Tiered Water Rates – Part 3

tiered water ratesA couple of months ago Brea Matters shared a very creative and user friendly formula for tiered water rates from Jason Kraft. Jason has continued to follow this closely and, with a critical public hearing scheduled for February 2, it’s time to share Jason’s sequel… and thankfully we don’t need to be rocket scientists to understand his plan.

Tiered Water Rates – It’s Time To Act!

By: Jason Kraft

Jason KraftYou probably received a notice in your mail recently indicating that a public hearing for a tiered water rate increase will be held at the Brea city council meeting on Tuesday, Feb 2, 2016 at 7pm, with a proposed effective date of Feb 8, 2016.

The proposed changes would increase the fixed rate for most residential water customers from $9.66 to a minimum of $10.81 and a maximum of $15.16. The variable rate — which is based on water usage — will also change, with the lowest tier of usage seeing the highest percentage increase.

The notice includes examples of how the change will impact monthly bills: someone who uses very little water will see their bill increase between 12% and 38%. Bills for average users would be 12% to 15% higher, while a heavy water user will see increases from 0.5% to 8%.

Why are tiered water rates increasing?

There are two major issues with water rates in Brea (and just about everywhere else in California): the gap between costs and revenue, and the financial volatility caused by relying on commodity charges to fund fixed infrastructure.

If you look at the fixed costs involved in maintaining our water infrastructure (which is the same regardless of usage) and the declining revenues from conservation, there are not enough revenues to cover those fixed costs. This is an urgent, short-term tactical issue that needs to be addressed ASAP to avoid even higher rates down the road.

tiered water ratesThe second issue relating to financial volatility is actually the root cause of the revenue gap. Since a large percentage of our fixed costs are paid for by water usage fees, when water usage falls we don’t collect enough revenue to pay those costs with the existing rates. The obvious solution is to just increase the fixed charge to a point where fixed revenue closely matches fixed costs, but the discrepancy is so large (63% of costs are fixed compared to 13% of revenue) that the resulting fixed charge would need to be ridiculously high.

This is what’s happening in Yorba Linda, who used the same tiered water rate consultant (Raftelis Financial Consultants) as Brea.

The compromise solution in Brea’s proposal increases the % of revenue from fixed charges to 14% (this is the minimum proposed fixed charge), then 17%, then 20%. That’s great, but even with the highest proposed fixed charge you still have 20% revenue from fixed vs 63% of costs. How much would this really reduce volatility, and is it worth burdening light water users and lower income residents with larger fixed charge increases that will never be rolled back?

To keep the system running, revenue has to increase, but the structure of the proposed increase puts too much of a burden on those who use the least amount of water. It’s an especially raw deal for Lifeline customers: the good news is they still get a 20% discount on fixed charges, but the bad news is those fixed charges will increase by 57% within a few years. I don’t think that’s fair.

Fixing the existing proposal.

tiered water ratesThere is a simple short-term solution to this short-term problem: keep the existing structure as-is and just apply a uniform increase to both fixed and commodity costs. I haven’t run the numbers for this but it should be similar to what you see on your rate notice for the minimum proposed fixed charge, maximum proposed commodity charge, and bill impacts for minimum proposed fixed charges.

If we look at the existing proposal, removing the proposed ramp-up for fixed charges in future years would result in bill increases about 8-12% across the board. I could get behind this proposal without the fixed charge ramp-up as a short-term fix. It’s not ideal but it would work for now, as it would only require minimal modification to the proposal and the city could save face on the money spent for the water rate consultant (which is an entirely separate issue).

Proactive water rates for the future.

Some of you may have heard me speak about this at the Nov 17th city council meeting, where I discussed an alternative tiered water rate structure that also meets revenue goals. The alternative structure I presented imposes a much smaller fixed charge increase, simplifies the tier structure so most customers stay within the first tier, and creates three tiers that align with the actual supply costs of our different water sources.

tiered water ratesThe solution I put together involves looking at historical and forecasted usage data to get an idea of how much the water district will have to pay during the next fiscal year for both fixed costs and commodity costs (supply and delivery). Once you have that cost number, you can look at each customer type based on their usage share, and set commodity rates for that customer type so the revenue from their forecasted usage matches their share of costs.

The rates can be adjusted as needed when supply costs or forecasts change. I put together an Excel worksheet that handles all the calculations, so the readjustment process is pretty simple.

With my solution the fixed charge would only see a small increase, which means commodity charges would still be contributing a significant amount towards fixed costs. However, if you reevaluate rates on a regular basis using usage data we already collect, changes in usage patterns would impact rates more quickly and there would be no excessive deficit or surplus.

I also propose changing to a 3 tier system to match supply costs of our water sources (Cal Domestic shares, Cal Domestic overage, and MWDOC). From a Prop 218 perspective this should be more legally defensible than the current 4 tier system, which as far as I can tell is not based on supply costs at all.

What you can do about it?

According to Prop 218, if a majority of Brea water customers submit a written protest by Feb 2, 2016, the rate increase will not be implemented.

