� Moving Beyond Dollars Per Gallons Sold” (#38983) Defining a Resilient Business Model

for Water Utilities Water Research Foundation #4366

ACE 2013 DENVER Wednesday; 3:30 – 5:00PM

Jeff Hughes, Environmental Finance Center at UNC

jhughes@unc.edu

http://efc.sog.unc.edu

Project Title(s)

• Water Research Foundation Project #4366

• Defining a Resilient Business Model for Utilities

• Assessing Financial Trends and Developing Strategies and Practices to Address Challenges

• If it is Broke, Maybe you Should Fix it…

Team: Environmental Finance Center at UNC

Jeff Hughes Principal Investigator

Stacey Isaac Berahzer Outreach Coordinator

Mary Wyatt Tiger Project Manager

Shadi Eskaf Technical Lead

Sarah Royster Technical Support

Team: Raftelis Financial Consultants

Peiffer Brandt Co-Principal Investigator

Alexis Warmath Utility Liaison

Doug Bean Project Advisor and Liaison

Catherine Noyes Technical Support

Rocky Craley Technical Support

Project Advisory Committee

• Nick Dugan, US Environmental Protection Agency

• Amber Halloran, Louisville Water Company

• Scott Haskins, CH2M Hill

• Myron Olstein, Independent Consultant

Water Research Foundation Project #4366 EPCOR

NEOMSD

Aqua America

Loveland

Denver

Austin

Water Research Foundation Project #4366 – Utility Partners

Interested in Project

• Report coming fall 2013

• Water Research Foundation Website

• Project Blog efc.web.unc.edu

One Utility’s Experience

And Another’s

Newport News Waterworks’ Drop in Demand

Fixed vs. Variable Revenues and Expenses

Revenue Impact of Reduced Volumetric Sales (10,000 gallons to 5,000 gallons per month)

$0.00

$2.00

$4.00

$6.00

$8.00

$10.00

$12.00

$14.00

$16.00

$18.00

0 5,000 10,000 15,000 20,000

Ave

rage

Per

ice

per

1 k

gal f

or

a 5

kga

l per

Mo

nth

Wat

er B

ill

Average Household Water Use (Gallons per Month)

Correlation between 2012 Average Monthly Household Water Use and Average Price/1,000 Gallons for a 5,000 GPM Water Bill (661 TX Municipalities)

Data Source: Analysis by UNC Environmental Finance Center using Data from Texas Municipal League

The challenge of driving revenue increases through rate increases:

HH rate versus revenues increases (2004 to 2010)

Data analysis by the Environmental Finance Center at the University of North Carolina. Data sources: 2010 and 2004 RFC/AWWA Water and Wastewater Rates Survey Data for 82 Utilities

1 to 1 Line

Change what you sell…

• Capacity – Readiness to Serve

• Pricing and selling fire protection

Charlotte-Mecklenburg Utilities Water and Sewer Revenues Fixed versus variable

Data sources: Mickey Hicks, CFO, Charlotte-Mecklenburg Utilities

Fire Protection Pricing (e.g. EPCOR – Edmonton)

• Fire Hydrant Service fee charged to the City of Edmonton; the City of Edmonton’s Fire Rescue Service Budget

Change How You Sell It

Skepticism Among the Judges

• Inspiration: electricity peak charge

• A customer’s base charge for fiscal year set based on their three-year rolling average peak

Comparison of BJWSA current residential rate to a “revenue neutral” PeakSet Base model

Can Annual Revenue be More Predictable Without Losing Price Signal?

One Possible Option: Peak-set Base Rates

Current BJWSA residential rate structure

PeakSet base residential rate structure

% fixed annual revenue 18% 57%

Base rate $6.00/meter – water + $6.00/meter - irrigation

$1.85/kgal applied to 3-year rolling average of

peak month of demand Variable rate $3.46/kgal of previous

month’s use $0.52/kgal of previous

month’s use

Matt Williams, Water Advisory Committee Member to the City

of Davis (CA) Water Division

$-

$20.00

$40.00

$60.00

$80.00

$100.00

$120.00

July(25)

Aug(21.1)

Sept(14.4)

Oct(9.9)

Nov(7.2)

Dec(7.3)

Jan(8.4)

Feb(6.5)

Mar(6.6)

Apr(11.4)

May(18.7)

June(29.9)

Wat

er C

har

ge

Fiscal Year 2011 (kgal consumed)

Current Rate ($647.744)

AR1 ($621.548)

Peak-set Base: Example of Customer Impact (Beaufort Jasper Water and Sewer Authority Simulation)

Comparison of monthly charges for water under current rate and a Peak-set Base model

FY10 Peak Demand 24,100 gallons

Beaufort-Jasper Water and Sewer Authority By Account – Residential – High Fixed

Feedback from Expert Panel

• 8: “This model is intriguing. I like that it relates to customer classification. I think it should target the largest customers first. I do worry about customers understanding the mixed signals.” (Beecher)

• 8: “This model provides a steady stream of revenue for the utility, which makes it very attractive to me. I like that it helps customers manage their peak demand.” (Scott)

• 7: “I like that the base rate is set based on use, rather than need – but what happens if people really conserve?” (Walker)

1 2 3 4 5

3%

27%

18%

12%

39%

On a scale of 1 -5, how well would the Peakset Base Model work for your utility or the utilities you work with?

1. Very well

2. Pretty well

3. Maybe so, maybe not

4. Not well

5. Dreadfully

Poll taken by EFC of approximately 30 utility staff officials at 2012 AWWA’s ACE in Dallas

CustomerSelect Rate Model

Monthly water

allotment

Cost for water under

current rate structure

CustomerSelect

Plan Cost Overage Charge

2,000 gallons $8.93-$13.13 $8.13 $6.83/kgal

6,000 gallons $15.23-$30.38 $18.70 $6.83/kgal

10,000 gallons $35.43-$54.18 $32.52 $6.83/kgal

24,000 gallons $64.75-$146.68 $81.30 $6.83/kgal

unlimited >$154.18 $162.60 NA

• Individual customers choose plans that best works with their consumption and pay an overage fee if the household uses more than the plan

CustomerSelect Rate plans simulated for Clayton County Water Authority (GA)

QUESTIONS??? COMMENTS!!!