by Greg Clumpner
Introduction
Having listened to the opinions presented to and by the URAC, reviewed the data available, and considered the critical factors and decisions the City must respond to, the following are my conclusions and recommendations.
Conclusions
- The Importance of Revenue Stability – Ideally, fixed costs are recovered through fixed charges and variable costs are collected through volumetric rates. The higher the percentage of rate revenue collected from volumetric rates (i.e., above variable costs), the greater the revenue instability. The additional cost of a higher than normal rate stabilization reserve would likely be required, but increase the cost to customers.
- 100% Volumetric Rates – Volumetric rates that collect 100% of costs (i.e., both fixed and variable) are unfair, unstable, and susceptible to legal challenge. For example, a SFR customer who leaves town for three months in the winter (and uses no water) pays 0% of the system’s fixed costs and, therefore, would be subsidized by other customers.
- Purpose and Cost Allocation of Regional Water Supply Project – This project is not solely for future growth, but is for long-term sustainability, water quality (including addressing Chromium-6 regulations), and contributes to meeting wastewater treatment requirements at a lower cost. The costs of the Regional Water Supply Project are likely 60-80% fixed costs, and these costs should be shared by all customers through fixed and volumetric charges.
- Social Equity – The perception that the “social-equity bar charts” presented numerous times fairly represent social equity presumes that all costs are variable. This is just not true, and I believe this is a poor measure of the fairness and social equity of rate structures.
- Simplicity – CBFR in any form is complex, opposed by much of the public (via Measure P), and is difficult for the general public to understand.
- Selecting a Rate Structure – All of the alternatives presented may be “legal” but not all are well understood, accepted by the public, or well suited for Davis. Recommending a rate structure is finding the best overall fit in light of all the complexities the City is dealing with at this time.
Recommendations
- Rate Structure Alternative – I can support any of the following rate alternatives (assuming that “conventional” means that about 40% of rate revenue comes from fixed charges):
o Conventional – Different Uniform Tiers by customer class (preferred)
o Conventional – SFR 3 Tiers with Tier 1: 0-10 ccf/month (acceptable)
o Conventional – SFR 3 Tiers with Tier 1: 0-18 ccf/month (acceptable)
- “Balanced Payment Plan” – I support the Loge/McCann proposal for a balanced payment plan.
I agree with this point. In addition to the example provided there are other costs that do not have any relationship to measured amount of water used by a customer. The cost of sending out a bill to a low water use customer like a one bedroom condominium is exactly the same as the cost as sending out a bill to a low water use customer like Sudwerk Brewery. The Accounting costs for those two example customers are the same as well.
Fire Readiness is another component of costs that is independent of volume of water used. In a perfect world we never will ever experience a fire, and as a result will never actually see any water running from a fire hydrant, through a fire hose, and out onto our burning house or apartment or business or field. Even if we are unfortunate enough to experience a fire, the water dispensed on our behalf to put out our fire never goes through a meter and is never billed to us.
Those are the major components of cost that do not relate to the amount of water a customer actually uses. In the 2013 Cost of Service Study completed by Bartle Wells, those non-volumetric costs amount to 13% of the total system costs.
Matt and Greg: How does this article and comment ‘square’ with John Munn’s article? He seems to be advocating for all volumetric which is what you are arguing against here?
Matt and I believe 13% fixed is enough, others believe that 40% fixed is not excessive. So John, Matt, Greg and I agree there needs to be a fixed component, it is a matter of degree. To get more perspective, see my post below with a more in depth discussion of different ways this can be viewed.
Many people voted for Measure P, because they were assured that their rates would be lower by voting less. Mike Harrington has said that he opposes 40% fixed because, I suspect, that will mean higher rates for lower users than what they would have paid on the CFRB. People keep saying that the CFRB was confusing, but I found it very understandable. The only flaw was the look-back element. I personally want a predictable water bill that will reward me for conservation efforts and doesn’t have me subsidizing water guzzlers too much. If 40% fixed will provide stability! then that would be the preferred rate system. I am not enamored by 100% volumetric because the price per gallon would need to be necessarily high to guarantee revenue and again would have low users subsidizing high users.
I meant “voting Yes.”
Actually Ryan, it is the other way around, the higher the fixed fee, the less you use the more you pay per gallon. At a fixed fee of 0 (which I do not support) and volumetric fee of 100%, every gallon costs the same. The minute there is a fixed fee, the more you use the less each gallon costs you. Tiers help correct for this as well as promote conservation.
CBFR (consumption based fixed rate) charges the rest of the fixed costs, those beyond the 13% as quoted by Matt above, by volume. This is considered more fair by some because each person is paying for fixed infrastructure costs according to how much of the infrastructure they actually took advantage of by their own use. Some feel this is not fair because if the infrastructure costs the same no matter how much water flows through it, it should not be charged by volume. Which of those sounds more fair to you? Of course the higher the fixed fees charged to the user, the more money guaranteed to come in every month, so lenders like that. On the other hand, the CBFR fees based on volume, though subject to variability by conservation (or not, which would actually bring in more revenue) have been calculated to generate enough revenue as long as conservation is not more than 20% from 2011(an average rainfall year) consumption. But to compensate for a less than guaranteed fixed revenue stability there is a feature built into the 87% variable/13% fixed fee (CBFR based) structure, we have an emergency surcharge that would only be triggered if consumption dropped 30% or more below 2011 use.
seems logical but what does John Munn say to your argument; again, he seems to be advocating for all volumetric….
