Special My View: No Guarantees on Water Rates Despite Council Direction

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Matt Williams, Donna Lemongello, and Sue Greenwald listen intently to council discussion on Tuesday night.
Matt Williams, Donna Lemongello, and Sue Greenwald listen intently to council discussion on Tuesday night.

Many have been quick to praise the actions of council this past Tuesday. For example, the Davis Enterprise gave “cheers” to the council “for heeding the community’s concerns about convoluted and confusing water rates, and giving clear direction to its newly constituted Utility Rate Advisory Committee. That panel will come back to the council with some water rate options, none of which will include the controversial look-back pricing on which our rates are based now.”

Unfortunately, we will never know how deep those community concerns actually went. Was it a huge number of people or a small but vocal minority? Moreover, the council has left the public without a clear mechanism to express support for the current rates.

On Tuesday, the council voted to direct the URAC to examine the modified CBFR and examine and recommend a rate plan with no-look backs and a 12-month window. But just two days later, the Vanguard was forwarded, by multiple people, an email from Herb Niederberger, the City’s General Manager of Utilities that cast doubt on whether that can happen.

Mr. Niederberg noted that such modifications “effectively transform CBFR into a conventional water rate design with a fixed component of $8.25/month (3/4-inch meter) and two variable rate tiers, 0-20 ccf/mo @ $4.34/ccf & >20ccf/mo @ $5.74/ccf.”

“This results in the fixed component of the water bill generating approximately 13% of the total revenue and about 87% of the total revenue relying upon consumption. While this is a very conservation based rate, it is also a recipe for disaster,” he writes.

He states, “Even minor fluctuations from historical demand result in catastrophic losses in revenue.” He adds, “Staff would never recommend such a structure to City Council.”

Two councilmembers in clear, unmistakable language, told the Vanguard on Thursday that council and not city staff will make the call. However, is council really going to ignore this pointed a warning from city staff and implement the rate plans anyway?

This, of course, leads to me wonder if council really thought all of this through properly. Why was there such a rush by council to put this before the URAC before staff even had a chance to study whether it was feasible?

This led me to a critical realization. Prior to Tuesday, the choices were clear. If I wanted the rates to be tossed out, I vote Yes on Measure P. If I want the rates to remain as they are, I vote No on Measure P.

But Brett Lee clearly told the public on Tuesday that he wanted the rates changed regardless. I asked multiple people on Thursday, if I want to keep the current rates, how do I vote on Measure P?

No one can answer this question.

Think about it, whether you agree or disagree with the surface water project, the rates, or anything else – we have rates on the book, and there is no way I can express that I want to keep those rates. Is that a fair and open process?

I was in fact told, by a councilmember, “the rates are gone either way.”

The choice is whether or not I want the city be to be sued. If I want the city to be sued for failure to comply with Measure I, you vote yes. If you don’t want the city to be sued, vote no. That’s the choice.

So here is the real dilemma that voters face. The liability that the city has is a real issue. The city could be sued if Measure P passes – it could be sued by Michael Harrington for the failure to adhere to the guidelines of Measure I in terms of having a rate structure passed and it could face huge liabilities by the failure to carry out its obligations.

But where is the safe landing spot on rates now if Measure P fails? While CBFR was confusing to some, it actually provided huge improvements in terms of fairness for lower end users. Under a traditional rate model like Bartle Wells, low end users’ fixed fee for meters was such that their per unit cost was about 50% higher than those at the top end.

Now Matt Williams did a brilliant job on Tuesday illustrating that there were remaining inequities and how his new formula would close those inequities. However, at the end of the day, CBFR was a far better option than a meter-based rate structure.

So now the council led by Brett Lee voted to preclude CBFR by prohibiting the URAC to consider the current model or any model with look backs. This is similar to what Dan Wolk did in December 2012 when he attempted to forbid the WAC to reconsider CBFR. The WAC overruled him, but the URAC likely won’t.

If the staff’s analysis is correct, however, the new CBFR model does not have enough fixed components to meet the needed standards for revenue in case demand drops to near nothing.

I understand that council will make the ultimate call, but are you telling me if Harriet Steiner, Herb Niederberger, Mark Northcross, Dennis Dove, and the URAC all tell them it’s not legal they are going to pass the new CBFR over their objections?

