CBFR Dead, But Council Leaves it to URAC to Determine Rate Recommendation

Council sits at the Dais on Tuesday, getting briefed on some of the rate options and finances.
Council sits at the Dais on Tuesday, getting briefed on some of the rate options and finances.

On Tuesday, the Davis City Council considered narrowing the scope of discussion for the URAC, but ultimately determined it was best to allow URAC to have free rein to make the best recommendation possible.

One thing that was clear is that CBFR is dead – proclaimed and given a proper burial by its originator Matt Williams.

“Before I start, I’d like to have everyone pause for a moment silence.  There’s a six foot deep hole that is out in the front yard and down in the hole is CBFR, and I’m inviting every single person who wants to, to shovel dirt on top of CBFR,” he said. “Measure P put an end to CBFR, it doesn’t exist anymore.”

In its place is a traditional rate structure with fees that are 87 percent variable and 13 percent fixed. One of the issues that such a rate poses is the need to protect the revenue in case of drought or voluntary conservation due to rising water rates.

Matt Williams stated, “We have put in a revenue protection that literally protects the revenue, makes variable revenue reliable, resilient, essentially fixed all the way down to 50% conservation whether it’s due to drought or voluntary.”

Donna Lemongello argued that the 87/13 alternative was the best rate. She argued that, with 60-40 rates, “there’s loss of equity from user to user.” She said that she and Matt Williams have worked hard both on the issue of fairness and equity as well as revenue resilience.

“The way we have done this is that we have installed a measure as part of our proposal to compensate for what (Mark) Northcross is concerned about…,” she said.

Johannes Troost of the URAC stated that every member of the URAC “is absolutely concerned that there’s money to pay the bills.” He does not see the issue of equity and revenue as mutually exclusive. He noted that both the No on Measure P and Yes on Measure P campaigns were built around the notion of fairness, and asked, “how does that weigh on what you direct us to do?”

Michael Harrington, who led the Measure P campaign, said, “What I’m getting from all of this is the city needs to take a breath and think about it. This fall deadline to have the rates in place, otherwise the sky falls, we’ve heard this before. “

He argued that Davis is a well-off community. “It’s not like Woodland. We don’t have deep wells failing right now like Woodland.” He said, “I don’t think the city has a bat’s chance in heck of getting low interest loans unless state laws change. There’s a lot of analysis that’s out there about that.”

“Our side says we’re not going to get low interest loans under the current regime,” he added. “So just take it easy. You’re going back to the 2010 rates. You have a slush fund sitting out there… you don’t need to rush this.”

He wants this to be carefully considered, and to talk with the city about dealing with the issue globally. He argued that the city has claimed the train is leaving and the sky is falling over and over again. “You don’t need to do this,” he said.

Elaine Roberts Musser, Chair of the URAC, stated, “I disagree that this group [the URAC] is a tech group and we’re waiting for policy guidance. We have differing abilities on the committee, some people are very technically oriented, others are very policy oriented. We are looking for any guidance that you wish to give us.”

Brett Lee told the council that, going forward, “It’s a pretty good sense for where we stand on this idea of tiered-rates versus non-tiered rates and why we would be supportive of one versus another.” He added, “imagine there’s a household that uses zero water, what is a fair charge for them?”

Dan Wolk said, “I met with Matt and Donna about the Williams-Lemongello modified model and I think it’s very compelling.” He added, “It seems that you could view it like the conventional rate design, it’s just in this instance it’s a 13 percent fixed component and an 87 percent variable component.”

Herb Niederberger stated that he had not seen the latest version with the revenue protection mechanism embedded.

Financial advisor Mark Northcross was brought into the discussion – though he too had not seen the latest iterations of the Williams-Lemongello 87-13 rate structure.

“Any rate structure you can bond against, that’s not the question,” he stated. “The question is what’s the cost of bonding. The more different it is, the more uncertainty there is which means volumetric, the more likely the rating will be adversely impacted.”

He talked about revenue stabilization reserve fund as a mechanism to protect the bond rating. “The way this thing is set up, my instinct is that I would want to see cash deposited in the vat from day one and restricted,” he said. “I want to see money in there from day one.”