Per the third paragraph of his article in the Vanguard today, which is also in the Enterprise tomorrow, John Munn says,
I am not completely sure and do not mean to speak for anyone but I think Matt told me John had seen our point for a fixed fee that covered the dry fixed costs. John, if you are listening…
Yes, I see. Either way low water users will pay relatively more to support the size needed to supply enough water for everyone. What the City needs to do is try to minimize this as much as possible. However, this would mean that the subsidy for high water users would end or be reduced. I personally was going to do better with the CBFR rates and was looking forward to a drop in my water bill for a couple of years. Mike says he’s an advocate of the poor, but I feel he’s just screwing us.
Though people did not like the original 6 month CBFR with the lookback, what Matt and I have done is use the same concept but spread the charges over 12 month consumption instead of 6, removed the lookback and added tiers to even things out further as far as equity. Also, we lowered the fixed fee to just 13%. This is exactly what you stated above that you think should be done. If you support it, come to the CC meeting this Tuesday and tell the CC.
This is going to confuse people. If you ‘spread the charges over 12 month consumption’ then what does ‘removed the lookback’ refer to?
Don, in the adopted CBFR, each customer’s Supply Charge portion of their bill was based on their prior May through October consumption. In effect you were paying a bill in the current monthly period tyhat “looked back” at prior consumption. In the 87-13 rate structure Donna and I have proposed and the URAC has evaluated, the Supply Charge has been eliminated so each customer’s monthly bill will be calculated based on their actual consumption that very month. Bob Dunning refers to it as pay-as-you-go.
More specifically, the supply charge has been rolled into the variable fee so there are just 2 simple components to the bill, just like we have now, the Fixed fee and the Variable fee.
So don’t take this wrong, but as far as I can tell “spread the charges over 12 month consumption instead of 6” has no meaning anymore.
For one, it does not as significantly unfairly penalize people that like to garden and take showers in the hot summer. It also calms nerves that people need to only watch their consumption during those months because they will pay for it the rest of the year.
It is much simpler to understand a full year of consumption of water rather than just six months.
The greater application of variability is also more fair… use a gallon, pay for a gallon.
I would prefer we do away with the tiers, but this is better than before.
Note that people support tiers if they are on the low end, and also if the differential is not onerous. Once the gap between what two neighbors pay grows to a certain level, there is that perception of great unfairness. When the monetary differential is small enough it is acceptable.
The problem with the rate setting to date is the social justice driver. The mindset is all wrong. The mindset should be “we have this expensive water system that means all residents will have to pay for it.” Not, “we have this expensive water system and we need to protect lower income people from impacts by sticking it to other people”… especially using a scheme that does not even accurately target those “other” people.
I’m actually neutral as to the supposed ‘fairness’ issue. I understand the purpose of tiers in incentivizing conservation, and believe that most water districts have tiered water rates for that reason. But I don’t really care what they come up with so long as it covers expenses and keeps borrowing costs low, and avoids any further litigation. I’m a high water user, I’ll pay a lot one way or another.
Don, if you are using that water commercially you’ll probably do pretty well because the tier break in our plan for commercial is whatever you used historically in 2011, an average rainfall year. So you won’t end up in the 2nd tier unless you go over that.
Frankly
Let me make sure that I am understanding you correctly.
We have a limited resource, in this case water. There is a cost for the infrastructure necessary to bring us this water as well as for the water we use. To some degree, there is increased infrastructure cost if more water is used. You like to use lots of water for showering and gardening. I choose to use very little since I value conservation over what I perceive as elective use. So you are ok with me having to help you pay for your recreational activities and cold showers ? This does not seem to fit well with your often stated belief that everyone should be fully responsible for themselves. What am I missing here ?
Don, exactly what I said, there is no lookback as there was in the structure that was just rescinded, the water use supply charge and process and delivery charge you pay, along of course with the fixed fee, is for the month that just passed, just like we have always done it. What’s confusing about that?
Now explain what charges you “spread…over 12 month consumption instead of 6” and I think you’ll have it clearer.
The charges are spread over the 12 months that are currently ticking by, one by one.
Gosh you are right, nothing is any longer being spread, it’s as you go. Spreading means you have a lump of something and you distribute it, that is not the case here, I agree.
Yeah, every time this is said, everyone gets confused. I think at one time it was explained so that I understood it for a couple of minutes, but has flitted away again. Keep everything simple, the rates, the message. Most people only read a fraction of all that is said. What everyone here fails to understand is: The more you talk, the more you confuse people, the more you shoot yourself in the foot on your own point. I’m not talking to anyone, I’m talking to everyone.