14 May 2015

Davis runs into trouble, as predicted

Last year, I argued that Davis, California, should not replace its excellent tariff design with one that went "easy on lawns," due to the risk that conservation messages would be muddied and finances destabilized.

Well, their new tariffs are, indeed, causing the utility financial and political problems.

Sad, but maybe an opportunity for them to adopt a better system?

H/T to RM


SO said...

Sounds like more fact-resistant humans...


rory said...

The first link goes to today's article about the city's strained finances. Can you edit it to point to your comments from last year?

Anonymous said...

We still took out our lawn in Davis.

MH said...

Correct argument for the wrong reason. The rate design is flawed, but for the reason that it ignores the relationship between fixed costs and variable costs of providing utility service. Davis rates are set at 13% fixed and 87 % variable ($/ccf). Davis' water utility costs are approximately 40% fixed and 60% variable. The result is revenue instability if consumption drops below anticipated levels. The conservation and obvious message to the water consumer is "use less - pay more". That is poor rate design. Neither the current nor previous rate design reflected the true costs of service to the end user or class of end user (high/low water use). Both rate structures shift costs from the low water use customer to the higher water use customer.

California's statutory environment requires rates represent no more than the cost of providing the service. Being revenue neutral is not enough. Conservation pricing that exceeds cost of service has been successfully challenged in the courts. Tiered rates to the extent they accurately represent cost of service are still possible but require fiscal justification that is statutorily sufficient and not simply designed for punitive purposes or behavioral modification.

David Zetland said...

Whoops. Fixed :)

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