The URL can be used to link to this page

Home My WebLink About06-16-2015 PH1 SchmidtLomeli, Monique Subject: FW: PH -1 Water /Sewer rate setting Attachments: council water rates June 15.doc; council water rates June 15.pdf From: Richard Schmidt [mailto:slobuild(ayahoo.com] Sent: Monday, June 15, 2015 2:00 PM To: Marx, Jan; Ashbaugh, John; Christianson, Carlyn; Rivoire, Dan; Carpenter, Dan; Mejia, Anthony Subject: PH -1 Water /Sewer rate setting Dear Council Members, I urge you to rethink what you're doing with water and sewer rates, as the staff is leading you in a regressive, non - conservation- based, unfair -to- residents, un- Obispan direction. Please see my attached letter to you. I'm specifically asking you to send the rate setting back to staff, with direction to come up with an equitable, fair, and conservation -based pricing scheme. For your convenience, I've attached the letter as both a Word document and a pdf. Richard Schmidt JUN 15 2015 COUNCIL MEETING: U� 1 1 ITEM NO.: June 15, 2015 Re: PH -1 Water /Sewer Rate Setting Dear Council Members, The city's water and sewer rate structure is perverse given circumstances the city faces and what the city claims to stand for. Consider the following: • The state has ordered the city to reduce its water usage by 12 %. • The city claims it wants residents to conserve water, and claims it has "conservation pricing" to urge them on. • Many residents are doing everything they can to conserve and be good citizens. • Staff is making plans for mandatory, punitive rationing later in the summer. • Yet the city's utility pricing structure is designed so a profligate water consumer's unit cost for utilities is just over half that of a conservation user. The conservation user pays substantially more per unit than the water hog, when actual conservation pricing would produce the reverse unit cost relationship. In other words, the city says one thing, but prices its water in a contradictory manner. It's numbers that count, not words. No good city behaves this way. We residents want our city to be a good city — to be both truthful and fair with us. My recommendation is as follows: 1. Do not enact the proposed utility rates before you. 2. Give staff 60 days (or whatever — but not a long time) to come up with a truly conservation- priced rate schedule in which the larger the use, the higher the unit cost. Anything less is unfair and regressive. 3. Then proceed to do what you claim to be doing — that is, pricing water so it produces conservation. The chart at the bottom of Page 2 of the rate setting mailer demonstrates how the combined water /sewer charges penalize small users relative to larger users. So, the pricing isn't conservation- based, it's philosophically based on some non - conservation thinking. Here's what the chart shows if we look just at its two ends, the conservation user consuming 3 units of water per month versus the high consumer using 25 units, or 8.3 times as much as the little guy. The same perversity of unit charges is present throughout the chart, not just at its extremes. Current charges: 3 -unit consumer, $61.61 25 -unit consumer, $269.88 25 -unit consumer at same unit cost charged to 3 -unit consumer, $513.41 That's about a 47% unit cost discount for the profligate user. Proposed 2015 -16 charges: 3 -unit consumer, $69.12 25 -unit consumer, $305.29 25 -unit consumer at same unit cost charged to 3 -unit consumer, $576.67 Proposed 2016 -17 charges: 3 -unit consumer, $73.41 25 -unit consumer, $313.25 25 -unit consumer at same unit cost charged to 3 -unit consumer, $611.75 In other words, the city's utility "conservation pricing" yields a huge cost savings for the large user compared to the conservation user, which makes no sense. How is this fair? This unfairness of the city's utility pricing, which I describe in greater detail in my recent Cal Coast News article (http://calcoastnews.com/ 2015 /06 /water- and - sewer - sale- in -san- Iuis -obis ol), stems from two things: 1. The imposition of an unfair and unwarranted "fixed" charge for both water and sewer which shifts the cost of the two systems onto the shoulders of the smallest users and gives a free ride to the largest users. Prior to two years ago, for example, all water system costs were recovered through tiered consumption charges, which is both fair and encouraging to conservation. The initial "fixed" water fee was $5, but by next year (in just 3 years time) that will have more than doubled to $10.72. This increase corresponds to the increase in total system costs recovered solely by the "fixed" fee — from about 5% of costs to 10.5% of costs in a three year period. Worse, the fee is not related to any cost - recovery item: it is, as I was told by Ms. Mattingly, just "a number with which City Council felt okay." That's a pretty dumb rationale for a fee. The fee, in fact, represents a regressive philosophy promulgated by management, which is indifferent to the political issue of fairness. (Residents, however, get it.) The sewer fee operates the same way — a constantly increasing shift of operating costs away from consumption charges and onto the shoulders of water conservers, who demand the least from the sewer system as well as the water system. How can any of you maintain such a regressive system of charges is fair or philosophically justified? 