Frank Loge, Ph.D., P.E. Center for Water-Energy Efficiency University of California, Davis Considerations for Proportionality and Equity in Water Rates California Public Utility Commission| October 13, 2015

Water Rates: Proportionality and Equity California Constitution’s Article X, Section 2 has, since 1928, compelled water utilities to conserve water as a guiding principle. Article XIII, amended in 1996, requires that “The amount of a fee or charge imposed upon any parcel or person as an incident of property ownership shall not exceed the proportional cost of the service attributable to the parcel.” Equity: Accounts pay same $/ccf regardless of socioeconomic status.

Stable Revenue Promote Conservation Utility Objectives How to Balance? The “New Normal” for Water Utilities

Costs Fixed Revenue Variable 80% 20% Variable 20% 80% Fixed The Easiest Way to Ensure Revenue Stability Harmonize fixed costs with fixed revenues and variable costs with variable revenues

Conventional Harmonized Rate Structure Costs: 80% fixed and 20% variable Revenue: 80% fixed and 20% variable Impact of Reduced Water Use Stable revenue for utility Revenue losses equal cost savings But, muted conservation signal 10% water savings -> 2% savings on bill

Costs Fixed Revenue Fixed Variable 80% 70%30% not harmonized! Variable 20% CA Urban Water Conservation Council BMP 1.4 In Practice: A Structural Instability – Mismatched Costs & Revenues

Impact of Reduced Water Use Traditional Conservation Rate Structure Costs: 80% fixed and 20% variable Revenue: 30% fixed and 70% variable Stronger conservation signal to consumer 10% water savings -> 7% savings on bill But, revenue instability 2% cost savings < 7% revenue loss

Revenue (% Fixed) Costs (% Fixed) Amplification Factor = Revenue Lost / Costs Saved Or % Variable Revenue / % Variable Costs Amplification of Revenue Losses

Costs Fixed Revenue Variable 80% 20% Variable 20% 10% 70% Fixed- fixed Fixed-volumetric Consumption Based Fixed Rates (CBFR): A Viable Solution Harmonizing costs and revenues while maintaining conservation signal Apportioning fixed costs by volumetric use

Consumption-Based Fixed Rates Costs: 80% fixed and 20% variable Revenue: 80% fixed and 20% variable Impact of Reduced Water Use Stable Revenue Revenue losses equal cost savings Strong conservation signal 10% water savings -> 10% savings on bill

Customer Charges

Water Rate Structures Considered in Davis Two-tier inclining block rate. Fixed fee based on meter size and volumetric charge with two price tiers, both dependent on customer class (40% fixed and 60% volumetric). Three-tier inclining block rate. Same as two tier but with three tiers. Uniform rate. Volumetric charge is uniform among customers, without any customer class distinctions (40/60). CBFR. As described previously (13/87). Uniform block. Uniform volumetric charge based on customer class and a fixed charge based on meter size (13/87).

Implementation Notice to Property Owners of Public Hearing of Proposed Water Rate and Fee Increases The Davis City Council will hold a public hearing on March 19, 2013 to consider a water rate and fee increases proposed by the City Council and the Davis Water Advisory Committee. MAD AS HELL … my friend Curt at comcast.net is frustrated that “There was not a single word in last Sunday’s op-ed piece supporting Measure I about the goofy rate structure proposed to fund the surface water project.”

Effective Price and Equity

Interplay Between Price and Equity

Census Blocks and Block Groups in Davis

Water Rate Proportionality and Equity: City of Davis

Thank you Contact info: Frank Loge, Ph.D., P.E. (530)