trwd customer pricing workshop slides for web_0.pdf4,500 5,000 5,500 6,000 6,500 7,000 7,500 8,000...
TRANSCRIPT
TRWD Customer Pricing Workshop
Jeff Hughes, UNC Environmental Finance Center
www.efc.sog.unc.edu
Acknowledgements
• Defining a Resilient Business Model for Water Utilities Water Research Foundation #4366
Topics and Challenges
• Balancing water conservation and revenues
• Water conservation and long-term avoided costs
• How to justify increasing rates, while promoting water efficiency
• Water conservation as a viable water supply
• Explaining benefits of conservation
Workshop
• Business Model
• Trends
• Pricing
• Other Financial Resiliency Practices
Fixed vs. Variable Revenues and Expenses
WTP Expansion Time Line - 10 to 6 Watering
What sales growth do you want? What have you planned for?
What are you seeing?
Challenge: Uncertain Revenue Changes in water use have had:
Source: Water Research Foundation/Environmental Finance Center, Water Revenues Forum (#4405)
National Perspective
Industry Revenue Roller Coaster
Changing Revenues of 2,838 Utilities in 6 States
Data analyzed by the Environmental Finance Center at the University of North Carolina, Chapel Hill and Raftelis Financial Consultants, Inc. Revenues are: total operating revenues in CA, GA, NC, WI; gross revenues In OH; revenues that can pay for debt service in TX. The sample of utilities in each state is consistent across all Years (e.g.: the same 946 utilities in CA are analyzed every year). Data sources: California State Controller’s Office, Georgia Department of Community Affairs, North Carolina Local Government Commission, Ohio Water Development Agency, Texas Water Development Board, Wisconsin Public Service Commission.
Revenue Trends Among our Project Partners FY2002 to FY2011
City of Raleigh Sales Trends Source: City of Raleigh(in gallons)
-
2,000,000,000
4,000,000,000
6,000,000,000
8,000,000,000
10,000,000,000
12,000,000,000
14,000,000,000
16,000,000,000
18,000,000,000
20,000,000,000
2010 2011 2012 2013 * (projected)
* Actuals through July 2013, projected to year end using 2012 numbers
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
19
50
19
52
19
54
19
56
19
58
19
60
19
62
19
64
19
66
19
68
19
70
19
72
19
74
19
76
19
78
19
80
19
82
19
84
19
86
19
88
19
90
19
92
19
94
19
96
19
98
20
00
20
02
20
04
20
06
20
08
20
10
20
12
29 MGD
2008 –
AB
Re
du
ction
s
2003 –
Re
fin
ery
Re
use
1992 -
EP
A E
nerg
y P
olic
y
2012 –
Re
fin
ery
Clo
sed
And Another’s
Newport News Waterworks’ Drop in Demand
Historic Water Production
17
4,500
5,000
5,500
6,000
6,500
7,000
7,500
8,000
8,500
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Gal
lon
s p
er M
on
th
Year
Average Household Water Use for the State of Texas and Selected Municipal Utilities, 2002-2012 (Gallons per Month) (TX annual n from 365 to 661)
Houston (-5%)
Corpus Christi (-5%)
Odem (-14%) (pop.2,611)
Texas StatewideAverage (-8%)
And others..
Shifting Water Demand Forecasts
19
Why?
Parameter 1990 2007 Allotment – gpd
Household use – gpd
208 187 -21
PMDI 0.29 0.75 -2.6
People per household
2.52 2.38 -5
Educational index 2.45 2.81 +1.3
Average home value
$120,100 $144,600 +3.5
Home size 2,155 sq. ft. 2,281 sq. ft. +0.6
Total =18.8
18.8 GPD Decrease
Breakdown of Louisville (KY) Water Company residential water decline between 1990 and 2007
Rockaway, T.D., P.A. Coomes, J.Rivard & B. Kornstein. (2011) Residential water use trends in North America. Journal AWWA. February 2011, 76-89.
$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
Birmingham Water Works Board
Raleigh Bill Comparison for 6 CCF Slide Source: City of Raleigh
January 2010
• 6 CCF Residential Water
& Sewer Bill $ 36.53 ( $ 1.21/day)
July 2013
• 6 CCF Residential Water & Sewer Bill $52.63 ( $ 1.75/day) A 44% rate increase over time
period FY 11 Revenue - $ 153,061,920 FY 13 Revenue – $ 187,332,838
A 22% revenue increase over time period
Driving Revenue Through Rate Increases
-40%
-20%
0%
20%
40%
60%
80%
100%
0% 20% 40% 60% 80%
Ch
ange
in t
he
To
tal R
eve
nu
e
Change in the Total Monthly Bill for 5,000 Gallons
From 2007 to 2010 across 103 TXutilitiesCPI inflation between the two years
Data analyzed by the Environmental Finance Center at the University of North Carolina, Chapel Hill. Data sources: Texas Municipal League annual TX water and sewer rate surveys (self-reported), Texas Water Development Board data from audited financial statements of utilities with outstanding loans.
0%
10%
20%
30%
40%
50%
60%
70%
-50% -45% -40% -35% -30% -25% -20% -15% -10% -5%
Cu
mu
lati
ve %
of
Ho
use
ho
lds
Reduced average use by at least...
Households that REDUCED their average use in FY10 from FY07
Durham
Raleigh
Monthly water use averages have declined since the end of the drought
26
0
100
200
300
400
500
600
700
800
900
1000
1100
1200
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
Lite
rs/D
ay
Gal
lon
s /
Mo
nth
Average Residential Water Use
Durham
Winston-Salem (>= 6ccf only)
Raleigh
Durham - Trend since 2002
DROUGHT PERIOD
Avoided Costs are the Silver Lining
Project
Capacit
y
Increas
e (MGD)
Projected
Constr.
