In an op-ed earlier this week, Frank Loge and Matt Williams, who on volunteer time designed the Consumption Based Fixed Rate (CBFR), punched back at the Davis Enterprise columnist who attacked their rate structure, claiming it violated Prop 218.
“We spent a lot of late nights crafting the new water rates until we had something we thought met everybody’s needs and complied fully with the state’s often conflicting constitutional mandates,” write Frank Loge, a civil engineer who specializes in water, and Matt Williams, who has set and dealt with rates for for health care, information technology and water.
“When we were done, we submitted our work to Kelly Salt, a lawyer who is one of the state’s leading experts on Prop. 218 compliance,” they continue. “Her legal opinion was that it passed muster, and Davis City Attorney Harriet Steiner agreed. These lawyers work for the people of Davis, are highly qualified and have no ulterior motives or hidden agendas.”
Given the amount of due diligence the city’s attorneys and rate consultants spent verifying that the rates were constitutional, the discussions by both the WAC and the city council, it is hard to imagine that a glaring error would have been overlooked.
“We were stunned, then, to read Bob Dunning’s column of Jan. 27, which claimed our proposed new rate structure violated Prop. 218,” they write.
The column went further in suggesting that unnamed members of the community appeared to be poised to sue the city for failing to comply with Prop 218.
Frank Loge and Matt Williams tell us, “We didn’t have much time to wonder who these opponents were, because Bob’s next column revealed that the lawsuit had been filed.”
The suit, as we now know, has been filed by Michael Harrington, a former councilmember who spearheaded the 2011 referendum that would have rolled back the September 6 rate hikes.
Mr. Loge and Mr. Williams note that they cannot comment on the majority of claims in the lawsuit.
However, regarding the third cause of action, they write that it “mentions our names and says the rate plan that bears our names violates Prop. 218. So once again, we feel obliged to step up.”
The basis for the claim of unconstitutionality under Prop 218 is that they claim it “impose(s) a fee or charge incidental to property ownership which exceeds the proportional cost of the services attributable to the parcel.”
They note, “The lawsuit makes no effort to substantiate this charge beyond praising ‘local notable columnist’ Bob Dunning and proffering his Jan. 27 column as an exhibit.”
“Saying rates are not proportional, though, does not make it so,” they argue. “What would a proportional system look like? The suit offers no specifics beyond Dunning’s column, which argues that every gallon of water should cost the same to deliver to every ratepayer every day of a given year.”
“Reality, however, does not conform to this analysis,” they contend.
They cite, in support of this claim, the fact that “Davis has very high peak summer water use, and the water system must be built to cover that peak use. It costs more to build a system that can deliver a July gallon than one that delivers only December gallons.”
Instead, they note, “The proposed rate structure fairly and proportionally assigns the costs of that high peak water use to high peak water users. Every other rate structure we examined would unfairly shift these costs onto thrifty water users.”
They believe, in fact, that what they have come up with is the most fair system they have seen.
“If anyone can offer a fairer, more proportional rate structure, the people of Davis deserve to see it,” Frank Loge and Matt Williams respond.
In addition to dismissing the contentions by Mr. Dunning, they suggest a collaboration between Mr. Dunning and Mr. Harrington.
“We’re also impressed by the timing of this. On Jan. 27, Dunning published the scoop that anonymous ‘opponents’ would sue the city over the new rate plan; four days later, the prophesied lawsuit appeared, singling him out for praise and citing his opinions as evidence,” they write.
They quickly add, “We’re confident that all the legal and journalistic niceties and plausible deniabilities have been attended to, but it’s obvious to us at least that Dunning is working very closely with Harrington on this.”
“This might not seem a big deal,” they argue. “Readers know after all that Bob is an opinion columnist, not a reporter – but his actions take place in a larger political context. If the rest of this lawsuit is as flimsy as the part that attacks our work, it seems likely that the whole point of it is to scandalize Measure I before the election and to gin up Prop. 218 challenges to the proposed rates.”
“The wheels of justice turn slowly in California, and there is no way this lawsuit will be resolved before either the Measure I election or the Prop. 218 notice period closes, so its claims will hang out there, conjured bogeymen that opponents can wave at to stoke fear,” they add.
—David M. Greenwald reporting
[quote]”Mr. Loge and Mr. Williams note that they cannot comment on the majority of claims by the city.”[/quote]What claims by the city?[quote]”…a fourteen page memo….” [/quote]The link doesn’t go to the memo, but the earlier [i]Vanguard[/i] story which doesn’t have a link to the memo (or, at least, that I can locate). Would you please add one on this story or the other, thanks.
Here is the legal memo (pdf):[url]http://davismerchants.org/water/LegalMemo.pdf[/url]
We believe there was ample probably cause to file the case and are looking forward to having a neutral forum where the City must show that it’s rate systems conform to Prop 218.
We are very confident that as they are written, the three rate structures at issue (current, Bartle Wells, and CBFR) do not conform to Prop 218.
I was right about the benefits of the 2011 referendum, I was right about the project being to large and too expensive, and I was right to hang in there and force the CC to put the project on the ballot.
I am right about the city’s knowing, routine pattern and practice of violating Prop 218 and not paying for its own water use.
I am right about these rates violating Prop 218.
The rest of it will be presented and discussed in the neutral forum.
Matt, if you would not mind, I’d like your email address. Send to dlemngello@ucdavis.edu. Sorry, could not figure out any way to get it
that’s dlemongello@ucdavis.edu, great time for a typo.
Mike, the good news vis-a-vis CBFR is that if you are right, then the court will no doubt point out where CBFR needs to be tweaked in order to be fully compliant. If you are wrong then CBFR will have a legal precedent on the books certifying that it is compliant.
I’m betting on the latter outcome, but will embrace any changes that the court in its wisdom requests. CBFR will only get better as a result. That is a win-win scenario.