I tend to take these councilmembers at their word, but I find it hard to believe they could do that.

If the new CBFR is DOA, and council precluded the old CBFR, that leaves us with a flawed traditional rate structure that will be vastly unfair.

Given those choices, I would like to have the ability to choose going with the old CBFR until we can figure out a better rate structure through careful analysis.

But apparently, I have no way to electorally express that preference. Council has effectively removed my ability to vote my true preference. Whatever choice that remains is not one I think they particularly want.

—David M. Greenwald

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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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39 thoughts on “Special My View: No Guarantees on Water Rates Despite Council Direction”

  1. SODA

    If so, why didn’t Herb respond on Tuesday. He was asked for comments and gave none. In fact he seemed very curt in his presentation of staff report in terms of how we have gotten to where we are.
    I applaud the council for listening to the community but felt Brett was too dogmatic in his creating policy from the dais, setting parameters before the URAC has had time to assess. That may be too harsh as I believe his motion for a rate plan with no lookback was only one the URAC will study.
    I guess I have real problems with the timing and wonder why if the city knew Measure P was in the June 3 election, they didn’t form and charge the URAC sooner so we would have some input from them before June 3?

      1. SODA

        Yes BP, I can see the logic in that even though the outcome may have liability as Matt says. In a way Tuesday night pushed some folks into voting yes who wouldn’t have, and probably some no who wouldn’t have, but as David states in the article and I believe yesterday’s, the election results now will not be so clear as to the voters’ opinion. Agree?

        1. Barack Palin

          Agree. Did you see Sue Greenwald’s post in the commentary section of the Enterprise?

          “This is incorrect. Measure P has nothing whatsoever to do with the State low interest loans. The city has most likely lost the opportunity to get state low interest loans, and it is because the council chose a project with privatized operations. There is a state law against using state low-interest loan money for projects with privatized operations. This will indeed cost the city over $100 million, but the cause is the councils’ unfortunate decision to choose a project with privatized operations, and has nothing to do with Measure P at all.

          – Sue Greenwald”

          So I have to wonder about some of the threats being thrown out about increased costs and liability. Who are we to believe?

          1. Davis Progressive

            one way to answer your question is to walk through what the likely consequences are if funding is suddenly pulled.

          2. Davis Progressive

            have to borrow against an income stream, that’s why the rates are needed to take out bonds.

  2. Tia Will

    Sue Greenwald may be technically correct about the issue of privatized operations, but her conclusion is incorrect.
    The risk and ultimate costs to the city are also affected by those who have consistently attempted to block the water project, and failing that rate structures to support the water project. To pretend that their actions have not cost the city in terms of time and money is duplicitous.

    1. Barack Palin

      It’s my understanding that something like $50 to $100 million was saved by the people who initially tried to block the project. BTW, interest rates have dropped significantly in the past few months.

      1. Tia Will

        BP

        Kudos to them for their actions having had that effect. And kudos to those who have recognized the legitimate aspects of their concerns and worked for improvements. And kudos to those who have, rather than just criticizing and blocking , worked persistently to create the best system possible.

  3. dlemongello

    What we presented is a cleaning up of some messy parts of 6 month CBFR. It is an improved version of the same rates that were already adopted. I believe Mr.Niederberger does not understand what we are proposing, and now that I have sat and written the explanation, I can see how hard it is to understand, now or in the first place. As for fiscal resiliency, it is at least if not more resilient than what was already adopted because it is likely there will be less variation in expected 12 month consumption that in expected 6 month consumption and those very estimates from historical consumption are what the rate is based on. Variation in actual consumption can still be corrected for by annual rate adjustments up or down. It is calculated based on the same concepts and principles but implemented without the lookback and with 2 tiers to achieve more equity than was achieved with the 6 month version.

    1. Alan Miller

      I still can’t get an answer to this . . . what is the difference between a lookback of six months and an ‘expected’ 12-month consumpution? How is “expected” figured if not by lookback?

      1. Matt Williams

        Alan, here is the answer to your question from the current draft of the report to the URAC that Donna and I are currently prparing.

