“Prop. 218, which reads like a ratepayer’s bill of rights, lays out in detail what a city can and can’t do with a variety of taxes, assessments and fees, including water rates,” he writes. Mr. Dunning then argues that “a critical element of Prop. 218 (is) known as ‘proportionality.’ “
He quotes from Prop. 218: “The amount of a fee or charge imposed upon any parcel or person as an incident of property ownership shall not exceed the proportional cost of the service attributable to the parcel.”
He writes, “In other words, if the city has 100 water customers and you use 2 percent of the water delivered to those customers, the city can charge you up to two percent of the total cost, but no more.
“Prop. 218 further emphasizes this point by saying ‘Revenues derived from the fee or charge shall not exceed the funds required to provide the property related service.’ “
Here is the critical portion of Prop 218: “Again, the city can’t charge you more for a gallon of water than it actually costs the city to deliver that gallon of water to you specifically.”
Keep that one in mind as we move through Mr. Dunning’s analysis.
He writes, “The easiest way for the city to comply with the requirements of Prop. 218 is to charge each customer a fixed rate per gallon and be done with it. You use a gallon, it costs you a dollar. You use 100 gallons, it costs you $100. This guarantees that all water users will pay their ‘proportional’ cost of the service.”
The problem that you start running into is that there are costs to the system, even if you do not use any water at all. That requires that one has to have a fixed cost (the cost for using no water at all) in addition to a variable cost (the cost per gallon).
The problem with having a fixed cost is that low-end users end up being charged a lot more per gallon than high-end users.
So when Mr. Dunning writes, “For unexplained reasons, however, the city has come up with a three-headed monster known as the Consumption Based Fixed Rate (CBFR) that calculates the majority of your next year’s bill based strictly on the water you used the previous summer.”
He is actually quite wrong. The reasons for that system have been explained: it is a way of making sure that the low-end users are charged more proportionally to their use than they would under a more traditional rate system, that simply has a fixed rate and variable rate. The CBFR portion bases a part of your fixed portion on past use.
Writes Mr. Dunning, “The city has yet to explain how this ‘look-back’ feature of the CBFR even remotely complies with the ‘proportionality’ requirement of Prop. 218.”
All one has to do is compare the cost per gallon in the CBFR system to a more traditional system to see that CBFR is, in fact, much more fair to the average ratepayer than a more traditional system. In our analysis from December it was not even close.
Mr. Dunning then runs through an exercise here, where he creates “five hypothetical Davis citizens who all use 180 ccf per year and compare their rates.” He argues, “If the city’s rate plan is truly ‘proportional,’ all five ratepayers should have the exact same annual bill because all five are each using 180 ccf of water per year.”
The first names of the citizens just happen to coincide with the first names of the members of the Davis City Council. It is an amazing coincidence.
In his concocted scenario, he shows that the five individuals pay wildly differing amounts for what he argues is the same water usage.
He argues, “Keep in mind that each of our five ratepayers used the exact same ‘proportion’ of water (180 ccf) during the course of a year. The only difference is that their use pattern varied, which is what one would expect in a diverse and interesting community.”
He continues, “The fact their bills vary so wildly for the same amount of water is proof positive Prop. 218’s requirement of ‘proportionality’ is violated by the CBFR rate structure. Dramatically so, in fact.”
He argues, “And for those naysayers who are so in love with the project that they can’t tell fact from fiction, be assured that these figures were double-checked – to the penny – with the city of Davis official in charge of calculating such rates.”
He concludes, “If this thing ends up in court, as it no doubt will, the city won’t have enough attorneys to explain how it costs $1,373.64 to deliver 180 ccf to Rochelle but only $596.04 to deliver the exact same amount of water to Joe.”
Except that Mr. Dunning makes some assumptions that likely lead him to the wrong conclusion.
First, he assumes that the proportionality requirement requires that the rate structure produces roughly the same cost for delivering the same amount of water.
The problem is that that is not what Mr. Dunning’s proportionality requirement says, not at all.
Remember this quote: “The amount of a fee or charge imposed upon any parcel or person as an incident of property ownership shall not exceed the proportional cost of the service attributable to the parcel.”
The critical point is again this: “[T]he city can’t charge you more for a gallon of water than it actually costs the city to deliver that gallon of water to you specifically.”
Nowhere in anything that Mr. Dunning quotes does it say the city has to charge the same amount per gallon for all uses.
His assumption here is that every gallon of water costs the same amount to deliver no matter the time of day or the time of the year.
When you used to make a phone call in the days when only the phone company provided the service, there were different rates for different times of day. The reason you paid less during off-peak hours than during peak hours is that calls during peak hours put more strain on the system and required a larger amount of infrastructure to prevent getting the message that ‘all circuits are busy,’ the phone company’s equivalent to the brownout.
Matt Williams explained this concept rather well nearly two months ago.
“Why choose the summer period for this adjustment?” he asks rhetorically. “If you have ever experienced an electrical brownout (or god forbid an electrical blackout), you know that there are times for public utilities where demand can exceed the system’s capacity to reliably deliver electricity or water. In designing the Davis water system the engineers have worked hard to create enough capacity to avoid a ‘drip out.’ “
He writes, “How do they do that? They simply look at the aggregate consumption history of all the 16,000 customers and see what the maximum usage is, and then design the plant to meet that aggregate usage plus some room for growth. They also add some capacity (almost double) to deal with the ‘peaking’ that happens between 4:00 AM and 6:00 AM when the vast majority of the city’s irrigation systems turn on to keep Davis green.”
Those people who are using more water during the summer are forcing the city to increase the amount of infrastructure they have to deliver water during those 4 am to 6 am hours during the summer when the usage in the system is maxed out.
The long and the short of it is that it costs the system more to use water during those times and during those months than it does in other times and portions of the season.
CBFR approximates this toll on the system, by setting a portion of the costs to the summer usage.
So there are two ways to pass on the costs. One way is that everyone simply pays the same amount of the additional infrastructure. In that system, you end up with the small household that does not use much water outside subsidizing those who use huge amounts to irrigate outside.
As Mr. Williams notes, “One other aspect of the summer peak that is worth noting is that in Davis the amount of water used for irrigation is close to three times as much as is used inside a household or business.”
So the real question is, what is proportionality? Mr. Dunning seems to equate proportionality with an equitable distribution of costs. Therefore each gallon, to be proportional, must cost roughly the same.
But that’s not what Prop. 218 says. Prop. 218 says the cost must be proportional to the cost to deliver the service. Simply put, the person watering their lawn in the summer is taxing the city’s infrastructure more, causing the city to add for peak usage, and therefore ought to be charged a higher rate.
Frankly, the city needs to move to a CBFR system regardless of whether the surface water project passes, because it is a far more equitable system – charging people much more closely based on how much they tax the system.
—David M. Greenwald reporting