Matt, I would have preferred to have just talked to you about this but perhaps you prefer I discuss it here. I very much appreciate the work that you have put into the rate structure, I think it is fair and well thought out and probably legal, which will be taken care of one way or the other. And I like your attitude about that.
But it is hard for people to understand how it works and I am sorry to say that I think you are suffering from fatigue of the whole thing. I say that because last night at the Senior Center your attempted 2nd explanation of it was nothing short of abominable. I felt like jumping out of my seat and screaming “stop, let me explain it”, but I know that would have been very rude. The bricks and mortar is the best analogy, but even that is hard for most people to relate to and they just get overwhelmed. The analogy you used last night is not an analogy at all for what you were trying to say and it all got very lost. I do not mean to brag, but I have a gift for explaining things clearly. I don’t know if you’d be interested in hearing more of what I have to say. Let me know. Of course silence will mean “no thanks”.
dlemongello
I cannot speak for whether or not Matt would like to hear your explanation, but I would.
People understand in many different ways, and what may make sense to Matt or Elaine may not be as clear to someone else. I feel that honesty and clarity in this case are clearly on the side of the surface water project.
So, from my point of view, have at it.
What I dislike about the brick and mortar explanation was that the way Matt explained it sounds like the people who oppose CBFR did not understand that fixed costs and construction costs have to be paid.
I understand they need to be paid, what I question is the proportions of those rates.
dlemongello, I second medwoman. Please fell free to explain. I also understand that if your interpretation misrepresents Matt’s intention, I would not hold that against Matt.
This is the first time I have posted a message on the Vanguard. Matt and I met for the first time 13 months ago on the Davis Water Advisory Committee. In that time, I have grown to have the utmost respect for him. He is a great thinker, and very articulate.
Diemongelio, if Matt didn’t come across well last night at the Senior Center, I am sure it is because he is exhausted. For the past week, I have received emails from him at 1, 2, maybe 3am. We both, in our own ways, are simply trying to make sure accurate information is presented to the residents of Davis. Quite honestly, Matt has much more fortitude than me, and I am roughly 20 years his junior.
It would be wonderful if you could share in your own words what CBFR is about, because (a) to give Matt, and myself a reprieve, and (b) to give an alternative perspective. Quite honestly, I feel the more people that give their own perspectives on CBFR, the better, because as Medwoman says, different people learn in different ways, and Matt and I only have so many ways within us to explain CBFR. I’ll be happy to interject, in a positive way, to correct anything that is technically inaccurate.
Someone in an earlier post, as a comment to a different email, nailed what CBFR was all about. It may have been you, Diemongelio (this is such an impersonal way to communicate using peoples ‘usernames’).
Frank Loge
I just checked. Robb Davis’ comments on 2/4/13 at 10:23am to the article “Project Opponents Propose Reasonable and Cost-Effective Alternatives” are spot on for an alternative description of CBFR. Medwoman, if you are looking for an alternative description, look there, and hopefully Diemongelio will respond for yet another perspective.
Frank Loge
I just checked. Robb Davis’ comments on 2/4/13 at 10:23am to the article “Project Opponents Propose Reasonable and Cost-Effective Alternatives” are spot on for an alternative description of CBFR. Medwoman, if you are looking for an alternative description, look there, and hopefully Diemongelio will respond for yet another perspective.
Frank Loge
I just checked. Robb Davis’ comments on 2/4/13 at 10:23am to the article “Project Opponents Propose Reasonable and Cost-Effective Alternatives” are spot on for an alternative description of CBFR. Medwoman, if you are looking for an alternative description, look there, and hopefully Diemongelio will respond for yet another perspective.
Frank Loge
Now Frank, do you have to hold my advanced age against me? 8>) In 20 years you see if your bladder can make it all the way through the night!
Seriously, I am in trouble when my bladder and my brain both wake up at the same time. Those are the moments when getting back to sleep is impossible . . . and yes I do send an e-mail or two in those situations. 8>)
Donna, please jump in and share your thoughts. I could tell that the season tickets analogy had gotten zero traction when I looked at the faces gazing back at me with “Huh?!?” written all over them. I can’t hide behind tiredness, just a lousy analogy.
Frank Loge and others,
Yes I said in my post that I think that Matt is fatigued, though I still do not presume to judge as if I know.
Also, I agree that Robb’s post referred to above does hit it pretty well. It is the supply fee that everyone has a hard time understanding, or those like Dunning who I believe do understand it feel it’s unfair but I do not agree, it is proportional to each users contribution to why we had to build such a large capacity.
And yes, as I give it a shot, please, any corrections are of course welcome. So here goes:
CBFR is an acronym for Consumption Based Fixed Rate. Let’s cover the Fixed part first, then the Consumption part, which is actually broken into 2 different consumption categories.
The Fixed Rate is for the pipes, meters, billing, administrative costs, treatment facility and all the stuff that we need no matter how much water flows through it. It is also based on the size pipe that comes to the property, so the amount of water at a time that you have the POTENTIAL to use and hopefully if you have a larger pipe, it is for a good reason so you are not paying for what is of no use to you.
The first Consumption category is a charge per hundred cubic feet (748 gallons) actually used in any given month. I also think most people understand this and think it’s fair. It’s a simple charge per unit volume used each month. A lot of people wish it were stated in gallons because of familiarity and comfort with that unit. But just multiply each ccf by 748 and you have gallons if that’s better.