        Revenue Resilience/Sustainability

        The proposal presented to Council on May 27th is based on the same concepts and principles as the currently adopted CBFR that will go into effect Jan. 1, 2015. Further, because of differential elasticity factors in the months of November through April it is more resistant to revenue losses than the currently adopted CBFR.

        Both the 12 month CBFR that we have proposed and 6 month CBFR use an ESTIMATION of what volume of water will be consumed to calculate a per ccf rate. The mathematics of that calculation are to divide the Total Fixed Infrastructure Costs by the aggregate consumption for the control period (January through December and May through October respectively) in order to get a $ per ccf rate. Based on the elasticity tables contained in the Bartle Wells final rate study, those rates are $0.22 and $0.32 respectively. In neither case is the rate based on known volumes. In both cases the rate can be adjusted once a year of actual aggregate customer usage is known.

        The reason that the aggregate elasticity of the 12 month Supply Charge is more revenue erosion resistant is because water use in the “added months” of November through April is significantly more “hardened” than water use in the May through October months. There is very little discretionary outdoor water use in November through April, and it is discretionary outdoor water use that is impacted by the effects of voluntary water conservation and involuntary drought restrictions.”

        If I am guilty of providing more answer than you are looking for, I apologize.

        1. Alan Miller

          The question I am asking is that I know the 6-month summer lookback charges were paid for in later months in CBFR, making the bills more even throughout the year, which works if no one comes and goes from any units on a water bill, which may consist of more than one meter by the way the City does it’s bills.

          Now we have a 12-month “something”. How is it not a lookback? Donna says she’s go screaming off a cliff if there is a lookback, so I’m pretty sure it isn’t a lookback, but my brain is still strained to understand how it is not simply a lookback based on 12-months of previous use rather than six months, which, if it is, is actually worse in my mind because my complaint has always been future tenants having to pay for someone else’s water.

          1. dlemongello

            Alan, THERE IS NO LOOKBACK. The rates in these structures are based on 2011 data, at the moment , they are FIXED annually and then rechecked for any adjustment needed afte consumption has taken place. There is no need to lookback to calculate the rate. You are confusing how the rate was calculated with how the bill is calculated. It is pay as you go, take what ccf you used in the current month and multiply it by the Supply Charge rate which is $2.64, add the distribution charge $8.25, add the ccf times the variable rate by tier 1 or tier 2=total bill

          2. Alan Miller

            OK, so in CBFR, the 6-month “thing” was a lookback.

            In Newstructure, the 12-month “thing” is based on overall city consumption from a previous year, not individual use over a 12-month period.

            Is that correct?

          3. dlemongello

            In both the 6 and 12 month CBFR the supply charge rate is based on 2011 consumption, annual $Revenue needed was divided by 2011ccf consumption to get $cost per ccf to be charged as the supply charge rate. We can use either one without looking back. We can implement either one with a pay as you go monthly no lookback component on the bill, just paying for the current usage.

          4. Alan Miller

            Arrrg. I thought the six month “thing” in CBFR was the May-October lookback. Still confused.

          5. dlemongello

            One can apply 6 month CBFR by looking back and charging later, which is still what at the moment is set to begin happening on Jan. 1 2015, or one can charge using the same rate for ccf used right at the time and pay for water used right at the time instead of paying based on last year’s May-Oct. usage. It smoothes the payments making 12 identical to base it on a lookback, but one can just as easily be billed immediately for each of the months May-Oct. of the current year rather than the previous year. Since all the fees are paid based on May-Oct usage in 6 month CBFR the May-Oct. bills would be highest and there would be no supply charge to be paid at all in Jan.-April and Nov.-Dec. bills. What is lost in pay as you go is the smoothing affect. But there would be NO LOOKBACK and trying to figure out who has left town and who’s usage the bills were based on would not be an issue, it would be whoever lived there right before the bill came in, just like it is now.

