Interestingly enough, despite latching himself and his campaign to the work of Davis Enterprise columnist Bob Dunning, Michael Harrington is punting on the issue of the rate structure: “The Court will help us sort out the rate system. I’m not taking any detailed positions on the rates, yet, other than the three structures are a mess. The CBFR seems to have the most promise, but we shall see what happens with the Court and experts.”
The problem with that view is that the courts are not going to be able to select or design a more effective rate system than the experts, rate consultants and WAC members were able to construct.
Michael Harrington’s dilemma here is that he knows, on the one hand, that he is getting a lot of mileage through Bob Dunning’s misguidance on CBFR. But on the other hand, he knows, intellectually, that CBFR offers the fairest rate structure to most of the ratepayers.
The problem and confusion with CBFR begins with fundamental misconceptions about the structure of costs for how to deliver water through the system to someone’s tap.
A week or two ago, I found a book I was looking for on Amazon. It was $1.99. But by the time I paid for tax and delivery charges the costs was nearly $7 – still a good cost, but not as cheap as it would have been had I been able to find it used in town.
In other words, I had to pay a higher price for delivery than the product itself.
The water system is much the same way. You have to pay for the rate of the water itself but you also have to pay for the infrastructure and that infrastructure is there, regardless of how much you use.
Right now our system approximates that fixed charge by meter size and meter size alone. That method produces an inequity. People who use less water end up paying a lot more per gallon than people who use more water. Those low-end users are actually subsidizing the infrastructure costs for the high-end users.
CBFR changes the equation. It attempts to create a fixed rate system that more closely approximates the actual contribution. It does this by using summer water usage, which creates the need for peak capacity, as a proxy measure for tax on the system.
A proxy measure is a tool that statisticians, methodologists, and other researchers use when a better measure is not available. So while we may not be able to directly measure what each water user’s contribution is to the fixed costs of the system, by generating a peak usage component, we are able to approximate it.
The result of the measure is that we end up smoothing out the rate structure from low end to high usage. In five years under the existing system we would be looking at low-end users paying $12 per ccf compared to $4.94 for the high-end users. We smooth that out under CBFR to $8 compared to $5.82.
The high-end users are still paying less per gallon than their low-end counterparts, but instead of 2.5 to 1, now it’s about a 25% advantage.
Some have suggested oddly that this represents a punishment, but far from the case – what this represents is the equalizing of a present inequity.
Look at the numbers. Large families in particular, and large yards, are not punished or penalized, they are simply paying a more appropriate portion of their share than they were previously when their usage was actually being heavily subsidized by the small users.
Everyone is going to have to take a hit regardless of whether we go to surface water or remain with groundwater. The question is whether we want to continue to shift the burden to the lower-end users or whether it is more appropriate to make the higher users, who will still be advantaged, take up more of their fair share.
The next problem, however, is that Bob Dunning erroneously interprets the CBFR as a variable rate, which he calls a supply charge.
In his column on Sunday he writes, “Pinkerton ends his memo to council members and staff by claiming the supply charge ‘is not a variable charge.’ He then tries to solidify the claim by saying ‘The variable charge is the only charge that is based on actual consumption of water.’ “
Writes Mr. Dunning, “The supply charge is based strictly and solely on your actual consumption of water from May through October.”
In effect, what Mr. Dunning writes is accurate. The part that he seems missing is that, while the CBFR is based on consumption, hence the name consumption based, it is actually trying to measure something that is more fixed – the impact on infrastructure.
His focus on the variable component to this leads him to the conclusion, “The plain fact of the matter is that once the consumption-based fixed rate system is fully functional in 2018, every ccf of water you use in the summer will cost you $7.80 annually, while the same ccf you use in the winter will cost $1.32.”
He writes, “You do the math and that comes up to nearly six times as much for summer water as winter water.”
But, as Richard McCann notes, “Bob Dunning disputed that the cost of providing the capacity to deliver water in the summer can’t be six (it’s actually five) times the variable costs (e.g., energy, etc.) of delivery. Yet he provides no evidence to the contrary.”
Mr. McCann, a longtime consultant on water and utility issues, argues, “I’m not surprised by the 5-to-1 cost ratio. The largest portion of the costs is in the fixed construction costs to build the capacity that you need to water your lawn during the summer. Those costs don’t vary with how much you change your usage during the winter months. Our system peak usage is in the summer and we all share in that responsibility.”
He continues, “The beauty of the consumption-based fixed rate model is that you can avoid a portion of that charge by conserving during the summer. You are not doomed to pay a fixed portion regardless of usage, which would be the traditional way of collecting the fixed capital costs for a new water supply. You now have control over your bill.”
It is a complicated issue. As a writer to the Enterprise pointed out, “I am voting no on Measure I, not because the project is unnecessary, not because better alternatives are available to meet the need, but because the proposed rate structure unfairly punishes summer water use rather than simply recovering the cost of the project.”
The problem with their view is that summer water users are not punished under this system. The distribution of charges was so far out of whack that any effort to fix that inequity starts to look like punishment. That is why it is so important to continue to look at the bottom line and the ratio of low end to high end per unit costs.
Yes, we could go to a different rate structure that continues the practice of using meter sizes as the proxy for infrastructure costs, but that is far more unfair than CBFR, to probably 70% of rate users.
—David M. Greenwald reporting