The 2nd consumption category is the bugaboo for people. And I am going to just put it on the table, it’s about each user taking responsibility for their contribution to why the project was calculated to need to be the size it is. The project needs to be large enough to provide enough water at PEAK DEMAND, also known as SUMMER and those who have used more water at times of peak demand/summer are responsible for the size it needed to be. But to base it on past summer use before people were warned of this part of the calculation was deemed unfair. So this part of the rate structure was delayed until a future 2014 summer use is measured. Everyone will have a chance to not use as much during peak demand as they used to in the old days and be able to take full responsibility for what they are charged based on their CONSUMPTION during future peak periods. Also, because conservation is expected, the rates take into account an estimated 21% conservation level so the revenues do not fall short. The only sad thing is if we conserve more than 21% at peak demand/summer and we had showed that before, the thing could have been smaller and of course less expensive.
So last night at the Senior Center I was thinking to myself: How great, every user has the chance to become a whole new persona when it comes to water use, no one will ever have to know who you used to be, this is your big chance.
One more thing. Every year your summer use will be REmeasured and it is on that use your next year’s charges will be based for the peak demand part of the calculation, so you have a chance every year to do better. 2014 is the first measurement that will be used for that part of your 2015 rates and so on.
diemongelo – I like what you have written a great deal. What you suggested about extra conservation is very much in line with my own thinking on the matter. So… Thanks for doing this. You give me hope that we as a community can come together to help each other understand these complex issues. This is been troubling me deeply and I appreciate your commitment to community.
Superb Donna. Truly superb.
Robb are you willing to repost yours?
Thanks to you both!!
Robb, I know there is no use “crying over spilled milk”, but isn’t it too bad we have collectively been such hogs and now need such a big project.
But last night I had another real connecting of dots that had been floating but not connecting. And this milk has not spilled yet (though it will if Measure I passes). This project has to be this big because we have no storage built into it. If my thinking is correct, the project could be smaller and therefore of course less expensive if we stored water, a feature that would of course add some other costs on but may still be a net benefit. We could store water during the winter, instead of our current plans which allow what we do not use to go down the river at that time, when water is more plentiful anyway. The current plan is that we will use our large capacity in the summer, hoping there even is enough water to do so, and that is when it would be even more important for more water to go down the river. So I think we could get just as much total water using the capacity of a smaller project year round and storing water, as taxing a larger project in the summer and using so much less of it in the winter.
I really wonder if this is viable or there is something glaring I am missing.
Matt, I’m honored. Feel free to plagerize it anytime it might be of benefit.
dlemongello
Thanks for such a clear explanation. I feel that I have learned a great deal from you, Matt, Robb, Don and others about how to approach this material which is very foreign to me, and more importantly about how to
communicate more clearly.
fjloge
Welcome to posting on the Vanguard. I promise that Matt and I will not hold your relative youth against you !
At least not yet…..
You’re welcome. And I think I’ll keep my age out of it.
Frank, if it makes you more comfortable you can just call me lemongello, I have always related better to my last name than my first anyway.
Posted in the Enterprise . . .
Bill, the Supply Charge in the rate structure is not social engineering. It is simply an annual mortgage payment for the fixed costs of constructing the water system’s supply infrastructure (wells and above ground storage tanks currently, plus surface water project beginning in 2016). Our great grandparents would have paid for those fixed costs with cash, but in this day and age we take out a loan and pay mortgage payments. Since the system capacity is built to handle the peak demand on a hot summer day when irrigation needs are the very highest, the bricks and mortar costs each customer mortgages (our individual consumption at the peak time). The annual lookback rewards a customers if that customer chooses to use less water during that peak period, by making the mortgage payment goes down. Why? Because the conserving customer is returning some “bricks and mortar” capacity back to the water agency that can be used to service the next new customer that is added to the system. That isn’t social engineering it is a reward for providing the system with incremental new capacity.
Posted in the Enterprise . . .
Bill, the Supply Charge in the rate structure is not social engineering. It is simply an annual mortgage payment for the fixed costs of constructing the water system’s supply infrastructure (wells and above ground storage tanks currently, plus surface water project beginning in 2016). Our great grandparents would have paid for those fixed costs with cash, but in this day and age we take out a loan and pay mortgage payments. Since the system capacity is built to handle the peak demand on a hot summer day when irrigation needs are the very highest, the bricks and mortar costs each customer mortgages (our individual consumption at the peak time). The annual lookback rewards a customers if that customer chooses to use less water during that peak period, by making the mortgage payment goes down. Why? Because the conserving customer is returning some “bricks and mortar” capacity back to the water agency that can be used to service the next new customer that is added to the system. That isn’t social engineering it is a reward for providing the system with incremental new capacity.
It was a scoop I wouldn’t bite upon and i am sure others knew but would not say as well.
One night, months ago, although I can’t remember exactly when, Harrington and I had a conversation. Actually it was more of a dissertation as Mike did most of the talking, something that, I am sure, many of you have experienced. He rambled on about how he was free of local pressures because his law practice wasn’t dependent upon local business and how all the council members were obligated to the unions that want the water project. He told me about how Sacramento based Republican operatives that hate Davis helped him draft the referendum petition. He also told me he was going to sue the city and asked if he should file it before or after the vote. When I didn’t respond he answered himself, “before.”
He told me that I should tell council members that I spoke to that he was going to file a lawsuit. Of course I thought telling me to threaten the council members for him was totally chickenshit and kept the conversation to myself. After all, I thought, put up or shut up. The City knows that they could get sued anytime, by anyone, for anything, so why would I do his dirty work? If he wanted to threaten people he should do it himself! Well he filed the lawsuit and who knows whether or not it has any merit but I will make this prediction in the end measure I will pass despite the lawsuit gambit.
Most people I talk to care more about water quality than the cost, prop 218, the unions that want to build it, who is going to own it, run it, finance it, if the rate structure is perfectly fair or how much growth it will facilitate. People like myself care most about what my family is drinking and they know intuitively that ground water in the Central Valley contains traces of whatever the farmers put on their crops and that as we go deeper and deeper to get uncontaminated water eventually we will hit bottom. We can taste it and see it on our plumbing fixtures. We will bite the bullet and vote yes.
