Council Passes New Water Rates, Will It be Good Enough to Satisfy Critics?

WaterSupplyProject-Graphic

The council quickly passed the staff recommendation to “Accept the Water Rate Cost of Service Study prepared by Bartle Wells Associates (BWA) dated July 2014, subject to minor modifications,” “Approve the water rates for a five year time frame that can be included in a notice to customers for raising water rates in accordance with Proposition 218,” “Authorize the Notice to Property Owners of Public Hearing on Drinking Water Rates scheduled for September 16, 2014.”

In the motion adopted on July 2,Thirteen percent (13%) of the annual revenue will be derived from the fixed component of the rates. The fixed component shall be based on meter size in compliance with ratios established by American Water Works Association (AWWA). The remaining 87% of the revenue will come from the uniform block rates charges to each specific customer class in accordance with the Bartle Wells Associates (BWA) Cost of Service Study.”

“Consistent with Article X of the California Constitution and in conjunction with Article XII, the City is electing to recover more than 60% of the costs from the volumetric rate. This is to provide additional incentive to encourage conservation and discourage the waste or unreasonable use of water in Davis,” staff explains.

Staff adds, “Included in the revenue calculations will be the accumulation of $8.5 million in rate/revenue/Operations and Maintenance reserve. Implementation of a Water Shortage Surcharge (Drought Surcharge) that can be added to the water charges in the event of a declared water shortage emergency.”

According to staff, “The proposed rates will provide the necessary funding to meet bond coverage requirements, pay future debt service obligations, sustain the capital improvement program and cover increased operating and maintenance costs.”

The proposed Prop 218 notice would go out shortly and the public hearing would be September 16, 2014.

Proposed-218-2014-1 Proposed-218-2014-2 Proposed-218-2014-3 Proposed-218-2014-4

The key question is whether this agreement will hold. Michael Harrington was not present at the meeting.

However, former Mayor Sue Greenwald argued briefly for greater equity. She told the council, “We’re making progress (on the equity issue), but we’re not there yet.”

She noted that the main concern mentioned by the Measure P supporters was that apartment units are paying less per gallon than the median house owner. “This is going to increase with time because the percentage is going to stay the same, so as our rates go up, this difference is going to be more significant.”

Ms. Greenwald argued it would only take some small “tweaking” to accept the rates that Donna Lemongello and Matt Williams “worked out that do much better in the equity department.”

“The Lemongello and Williams rates are far more equitable than the Bartle Wells 87-13 rates,” she continued. Under Bartle Wells, she argued, single family homeowners pay 17% more per gallon than the apartment landlords. The Lemongello-Williams rates “lowers this difference to only six percent.”

In the table above Equity is demonstrated when the ratio is closest to 1 •  Green shaded values are the closest to 1 •  Red shaded values are the ones that figured prominently in the Yes On Measure P arguments •  Orange shaded values are areas where traditional high fixed-fee rates create considerable inequity •  Yellow shaded values are areas in Staff’s proposed rates where there are still equity improvement opportunities
In the table above Equity is demonstrated when the ratio is closest to 1
• Green shaded values are the closest to 1
• Red shaded values are the ones that figured prominently in the Yes On Measure P arguments
• Orange shaded values are areas where traditional high fixed-fee rates create considerable inequity
• Yellow shaded values are areas in Staff’s proposed rates where there are still equity improvement opportunities

The question is whether this differential of 17% versus 6% is enough to continue to hold out. Our graphics showed vast differences in the 60-40 rates which CBFR and then 87-13 attempted to close. It was pointed out by Elaine Roberts Musser at the URAC meetings that even the difference between 60-40 made only a $9 per month difference by 2018.

Elaine Roberts Musser, who chaired both the WAC and URAC, pushed for the council to finish this process. “I think at this point to start tweaking and fiddling and so forth, is counterproductive,” she said.  Ms. Musser was both a strong critic of CBFR and in this process a strong proponent of 60-40. She said on Tuesday, “You made the decision last time, stick with it. The problem with doing tweaks and so forth is that you’re not going to be sure what you’re going to get.”

Mayor Pro Tem Robb Davis stated, “I’ve been thinking a lot about the equity issue.” He added, “At some point we reach a limit on using rates to do something that rates are really not best suited to do.”

He argued that the kind of fine tuning needed for social equity, “may not be possible.” The mayor pro tem stated, “The issue is that there is concern in the community about some community members not being able to pay the increased rates. Maybe not by next year but by 2018.”

“If that’s the issue,” he said, then staff needs to work with council to talk about expanding the lifeline program. He spoke about the need to cover renters. Harriet Steiner pointed out under some conditions it could apply to renters. But the council agreed to take up that issue within the main motion.

The question, however, still remains, whether the city has gone far enough to appease the critics to allow this project to go forward with no further legal challenges and no further attempts to put the rates on the ballot.

A week ago it seemed the answer might be yes. Don Price argued that fear of legal action was a red herring. He explained, “The only reason that the council has been plagued with legal action this past year is that people didn’t like the experimental rates that the city council voted for before. I can’t imagine anyone bringing any kind of legal action or challenge to an 87-13 rate.”

