will have to pay the bill. If our water usage drops to half the projected consumption, the city will have no choice but to double our rates.”

He is not correct here.  The system assumes about a 25% conservation rate within the formula, which is somewhat more aggressive than the plan that the Natural Resources Commission has worked on.

So, yes, our rates would go up if in fact our water usage drops below the projected consumption, but we have already planned on a 25% reduction in use to avoid that very problem.

In other words, most likely people’s efforts to conserve will be rewarded with lower bills.

—David M. Greenwald reporting