Rates, Rates and More Rates

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1 Rates, Rates and More Rates Jeff Hughes David Tucker February 5-6, 2013 Chapel Hill, NC

2 Session Objectives 1. Provide update on state of rates 2. Provide strategies for dealing with rate and pricing challenges Process issues (selling rates) Structural issues

3 How satisfied are you with your rates and the revenue they generate? 1. Not at all need an overhaul 2. Not very they need a lot of work 3. Somewhat tweaks needed 4. Very no changes needed Not at all need an... 0% 0% 0% 0% Not very they need a... Somewhat tweaks... Very no changes n...

4 How satisfied are you with your rates and the revenue they generate? (2011) 1. Not at all need an overhaul 2. Not very they need a lot of work 3. Somewhat tweaks needed 4. Very no changes needed

5 Anticipated Rate Increase Request for Next Year 1. No change 2. 0 to 2.99% 3. 3 to to or above 20% 20% 20% 20% 20%

6 Rates background: GS 160A-314 /153A-277 A) A city may establish and revise from time to time schedules of rents, rates, fees, charges, and penalties for the use of or the services furnished by any public enterprise.

7 $6,000,000 $5,000,000 North Carolina Utilities Average Operating Revenues and Expenditures ( ) Average Operating Revenues Average Operating Expenditures Op. Revenues by Inflation (CPI) $4,000,000 $3,000,000 $2,000,000 $1,000,000 $ Fiscal Year Ending

8 Do Water and Wastewater Rates Cover System Costs? n = 420 (FY 2012)

9 Small Water Systems vs. Large n = 382 (FY 2012, with SDWIS number of connections)

10 CURRENT RATES (PRELIMINARY RESULTS)

95% of local government, non-profit and multisystem private utilities Free, online information: tables,

11 Annual NC Water and Wastewater Rates Survey NC League of Municipalities Environmental Finance Center at the School of Government Collaboration since 2005 (9 years) Funding 2013: UNC EFC, US EPA In 2013: 507 utilities. 95% of local government, non-profit and multisystem private utilities Free, online information: tables, summary report, Rates Dashboards, rate sheets at and

12 Which Rates were Studied? Rates for 507 utilities across NC Rates for water, irrigation and wastewater service Rates for residential and for nonresidential (small commercial) customers Rates for inside and outside customers Including base charges and allowances

13 Results Graphs and data shown in this presentation represent January 2013 rates. Results are so fresh that you are basically seeing what someone upstairs is working on publishing right now! Final documents will be shared in February 2013 and be made available at

14 Base Charges Low bills for low consumption amount vs. Revenue stability Source: 2013 NCLM/EFC North Carolina Water & Wastewater Rates Survey

15 Residential Rate Structures Water Wastewater Rate structures applicable to residential customers for consumption up to 15,000 gallons/month only Source: 2013 NCLM/EFC North Carolina Water & Wastewater Rates Survey

16 Pricing Different Services 25% use separate rate structures for non-residential customers 15% use separate rate structure for residential irrigation water Source: 2013 NCLM/EFC North Carolina Water & Wastewater Rates Survey

17 Rates as Percentage of Income Medians: 0.93% water, 1.12% sewer The average North Carolinian pays $67.15/month for 5,000 gallons of water and wastewater, if everyone is charged at the inside rate Source: 2013 NCLM/EFC North Carolina Water & Wastewater Rates Survey

18 Residential Monthly Bills Across 510 Water Rate Structures Across 424 Wastewater Rate Structures Source: 2013 NCLM/EFC North Carolina Water & Wastewater Rates Survey

two years Only 5% of utilities have not changed rates since

19 Changes in Rate Structures and Rates Since Last Year ~50% increased rates last year 75% changed rates within the past two years Only 5% of utilities have not changed rates since Source: 2013 NCLM/EFC North Carolina Water & Wastewater Rates Survey

20 Changes in Rates Since Last Year Half of the rate increases were for more than 5.7% (water) and 5.3% (wastewater). Source: 2013 NCLM/EFC North Carolina Water & Wastewater Rates Survey

23 NC Rate Setting Resources Guide to Billing, Kara Millonzi Rates Book EFC Web Resources (data, guidelines, dashboard) LGC Data Painful Art of Rate Setting Rates Course May 2012 Rate Setting Guide AWWA M1 Guide Rural Water Association Consultants NCLM/EFC Practices Survey

24 Rate Setting Resource Free guide written for utility managers in June 2009 (funded by DENR). cations/2009/guidelinesdes igningratestructures.pdf

25 Webpages on NC Rates (with report, tables, Dashboards, more) The 2013 report, tables and Rates Dashboard will be posted online any day now!

26 Rates Dashboards Interactive tool to compare rates (bills) among all utilities, or utilities with similar characteristics: System size (number of accounts or revenues) Technology (water source type or river basin) Location (regional council, 50 miles distance) Economic development tiers Available online at

27 Have you seen / used the EFC s N.C. Water and Wastewater Rates Dashboard in the past? 1. Have seen but not used the dashboard 2. Have used the dashboard 3. Have not seen nor used the dashboard, but can t wait to do so today! 0% 0% 0% 1 2 3

28 Is your utility planning an in-depth water / wastewater rates study for some time in 2013? 1. Yes 2. No 50% 50% 1 2

29 Is your water / wastewater utility considering changing rates in 2013 by: 1. Raising rates across the board 2. Lowering rates across the board 3. Making a more complex change to the rate structure 4. Not currently considering a change in rates 25% 25% 25% 25%

30 Do your rates currently include some kind of conservation signal (e.g. higher unit prices at higher levels of consumption?) 1. Yes 2. No 50% 50% 1 2

