Plaintiffs File Motion for Additional Evidence in Water Lawsuit

On August 26, Attorney Michael Harrington filed a motion arguing that “it is appropriate, in resolving the issues involving this Proposition 218 challenge to the City’s actions and omissions, that extra record evidence be used (and) that plaintiffs have an opportunity to provide Expert Reports, both to support its position and to refute the City’s position.”

He argues, “The City is attempting to hamstring the Plaintiffs by limiting the evidence which can be used to challenge the City.”  He argues that the city has “seemingly deliberately” left out a critical email report by Matt Williams, submitted to the city in January.  He adds, “The City even objects to having Plaintiffs present Expert Reports for the Court’s situation.”

Mr. Harrington argues this is not an attempt to seek “unlimited discovery” but rather include critical expert reports.  He argues, “The City failed to put into the Admin Record the Bartle Wells Cost Study until the last hour, at the March 19, 2013 Rate Hearing, when the public had no opportunity to respond and analyze these very complex financial matters.”

The city responds that it has already prepared a comprehensive record of well over 11,000 pages on the water rates alone, but the “Plaintiffs seek to augment this record with items that are (1) already contained in the record which Plaintiffs have already overlooked, (2) purportedly new ‘expert’ declaration by two individuals (Matthew Williams and Mark Sigler) who are, and since its creation in December 2011, have been members (or alternate members) of the WAC, [Water Advisory Committee] and (3) unidentified records sought in additional discovery.”

The city argues, “The WAC conducted extensive hearings analyzing the rate options and advising the City Council on setting the water rates at issue.  Plaintiffs and their ‘experts’ were actively involved in the rate-setting process and submitted comments to the City Council – no further expert reports are necessary nor warranted.”

The city continues, “Plaintiffs are not permitted to propound new expert evidence or propound discovery in an attempt to generate new evidence not previously brought forward to try to defeat the City’s water rates.”

On May 1, 2013, the city’s new water rates took effect, established in Ordinance 2405, which will fund the voter-approved Davis-Woodland Water Supply Project.  The ordinance includes two rate structures.  The first has been “described as a traditional rate structure and is effective from May 1, 2013 – December 31, 2014,” and has been dubbed the Bartle Wells Rates.

The second rate structure takes effect January 1, 2015 and has been described as “the Loge-Williams Rates” or “Consumption Based Fixed Rate” or CBFR.  Two WAC members, Frank Loge and Matthew Williams, helped to devise this rate structure.

The 360-page filing in Mr. Harrington’s declaration includes the report of Matthew Williams which addresses the Proposition 218 proportionality issues of a number of components of the project.

For example, he cites four potential problems with the variable charge (VC).

Mr. Williams argues, “Issue #VC-1 . Proportionality disparities exist for Multi Family Residence (MFR) class customers, specifically because some, but not all, MFR customers have installed dedicated meters to serve their landscaping irrigation needs.”  The Proposition 218 proportionality question generated by the above rate differential is, “If irrigation water costs and charges are proportional, how can some Multi Family Residence class customers be paying a 31% higher per ccf rate than other Multi Family Residence customers for irrigation water?”

Second, “Issue #VC‐2 ‐‐ Proportionality disparities exist for Commercial class customers, specifically because some, but not all, Commercial customers have installed dedicated meters to serve their landscaping irrigation needs.”  The Proposition 218 proportionality question generated by the above rate differential is, “If irrigation water costs and charges are proportional, how can some Commercial class customers be paying a 57% higher per ccf rate than other Commercial customers for irrigation water?”

Third, “Issue #VC-3 – Because virtually all of the monthly water consumption over 29 ccf per month is for irrigation, the Tier 3 rate is the $2.53 per ccf. Proportionality disparities exist between SFR irrigation charges in Tier 3 and the Irrigation Meter class charge per ccf of $2.58.” He asks, “If irrigation water costs and charges are proportional, how can some Single Family Residence class customers be paying a 2% higher per ccf rate than other Single Family Residence customers for irrigation water?”

Fourth, “Issue #VC-4 — In its comprehensive rate study Bartle Wells recommended that Tier 1 cover 0-10 ccf and that Tier 2 cover 10-29 ccf with the $1.34 and 1.49 rates per ccf set proportionally based on the underlying cost of service analysis. At the 12/18/2012 City Council meeting, on the basis of political considerations, City Council reset Tier 1 to cover a 0-18 ccf range; however, the $1.34 rate per ccf was left unchanged.” The Proposition 218 proportionality issue generated by the above rate differential is, “The City needs to provide evidence that the rate per ccf in the reconfigured Tier 1 and Tier 2 are consistent with the underlying Bartle Wells cost of service analysis.”

He also identifies a number of key issues with the fixed/distribution charge, writing, “Arguably, the system of setting fixed fees by meter size fails Proposition 218’s proportionality test by requiring low-water-use customers to pay fixed costs for water they have the theoretical potential to use, but do not have the actual capacity to use, while giving those customers who use a larger ‘share’ of the water infrastructure (based on meter size) an incentive to do so.”

In other words, he adds, “Thrifty and extravagant water users pay the same fixed fee, but derive entirely different benefits from the system they fund with their fixed fees. 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.”

He then goes on to identify five specific issues here.

He goes on to argue that “it is important to examine proportionality issues as they affect individual customers.”  Mr. Williams argues, “Across all meter sizes there is substantial difference between potential demand (which can be imputed to be the median value of the consumption values) and actual demand as represented by the water use value in each decile for a given meter size.”

He then argues that the proportionality issues can be fixed: “Differentiating between fixed rates and fixed revenue by introducing flexible, annualized fixed fees based on metered use of a prior time period would obviate many of the problems mentioned above. Introducing the element of time supports the generation of fixed revenues (for the agency) and fixed fees (for the consumer) from consumption-based statistics.”

That analysis is then supplemented by the analysis of Mark Siegler, who examined the Loge-Williams Consumption-Based Fixed-Rate Structure on August 26, 2013.

He argues, “The Loge-Williams water rate structure… adopted by the City of Davis almost certainly exceeds the proportional cost of the service to thousands of accounts, with single-family residential and irrigation accounts paying roughly 40 percent more on average… than apartment building accounts.”

“Available evidence strongly suggests that these differences in charges per ccf are not proportional to the cost of providing the service,” he continues.  “There are large differences in water bills across households that do not appear proportional to the costs of providing the service.  Because the Loge-Williams water rate structure is a new and untried method for charging water customers, it is critically important for courts to examine the legality of such a structure before implementation in Davis or any other jurisdiction.”

In his analysis, Mr. Siegler argues that the City “has drastically underestimated the decrease in water use that will take place during the peak months, and as a result, throughout the year.  While the City assumed different conservation assumptions across user classes, overall they predict a 20 percent decrease in per capita usage.”

He goes on to note that many subdivisions are considering opting out of the water system by drilling their own shallow wells, and he cites Village Homes and El Macero as possibilities.

He adds that the city and school district are likely to do the same.

He argues, “Since the vast majority of the costs are fixed costs, Davis residents cannot conserve their way to lower bills if the vast majority of residents decide to conserve.  Instead, we may end up with lots of artificial grass, gravel, cacti, and a diminished tree canopy, but overall bills still in excess of $100 a month…”

The hearing on the admission of these reports as evidence will be September 12, 2013 at 8:30 am in front of Judge Maguire.

—David M. Greenwald reporting