By the way, Mike never told me to keep our conversation private.
Re: Matt, Frank, Lemongello, Don
I would just like to point out that I still do not see how CBFR is “fair”. I understand that different people have different questions about CBFR. For me, the question was never whether the people need to pay for the fixed costs somehow, and whether the peak consumption is part of the overall calculation.
The question has always been what the proportions should be and how to show that it is “fair”.
Could anyone comment on the following scenario? This is a simplified scenario where there is no operation cost, there is no loan, the use pattern is completely known, and you get to pay it with cash one-time. What is the fair distribution of the cost?
[ How to split the cost of a shared equipment ] ([url]http://skylet.net/docs/2013-02-08-0901-HowToSplitCost.htm[/url])
I see this a necessary question to answer before CBFR can be evaluated in terms of fairness. Without answering this questions, all we are saying is that CBFR tries to cover the revenue of the project, and [i]could be an improvement[/i]. We cannot make the statements such as:
1. CBFR covers the revenue of the project [b]fairly[/b]
2. CBFR is better than any Tier system that can ever be designed.
Without this analysis or proof, there is a chance that the CBFR rate is more unfair to some people than the traditional Tier system. That risk should be identified and people who might become less well off should be notified, before they make the decision.
My impression is that most people don’t care about this. So I am potentially posing this an a purely mathematical question for those who are interested.
Edgar, in a no loan situation each customer would pay for the specific amount of bricks that they contribute to the construction.
So let me pose a question to you, if you personally use 10 units of water in the winter and 40 units of water in the summer months (because you are irrigating your yard), how many bricks would you want the construction to include for you? 10 or 40?
If you choose 10 bricks then you will have to change your summer lifestyle to eliminate 30 units of your water consumption in order to get your 40 units of consumption down to 10 units. Are you ready to make that kind of life style adjustment? Or will you instead choose to have 40 bricks of capacity built into the system for you?
Edgar, you refer to “shared equipment” in your post, but water production capacity can not be shared. Once you use a gallon of treatment capacity it isn’t available for use by any other customer at the same time. “Reserved capacity” is a much more appropriate metaphor.
Then when apportioning the monthly debt/loan/bond/mortgage payments “fairly” each customer pays the monthly payment for the amount of capacity they “reserved.”
When you say “CBFR is (or is not) better then any tier system that can ever be designed” you have an equivalency problem. Specifically, tiered systems generate variable revenue and CBFR generates fixed revenue. Further, the variable revenue of a tiered system is designed first and foremost to offset variable costs. CBFR’s Supply Charge is designed to cover [u]only[/u] fixed costs.
If a tiered system has covered all of the variable expenses and has revenue left over, then that excess revenue can be used to partially offset the fixed costs. However, there is no assurance how much of the fixed costs that that surplus will cover. In 2011 in the Davis water system, the amount of the excess revenue fell $3 million short of covering the fixed costs, and the water system’s reserve fund had to be drawn down by $3 million. Deficits like that will bankrupt the water system. Deficits like that [u]can not happen[/u] with the CBFR rate structure in place.
Re: Matt
[b]On the concept of aggregated cost[/b] [DV] ([url]https://davisvanguard.org/index.php?option=com_content&view=article&id=6098:designers-of-cbfr-respond-to-dunning-claims-about-proportionality&catid=50:elections&Itemid=83#comment-175705[/url])
You analysis only applies if there is only one person or every entity has the same use pattern. When there are more than one person and their use patterns overlap, your analysis would not distribute the cost “fairly”.
By the numbers (using your example):
Scenario 1:
Suppose the City has only one user, he uses 10 units of production capacity in winter and 40 units in the summer. As you said, the system is designed to support the maximum capacity, so this user is billed for the construction cost of 40 units. We agree that this is correct in this scenario.
Scenario 2:
Now, suppose the City has two users, A uses 10 units of production capacity in winter, and 40 units in the summer, while B’s uses 40 units of production capacity in winter, and 10 in the summer. If I follow your calculation method, we know that the maximum capacity needed is 50 units, and you would say A should pay for 40 units, while B should pay for 10 units. But that would make no sense because we know that the correct answer is each of them should pay 25 units. Because of this, we already know that your method would be “unfair” to the users who have a summer peak pattern because you are not charging the user who have a winter peak, or no-peak pattern enough.
Do you agree that in Scenario 2, the system only needs to be 50 units max, and A and B should both pay 25 units? If you confirm if CBFR can handle this, if so, how?
Scenario 3:
Suppose the City has 2 people again. A’s use pattern is 10 in winter, and 40 in summer. B’s use pattern is 30 in winter, 10 in summer. According to these numbers, again we know that the system only needs to have a maximum of 50 production capacity. How should the system split the cost?
[b]On Sharing of Water Capacity[/b] [DV] ([url]https://davisvanguard.org/index.php?option=com_content&view=article&id=6098:designers-of-cbfr-respond-to-dunning-claims-about-proportionality&catid=50:elections&Itemid=83#comment-175706[/url])
Water production capacity is shared in the above sense. When you have a pump that can pump 100 units per day, it can be shared in several ways:
o Two people continuously use 50 units a day each.
o One person continuously use 100 unit a day, then another person continuously use 100 unit the next day. They alternate.
In both cases, the equipment (the pump) is shared.
[b]On securing a fixed revenue[/b] [DV] ([url]https://davisvanguard.org/index.php?option=com_content&view=article&id=6098:designers-of-cbfr-respond-to-dunning-claims-about-proportionality&catid=50:elections&Itemid=83#comment-175709[/url])
In CBFR, the deficit “does not happen” because the ratepayers are paying a fixed cost. This is equivalent to having a tax, and leave the water rate “proportional”. I am every arguing whether the fixed cost needs to be paid. At this point I am also not arguing whether it should be paid by ratepayers or taxpayers.
