By Matt Williams
Editor’s note: Matt Williams who sits as an alternate on the Water Advisory Committee and who developed along with fellow WAC member Frank Loge the Loge-Williams water rate model, responds to last week’s Bob Dunning column using a point-counterpoint approach. The Point represents Bob Dunning’s view, the Counterpoint, Matt Williams’ view.
POINT — I come not to bury the Water Advisory Committee, but to praise it … or maybe the other way around … I’m not sure … all I know is the recommendation the WAC made to the City Council about water rates is confusing in the extreme, even in a town where half the town has a Ph.D. and the other half thinks it should … the plan is one of those only-in-Davis, first-in-the-nation things that makes me wonder if it was adopted for its rationale or simply because it allows our town to stake another claim to worldwide greatness … I’m not sure I want to be a guinea pig when it comes to the cost of water …
My fear is fueled by one committee member who said “This is Davis. This is something for us to do, something innovative, and if someone is going to innovate this type of reform, I think that we should be the ones to do it.” … with all due respect to innovation and to being first on the planet to institute a water rate structure no one else has dreamed of, I’d much prefer fair and affordable when it comes to my family’s water bill … save your experiments for the Primate Center …
COUNTERPOINT — The new rate structure uses the Consumption Based Fixed Revenue (CBFR) rate model, which is designed to provide fiscal stability for both customers and the water system by recovering 100% of the water system’s fixed costs in each year of the rate structure’s five year period. By recovering 100% of the system’s fixed costs, water consumers will see reliable, proportional, stable and sustainable rates for the whole five-year period.
Rate Structure Comparison — To put this new rate structure into perspective, it is useful to look at Davis’ current rate structure, which is made up of two components:
1) Charges that cover the costs the City must pay that were incurred to build the existing groundwater sources (wells) and the water distribution system (mains and pipes and meters and treatment and customer service)
2) Charges that cover the variable costs that the City incurs each day to run the water system and provide reliable water to each and every consumer whenever they need that water
The new water rate structure is made up of three components that reflect the new Conjunctive Use water system approved by the Water Advisory Committee and the City Council. Those components are
1) Monthly charges that cover the costs the City must pay that were incurred to build the existing groundwater sources (wells) and the water distribution system (mains and pipes and meters and treatment and customer service)
2) Monthly charges, called the Consumption-based Fixed Revenue (CBFR) fee, that cover the fixed costs incurred to build the 12 million gallon per day (mgd) Surface Water Plant
3) Monthly charges that cover the variable costs that the City incurs to run the water system each day and provide reliable water to each and every consumer whenever they need that water
Why the new middle category? Going to a more reliable Conjunctive Use water system means incurring a whole new category of fixed costs that are isolated and recovered in the middle component of the new rate structure.
POINT — One huge drawback to the WAC approved plan the council will now grapple with is that the fixed-rate portion of your bill will be based on the previous year, which significantly discourages conservation because no matter how much you cut back, your rate is based strictly on what you used last year if you had a particularly bad year water wise – maybe grandma and grandpa came to live with you – you continue to pay a significant penalty for a long period of time
COUNTERPOINT — Lets first deal with the drawback that Bob believes exists. The period of time of the increased fee is not long. It is a year. The Consumption-based Fixed Rate will be adjusted each year based on the most recent summer usage.
Why choose the summer period for this adjustment? If you have ever experienced an electrical brownout (or god forbid an electrical blackout), you know that there are times for public utilities where demand can exceed the system’s capacity to reliably deliver electricity or water. In designing the Davis water system the engineers have worked hard to create enough capacity to avoid a “drip out.”
How do they do that? They simply look at the aggregate consumption history of all the 16,000 customers and see what the maximum usage is, and then design the plant to meet that aggregate usage plus some room for growth. They also add some capacity (almost double) to deal with the “peaking” that happens between 4:00 AM and 6:00 AM when the vast majority of the city’s irrigation systems turn on to keep Davis green.
If that method is the best way to design reliability into the system and avoid “drip outs” for all the system customers, why isn’t it the best way to pass on to all the customers their fair share of the construction costs.
