Vanguard Analysis: Compromise on Water Rates Promotes Rate Equity

water-rate-iconCouncil to Hear New Rates on Tuesday? – We will find out for sure by this afternoon, but as this piece is written it seems that there are at least three council votes to agendize a discussion of possible modifications to CBFR.

There are two separate issues in the Measure P/water rates debate. The first key point is that with the approval of Measure I, the surface water project is moving forward, which necessitates a rate hike to support it.

The question then is what rate system we use. Measure P objects to the current rates that were implemented last year through a Prop 218 process.

CBFR sought to fix a basic fairness problem in the water rate system.  Because we used meters to determine the fixed component of costs – costs that would exist in the water system if no one used a single drop of water – we had a very crude instrument. That meant that people who used very little water were effectively subsidizing high end users.

To fix that, CBFR created a consumption-based fixed component that ultimately relied on six-month water usage during peak months – the May through October months – as a proxy for how much a given user effectively strained the system.

That didn’t actually completely fix the social inequity. As we have previously demonstrated, CBFR does not equalize the cost-per gallon to the system, but it did greatly improve it.

However, critics like Sue Greenwald would argue, “What we found is that homeowners and tenants of single family homes will still be paying almost 40 percent more for each gallon of water than other residential users under the new water rate structure and much more than commercial as well.”

“Not only is this unfair, it’s going to ultimately result in higher costs for most rates,” she continued. “It will lead to some adverse, unintended consequences.”

In their endorsement of No on Measure P, the Enterprise wrote, “Voters are worried about the rising cost of water, and they’re confused about the consumption-based fixed rate that will take effect in January.”

Post-election however they wanted the URAC (Utility Rate Advisory Committee) to review the rates.

“Should those rates continue to be based on the controversial CBFR model?” they ask. “We say no.”

“Experts say CBFR guarantees the fairest rates for the greatest number of utility customers. While that may be true, the community doesn’t trust them. And sometimes, the most politically expedient path is the right one to take,” the paper continues. “We remain uncomfortable with basing part of a future year’s rates entirely on summer usage. And, figures show there wouldn’t be a huge difference if rates were calculated on a traditional 12-month base instead. We encourage the new advisory committee to look seriously at this option.”

Today the Enterprise writes, “Whatever the merits of CBFR, its complexity and its emphasis on curbing summertime water use have created so much confusion and acrimony among Davis residents that it has threatened to make the project much more expensive, should passage of Measure P force the city into costly bridge loans or penalties to Woodland. There comes a time when technical considerations, designed to fit an objective set of criteria, must give way before political reality.”

They add, “Bowing to public pressure, it looks like the City Council will put water rates on its agenda for Tuesday’s meeting. This represents an opportunity, maybe the last opportunity, to find real compromise and common ground on this issue.”

We continue to question how much public pressure there actually is on this point. We believe that Measure I resolved the issue of the surface water project. The public uncertainty lies in the fact that the rates are going up and Measure I showed the public closely divided on the core issue – at least in March of 2013.

From our perspective, if the council was going to increase rates, it needed to do so in a more equitable manner. CBFR, despite all of the bellyaching, is not *that* complicated. The water ratepayers simply add a third term into the equation.

Nevertheless, what emerges is better society equity.

The Proposed 12-Month CBFR

The idea behind this proposal is to meet the challenge of a fairness goal.

The first component of this is the elimination of the prior year “look back.” Bob Dunning has been arguing for well over a year that “fairness” starts with paying for the water that you use … and only the water that you use, paying as you go. In the proposed 12-month CBFR in January 2015, the first month when CBFR is in place, if you used 5 ccf of water then your bill would include a Supply Charge for 5 ccf of water.

Second, what is known as the Supply Charge will now be based on 12-months of consumption rather than the six summer months of consumption. Critics and opponents have argued that basing the Supply Charge on a full 12 months of usage is more equitable.

Third, we note that making water more affordable for low volume users is very hard when the monthly Fixed Fee is high. CBFR already was reducing the Fixed Fee by 48% from $19.68 to $10.21 per month for most single family residences. The proposed adjustment will reduce the $10.21 by another 19% to $8.25 per month for 3/4-inch meters, with similar percentage reductions for larger meters.   In total the January 2015 Fixed Fee shows a 58% decrease from the January 2014 Fixed Fee.