Regardless whether a fee is charged to ratepayers, or a tax imposed to taxpayers, there is a fundamental question:
[i]What is the fair amount to charge?[/i]
I don’t think we can proceed further in the discussion if we are stuck in qualitative assessment of fairness. If you already have one please share. I am still working on one.
Do you call the following a tiered system:
Parking: “$5 For the first 2 hours, $1 for each hour there after for a maximum of 10 hours.”
Edgar, I am not the new CBFR expert, that is reserved for Matt and Frank, but I’ll take a stab at a reply to you. It is based on supply and demand. When something is in larger supply (as in the person who for some reason uses more water in the off season/non summer) in relation to demand, it is often less expensive. If something is needed during time of relative tight supply (water in peak demand/summer) it is often more expensive. The person who uses the extra water during low demand times did not contribute to the need for the larger project size and extra cost that needs to be paid. To try an analogy, a hotel room is cheap in the off season and more expensive in peak season because that is when there is more demand for it.
Edgar Wai said . . .
[i]”Scenario 2:
Now, suppose the City has two users, A uses 10 units of production capacity in winter, and 40 units in the summer, while B’s uses 40 units of production capacity in winter, and 10 in the summer. If I follow your calculation method, we know that the maximum capacity needed is 50 units, and you would say A should pay for 40 units, while B should pay for 10 units. But that would make no sense because we know that the correct answer is each of them should pay 25 units. Because of this, we already know that your method would be “unfair” to the users who have a summer peak pattern because you are not charging the user who have a winter peak, or no-peak pattern enough.”[/i]
Edgar, you have been smoking some of Bob Dunning’s whacky weed. Where in the whole city of Davis (maybe even the whole state of California) are you going to find a water customer who uses 4 times as much water in the winter as they use in the summer?
Your example is a fanciful hypothetical. It makes a mathematical point, but it is detached from reality.
Edgar Wai said . . .
[i]”Scenario 3:
Suppose the City has 2 people again. A’s use pattern is 10 in winter, and 40 in summer. B’s use pattern is 30 in winter, 10 in summer. According to these numbers, again we know that the system only needs to have a maximum of 50 production capacity. How should the system split the cost?”[/i]
Setting aside the fact that again you are constructing a scenario that has virtually no chance of finding even one actual customer that uses three times the amount of water in the winter than in the summer, the simple answer is that the way that an engineer would make the design decision for the plant would be to identify the peak period and then design system capacity to meet that peak period. So the design would be for 50 ccf, and customer A would have contributed 80% of the load that led to that decision and customer B would have contributed 20% of the load that led to that decision.
Further the engineer would look at the 30 ccf winter period use of customer B and ask the question, [i]”Does this demand require incremental capital investment to serve?”[/i] The answer to that question would be [i]”No, there is more than enough excess capacity in the plant as designed, so no incremental additional capacity needs to be built as a result of customer B’s winter usage.”[/i]
So the system should split the capital costs 80% for customer A and 20% for customer B.
Edgar Wai said . . .
[i]”Do you call the following a tiered system:
Parking: “$5 For the first 2 hours, $1 for each hour there after for a maximum of 10 hours.”[/i]
Yes that is a declining block rate structure, which is typically used when you have unlimited supply and limited demand. With water we have limited supply, so you would never want to use a declining block tiered structure because it encourages additional consumption, and in California it is State Law that we must not only encourage conservation (reduce consumption), but must achieve at least a 20% aggregate reduction by 2020.
[b]On Accountability[/b] [Re: Matt] ([url]https://davisvanguard.org/index.php?option=com_content&view=article&id=6098:designers-of-cbfr-respond-to-dunning-claims-about-proportionality&catid=50:elections&Itemid=83#comment-175726[/url])
Accountability has several meanings, one of them is a clear definition of who will pay for the damage when something goes wrong. When we say “accountability is established”, we mean that we know who will pay for the damage in case it happens. In our context, I am informing you a concern about a loophole in the design of the policy. That loophole can be eliminated by changing the words regarding which month the supply charge is determined from “previous summer” to “the month of peak water use in the previous year”. When you dismiss this concern on the ground that it is unrealistic, in terms of accountability, it means that:
“I stand by my decision to not make any change because I do not believe that this risk is realistic. If it happens, for whatever reason, I will be responsible for paying any damage because I have been forewarned.”
I understand that there is probably no legal obligation to be accountable, but that is the ethical implication when that concern and its provided solution are dismissed. In our context, these are the groups of people:
a) The designer of the rates who were warned about the concern.
b) People other than the designers, who have heard about the concern and agree that it is unrealistic.
c) People other than designers, who have heard about the concern but defers judgement to them.
d) People other than designers, who have not heard about the concern and defers judgement to them.
e) People who have never thought much about it either way.
f) People who have heard about the concern and believe that it should be fixed.
g) People who conceived the concern and voiced the concern so that it could be fixed.
In your judgement, if this loophole is exploited and a damage is incurred, who should be accountable?
In your judgement, in our reality, who will end up paying for the damage?
When I tell you how to fix the loophole, am I hurting you or protecting you?
When you dismiss my concern, are you hurting me or protecting me?
[b]On covering construction cost using proportional contribution to the peak demand[/b] [Re: Lemongello] ([url]https://davisvanguard.org/index.php?option=com_content&view=article&id=6098:designers-of-cbfr-respond-to-dunning-claims-about-proportionality&catid=50:elections&Itemid=83#comment-175725[/url]) [Re: Matt] ([url]https://davisvanguard.org/index.php?option=com_content&view=article&id=6098:designers-of-cbfr-respond-to-dunning-claims-about-proportionality&catid=50:elections&Itemid=83#comment-175727[/url])
I understand that:
o According to historical pattern, the peak demand is in the summer.
o The peak capacity is the major factor that determines the size of the water system.
o In the proposed rates, the revenue from Supply charge covers the debt service for the construction of the system
o Only those who contribute to the peak demand pay for the construction of the system.