          6. Matt Williams

            Alan, the motion by Brett Lee that was seconded and passed by a 5-0 vote by Council on Tuesday unequivocally stated that there will be no lookback in the water rates. None. Ninguno. Nessuno. Keiner. Wala. ни один. 没有

          7. Matt Williams

            No Alan that is not correct. Each month each individual water user who has an account will receive their own personalized water bill which contains their own personal water usage for that month. Whatever that actual ccf usage number is will be multiplied by $2.64 per ccf in order to get their own personalized Supply Charge. If their usage in the month is 1 ccf, the Supply Charge on their bill will be $2.64. If their own personal usage that month is 10 ccf then their Supply Charge will be $26.40. Individual consumption from a previous year will not be considered in any way shape or form.

  4. SODA

    Donna, thanks for your work and initiative on this. Hope/assume you will be presenting to the URAC and/or Herb to assure there is an understanding there.

  5. Davis Progressive

    for the first time i am considering a yes on measure p vote. this is not what i thought it was. i’d love to hear matt williams explain to me why i should still vote no?

    1. Matt Williams

      DP, as I said last night at Buritos and Ballots when asked, Measure P is nominally about having the Council change the existing rates. A Yes vote forces Council to do so. A No vote leaves it to Council’s discretion to do so (or not do so). With Council’s actions on Tuesday they made it clear that regardless of whether Yes prevails or No prevails the rates will be changing because of the input they have received from the community dialogue that the democratic process has produsced.

      Therefore your Measure P choices effectively are:

      — Council will be changing the rates in an considered, open, transparent way without $25 to $100 million of fiscal liability risk. (the result if you vote No)

      or

      — Council will be changing the rates in the same considered, open, transparent way with $25 to $100 million of fiscal liability risk. (the result if you vote Yes)

      Which of those two outcomes makes more sense to you?

      Said another way, what incremental benefit do you receive for taking on the incremental $25 to $100 million of fiscal liability risk?

      1. Barack Palin

        “– Council will be changing the rates in an considered, open, transparent way without $25 to $100 million of fiscal liability risk. ”

        Matt, would you please explain what the risk is because others are saying this just isn’t fact.

        1. Matt Williams

          BP the fiscal risk is very simple. The language below is from the JPA agreement. It very clearly specifies that should either Woodland or Davis withdraw from participation in the surface water project the leaving party will be responsible for all “direct, actual and reasonable costs to redesign the Project Facility” in order to have it sized to meet the smaller total demand of a Go-It Alone plant. Anyone who has experienced change orders in a construction project knows that the costs of changes in design are immensely expensive. In talking with with experts regarding both the legal and practical aspects of a Davis withdrawal, their estimate of what the payments Davis would have to make to Woodland and CH2MHill in such a Go-It-Alone scenario are in the $25 million to $40 million range.

          What would/could cause Woodland to give Davis a Go-It-Alone notice? Two scenarios immediately come to mind. The first scenario happens when a Breach of Measure I lawsuit is filed against the City shortly after Measure P passes. Such a lawsuit would/could also be accompanied with a Cease and Desist order request for an Injunction against the City for any and all further participation in the Suerface Water Plant construction. The legal basis for such a lawsuit is the language of Measure I itself, which reads “Shall Ordinance No. 2399 – be adopted, which grants permission to the City of Davis to proceed with the Davis Woodland Water Supply Project, to provide surface water as an additional supply of water, subject to the adoption of water rates in accordance with the California Constitution (Proposition 218)?”

          I have bolded the pertinent words of the Measure. There is a meritorious legal argument that the passage of Measure P, a legitimate challenge of the March 19, 2013 Proposition 218 rates, produces a legal reality that the current rates are not legally adopted, and never were legally adopted. If that legal argument prevails, then under the provisions of the language of Measure I the City of Davis never had permission to proceed with the Davis Woodland Water Supply Project. Anyone who is familiar with legal proceedings knows that the timeline for resolving all the legal questions and legal challenges of such a Measure I lawsuit is more than likely to be no less than 18 months, and could last for many years. If the City of Davis is under a judge’s order to cease and desist during that entire time, Woodland would have no alternative other than to issue a Go-It-Alone notice to Davis.

          So now we are talking the $25 to $40 million direct, actual and reasonable costs being paid to Woodland plus the substantial legal costs associated with defending the lawsuit.

          Further, all the tens of millions of dollars the City of Davis has spent on the surface water plant to date would be expenditures that produced absolutely nothing of value to the citizens/ratepayers of Davis.