Finally, the compromise notes people need to be convinced that irrigating our street gutters isn’t a good use of water, whether in a drought year like this one when water supplies are scarce, or in a normal year when water is easier to come by. Our roads in Davis are not fertile ground for growing green veggies and tomatoes and fruits of all shapes and sizes. The best way to cure the practice of watering our gutters is to include a high usage tier in the Variable Use charge.

Water that is wasted will cost much more than wisely used water. The proposal suggests that the first tier be set at $0.50 per ccf for the first 20 ccf of water each month. That is a 42% reduction in the cost of the water that most Davis residents use each month, which again makes the cost of water more affordable for low volume users.

In any month where the usage is 21 ccf or more, the proposed rate is $1.90 per ccf, which should result in a significant number of irrigation system adjustments so that watering the streets at the same time we irrigate our lawns will become a much rarer sight in Davis.

This two-tier structure provides a “fairer” reduced rate for those who use water responsibly and an immediate conservation signal for those who use irrigation water wastefully. 20 ccf of water provides enough indoor water at $0.50 per ccf to meet the needs of a household of 8 people.

The indoor water use of large households are not penalized as a result.

Finally, this proposal will give the ratepayers one more opportunity to formally protest the rates before they go into effect on January 1, 2015, by conducting a Proposition 218 Notice in the fall.

Here is the effects of the proposed rate on single-family (SFR) homes in chart form.  The black horizontal bars are the percentage of total consumption that each 10% of the SFRs uses. What you see quickly is that the top 10% of the SFRs use 25% of the water.  The left vertical bar shows what percent of the fees are paid by each respective group.  Looking at the far right group, under the proposed adjustments the users in that group will use 25% of the water and pay 25% of the fees.

Equity Chart - SFR New CBFR-12 vs CBFR-6

As we can see in this chart, the top 10% of the water users use about 25% of the aggregate water, but under the previous CBFR rate structure, they still pay just 23 percent of the revenue. This is a clear improvement from the Bartle Wells model, but it still in effect allows the top water users to get their 6.7% of the water for free.

Under the revised plan, they would pay for 25.5% of the water revenue which means they would now pay for each gallon of what they use.

The impact on the other deciles of users is not nearly as dramatic, however, in most deciles the 12-month structure produces better social equity than the current 6-month structure which, as we had argued previously, produces far better equity than the old meter system or the Bartle Wells system had produced.

Are people going to understand this system any better? It’s hard to know. I think the city as whole has done an exceedingly poor job of explaining a lot of things to citizens of Davis, and CBFR only represents the current one.

It does remove one basic objection – the primacy of summer water over other non-summer months.

The Enterprise does note that this reverts to “a pay-as-you-go billing model” and “will ensure that people who buy a home or move into an apartment are not paying for the prior owner’s or tenant’s water-use history, but are paying for their own use.” However, the CBFR system already had a way to deal with that objection.

Water rates are by their nature much more complicated than most would like to think. As Mark Northcross, the city’s bond consultant, explained back in December of 2012, there need to be fixed components built into the rate structure. That ensures even if water usage goes to zero, that the city can pay its basic rates. The city would not be able to get bonding for the project without a showing that they could produce a certain amount of revenue even with no water usage.

The question then becomes one of fairness.

To illustrate this in December 2012, we showed a graphic that showed that under the previous rate structure, people at the lowest end using just 5 ccf, were paying $3.80 per ccf compared to $2.07 per ccf by those using 25 ccf a month. Under the Bartle Wells system of uniform block rates, that number shot up to $13.24 per ccf at the low end compared to $5.81 at the high end by 2018.

However, under CBFR there was much more equity. Low end users’ rates would go up still, but to $8.27 per ccf by 2018 compared to $5.78 per ccf at the 25 ccf level.

Now the new system will improve upon that equity even more.

The bottom line is that, as long as we have a surface water project (and frankly even if we don’t), the water rates are going up, and this compromise represents additional equity.