On the question whether this is a fair distribution of the construction cost, the reason given is this:
o Since the water use outside the month of peak demand does not contribute to the size of the system, the use during off season should not be a factor in the calculation of the Supply charge.
Referring to the scenario of this use pattern:
o A: Winter: 10, Summer: 40
o B: Winter: 30, Summer: 10
o Peak demand: 50, in the summer.
According to you:
o A should pay 80% of the construction of a plant with peak capacity of 50
o B should pay 20% of the construction of a plant with peak capacity of 50
If A is not there at all, B would have to pay 100% for a plant with peak capacity of 30.
If B is not there at all, A would have to pay 100% for a plant with peak capacity of 40.
Suppose the cost of a plant is linear, and it is $100 per capacity. According to your cost distribution:
A would have paid $4000 before, and is paying $4000 now. A’s saving from this cooperation is 0%
B would have paid $3000 before, and is paying $1000 now. B’s saving from this cooperation is 67%
A says, “I have no reason to cooperate. If I were not stuck in the City, I would have just built my own water plant. I am being exploited because I am currently in the City. This deal makes me want to leave the City or be disconnected from the water system.”
B says, “I don’t understand your complaint, you contributed 80% to the peak demand so you should pay 80%.”
A says, “But the deal is not fair to me.”
B says, “I assert that it is fair.”
As a result, a water plant is built. The City built a water plant with maximum capacity of 50. When summer comes, the City finds a deficit of $4000 because A opted out of the water system and relocated to a different city. This was the conversation that made A relocate:
Other City said, “Thank you for considering our city, we are about to build a new water plant. How much capacity will you need?”
A said, “I need 10 in the winter and 40 in the summer.”
City: “Our current users have a demand pattern of 30 in the winter and 10 in the summer. I think we will be a good complement of one another.”
A: “So how much will I pay for the water plant?”
City: “Without you, we would have paid $3000 for the plant. With you, together we will pay $5000. We will share the same discount rate. We will pay $2143, and you will pay $2857. We will both save 29%. Does this sound fair to you?”
A: “Yes it does. I would like to be in this city.”
City: “You are welcome!”
This method of splitting the cost can be applied regardless whether the peak demands of the entities conincide. I understand your train of thought that led you to your conclusion. But the result is unfair and the system could be hurt when people react to that unfairness. However, due to the way the information is presented, a typical homeowner that uses more water in the summer would not know how much more they are paying because others didn’t pay the “fair” amount for the construction. Most people would not complain if they don’t see the information. I am pointing this out because I don’t need to see the information to know that there is a loophole.
[b]On the rate calculator[/b]
According to the online calculator for the CBFR billing: [Ref] ([url]http://water.cityofdavis.org/rates/water-rates-calculator[/url])
With the default settings, if I put 0 for July and August, and 1 for May to October, my Supply Fee for 2015 is $0.32. Shouldn’t that be $0 if CBFR is working the way you have been explaining, that the peak demand is supposed to be in July and August? This would contradict your and lemongello’s explanation.
Does the calculator have a bug?
Is there a mismatch between your verbal explanation and how it will be implemented?
Should we decide on the vote based on what you tell us or how it will be implemented?
[b]On tiered system[/b] [DV] ([url]https://davisvanguard.org/index.php?option=com_content&view=article&id=6098:designers-of-cbfr-respond-to-dunning-claims-about-proportionality&catid=50:elections&Itemid=83#comment-175728[/url])
Do you also call this a tiered system:
“$100 for the first gallon of water, then $1 each for the second to the tenth gallon, after that, for each additional gallon, the rate increases by $1.”
Example:
o Use 0.1 gallons: Bill = $100
o Use 1 gallon: Bill = $100
o Use 5 gallons: Bill = $100 + $4 = $104
o Use 15 gallons: Bill = $100 + $9 + $2 + $3 + $4 + $5 + $6 = $129
Edgar Wai said . . .
[i]”Accountability has several meanings, one of them is a clear definition of who will pay for the damage when something goes wrong. When we say “accountability is established”, we mean that we know who will pay for the damage in case it happens. In our context, I am informing you a concern about a loophole in the design of the policy. That loophole can be eliminated by changing the words regarding which month the supply charge is determined from “previous summer” to “the month of peak water use in the previous year”. When you dismiss this concern on the ground that it is unrealistic, in terms of accountability, it means that:
“I stand by my decision to not make any change because I do not believe that this risk is realistic. If it happens, for whatever reason, I will be responsible for paying any damage because I have been forewarned.”[/i]
Edgar, I am sorry if that is what you heard. That is not what was intended. What you propose (and I did not understand that was what you were proposing) is one of the alternatives that is built into the holistic CBFR model. Brett Lee is a strong advocate of that method of apportioning the costs. Let’s call it the “moving peak” method.
It wasn’t selected as the final choice for this round in Davis for a few reasons, which were as follows:
1) The current metering and billing system only gives us bi-monthly data, which doesn’t support the kind of granularity you are looking for in your proposal.
2) That alternative was proposed very late in the evaluation process, so it got a bit of a “less is more” response.
3) It also would have introduced one more complexity into how the rate structure would be described to the average rate payer, and there was a perception that CBFR was already complicated/confusing for the rate payers, and introducing one more complexity would make it even more confusing.
4) Choosing that “moving peak” approach would have eliminated the alignment with the engineering/construction decision process. You would have a system that was designed by the engineers and built by the contractors to a size of 50 ccf in your example (10 + 40), but was being billed to the customers at a level of 70 ccf (30 + 40).