Why the annual adjustments? Why not set the share of the construction costs for everyone once and then charge them that way forever? The answer for that is straightforward. If a consumer frees up a portion of the system capacity by conserving then 1) they are making the system more reliable and less susceptible to “drip outs” and 2) they “creating” additional capacity in the water system that can be used to satisfy new customers or increased demand from existing customers without having to incur the cost of expensive capital upgrades to the system.
The annual adjustment of the CBFR Fee rewards customers who create that kind of extra plant capacity. It also passes on a fair share of capital costs to those customers who increase the amount of water use load they are placing on the plant capacity.
One other aspect of the summer peak that is worth noting is that in Davis the amount of water used for irrigation is close to three times as much as is used inside a household or business. So grandma and grandpa are much less expensive that an irrigation zone in the typical Davis lawn.
POINT — worse yet, the plan dramatically reduces the amount of water a household may use before moving into the punitive tier system, where the cost of water spikes considerably …
COUNTERPOINT — It sounds like Bob has a suggestion imbedded in that observation. Maybe he wants to propose a different tier break point?
To put Bob’s observation into context, in the new rate structure the cost per ccf in Tier 1 is proposed to be $0.40 and the cost per ccf in Tier 2 is proposed to be $0.50. The old Tier break is at 18 ccf, and the Bartle Wells recommended Tier break is at 10 ccf. That is a difference of 8 ccf. So the math teachers in the Davis schools can add the following word problem for their students, “If one group pays $0.40 per ccf for 8 ccf of water and the other group pays $0.50 per ccf for 8 ccf, how much more did the second group pay?”
POINT — the plan does not take into account household size before beginning the punishment, which is unfair in the extreme … simple fairness – not to mention the 14th Amendment to the U.S. Constitution – demands that each citizen of this town should have the right to a basic amount of water for regular daily needs at the exact same price every other citizen of this town is charged … tiers, meant to punish water wasters, should never be instituted before household size is taken into account …
COUNTERPOINT — I actually agree with Bob on this issue, and that is one of the key reasons that the CBFR fee is the exact same price per unit of water for every citizen in Davis. The challenge in achieving what Bob is looking for on the Variable Fee is that it will take 9-12 months to gather the information to produce water budgets (that is what he is asking for) for all Davis customers that are fair and proportional.
Given that challenge, if Council agrees with Bob (and me and many others) that water budgets are the best way to go, then Council needs to direct Staff to begin collecting the necessary data to build the budgets. If Council does that, then all Bob needs to do is recommend what the tier levels should be in the period between now and when water budgets are implemented. So the ball is in Bob’s court on this point .
POINT — with the unreasonably low threshold for moving a household into Tier II ratepayers’ hell, large families or those who have taken in foster children or an ailing relative, will automatically be paying more per gallon than their neighbors, no matter how much they conserve
COUNTERPOINT — As noted above the Davis schools math students are hard at work on calculating exactly how much the Tier II taxpayers’ hell actually costs, and the answer is $0.80 per month. Dante would be proud.
POINT — it makes complete sense that a larger household should have a proportionately larger water bill than a smaller household … what doesn’t make sense is why the larger household must also pay more per gallon than the smaller household … simple fairness says that onerous feature must go …
COUNTERPOINT — As noted above, this onerous feature only needs a specific proposal from Bob and it will go away immediately.
POINT — A GALLON IS A GALLON IS A GALLON … this whole notion of charging one Davis citizen more for the same gallon of water than is charged to another Davis citizen is puzzling at best … last time I went to the gas station, it was nearly 4 bucks a gallon … the attendant didn’t poke his head in the car and say “Oh, you have six kids in there, so it’s 8 bucks a gallon for you.” … obviously, if you use more water than your neighbor, you should pay more … if it’s a dollar a gallon and your neighbor uses 2 gallons, he gets charged $2 … if you have a large family or a bunch of houseguests and you use 10 gallons, you get charged $10 …
But this system adds a penalty to the second group, under the presumption that they’re water wasters … and I’d feel this way if I had 10 kids, two kids or no kids at all … a gallon is a gallon … fair is fair … why the different price per gallon depending on the size of your household? … If we use more water, we pay more … and if we use less water, we pay less … just like the way we get charged for bread, butter, milk, gasoline and pot roast …
COUNTERPOINT — Anyone who has purchased gasoline near the Mace overpass knows that while a gallon is a gallon is a gallon, if you pull into the Chevron station your pocketbook will take a much bigger hit than if you pull into the Shell station, and even less of a hit if you pull into the Valero, and if you are into long distance traveling and mosey all the way over to the Arco station, your pocketbook will feel even fatter. A gallon is a gallon is a gallon, but there are still choices for getting that gallon.
