shadi eskaf · the winners and losers of new utility rate models shadi eskaf environmental finance...
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The Winners and Losers of New Utility Rate Models
Shadi Eskaf Environmental Finance Center at the University of North Carolina WRRI 2015 Annual Conference March 18, 2015 McKimmon Center, Raleigh, NC
http://efc.sog.unc.edu @EFCatUNC 2
Dedicated to enhancing the ability of governments and other organizations to provide environmental programs and services in fair, effective, and financially sustainable ways through:
• Applied Research • Teaching and Outreach
• Program Design and Evaluation
How you pay for it matters
Typical Utility Rate Structure
Base charge (might include a consumption allowance)
+
Volumetric rates (uniform rates or block rates)
Challenge of Current Rate Structures
Source: Hughes, J. et al. (2014). Defining a Resilient Business Model for Water Utilities. Water Research Foundation report, Project #4366. www.waterrf.org or www.efc.sog.unc.edu
Fixed versus variable expenses and customer sales revenues
National WRF study on current utility practices and alternatives for enhancing financial resiliency of water utilities
http://www.waterrf.org/Pages/Projects.aspx?PID=4366
What if We Change the Way Utilities Charge Customers?
Base charge (might include a consumption
allowance)
+
Volumetric rates (uniform rates or block rates)
?
Alternative Rate Designs
1. PeakSet Base Model 2. CustomerSelect Model 3. WaterWise Dividend Model
Described in the WRF report and EFC blog posts, and studied and simulated for four large urban utilities in NC (via WRRI)
Whiteboard Video http://www.waterrf.org/Pages/Projects.aspx?PID=4366
Rate Setting with Current Rate Structures
Customer water use and billing records of last year(s)
Projections for next year;
adjust rates
Next year, bill customers and track
revenue shortfalls/gains
Typical rate-setting process
Planned to generate this much… but got this much because customers used less water
Simulating Alternative Rates for 4 NC Utilities
Customer water use and billing records of last year(s)
Projections for next year;
adjust rates
Next year, bill customers and track
revenue shortfalls/gains
Typical rate-setting process
Projections for next year using alternative rate
models
Model customers next year using new
rates, calculate revenue shortfalls/
gains, and who paid more/less
EFC’s simulation of alternative rates
Set rates to project same revenues
(revenue-neutral) Compare
CustomerSelect Rate Model Individual customers choose plan that best works with their consumption and pay an overage fee if the household uses more than the plan
Generated more revenue (and more fixed revenue) even though water use declined
&
Equal portions of customers would have “won” or “lost”
If Utility Had Implemented CustomerSelect
Winners and Losers under CustomerSelect
Low water users (low average) & low peaking users would have reduced their water bills High users & high peakers would pay more
PeakSet Base Model
Graphic: Eskaf, S. et al. (2014). Measuring & Mitigating Water Revenue Variability: Understanding How Pricing Can Advance Conservation without Undermining Utilities’ Revenues Goals. Ceres report. www.ceres.org or www.efc.sog.unc.edu
A customer’s base charge for next 12 months would be individually set based on their individual historic peak demand
Generated more revenue (and more fixed revenue) even though water use declined
&
More customers would have lowered their bills
If Utility Had Implemented PeakSet Base
Winners and Losers under PeakSet Base
Low water users (low average) would have increased their water bills on average, but… Customers with low peaking ratios would pay less and customers with high peaking ratios would pay more
• Customers are “members” of utility • Utility clearly defines its total revenue needs
(including O&M, debt service, capital reserves, etc.)
• Charge full cost prices, plus additional rates to guarantee revenues (add to base charge)
• At end of the year, keep the revenues that are needed and then return any excess funds to the customers
• Can be combined with most rate models
WaterWise Dividend Model
Calculating the Dividend
Simple Dividend: • Equally among customers (per
month/service) or Return more to WaterWise customers: • Proportional to reduction in demand from
last year • Customers who meet a water budget target
How Customers would Fare Under: Simple Dividend Model
How Customers would Fare Under: WaterWise Dividend Model
Conclusions
Revenue Target using “Next Year’s Rates”
• Alternative rate models increase revenue resiliency
• Can protect low-using customers while increasing bills of high-using or high-peaking customers
• Require new way of thinking and implementation
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Acknowledgements
35
North Carolina Urban Water Consortium
EFC Team: Shadi Eskaf, Mary Tiger and Jeff Hughes
http://efc.sog.unc.edu @EFCatUNC
Shadi Eskaf [email protected] 919-962-2785
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