Over the past 10+ years water retailers have been encouraged by State Agencies, The Governor and numerous Commissions and Councils to implement tiered rate structures to encourage conservation through progressively increasing rate structures. A majority of the over 400 water retailers throughout the State did exactly as recommended, including VOMWD, by adopting tiered rates. It wasn’t until 2015 when a Statewide court ruling (San Juan Capistrano) upset the status quo; high water users that felt like they were subsidizing lower water users’ costs, and the court agreed. The ruling, while still allowing for tiered rates, stated that the only way to justify tiers is to directly tie costs to the revenue generated in each tier.
Given the threat of a class action lawsuit here, VOMWD performed a new cost of service study to create a tiered rate structure that is directly tied to costs. As the result of the study and the work of a citizens workgroup, it was determined that a two-tiered system tied to the two sources of District water is a legally defensible use of tiered rates.
This rate restructuring will have a net zero impact to District revenues and collects the same amount of revenue from each class of customers (residential, commercial, industrial, etc.) as the current four-tiered rate structure. Individual customers may see a change in their water bill, with low water use customers (less than 4,000 gallons per month) seeing a minimal increase, average water use customers seeing the largest increase and higher water use customers seeing a bill decrease. While this is counter intuitive and reduces the conservation incentive for higher wa ter users, it is exactly what needs to be done to comply with the court ruling. Failure to comply would expose your Water District and your rate payer funds to litigation fees and potential settlement payments.
The Board and Staff recognize the perceived equity issues of higher water users having bills decrease and average water users having their bills increase. Your Water District desires to continue to have conservation-based rates and selected a two-tier structure that is legally defensible and tries to minimized the impact to our customers.
Other options included a single tier, which impacted all low and average water users more significantly than the proposed two-tiered system and also resulted in larger decreases to the highest users all while removing conservation incentives for every customer.
We have been asked why your Water District did not pursue three tiers, to which we answer that when we evaluated the costs we could legally attribute to a third tier, few costs were identified and we also received additional pushback from the District’s higher water users, again stating that if we went with three tiers that a lawsuit would be filed. In an effort to be prudent with ratepayer money, the District selected the two-tier option since it is legally compliant, retains a conservation incentive, minimize impacts to customers compared to other legal rate alternatives and avoids costly litigation.
To help customers adjust to the new rate structure, VOMWD will be implementing the proposed rates (pending Board approval on January 2, 2018) on all bills rendered on or after February 1, 2018 and then on July 1, 2018 there will be a rate increase to cover the cost increases (County paving standards, regulatory compliance expenses, permit increases, etc.) the District has experienced over the past two years.
More information is posted at Vomwd. com. Should you have additional questions, do not hesitate to email the District at: [email protected]
Dan Muelrath, General Manager, Valley of the Moon Water District.