In the water world, once you start using outdoor water you are beginning to add to that incremental cost that the engineers have to take in consideration when designing the system to avoid “drip outs” and that is especially true if 1) your sprinklers go on between 4:00 and 6:00 in the morning when the maximum demand exists in the water system, 2) your sprinklers are set so that they water the gutter rather than your grass, or 3) you have a leak that you haven’t gotten the City to come and find and fix.
Does anyone disagree that all three of those categories of use are more costly to the community?
What about the complaint that last years water hogs set the rates for this years water misers new tenants ? I would think the ASUCD would sue in that one ?
Good question Mike. When that came up a while back I set up an appointment with and then met with Becky King of King Properties, whose company does the lion’s share of the SFR rentals in town. When I described the Loge-Williams method for calculating the CBFR portion of the fee, Becky told me that for the past ten years (or so) she has been using virtually the same method for setting the water bill payments for new tenants.
I asked her if she got any complaints about what you describe, and she replied “No, virtually everyone would rather get a refund rather than getting a supplemental bill saying you owe more.” That makes sense when you think of our annual dealings with the IRS. In April would you rather get an Income tax Refund or have to write the IRS a check?
Becky said she monitors the actual bills received showing the new tenants’ consumption against the prior tenants’ consumption and if an adjustment is warranted, she makes it around mid-year.
Bottom-line, what was perceived as a problem turned out to not be one at all.
Becky is not bound by Prop 218, and she does what she does, subject to the lease and her good sense of fair play. Most tenants dont watch such things in detail. The IRS comment is not on point because they are dealing with one ratepayer, not two.
In the end, I dont know that it’s right to charge Tenant 2 for the water hogging conduct of last year’s Tenant 1.
You’re a landlord, Mike. How do you charge and how do you propose charging?
i actually somewhat agree with mike here, is this something ad hoc that “becky” does or is there teeth to what you are suggesting?
GI, what Becky has been doing for ten years has been a “market solution” of her own making. No teeth, simply practicality.
The water billing/liability reality is that the tenant is an external third party to a two-party business relationship between the City and the property owner (rate payer) . . . particularly external if the property owner chooses not to pass through the billed water dollars to the tenant.
The rental reality is that the City is an external third party to a two-party business relationship between the property owner (rate payer) and the tenant.
. . . particularly external if the property owner chooses not to pass through the billed water dollars to the tenant. regardless of what the tenant and the property owner agree to with respect to the inclusiveness or exclusiveness of rental terms, the City has no legal or fiscal claim on the tenant, only on the landlord. Similarly, the tenant’s recourse if they have water reliability issues is to the property owner and/or property agent, but not to the City.
Some landlords pay for City services and set rents accordingly. Some ask their tenants work out how to pay for City Services amongst themselves. Some collect money for City services as an extra charge (apparently the Becky King model).
There is nothing to prevent landlords to raise rents to the level of other units that include the cost of city services and then also charge extra for these same services. Regardless of which model the landlord adopts, rents will increase with the increase in water rates. We’ll have to see how much gouging goes on.
On the residential side, I used to “eat” the city services portion, but since things got so espensive after Saylor and crew started the big rate increases, I have had to charge the bi-monthly bills to the tenants, pro-rata. They pay for what they use. There are small adjustments at the beginning and end of the leases for the change in tenants.
With the city adjusting the bills after a year, I’m not sure how to manage that one. Probably there is a way to do it that is fair. I suspect many property owners are just going to bill the current tenants whatever the current bill is, and unless they gripe, that’s the end of it. Maybe the King mid-year adjustment model, with move-out true up, is the way to go. I have to see how it might work.
But whatever we do, it has to be fair to the tenants so they pay for what they use.
BTW, my tenants always get to see the backup bills to support what I invoice them.
Did you then also lower the rents that you charged or did you let them remain the same and add on the extra charge for City services?