          BUT THAT’S NOT ALL (couldn’t resist putting on my daytime gameshow host hat). The rates that Measure I rolls the City back to generate approximately $10 million per year. Over a 5 year period that represents $50 million in revenue. The existing rate structure generates $114.5 million in that same period. That $114.5 million revenue requirement precisely matches the $114.5 million of total costs the Water District will have over the same period if it continues to proceed with the surface water project. Some very simple mathematics ($114.5 million minus $50 million) shows a $64.5 million deficit over those five years. Unless and until a valid water rate is in place the only way to address that $114.5 million shortfall is to borrow money in the short term loan market, which is conservatively likely to be at interest rates that are double what will be available if there is a valid revenue stream in place. So, unless and until valid rates are in place we are talking about increased interest costs that will range between $5 million and $10 million per year.

          So, here is my question to you … and that question was addressed at the Burritos and Ballots meeting last night. Specifically, “What do you think the chances are that a lawsuit against Measure I will not be filed if Measure P passes?” The answer last night from most of the people present was zero percent.

          Add all those various numbers up and a fiscal risk between $25 million and $100 million is able to be calculated in a split second.

          1. Barack Palin

            Taken off the Enterprise comments section:

            “It is unfortunate that city staff and the City Council have given false information to the press and to citizens regarding potential costs to the water project if Measure P passes. Not only is it morally wrong, but it deprives council of an important opportunity to learn what citizens really think about the rate structure. The truth is that the passage of Measure P will NOT cause the water project to fall through, will NOT cause the project to cost more, will NOT cause us to lose low interest loans. All Measure P does is roll back the water rates to what they were last year for the 2 or 2 1/2 months until Council puts a fairer rate through the Prop. 218 process. Our reserves are more than enough to make up the relatively small shortfall. Since the project will not fall through, there will be no fines or penalties. And we will not lose low-interest loans. The state low interest loans were lost because council made a terrible error when they chose a project with privatized operations. The state has a law against giving its low-interest loans when projects with privatized operations are involved. This problem has nothing to do with Measure P one way or the other.

            – Sue Greenwald”

          2. Matt Williams

            BP, I respectfully disagree with Sue. Her “one person’s opinion” and my “one person’s opinion” differ substantially, but in the end they are just two people’s personal opinions.

            With that said, at Thursday night’s Burritos and Ballots open public meeting to go over all the various voting decisions we face on Tuesday, the overwhelming sentiment of the people present was that the chances are 100% that one (or more) of the opponents of the water plant will (A) file a lawsuit against the City for failure to comply with the provisions of Measure I and (B) seek an immediate injunction to cease and desist from participation in any and all surface water plant activities and construction and financial payments. There was not a single person in attendance who agreed with Sue’s assessment.

            One point that Sue makes in her argument is that “Our reserves are more than enough to make up the relatively small shortfall.” That point is incorrect. First, there are no available reserves in the Water Enterprise Fund. Any reserves that do exist in the Water Enterprise Fund are specifically there in order to comply with the debt covenants of the borrowing that the City undertook to drill the three most recent deep aquifer wells and build the Mace Blvd above ground storage tank. In fact, the Water Fund has been forced to use borrowing against a Wells Fargo line of credit in order to pay all its operating bills in a timely manner. I have reached out to Sue and Mark Siegler via e-mail to try and understand what numbers Sue is using as support for her comment in the Enterprise.

        2. Matt Williams

          So, BP, now that I have outlined the risk, what does that mean each Measure P vote means? Thanks to the Council’s 5-0 unanimously passed motion on Tuesday night, each citizen’s vote is a choice beetween the following two options:

          – Council will be changing the rates in an considered, open, transparent way without $25 to $100 million of fiscal liability risk. (the result if you vote No)

          or

          – Council will be changing the rates in the same considered, open, transparent way with $25 to $100 million of fiscal liability risk. (the result if you vote Yes)

          Which of those two outcomes makes more sense to you?

          Said another way, what incremental benefit do you receive for taking on the incremental $25 to $100 million of fiscal liability risk?

  6. Alan Miller

    I continue to be appalled at this late defense of CBFR by so many, including the author. Do you not get it? The entire city council called for an end to lookbacks . . . the entire council! Do you not get it? The so-called “father” of CBFR has admitted that the problems associated with the structure no longer justify its use . . . yes the creator of the structure has submitted a new proposal because he understands the problems with what he himself proposed!