If you’d like to file a protest, you can mail or hand deliver a letter to the City Clerk’s Office, 3rd Floor, 1 Civic Center Circle, Brea CA 92821, or you can email CityClerksGroup@cityofbrea.net. The protest must include the address of the affected property, the name of the property owner or tenant, and a note indicating that the protest is related to the proposed Customer Charge increases.

Note that if you speak at the Feb 2 hearing, your protest will only be counted if you also submit a written letter or send an email.

Due to the time constraints of the existing revenue gap and limitations in the city’s utility billing software (which would increase development time needed to implement a proposal with too many changes) I think the best course of action in the short term is to reject this proposal, modify it to remove the 17% and 20% fixed charge options, and send out a new public hearing notice with the revised proposal ASAP.

Then, we can start a real discussion about how to strategically shift tiered water rates so they make sense — and this time let’s see what Brea residents can come up with before throwing more money at consultants.

tiered water ratesIf you find this still a bit above your pay grade, as I do, at least file your official protest with the City Clerk as Jason Suggests. We should be willing to put the brakes on even if Council seems hell bent on rushing to judgement.

The first step to getting Council and staff to seriously consider and adopt ideas coming from the public is to convince them that doing so isn’t an admission of failure on their part. We’re a team, right? We share the common goal of putting Brea first, right?

If staff and Council aren’t willing to meet us half way, what right do we have to expect anything we contribute to Envision Brea to be implemented?

 

Term Limits – Yes Or No?

NOPARKING-1Term limits restricting the number of successive terms of office that may be served by elected officials has always been a controversial issue.

Brea has never had term limits and I, along with a growing number of others apparently, believe it’s time to put it to a vote.

The almost perpetual reelection of career politicians prevents the rise of new voices in government. By instituting term limits, the problems of the status quo can be solved, and more responsible, accountable candidates and Council members may arise.

Here are arguments in favor of term limits that, IMHO, make a lot of sense to me.

Term limits restore rotation in office and government by the people.

It is unfortunate that politics has become an accepted career path. It is better that participation in government be brief. Term limits will put an end to municipal politics becoming a cushy “lifetime” job, making elected service more a limited leave of absence from a productive career in the private sector.

Without term limits, the temptation to remain in office for decades keeps people seeking reelection long after they have accomplished all the legislative good of which they are capable. It does not take long for legislators to become more occupied with their relationships with each other and with lobbyists, than with their constituents. They pass their “use by” date.

Local government works best when it functions as a citizen council, in which people who pursue careers other than politics enter office for a brief time to do their community service, and then leave to reenter society as private citizens. The typical agenda of today’s career politicians is only to build their own power and influence base ahead of representing the people they were elected to serve.

Term limits make for better elections and empower new leaders and ideas.

Incumbency provides a huge electoral advantage. Sitting politicians, unlike poor Mr. Murdock, almost always win reelection. Over the past 30 years it had become virtually impossible to unseat an incumbent until the grassroots effort of Operation Clean Sweep lit up Brea ballot boxes.

People have a tendency to vote for people they recognize. Donors and special interest groups (in the past I’ve referred to them as the old guard) tend to support past winners who will likely continue to benefit their interests. Term limits actually increase voter choice by making elections more competitive and encouraging more candidates to run.

In communities where term limits have been instituted there is far higher turnover amongst elected officials, giving voters more choice in who should represent them. Ultimately, long term council members using political machines to retain power do their community and constituents a disservice. Power is best used when it changes hands over time in order to allow for dynamic new solutions.

Term limits prevent corruption and exploitation of office.

FINGERS-LWith a few exceptions like Koreagate and the Energy Coalition, Brea has been blessed with a history of well intentioned and ethical leaders. One only need to think of the City of Industry and Bell to realize the magnitude of the risk.

Sure, we’ve seen behavior that danced perilously close to the edge of the Brown Act. Local politics have always been a bit rough and tumble… and personality clashes are unfortunately more commonplace than one would prefer.

That said, when a career politician is firmly entrenched, they may seek to enrich themself at the expense of the public, to shower unearned perks upon family and allies in order to maintain and strengthen their powerful position.

Term limits serve to limit the ability of individuals to put forward self-serving legislation and to retain power indefinitely. Instead, with term limits, elected officials have only a limited time in power, which tends to shift their focus toward genuinely benefiting the public.

Term limits trigger action over apathy.

A major focus of any elected official hoping to serve another term is on the next election and on vote-getting. It is often the case that hard decisions need to be made but it is difficult for them to do so when they are fixated on being reelected. Elected officials have an incentive to put tough decisions off if they can retain power by doing so.

An example of such seemingly perpetual procrastination (climbing on my soapbox for a moment) is the interminable delays in allowing public comment on the creation of an Environmental Advisory Board.

For almost a year Council has been asked to hold a town meeting to determine how broad an interest, or lack of same, Brea residents have in local environmental issues. A simple word to the City Manager and it could have happened months ago.

When constrained by term limits, elected officials must make the most of their limited time in office, resulting in greater prioritization of difficult decisions and reform. While there will always be some of this behavior, it is curtailed by term limits, as elected officials will, in their final term at the very least, not be beholden to as many special interests as they cannot run again.

Where do you stand?

Is it time at last to finish what Operation Clean Sweep started and let term limits put an end to career politicians in Brea?

VOTECOUNTS