2. The abandonment of actual conservation pricing for water. Two years ago, in a very unwise move that furthered the city's regressive changes to water pricing set in motion by the "fixed" fee, the Council approved staff's scheme to move from a three - tiered pricing system to a two - tiered system that lopped off the top tier. While water pricing isn't totally flat under this scheme, it's a lot flatter than it used to be or should be in a city that talks about conservation as a goal. (Aggressively tiered pricing is widely recognized as the best mechanism for promoting conservation.) The immediate effect of the pricing change of two years ago was to raise the cost of water for conservers by a whopping 23% and reduce rates for top users by 12 %. The combination of the "fixed" fee and the neutering of conservation- promoting consumption charges produces the inequitable shift of operating costs from larger users onto smaller users demonstrated in the numbers above. San Luis Obispo has ample justification for up to 5 pricing tiers because our water comes from five different sources with 5 differing costs, from cheap well water and Salinas water to costly reclamation and Nacimiento water. Direct nexus can be established between quantities of water consumed and costs of that water, thus satisfying the criterion of the recent appellate court decision on tiered pricing. Add this fact to the known conservation efficacy and fairness of aggressively tiered pricing, and there's no excuse for the regressive scheme staff wants you to make even more regressive with the proposed changes now before you. Lest you forget it, the marginal cost of increased usage is significant. The marginal demands of new use supposedly justified the need for Nacimiento water. Without Nacimiento water in the mix, our water charges would be substantially lower than they are today. To give away that marginal water from Nacimiento, or reclamation, for a lower charge than basic use, which could have been supported by pre - Nacimiento water sources alone, is simply perverse pricing. (Electric utilities, for example, understand this quite clearly, and charge accordingly for the reserve generating capacity they must have available to meet top demands. Big consumers pay more, not less.) This, in brief, is why you need to back away from staff's current approach to water pricing, give them a short period of time to come up with a revenue - neutral pricing scheme that's fair, conservation- promoting, and progressive, and get back onto the more responsible utility - pricing path we were on prior to two years ago. Sincerely, Richard Schmidt PS. Your two - tiered water pricing is namby. There's so little difference in price between the tiers, there's no way this works for conservation. Besides, given the disgraceful lack of info on your bills (continuing despite a Grand Jury recommendation for more info on the bills), nobody would understand how the tiers work. The bills need to be more informative, the tiers increased in number and made more aggressive. (Furthermore, I have found tier information next to impossible to find on the Internet. Is the city trying to keep water consumers in the dark? Why isn't this info easy to find ?) FYI: Another water supplier with which I do business, whose water comes from wells, has tiers that work like this — basically very reasonable baseline costs for essential water, rising quickly as consumption gets higher and higher. They engage in little rhetoric about conservation, but remind everyone of its importance with their pricing — and with clear explanations of that pricing on their bills. (The quantities are quarterly, not monthly.) QUARTERLY WATER USAGE- RATES ARE AS FOLLOWS: Cubic feet 0-1000 1001-2000 2001 -3000 3001-4000 4001-5000 5001+ per 100 cu ft $1.50 $2.00 $2.75 $3.30 $6.00 $7.25 So SLO has a long way to go before it can seriously talk about tiered conservation - promoting pricing. (To quickly compare these rates with SLO's, your "conservation" example from the comparative example in my letter would fall entirely within tier 1 here, the baseline rate — about 900 cu ft. The "profligate" user at 25 units per month — total of 7,500 cubic feet for the billing period -- would land in all the tiers, and at the top tier would be charged for her last 2,500 cubic foot marginal use in that tier almost 5 times as much as the conservation user's rate. This is good conservation pricing! And it's fair since the cost of marginal water is more than baseline under the SLO regimen of 5 different water sources with variant costs among them. Why has our staff chosen to follow a regressive pricing model rather than a progressive one? Please change course immediately.)