But the absence of Michael Harrington and the comments by Sue Greenwald at least leave open the possibility that the answer is no.

—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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30 Comments

  1. SODA

    Am out of town and streaming video of CC froze and sputtered too much to watch: did the council include surcharge in case where community conservation occurs or only mandated drought-related situation?
    Discussion from a DV article a few days ago.

      1. Matt Williams

        That is correct DP, although Harriet Steiner did seem to want to keep it tightly tied to a declaration by Council under the provisions of the Urban Water Management Plan. Why they want it restricted in that way is a bit of a mystery.

        1. Anon

          Harriet Steiner kept the water rate structure, including drought surcharge, and reserve funds tightly tied to the CA Consititution and Urban Water Management plan for legal reasons.

          1. Matt Williams

            Anon, you have simply restated what I said. Harriet clearly kept it tightly tied. The important question is “Why?” or if you will, “What is the legal reason why she did that?”

            To the best of my knowledge there is nothing in the provisions of Proposition 218 that prevents a community from approving a rate ceiling that exceeds the actual base rates that it implements. To the best of my knowledge many cities and water districts have done so. By having a ceiling that exceeds the base rates, then if a fiscal problem arises the ratepayers have given the water district’s governing body (the Council in our case) the ability to raise the base rates to any level that is below the ceiling. Given those provisions, the existence or non-existence of an event that complies with the provisions of an urban water management plan would appear to be an unnecessary complication. Any thoughts why embracing such a complication is the chosen path in this case?

          1. Matt Williams

            The question I have was asked in a prior thread by Don Shor. The business issue that the surcharge is designed to address is a revenue shortage, not a water shortage, why isn’t it wise to shoot for “simple, understandable and transparent” and acknowledge that just as in our personal lives, the water district has to pay its bills, and in order to do so, it needs a minimum amount of revenue … and that the whole reason that the Revenue Stability Reserve Fund exists and having the surcharges as one of the provisions of that Revenue Stability Reserve Fund appears to be the simple/straightforward approach … an approach outlined in the American Water Works Association’s Rate Manual (aka AWWA’s M1 Manual).

      1. Anon

        The drought surcharge, as declared by the City Council in case of a water shortage as determined by them, must be tied to some type of legal document – hence the need to mention the Urban Water Management plan and the state constitution.

        1. Matt Williams

          Anon, the surcharge was never proposed as a drought surcharge, but rather as a provision of the Revenue Stability Reserve Fund, designed to deal with situations of reduced revenue due to reduced water consumption. Drought certainly can result in reduced water consumption, but as we have seen in 2013 here in Davis, drought can also result in increased water consumption.

          1. SODA

            So Matt (not to beat the horse, and thx)
            What if the community conserves to significantly decrease revenue ? What is in place to address that?
            I believe this happened in the 70’s in the Bay Area with EBMUD and rates increased but not sure the process used.

  2. SODA

    Am out of town and streaming video of CC froze and sputtered too much to watch: did the council include surcharge in case where community conservation occurs or only mandated drought-related situation?
    Discussion from a DV article a few days ago.

      1. Matt Williams

        That is correct DP, although Harriet Steiner did seem to want to keep it tightly tied to a declaration by Council under the provisions of the Urban Water Management Plan. Why they want it restricted in that way is a bit of a mystery.

        1. Anon

          Harriet Steiner kept the water rate structure, including drought surcharge, and reserve funds tightly tied to the CA Consititution and Urban Water Management plan for legal reasons.

          1. Matt Williams

            Anon, you have simply restated what I said. Harriet clearly kept it tightly tied. The important question is “Why?” or if you will, “What is the legal reason why she did that?”

            To the best of my knowledge there is nothing in the provisions of Proposition 218 that prevents a community from approving a rate ceiling that exceeds the actual base rates that it implements. To the best of my knowledge many cities and water districts have done so. By having a ceiling that exceeds the base rates, then if a fiscal problem arises the ratepayers have given the water district’s governing body (the Council in our case) the ability to raise the base rates to any level that is below the ceiling. Given those provisions, the existence or non-existence of an event that complies with the provisions of an urban water management plan would appear to be an unnecessary complication. Any thoughts why embracing such a complication is the chosen path in this case?

          1. Matt Williams

            The question I have was asked in a prior thread by Don Shor. The business issue that the surcharge is designed to address is a revenue shortage, not a water shortage, why isn’t it wise to shoot for “simple, understandable and transparent” and acknowledge that just as in our personal lives, the water district has to pay its bills, and in order to do so, it needs a minimum amount of revenue … and that the whole reason that the Revenue Stability Reserve Fund exists and having the surcharges as one of the provisions of that Revenue Stability Reserve Fund appears to be the simple/straightforward approach … an approach outlined in the American Water Works Association’s Rate Manual (aka AWWA’s M1 Manual).

      1. Anon

        The drought surcharge, as declared by the City Council in case of a water shortage as determined by them, must be tied to some type of legal document – hence the need to mention the Urban Water Management plan and the state constitution.

        1. Matt Williams

          Anon, the surcharge was never proposed as a drought surcharge, but rather as a provision of the Revenue Stability Reserve Fund, designed to deal with situations of reduced revenue due to reduced water consumption. Drought certainly can result in reduced water consumption, but as we have seen in 2013 here in Davis, drought can also result in increased water consumption.

          1. SODA

            So Matt (not to beat the horse, and thx)
            What if the community conserves to significantly decrease revenue ? What is in place to address that?
            I believe this happened in the 70’s in the Bay Area with EBMUD and rates increased but not sure the process used.

  3. hpierce

    Acttually, David, City Attorney pointed out that the CURRENT lifeline program has provisionns for renters, with the cooperation of owners. Owners need to be involved because they are the ones legally responsible for the City utility bills, and actually pay those bills.

  4. hpierce

    Acttually, David, City Attorney pointed out that the CURRENT lifeline program has provisionns for renters, with the cooperation of owners. Owners need to be involved because they are the ones legally responsible for the City utility bills, and actually pay those bills.

  5. Robb Davis

    The questions raised by SODA were addressed during Tuesday’s meeting. “Drought” surcharge is a misnomer. It is a water reduction surcharge that can be invoked for any long term need to reduce consumption (drought or some systemic contamination, for example). Anon has addressed correctly to what it is tied.

    I asked the question about what happens if conservation exceeds the level assumed and modeled for in the cost study. Harriet was clear that one of the functions of the rate stabilization fund is to provide time for the CC to examine whether higher rates are necessary to address the higher-than-inspected conservation and, if necessary, set new rates to meet the changes (rates changes would be accompanied by a new Prop 218 notice).

    In layman’s terms (i.e. terms I understand) a surcharge that is not tied to conservation assumptions (I am NOT talking about the water shortage surcharge) is legally questionable because it basically allows the City Council to increase rates without a further Prop 218 notice. Matt may have examples of cities that have done it but we are not going that route. Rather, in order to be fully transparent, if we need to raise rates because conservation has exceeded the assumed level, we will return to the community with a rate increase notice using the Prop 218 notice.

    Hope this helps.

    1. Matt Williams

      Robb, thank you for the clear description of the Council’s current thinking on how accumulated system-wide reduced consumption will be handled. The approach you have outlined is one that will reactively respond to the reduced consumption and transparently come to the ratepayers to ask for additional money. The Revenue Stabilization Surcharge approach Donna and I outlined is on that proactively responds to the exact same reduced consumption and transparently asks the ratepayers for the exact same amount of additional money. The only difference between the two is how they are planned for … plan ahead or plan when it happens. The ratepayers are openly, transparently and fully informed about the fiscal impact either way. In one the ratepayers preapprove a specified increase that can only be activated by the Council under specific auditable circumstances. In the other, wen those circumstances come to pass the Council will need to decide whether it wants to incur both the time and expense of another 218 process. Proactive vs. reactive. it is a political choice … one in which the primary driver is trust. And that choice is the Council’s.

      SODA, I think Robb has answered your question.

  6. Robb Davis

    The questions raised by SODA were addressed during Tuesday’s meeting. “Drought” surcharge is a misnomer. It is a water reduction surcharge that can be invoked for any long term need to reduce consumption (drought or some systemic contamination, for example). Anon has addressed correctly to what it is tied.

    I asked the question about what happens if conservation exceeds the level assumed and modeled for in the cost study. Harriet was clear that one of the functions of the rate stabilization fund is to provide time for the CC to examine whether higher rates are necessary to address the higher-than-inspected conservation and, if necessary, set new rates to meet the changes (rates changes would be accompanied by a new Prop 218 notice).

    In layman’s terms (i.e. terms I understand) a surcharge that is not tied to conservation assumptions (I am NOT talking about the water shortage surcharge) is legally questionable because it basically allows the City Council to increase rates without a further Prop 218 notice. Matt may have examples of cities that have done it but we are not going that route. Rather, in order to be fully transparent, if we need to raise rates because conservation has exceeded the assumed level, we will return to the community with a rate increase notice using the Prop 218 notice.

    Hope this helps.

    1. Matt Williams

      Robb, thank you for the clear description of the Council’s current thinking on how accumulated system-wide reduced consumption will be handled. The approach you have outlined is one that will reactively respond to the reduced consumption and transparently come to the ratepayers to ask for additional money. The Revenue Stabilization Surcharge approach Donna and I outlined is on that proactively responds to the exact same reduced consumption and transparently asks the ratepayers for the exact same amount of additional money. The only difference between the two is how they are planned for … plan ahead or plan when it happens. The ratepayers are openly, transparently and fully informed about the fiscal impact either way. In one the ratepayers preapprove a specified increase that can only be activated by the Council under specific auditable circumstances. In the other, wen those circumstances come to pass the Council will need to decide whether it wants to incur both the time and expense of another 218 process. Proactive vs. reactive. it is a political choice … one in which the primary driver is trust. And that choice is the Council’s.

      SODA, I think Robb has answered your question.

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