5) The historical consumption patterns of the 16,433 accounts in Davis showed that there were less than 10 accounts that fit into your 30 winter and 10 summer use pattern. That is less than six one-hundredths of one percent of the accounts in the water agency. Does it make sense to make your rule for such a small proportion of the total?
So those were the five reasons it was not used in this specific Davis situation. That does not mean that it was discarded as a meaningful scenario in all situations, just in the specific one we were working with at the time.
Edgar Wai said . . .
[i]”A says, “I have no reason to cooperate. If I were not stuck in the City, I would have just built my own water plant. I am being exploited because I am currently in the City. This deal makes me want to leave the City or be disconnected from the water system.” [/i]
Edgar, no one is stuck in a city. The city we choose to live in is a discretionary choice (unless we are a child living with our parents). If A feels the way they do, then that is a personal life choice that they are free to make.
Many, many people who work at UC Davis choose to live in Woodland or Winters or Dixon or West Sac or in the country. Those are all discretionary choices that they are free to make. The peak period of water use in Davis is a “known factor” for them that existed long before they made their choice about where to live. The fact that a system is built to meet peak demand is an engineering truism that existed long before they made their choice about where to live. They were in fact an informed decision maker when they made the discretionary choice to live within the City of Davis.
Edgar Wai said . . .
[i]”On the rate calculator
According to the online calculator for the CBFR billing:
With the default settings, if I put 0 for July and August, and 1 for May to October, my Supply Fee for 2015 is $0.32. Shouldn’t that be $0 if CBFR is working the way you have been explaining, that the peak demand is supposed to be in July and August? This would contradict your and lemongello’s explanation.”[/i]
I just tested it and 1) there clearly is a labeling problem and 2) that labeling problem causes illogical (but accurate) calculations. If you send ane-mail to water@cityofdavis.org telling them about the problem, I;m sure they will fix it.
Edgar Wai said . . .
[i]On tiered system [DV]
Do you also call this a tiered system:
“$100 for the first gallon of water, then $1 each for the second to the tenth gallon, after that, for each additional gallon, the rate increases by $1.”
Example:
o Use 0.1 gallons: Bill = $100
o Use 1 gallon: Bill = $100
o Use 5 gallons: Bill = $100 + $4 = $104
o Use 15 gallons: Bill = $100 + $9 + $2 + $3 + $4 + $5 + $6 = $129[/i]
I would call that a “progressive system” which could be considered to be a form of a tiered system with an unlimited number of tiers.
Edgar, as always you ask [u]great[/u] questions.
[b]On Moving Peak[/b] [DV] ([url]https://davisvanguard.org/index.php?option=com_content&view=article&id=6098:designers-of-cbfr-respond-to-dunning-claims-about-proportionality&catid=50:elections&Itemid=83&cpage=30#comment-175775[/url])
Matt,thank you for your information. You told me that moving peak was discussed but not selected for this round. Here are my comments.
[i]”1) The current metering and billing system only gives us bi-monthly data, which doesn’t support the kind of granularity you are looking for in your proposal.”[/i]
According to this, it would have supported a bi-monthly moving peak billing plan. I think it is moot to discuss this now, because reason (2) below takes precedence.
[i]”2) That alternative was proposed very late in the evaluation process, so it got a bit of a “less is more” response.”[/i]
When I read this, I have to ask when was the evaluation process? You are telling me that during the evaluation process, the loophole was found, but instead of fixing it, it got through to the next process. I do not know how many stages the process has, but as it goes toward deployment, the real damage could start to happen.
[i]”3) It also would have introduced one more complexity into how the rate structure would be described to the average rate payer, and there was a perception that CBFR was already complicated/confusing for the rate payers, and introducing one more complexity would make it even more confusing.”[/i]
In retrospect, do you wish that you went with the moving peak? People complain about a fixed summer peak.
[i]”4) Choosing that “moving peak” approach would have eliminated the alignment with the engineering/construction decision process. You would have a system that was designed by the engineers and built by the contractors to a size of 50 ccf in your example (10 + 40), but was being billed to the customers at a level of 70 ccf (30 + 40).”[/i]
You are correct that they will not be aligned and they [b]should not align[/b] because that would be unfair. Aligning the billing plan to the teps of engineering/construction decision process does not imply that the conclusion will be fair. In reference to my example, you misunderstood the numbers.
o A’s pattern: 10 in winter, 40 in summer
o B’s pattern: 30 in winter, 10 in summer
o Peak: 50 in summer
Assume that construction is $100 per capacity, then the plant is $5000.
In my billing method, A pays $2857, B pays $2143. That sums to $5000. They are [b]still being billed[/b] at a level of 50 ccf.
If they were being billed at a level of 70 ccf, they would be paying $3000 and $4000 instead.
[i]”5) The historical consumption patterns of the 16,433 accounts in Davis showed that there were less than 10 accounts that fit into your 30 winter and 10 summer use pattern. That is less than six one-hundredths of one percent of the accounts in the water agency. Does it make sense to make your rule for such a small proportion of the total?”[/i]
It is not meaningful to use actual data as a defense because the nature of the topic is eliminating risks when the cost of eliminating the risk is insignificant. What you tell me here is that there exists some accounts that will be paying too little for the construction. Other than this, there is no additional meaning to get from the numbers you gave. I cannot estimate the existing unfairness based on these accounts without also knowing how much they currently spend on water. Are we talking about someone who uses 1 ccf in the winter and then left the house vacant? Or are we talking about a business that uses 20000 ccf in the winter to make money, and idle in the summer?
As explained before, regardless how many accounts there are that have a winter-peak pattern, a loophole exists in the policy and should be fixed to make it correct so that it cannot be exploited [i]ever[/i]. Your statement cannot disprove the need to fix the policy. Your statement can only substantiate the need to fix it. It is not logically valid to defend a loophole with data. It cannot be defended on the realm of data. To defend against a loophole, you have to prove that the loophole is impossible to happen in the past, in the present, and in any possible future. You need theories to defend against a loophole, not data.
