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Water Budget Alternatives: How Do We Define Efficiency?

Water Budget Alternatives: How Do We Define Efficiency?. ACWA Spring 2011 May 12, 2011. Agenda. Why Have Water Rate Structures Changed? What is a Water Budget Rate Structure? Benefits and Challenges of Water Budgets Revenue Stability Example Outcomes of Water Budgets Wrap Up.

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Water Budget Alternatives: How Do We Define Efficiency?

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  1. Water Budget Alternatives:How Do We Define Efficiency? ACWA Spring 2011 May 12, 2011

  2. Agenda Why Have Water Rate Structures Changed? What is a Water Budget Rate Structure? Benefits and Challenges of Water Budgets Revenue Stability Example Outcomes of Water Budgets Wrap Up ACWA Spring 2011

  3. Water Rate Structure Evolution Revenue Mechanism Flat Rate: $xx / month regardless of usage Pros: Revenue stability, easy to understand Cons: Inequitable, no conservation signal, not affordable for essential use ACWA Spring 2011

  4. Water Rate Structure Evolution Revenue Mechanism Price Information Uniform Rate: $xx / hcf Pros: Revenue stability, administrative ease, easy to understand Cons: Weak conservation, not affordable for essential use ACWA Spring 2011

  5. Water Rate Structure Evolution Revenue Mechanism Price Information Behavior Change Seasonal Rate: $ xxx / hcf in Summer, $ x/hcf in Winter Pros: Promoting water conservation in the summer, easy administer Cons: Revenue instability, not affordable for essential use ACWA Spring 2011

  6. Water Rate Structure Evolution Revenue Mechanism Price Information Behavior Change Inclining Tiered Rate: Pros: Promoting conservation, affordable for essential use, easy to administer, easy to understand Cons: Penalizing large users 6 ACWA Spring 2011

  7. Water Rate Structure Evolution Revenue Mechanism Price Information Behavior Change Water Budget Tiered Rate: Pros: Promoting water efficiency, equitable, affordable for essential use Cons: High administrative cost, harder to understand Water Resource Management ACWA Spring 2011

  8. What Is Water Budget? “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 2008, Volume 100, Number 5 ACWA Spring 2011

  9. Conservation Vs. Efficiency Water Efficiency Reducing water waste No change in lifestyle Appropriate water use Water Conservation • Reducing water usage • Lifestyle adjustments • Restricting water use ACWA Spring 2011

  10. Conservation Rate Structures Inclining Block Pros +Easy to administer +Sends clear conservation signal +Addresses affordability for basic needs Cons - Targets larger water users and doesn’t focus on efficient use of water • High water use = wasteful water use - Equity concerns • Penalizes large families / lots • Exacerbated during drought pricing Water Budget Pros + Provides water efficiency targets • Addresses equity concerns for large families / lots + Properly allocates drought penalty rates + Addresses affordability for basic needs Cons - Higher administrative costs • How is efficiency defined? • Billing system requirements • Proactive Public outreach • Increases staff for customer service (implementation phase) ACWA Spring 2011

  11. Indoor Water Budget • Two options in defining indoor allocation • Household size – Assume a certain household size * gallons per capita per day (gpcd) • 4 persons per household * 60 gpcd * days of service • Average winter use – Suitable for cold winter climates ACWA Spring 2011

  12. Defining Indoor Water Budget • GPCD: 50 – 75 gallons of water per person per day • GPCD = 60 from Residential Water Use Summary in the Study completed by Aquacraft, Inc. and AWWA Research Foundation • SBX 7-7 indicates 55 gpcd • Default household size • Census or State annual demographic data • Balance between variance program and equitable allocation ACWA Spring 2011

  13. Defining Outdoor Water Budget ACWA Spring 2011

  14. Estimated Landscape Area Options Customer Class? Meter Size? Parcel Size? % of Parcel? Lot Size -Footprint? GIS? ACWA Spring 2011

  15. Incorporating Seasonality and Weather Impacts on Blocks Widths • Average Yearly Weather – Block widths are stationary year-round • Historical Season – Block widths change based on local historical seasonal conditions • Typically four seasons • Historical Weather – Block widths change based on historical weather conditions • Historical average weather data of a CIMIS station • Actual Weather – Real time weather conditions • Tied to daily weather data from a CIMIS station ACWA Spring 2011

  16. Water Budget Tiered Rate Rates P3 Excessive Use (Percentage of total water budget) P2 Outdoor Water Budget P1 Indoor Water Budget Quantity Tier 1 Tier 3 Tier 2 ACWA Spring 2011

  17. Who Should Cut Back? • Total Water Budget is based on 4 per household, 60 gpcd, & 30% of lot size ACWA Spring 2011

  18. Revenue Stability • Revenue stability is achieved by collecting the agency’s unrecovered “fixed” cost in the lower tiers • Consumption in the lower tiers is considered reliable • Revenue is typically generated in the higher tiers, which is being reduced from the conservation program • Achieves the goal of the program without sacrificing the financial stability of the District ACWA Spring 2011

  19. Case Study: El Toro Water District (ETWD) ACWA Spring 2011

  20. Outcomes of Water Budget: ETWD 62% of the customers will see a reduction in their bill, if we did not have to increase revenue requirements. ACWA Spring 2011

  21. Summary of Outcomes

  22. Single Family Residential Water Budget Rate Structure Comparisons

  23. Cost of Implementing a Water Budget Rate Structure ACWA Spring 2011

  24. Factors that Drive Implementation Cost • Billing System Upgrade / Replace • Can the current system be upgraded or is a new system required? • EVMWD just needed an upgrade, which was a minor cost, • EMWD needed a new CIS, which was a significant cost driver • Default Values • Tighter default values will increase the cost of the variance program • EMWD used a default household size of 3 for SF and 62% of the variance was for family size adjustment • EVMWD used a default value of 60% of lot size and had minor adjustments • Diversity of lot sizes • 46% of RCWD costs was associated with estimating landscape size • Economy of Scale • Larger agencies will benefit from the economy of scale ACWA Spring 2011

  25. What Does a Water Budget Rate Structure Accomplish? • Revenue Stability Establishes a water efficiency benchmark for each account based on indoor and outdoor requirements Allocates water during drought conditions Revenue stability is accomplished by allocating the utilities fixed cost on the reliable water sales • Water Supply • Water Demand • Promotes Water Efficiency ACWA Spring 2011

  26. Contact Info Sanjay Gaur Manager Raftelis Financial Consultants 201 S Lake Av. Ste 301 Pasadena, CA 91101 Cell: 213 327 4405 Fax: 626 583 1411 Email: sgaur@raftelis.com Sanjay Gaur Manager Raftelis Financial Consultants 201 S Lake Av. Ste 301 Pasadena, CA 91101 Cell: 213 327 4405 Fax: 626 583 1411 Email: sgaur@raftelis.com ACWA Spring 2011

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