—David M. Greenwald reporting

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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10 Comments

  1. Tia Will

    I certainly think that this proposal will do one thing if nothing else. It will sort out those who truly are interested in the fairest rates possible from those whose intention is to block the project at all costs.

    Hugging Matt Williams for it….not so sure about that ! ; ) Hi Matt ! Good work.

  2. Davis Progressive

    i really hate to see the naysayers drive the agenda. dunning is not interested in better policy. harrington is not interested in better policy. sue greenwald is not interested in better policy. doing this before the election suggests to me that everyone is running scared and probably blind. not good policy.

    1. Matt Williams

      DP, the real driving force behind this was not the naysayers, but rather a woman who is totally committed to achieving the best for the community … Donna Lemongello. Donna has ben tenacious in pursuing a solution to the lookback issues caused by the high percentage of renters in Davis. That tenacity paid off when she came up with an idea that would allow “pay as you go” and at the same time preserve the fiscal resilience that (along with social equity) is one of the cornerstones of CBFR.

      Once it became clear to me that her idea was not only feasible but brilliant, then the two of us began to put it through some substantial due diligence using the historical usage database that Bartle Wells used to complete the rate study for the WAC. In the process of that due diligence the additional “tweaks” that are central to this solution emerged.

      The keys to this proposed solution are simplicity, understandability, fairness, responsiveness, and fiscal sustainability/resilience. It is clearly simpler than the current CBFR rate structure. What can be simpler than I receive my bill, and pay it, and am done with it? It is easier to understand. No look back to determine what you pay for the Supply Charge. Your usage for the current month is billed at a $ per ccf rate, and that rate is fixed for each 12-month period. As the graph in David’s article shows, it is even fairer than the current structure because the percentages of total water use and total amount paid for each usage level are incredibly close.

      One of the criticisms of the current CBFR is that it impairs a consumer’s ability to reduce their bill immediately after taking water conservation steps. Because of the lookback they would need to wait 12 months before the bulk of the conservation savings would hit their bill. That problem is 100% gone if these proposed changes are adopted by City Council. Because of the inclusion of the pay as you go feature, if you reduce your water use through conservation this month, the results of that reduction will appear in both the Variable Use Fee and the Supply Charge on the very next bill. If consumers choose to conserve, they will not have to wait 12 months for their reward for achieving that conservation. With that said, let’s give credit where credit is due. Bob Dunning has been asking for that kind of improved responsiveness from the water rate structure for eighteen months. Throughout that 18-month period, Bob was saying “this is good policy” and he was/is right.

      All of the above is achieved while preserving the fiscal sustainability/resilience that has always been a central feature of CBFR.

      One of the keys to the emergence of this proposed solutions is that it has been a collaborative effort … and another key is that there has been a lot of due diligence applied to it in order to ensure that it is an even better solution than the one we currently have.

      JMHO

  3. Ryan Kelly

    I think “running scared” is not an appropriate description. I think it is more that Matt and others are responsive to community concerns way more than critics like Harrington, Dunning, and S. Greenwald give them credit for. The CFRB is new and there were sure to be some unforeseen surprises as it was implemented. There is no need to dig in heels and carry forward with a plan that has these flaws. Likewise, a complete repeal of something opposed is a GOP tactic (i.e. Obamacare). Remember, it is only about gaining political power for some. What we need are people willing to tweek and change and improve a plan to respond to the unintended results to make a good idea better. We all win when this happens.

  4. Tia Will

    I have no idea what Rifkin thinks about it. But I will be happy to share what I think about it. I believe that neither business ( in the from of insurance companies) nor pharmaceutical companies, nor the government should be standing between the provider and the patient. And I could not care less whose party or whose ideology or whose profits or whose election is felt to be at risk.

    To the extent that Republicans block the ability of all Americans to have access to quality health care, they should be called out on it. The same goes for Democrats.

    1. Frankly

      The reason that Pelosi blocked this is to prevent Republicans from winning and good news on the healthcare legislation issue. Basically she threw people with mental health problems under the bus for political reasons. Reid does the same. Blocks amendments from the floor. Blocks up or down votes on bills. Does it all for political reasons.

      But again… nothing on the main scream media.

      Disgusting. Despicable. Democrats will deserve the thumping they get in this next election.

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