Start Date
Rev. Constr. Start Date
Cost in 2011 ($)
Estimated Avoided
P&I 2015
Actual with
10-6
Watering
Projected with 2-
day Watering
Amount
borrowed at
time of
projected
installation
200
MGD
Holly 20 2006 2016 2019 $11,530,000 $11,530,000 $(925,197)
35 MGD
Westsid
e 23 2008 2018 2021 $15,686,000 $15,686,000 $(1,258,685)
250
MGD
Rolling
Hills 50 2010 2020 2024 $90,134,000 $90,134,000 $(7,232,585)
25 MGD
Southwe
st 25 2013 2024 2034 $70,686,000 $70,686,000 $(5,672,028)
140
MGD
Eagle
Mtn. 35 2015 2028 2039 $68,544,000 $68,544,000 $(5,500,148)
$(20,588,643)
PRICING
Rising Rates…...
0%
10%
20%
30%
40%
50%
60%
70%
80%
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Cu
mu
lati
ve In
crea
se t
o B
ill f
or
5,0
00
gal
/mo
nth
Si
nce
20
03
Texas: 194 Utilities
Data analyzed by the Environmental Finance Center at the University of North Carolina, Chapel Hill. Rates data for all utilities in this analysis were known for all consecutive years. Data sources: Rates surveys conducted by GEFA/EFC (GA), OH EPA (OH), WI PSC (WI), TML (TX).
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0%
Pe
rce
nt
$2
0k
Inco
me
(A
nn
ual
Bill
/ $
20
,00
0)
Percent MHI (Annual Bill / Median Household Income)
Annual Water & Sewer Bills at 5,000 Gallons/Month in 2012 Compared to Community's Income Levels in 2011 in North Carolina (n=365 utilities)
Communities with fewerthan 20% hhlds withincome less than $20k
Communities with 20-39%hhlds with income lessthan $20k
Communities with 40% ormore hhlds with incomeless than $20k
Analysis by the Environmental Finance Center at the Unversity of North Carolina, Chapel Hill. Data Sources: NCLM/EFC 2012 NC Water & Wastewater Rate Survey; U.S. Census Bureau 2007-2011 5-year American Community Survey.
Pricing
http://efc.sog.unc.edu
Base versus variable
CARY DURHAM
% of household
revenue collected from
base charges
FY07: 8.6%
FY08: 9.2%
FY09: 9.6%
FY10: 8.9%
FY11: 7.7%
% of household
revenue collected from
base charges
FY07: 18%
FY08: 18%
FY09: 29%
FY10: 27%
FY11: 28%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Bas
e C
har
ge /
To
tal M
on
thly
Ch
arge
1,000 Gallons / Month
Portion of Monthly Bill that is Fixed (Base Charge) Across 84 CA Utilities in 2011
Middle 80% of utilities
Middle 50% of utilities, inc. median line
Charlotte-Mecklenburg Utilities Water and Sewer Revenues Fixed versus variable
Data sources: Mickey Hicks, CFO, Charlotte-Mecklenburg Utilities
2011
Data analyzed by the Environmental Finance Center at the University of North Carolina. Data sources: EFC and NC League of Municipalities Annual NC State Rates Survey, 2011, & EFC and GA Environmental Finance Authority Annual Rates Survey, 2011.
-10%
0%
10%
20%
30%
40%
50%
60%
70%
$0 $20 $40 $60 $80 $100 $120
Tota
l Pri
ce D
ecr
eas
e a
s P
erc
en
t
Total Price Decrease in Dollars
CO, NC, and TX Reductions in 2012 Water & Sewer Bill for Decrease in Consumption from 10,000 to 5,000 gal/month
TX
NC
CO
Data analyzed by the University of North Carolina Environmental Finance Center
Conservative Pricing Paired with Rebates or Dividends
• Dividends linked to sales, cost of service, and/or policy goals
ACE 2012: Skepticism Among the Judges…
• Inspiration: electricity peak charge
• Example: A customer’s base charge for fiscal year set based on their three-year rolling average peak.
Can Annual Revenue be More Predictable Without Losing Price Signal?
One Possible Option: Peak-set Base Rates
Current residential rate structure
PeakSet base residential rate
% 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 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
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
Rethinking Rate Models, Projections, and Cash Flow Plans
• More conservative
• Rate models with less (or no) dependence on revenues from high volume or high block sales
• “Excess” revenues transferred to reserve funds or used for increased pay as you go cash capital funding
Example Internal Financial Performance Targets
• Debt service coverage ratio min 2.00
• The City’s goal is a 40-60% mix of PAYGO to financing within next 2 years
49
Types of affordability programs
Options facing payment-troubled customers
Percent N
Payment plan to allow customer to pay amount over time 76% 231
Customer referral to private, nonutility agency 54% 163
Customer referral to a local gov. agency for assistance 49% 149
Education 35% 105
In-home conservation assistance 25% 76
Special billing arrangements 21% 64
Change in the rate customer is charged 8% 24
Other 8% 24
One-time bill credit from utility funds 3% 8
2010, Best Practices in Customer Payment Assistance Programs, Water Research Foundation #4404
Developing New Product Lines
• Customer line repair programs
– Self administered
– Third party
• Selling services to other enterprises
– Meter reading and billing
– Project management
For More Information
• Dashboards and Blogs:
http://www.efc.sog.unc.edu/
• Full Report (early 2014): http://www.waterrf.org/
• Questions: