On Monday, the Vanguard published analysis from water attorney Kelly Salt with the Best, Best and Krieger law firm, who reviewed the proposed rate structure from Frank Loge and Matt Williams which would rely on previous water usage as the fixed cost rather than the meter size.
While Ms. Salt saw some issues that needed to be potentially addressed if the WAC moves forward with this plan, she ultimately thought this could work.
“I think conceptually this can work,” Ms. Salt wrote. “This is similar to the approach that Davis and a number of public agencies use for approximating flows for sewer service.”
However, last month, City Manager Steve Pinkerton said that while he “recognizes that the structure Williams and Loge have developed has potential and says city leaders will keep an open mind about it,” he “also believes that implementing the system in the short time frame the city has to put a surface water project and a corresponding rate structure to a vote could be difficult.”
“We just don’t want to make a $10 million mistake,” he told the Enterprise.
The Vanguard on Monday followed up with City Manager Pinkerton who told the Vanguard via email, “While I’m not opposed to reviewing new methodologies, I would want it to be fully vetted before implementing a rate model that will eventually be requiring the City to generate over $25 million per year in revenue.”
He suggested, “We could run this method in parallel with a standard rate model for a period of years and then evaluate it to see if there were any unanticipated problems with the rate structure.”
“In addition, I would prefer that another entity take the lead and potentially deal with the first round of potential lawsuits that could ensue if the rate structure created huge cost increases for specific user groups,” he wrote. “I’m also concerned that the bond underwriters could have issues with a rate structure that hasn’t stood the test of the time.”
Dennis Dove of Bartle Wells Associates, who is running the city’s rate study, has concerns about the Loge-Williams Consumption Based Fixed Rate Proposal (CBF).
He said in an October 12, 2012 memo that Bartle Wells Associates does not recommend the CBF as proposed.
He listed seven reasons for this opposition.
First, all costs are allocated based on consumption in this model, however many water costs are in fact not proportional and have a minimal relationship at best to water consumption. These include: Administrative and customer account costs, environmental compliance costs, lab testing, some planning and engineering costs, some basic maintenance and replacement costs, and fire flow/fire protection costs.
Second, he argued that “CBF is an untested, experimental rate structure and should not be implemented when the city is already facing a very large increase in cost to fund the surface water supply.”
Third, he argued that the CBF rate structure has unpredictable customer impacts including the fact that costs cannot be predicted for the following year. He believes this uncertainty would hurt small businesses which need to be able to calculate rates in advance. He said that they “need to calculate rates for a wide range of sample customers to assess impacts.”
Fourth, he suggested that the proposed “rate structure is not correlated to an accepted cost of service methodology.” He fears that if challenged, the city could lose in court, and may have to rebate rates collected under the new structure. He noted that Palmdale did not follow their consultant’s recommendation, and lost in court and was subsequently forced to rebate fees.
He also argued that under CBF, it would be difficult to adopt multi-year rate increases. He wrote, “Multi-year rate increases gradually phase-in cost impacts and will be needed to secure debt for project.”
Like Ms. Salt, CBF has some equity questions, for instance concerning rentals where students leave during peak summer months, folks who go on vacation for extended periods of time, or intermittent peak users.
Mr. Dove also asked whether the cost to serve a customer who uses 1 ccf per month is really one-tenth of the cost of serving a customer that uses 10 ccf per month.
The current system, of course, approximates the fixed costs based on the size of the meter and I have to wonder whether the problems identified by Mr. Dove are not endemic to any rate structure.
Indeed, one of Kelly Salt’s concerns was similar. She wrote, “Your fixed fees are not necessarily related to how much water a customer uses. For example, the cost of having a meter read, a bill mailed, or debt service payments made does not change based on the amount of water used. Consequently, an argument can be made that there is no nexus between the service provided and the amount of the fee or charge imposed.”
She added, “Having said that, the same argument could be made that using the size of a meter to set the amount of the fixed charge raises this same issue. But you may need to flush out this analysis a little more since this is a new approach that is likely to generate a number of questions.”
She suggested, “I would suggest that there be workshops in the community to educate the public on this new approach, what this means for their bills. Change is always hard, but getting buy-in goes a long way to making the transition easier.”
Dennis Dove’s final concern is that this rate structure would have a very high impact on landscape users, including city parks, schools, and other irrigated areas. He argued that this may lead some users to drill their own wells. And he stated that water-intensive businesses will probably have to leave Davis.
At first glance, Mr. Dove’s concern seems overwrought. But drill down into that statement, and there is at least a tacit acknowledgement that it means high water users in the current system must be somehow shielded from the full impact of their use.
If that’s the case, then perhaps the system really does have the problem of low-end users subsidizing high end users. And if that’s the case, perhaps the system really is in some legal jeopardy for being disproportionate, something that the city and city attorney have vehemently denied.
—David M. Greenwald reporting
