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RFFNACNCIAL
CONSULTANTS, INC.
Study Session Item No. SS4
August 10, 2010
Water Budget Based Rates
To Address Revenue, Equity and
Water Management
City Council Informational Workshop
City of Newport Beach
August 10, 2010
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RAFTELIS FINANCIAL
CONSULTANTS, INC.
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Presentation Goals
To inform the City Council on the
benefits and challenges of different
conservation rate structures related to
the commodity component of the water
rates
RS FFN
CONSULTANTS, INC. City Council Workshop on Water Budget Rates
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CONSULTANTS, INC.
Agenda
Water Management Challenges
Why Have Water Rate Structures Changed?
Benefits and Challenges of Water Budget
Prop 218 Requirements
Example Outcomes of Water Budgets
City Council Workshop on Water Budget Rates
Water Management Challenges
Regulatory Drought Conditions on SWP
MWD has declared mandatory restriction
Legal requirement of 20 by 2020
Senate Bill X7-7
Equity concerns on water supply cost?
Difference in source water costs - how should these costs be
spread over customers?
Revenue stability
As sales decrease, revenue falls, however fixed costs do not go
down
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CONSULTANTS, INC. City Council Workshop on Water Budget Rates
Given these challenges, how will your agency
address these concerns?
One solution is a Water Budget Rate Structure,
which could:
• Reduce water demand
• Curtail urban runoff
• Increased revenue stability
• Heighten customer satisfaction by being
equitable
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RS FFNACN
CONSULTANTS, INC.
Water Rate Structure Evolution
Flat Rate
Unit Rate Inclining Tiered Rate
$6
Inclining Tiered Rate:
Pros: Promoting conservation, affordable
for essential use, easy to administer, easy to
understand
Cons: Penalizing large users
City Council Workshop on Water Budget Rates
11
:7 Uniform
Rate
Unit Rate Inclining Tiered Rate
$6
Inclining Tiered Rate:
Pros: Promoting conservation, affordable
for essential use, easy to administer, easy to
understand
Cons: Penalizing large users
City Council Workshop on Water Budget Rates
11
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Water Rate Structure Evolution
Flat Rate
M7 Uniform Rate
Unit Rate
Water Budget Tiered Rate
$6
$5
— Customer 1
$4
— Customer 2
$3
$2
$1
S
_1
Water Budget Tiered Rate:
PE Pros: Promoting water efficiency,
1 M Water Budget Rate equitable, affordable for essential use
City Council Workshop on Water Budget Rates
Cons: High administrative cost, harder to
understand
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OISFNACNCIAL
CONSULTANTS, INC.
Rates
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What Is a Water Budget?
ity
"Water budget rate is an increasing block rate structure in which the
block definition is different for each customer based on an efficient level
of water use by that customer."
Source: American Water Works Association Journal, May 2oo8, Volume ioo, Number 5
City Council Workshop on Water Budget Rates
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RS FFNACN
CONSULTANTS, INC.
Conservation & Efficiency
WATER
CONSERVATION
Lifestyle adjustments
Reducing water usage
Restricting water use
City Council Workshop on Water Budget Rates
WATER
EFFICIENCY
No change in lifestyle
Reducing water waste
Appropriate water use
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RS FFN
CONSULTANTS, INC.
Conservation Rate Structures
INCLINING BLOCK
+Easy to administer
+Sends clear conservation signal
+Address affordability for basic
needs
-Does not address water
efficiency, only targets large
water users
■ High water use = wasteful
water use
- Equity concerns
• Penalizes large families / lots
• Exacerbated during drought
pricing
- Potential revenue instability
City Council Workshop on Water Budget Rates
WATER BUDGET
• Provides water efficiency
targets
■ Addresses equity concerns for
large families / lots
• Properly allocates drought
penalty rates
• Addresses affordability for
basic needs
- Higher administrative cost
• Policy options need to be
determined
• Billing system update
• Public outreach
• Increase staff for customer
service (implementation phase)
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RS FFNACN
CONSULTANTS, INC.
Water Budget Tiered Rate
Rates
P3
P2
P1
Tier 1 Tier 2 Tier 3
City Council Workshop on Water Budget Rates
Quantity
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Price Ratios & Justifications
Prop M8 requirements
Nexus between tier prices & cost of
service
Examples
• Cost of water supplies
• Conservation program costs
• Potential new sources of supply
• Urban runoff program
RS FFN
CONSULTANTS, INC. City Council Workshop on Water Budget Rates
Case Study: El Toro Water District
Tier 1
a
$1.89
$1.86
($0.06) $1.80
Tier 2
$1.89
$1.86 $0.34
$2.20
Tier 3
$1.89
$3.80 $0.34
$0.24 $4.38
Tier 4
$1.89
$5.70
$0.24 $5.94
Uniform Rate
$1.89
$1.86 $0.17
$2.03
* Offset using Income from Site Lease based on District's policy
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CONSULTANTS, INC. City Council Workshop on Water Budget Rates
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CONSULTANTS, INC.
Outcomes of Water Budget: ETWD
50% -F-45%
40%
30%
20%
10%
0%
USAGE & BILL DISTRIBUTIONS IN TIERS
64 Usage
Mw
1$% 16%
14%
A-0
Tier 3
Tier 4
Tier 3 & 4 are customers that are over their individualized budget
By eliminating usage in tier 3 & 4 one can reduce demand by 23% (9+14)
City Council Workshop on Water Budget Rates
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RSFNACNCIAL
CONSULTANTS, INC.
Outcomes of Water Budget: ETWD
%of Bills
70°%
60°%
50°%
40°%
30°%
200%
10%
a%
SO
CUSTOMER IMPACTS
SFR+ MFR + IRR
6°% 4°% 6 °% 4% 5%
$2 $5 $10 $15 $25
$ change in Bills
6% 8%
$50 > $50
62% of the customers will see a reduction in their bill, if we did not
have to increase revenue.
City Council Workshop on Water Budget Rates
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RSFNACNCIAL
CONSULTANTS, INC.
Discussion
City Council Workshop on Water Budget Rates