At this point I am not sure what my role is for this discussion. These are the options I know:
a) Continue to reply if there is a misunderstand.
b) Go back to the issue of accountability and get a clear statement of who will be accountable
c) Publish this somewhere so that more people will know about this
d) …
What do you want me to do?
[b]On Elastisity and Fairness[/b] [DV] ([url]https://davisvanguard.org/index.php?option=com_content&view=article&id=6098:designers-of-cbfr-respond-to-dunning-claims-about-proportionality&catid=50:elections&Itemid=83&cpage=30#comment-175777[/url])
[quote][i]”A says, “I have no reason to cooperate. If I were not stuck in the City, I would have just built my own water plant. I am being exploited because I am currently in the City. This deal makes me want to leave the City or be disconnected from the water system.” [/i]
Edgar, no one is stuck in a city. The city we choose to live in is a discretionary choice (unless we are a child living with our parents). If A feels the way they do, then that is a personal life choice that they are free to make.[/quote]
The concern here does not only involve individuals, but also farms and businesses. A business owner may live outside Davis, but while the business that uses water is still in Davis, the owner is “stuck” with the water rate.
[quote]The fact that a system is built to meet peak demand is an engineering truism that existed long before they made their choice about where to live. They were in fact an informed decision maker when they made the discretionary choice to live within the City of Davis.[/quote]
I think the second sentence is incorrect for the following reasons:
1) A person cannot “predict” what policies will come into existence. A city could turn into a bully and exploit anyone who had invested and can’t leave.
2) While a system is built to meet peak demand, the conclusion that only those who directly contribute to the peak demand should pay for the system is unfair.
3) When people do not understand the principle of (2) and do not understand the risks, they are not informed to make decisions.
[b]On the rate calculator bug[/b] [DV] ([url]https://davisvanguard.org/index.php?option=com_content&view=article&id=6098:designers-of-cbfr-respond-to-dunning-claims-about-proportionality&catid=50:elections&Itemid=83&cpage=30#comment-175779[/url])
Sent email.
[b]On Tiered system[/b] [DV] ([url]https://davisvanguard.org/index.php?option=com_content&view=article&id=6098:designers-of-cbfr-respond-to-dunning-claims-about-proportionality&catid=50:elections&Itemid=83&cpage=30#comment-175780[/url])
I was posting about the Tiered system because I was trying to look into whether a tiered system would have the same ability as CBFR to cover the construction cost. But now I don’t have time to analyze it. However, while doing this, I found that I have a fundamental question about CBFR:
Suppose the system is sized for 1000 units of capacity, with a cost of $1000. If the actual water capacity used is 800, does CBFR scales the rate so that the ratepayers will still cover the $1000 (i.e. $1.25/capacity)? If the actual water capacity used decreases every year, do the ratepayers end up paying more and more $/capacity each year despite they have been conserving water?
Edgar Wai said . . .
[i]”The concern here does not only involve individuals, but also farms and businesses. A business owner may live outside Davis, but while the business that uses water is still in Davis, the owner is “stuck” with the water rate.”[/i]
Edgar, there probably is not even one farm that uses Davis City Water for irrigation. I can’t think of any farms within the Davis City Limits, but if there were they would more than likely drill their own shallow aquifer well to support their farm water needs.
So that leaves us with businesses. How are businesses “harmed” by the rate structure? Most businesses use water consistently throughout the year. The number of businesses that do any meaningful amount of irrigation is relatively small. As a result I am having a hard time understanding how business owners will feel that they are “stuck” with anything that affects them negatively.
Edgar Wai said . . .
[i]”On Tiered system [DV]
I was posting about the Tiered system because I was trying to look into whether a tiered system would have the same ability as CBFR to cover the construction cost. But now I don’t have time to analyze it. However, while doing this, I found that I have a fundamental question about CBFR:
Suppose the system is sized for 1000 units of capacity, with a cost of $1000. If the actual water capacity used is 800, does CBFR scales the rate so that the ratepayers will still cover the $1000 (i.e. $1.25/capacity)? If the actual water capacity used decreases every year, do the ratepayers end up paying more and more $/capacity each year despite they have been conserving water?”[/i]
The simple answer to your question is “Yes, it does scale the rate.” The system’s fixed costs are 100% covered each year, not a penny more and not a penny less. Covered.
With that said, you point out one of the logical disconnects that rate payers experience when looking at fixed charges. What is happening when you calculate a $x.xx/capacity value is that you are applying a variable charge mentality to a fixed charge reality. As long as an individual customer’s fixed charge remains fixed, why is the $/capacity value meaningful? $/use is very meaningful for variable charges, but in an ideal rate structure variable charges should defray variable costs.
Edgar Wai said . . .
[i]”While a system is built to meet peak demand, the conclusion that only those who directly contribute to the peak demand should pay for the system is unfair.”[/i]
Why is it unfair? If the peak demand did not exist then a smaller plant would be built and the costs of building that plant would be less.
Edgar Wai said . . .
[i]”When people do not understand the principle of (2) and do not understand the risks, they are not informed to make decisions.”[/i]
But people who become customers of the water system clearly do understand the concepts of (2). They, in fact, are living the concepts of (2) very actively throughout the process of deciding what house they want to purchase. They very clearly understand that if they raise their expectations of what their house should provide as amenities and services to their life style, then the purchase price will rise and the resultant monthly mortgage will be bigger. If they plan on being in Palm Springs for three months of the year, the cost of the house will not decrease because they are not actually resident in the house. The price of the house will be determined by the “peak” level of quality of life that it delivers to its owners.