I said $4 million as a ballpark figure for how much cash would need to be in there. He said, “The reason you want cash upfront is that promising to deposit cash after everything goes bad is something that the ratings services have finally figured out doesn’t always work. Because after everything goes bad you may not have the cash.” He added, “They want to see it restricted… Once it goes in there, your pregnant, it’s there.”

He noted that drought recovery fees should be on the fixed, not the volumetric charge, because in a drought, the uncertainty is on the volumetric side, “you don’t know how far down its going to go. So putting your drought recovery fee on the volumetric is like a dog chasing its tail.”

Mr. Northcross added, “The way out of that particular bind in a drought situation is to put your drought recovery fee… put it all on the fixed… so whatever you have to cut on the consumption, it’s all coming back.”

Mayor Joe Krovoza stated, “In my mind there’s three big pieces here to the rate structure: there’s the social equity question of whether or not people who are really using the volume are going to be charged for it with a high fixed rate.”

Second he stated that they need to build in conservation so that the community never has to build a project like this again. And finally, he argued for the need for revenue certainty.

He added, “I think that this community and this council, likes this mix of 87 based upon volume and 13 percent based upon fixed.”

“I think that’s where we are,” he stated. He asked for a motion to direct the URAC on that.

But not so fast. Councilmember Brett Lee stated, “I don’t agree on 87-13, we just heard that that a 25% surcharge. $16 million in yearly revenue, but we’re going to have to set aside $4 million in cash. So that’s coming from the ratepayers.”

Mayor Krovoza interjected, “That was a ball park off the cuff, idea. And there is rate stabilization associated with this.”

Councilmember Lee responded, “I’m not saying I won’t support 87-13, but I’m not willing to preclude the more traditional – especially based upon what we heard, essentially its $4 million in untouchable cash. That’s not a small thing.”

He pointed out in some of these rate proposals the differences are quite minimal – a couple of dollars.

“If the bond market is more comfortable, if the community is more comfortable and it’s just a swing of a couple of dollars, I’d like to be able to look at those alternatives,” he stated. “I have reached a different view on tiers over the past year, I believe there’s a conservation element based upon the fact that we charge for water.”

It was also pointed out on this issue, as was the case on the parcel tax, that ultimately only 3 of the five members of council who would be acting on these rates were going present. 40% of the council – whether it was Robb Davis sitting in the audience who will be confirmed on July 1 or Rochelle Swanson who was out of town – were not at the dais.

The council, therefore, made the determination to allow the URAC to make their best proposal and they would then get their chance to weigh in next week.

—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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    1. Matt Williams

      DP, in his presentation to Council on Tuesday Herb Niederberger included a slide that showed the Bill Comparisons of the first five URAC alternatives for a “typical” single family residence using 11 ccf per month. I have updated Herb’s graphic to include the two 87/13 Alternatives.

      Final Slides
      What is quickly apparent is that Alternative 7 — the 87/13 Tiered alternative shown by the dashed aqua line — fts in comfortably with the three lowest cost (for the ratepayer) alternatives.

      With that picture drawn, the answer to your question is that both the 87-13 alternatives (6 and 7) include in their rates a self-funding of the Revenue Stabilization Reserve Fund. If, as a community, we consume water at a rate equal to our 2013 and 2012 consumption, then the $4 million balance in the Reserve Fund will be attained in less than 12 months from both the 87-13 rate alternatives as they are currently proposed (and as they appear on the Bill Comparison graph above).

  1. dlemongello

    To quote actual numbers:
    Initially it could be borrowed from the Wastewater fund which according to Matt has $29 million in cash at the moment. If we use the same amount of water in 2015 as 2013 our structure will generate a $5.4 million surplus in that one year. Remember we only have to have the $4 million once. If we use the same amount of water in 2015 as in 2012 it will generate a $4.98 million surplus. If we use the same amount of water as in 2011 which was 14% less than 2013, it will generate a $2.8 million surplus. If in 2015 we conserve very heavily at 18.8% less than 2011 which is 28.8% less than 2013 we would have a $745, 389 deficit which would very shortly thereafter trigger the stage 3 consumption drop surcharge and things would even out again. The surpluses could be used to pay back the wastewater fund and leave the $4 million sitting in there. Note that the numbers are 87% consumption based and the surcharge if it were to kick in would be on the variable fee.

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