    Yes, I get it what CBFR is supposed to do . . . it is supposed to make it so low-end users are not charged a higher rate for their water, so “subsidize” those that use a lot of water. Honestly people, let’s be real about this, there is no “fair” here by the way that water is charged . . . this is a POLICY issue that must be decided by the city . . . do we charge more by fixed or more by volume? One way encourages lawns, gardens, is an ease on large families, and the other gives a break to low-enders who tend to live in apartments without irrigation . . . both sides claim “fair” but it’s really just POLICY, neither is inherently “fair”.

    What isn’t fair and does skew towards harm to low-end users is anyone being charged for someone else’s water use, and that’s what lookbacks do. In a perfect Davis where everyone bought a house and lived there forever, lookbacks would work fine and CBFR would probably be a great rate structure. But we live in a town with 55% renters and massive turnover of units, be they apartments or rental houses. More and more landlords on houses and duplexes on are passing the city bills directly to tenants to pay and divide due to the increasing and complexities of rates, leaving the tenants to figure it out. Even on year leases, students come, go, shuffle around . . . how does one divide up the city bill in such a situation . . . you basically CAN’T.

    Someone last night said they had a lookback when they first moved to Davis and paid for an earlier tenant’s water and they “survived”. Yes, but that’s not the point. Water used to be (and still is, for a little while) CHEAP. So the cheaper water is, the less anyone is concerned about a few dollars here and there. Our rates are going to DOUBLE then TRIPLE. OK, think about that, not a 15% or 20% increase, which is outrageous for most purchases in our lives, no it’s going up 100% then 200% then . . . who knows? So water isn’t cheap anymore, and it really matters when you are paying for someone else’s usage when you are dividing gold-price-water, not tin-price-water.

    So lookbacks won’t work, as you aren’t encouraging half the population of Davis to save water, because they are transient and will be living in another unit wether in or outside of Davis next year. If you aren’t going to be charged for your lookback usage because you won’t be there, why would you save water? Next year’s tenants are going to pay. So in our City, lookbacks don’t work for half the population. Please everyone, stop pretending everyone in this town stays in one place year after year and never has a roomate or housemate change.

    Lookbacks are dead! CBFR is dead! Long like the NEW STRUCTURE!!!

    (Whatever that is . . . we don’t know.)

    1. Davis Progressive

      “What isn’t fair and does skew towards harm to low-end users is anyone being charged for someone else’s water use, and that’s what lookbacks do. ”

      this is overplayed. first, there were other ways to deal with the issue for renters. second, and more importantly, renters are likely to skew towards students which means minimal outdoor watering. that means more likely than not not huge year to year fluctuations in usage.

      1. Alan Miller

        NOT TRUE. You are confusing overall to individual. There are MANY students and others who live in rental units that have garden space and lawns. You are obviously not in this situation or you would understand the orgasmic joy of splitting city utility bills. The fact that most students are in apartments only means what you said is true for THEM. The issues of those in houses and duplex rentals is very real and will get worse as the price of water goes up. You cannot say there is no problem because only thousands, not tens of thousands, are screwed by the repercussions of the issue.

        1. Davis Progressive

          it’s been a few years… in terms of the problem, use a running average of the last five years as a baseline for the look-back.

  7. Alan Miller

    and, BTW, I am not against tiers. Tiers can be done to discourage high-volume use. It’s a bit of policy issue because what do you base the cutoffs at: number of units, how much lawn you have, how many people in a family – of course not, it will be a cutoff per meter, so the City could bias against lawns, gardens, tree, large families by having tiers — that is again not inherently fair or unfair but a POLICY decision. I personally would like to see several tiers if there are tiers. This would mean there isn’t this thick dark line you cross, but would gradually ramp up penalties for major use, so super users would pay much more per high-end unit of water. With tiers, you still are just paying for last-months water, so the lookback problems are gone, but it does discourage overuse, and you see it on your next bill. Again, it’s not fairness, it’s policy and the City not me needs to decide where the tier or line or line(s) are drawn on our water bills.

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