31 Does your utility have a significant amount of long-term water / wastewater debt? 1. Yes 2. No 50% 50% 1 2

32 Our utility tracks affordability of a typical amount of water consumption (e.g. 5,000 gallons/month) in the following ways: 1. As a percentage of Median Household Income (MHI) for the community served 2. By some correlation to the local poverty rate 3. By some other metric 4. We do not track affordability at this time 25% 25% 25% 25%

33 PRICING STRATEGY

36 Strategies Better forecasting Change what you sell Service not gallons New products (line protection programs) More rigorous finance policies New pricing models

37 % Water Revenue Increase (from 2004 to 2010) The challenge of driving revenue increases through rate increases: HH rate versus revenues increases (2004 to 2010) 150% 125% 100% 75% 50% 25% 0% 0% 25% 50% 75% 100% 125% 150% -25% -50% -75% -100% -125% -150% % Water Bill Increase for 10 ccf/month (from 2004 to 2010; wintertime rates) Preliminary Results 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

38 Short Term Fixed vs. Variable

39 The Variable Charge Portions of All Customers Bills in FY2010 Cary 91.1%* (FY2010) Charlotte 82%** (FY2008) Raleigh 75.4%* (FY2010) OWASA 75%** (FY2012) Durham 73.5%* (FY2010) Cape Fear 59%** (FY2012) Sources: * Billing records from utilities analyzed by the Environmental Finance Center at the University of North Carolina, ** reported by utility

40 I think our utility s business model in 15 years will.

41 2010

42 2011

43 2012

44 Charlotte-Mecklenburg Utilities Water and Sewer Revenues Fixed versus variable 100% 90% 80% 70% 60% 50% 40% Variable Fixed 30% 20% 10% 0% * Data sources: Mickey Hicks, CFO, Charlotte-Mecklenburg Utilities

45 Base Charge / Total Monthly Charge 100% 90% 80% 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 70% 60% 50% 40% 30% 20% 10% Recommended by Urban Water Conservation Council 0% ,000 Gallons / Month Data analyzed by the Environmental Finance Center at the University of North Carolina. Data source: AWWA and RFC CA Rates Survey, 2011

46 Peakset Base Model Inspiration: electricity peak charge A customer s base charge would be individually set based on their three-year rolling average peak Comparison of BJWSA current residential rate to a revenue neutral PeakSet Base model Current BJWSA residential rate structure PeakSet base residential rate structure % fixed revenue 18% 57% Base rate $6.00/meter water + $6.00/meter - irrigation Variable rate $3.46/kgal of previous month s use $1.85/kgal applied to 3- year rolling average of peak month of demand $0.52/kgal of previous month s use

The Peak-Set Base Model Under this rate structure, a customer s base charge would be individually set based on their three-year rolling average peak.

47 The Peak-Set Base Model Under this rate structure, a customer s base charge would be individually set based on their three-year rolling average peak. This would allow BJWSA to build more of their cost recovery into the base charge while still promoting customer conservation and efficiency. It would particularly encourage steady water use. Example residential structure

48 How would it impact individual customers? Comparison of monthly charges for water under current rate and two Peakset Base scenarios Resident 1 Rate structure (annual charge for water) FY10 Peak Demand 24,100 gallons

50 Supplemental Slides

53 City of Charlotte Rate Study 2011, Red Oak Consulting

55 Charlotte-Mecklenburg Utilities Adopted Rate Increase Water Rates Fixed Charges Billing Charge $2.40 Availability Fee $2.25 Usage Rates Tier 1: 0-4 ccf $0.98 Tier 2: 4-8 ccf $1.96 Tier 3: 8-16 ccf $3.41 Tier 4: <16 ccf $5.32 Sewer Rates Fixed Charges Billing Charge $2.40 Availability Fee $4.30 Usage Rate $4.14 Sewer Cap Single-Family Res 16 ccf Multi-Family Res 11 ccf Non-Res None

56 Case Study: Beaufort-Jasper Water and Sewer Authority ALTERNATIVES TO THE CLASSIC PRICING MODEL

57 The Customerselect Model This model is based on the plans offered by the majority of cell phone service providers, in which an allotment of use is included in one fixed charge. The customer chooses a plan and pays an overage fee if he/she uses more. See your local Verizon Wireless store Example residential structure Plan name Monthly water allotment Cost for w&s under current rate structure Customerselect cost (w&s) Overage Lifeline 2,000 gallons $12.00-$31.02 $25.99 $12.00/kgal Basic service/small family 6,000 gallons $40.53-$69.06 $59.99 $12.00/kgal Light irrigation/large family 10,000 gallons $78.57-$88.95 $79.99 $12.00/kgal Heavy irrigation 15,000 gallons $92.41-$ $99.99 $12.00/kgal Water waster Unlimited >$ $139.99* NA

58 Dividend Model At the end of the fiscal year, BJWSA would return profit to customers in the form of a dividend; the dividend would be based on the water stewardship of that customer. A dividend model could be combined with existing or any other pricing model. BJWSA could define water stewardship in any number of ways: budgetbased, customer-select, or relative to customer use (average water use or peaking factor).

59 Example Structure 3-year rolling average ( ) 2011 average water use Reduction ( average water use/3-year rolling average) Portion of Reduction (Customer reduction x total reduction) Portion of Profit (% of total reduction x utility profit) Household A Household B 3,000 2,500 17% reduction 14% of total reduction 8,000 4,000 50% reduction 41% of total reduction $70 $205 Household 5,500 5,350 3% reduction 2% $10 C Household 4,000 4,200 No reduction 0% $0 D Business A 2,500 2,450 2% reduction 2% $10 Business B 10,000 8,000 20% reduction 16% $80 Business C 500, ,000 30% reduction 25% $ % 100% $500

Roadmap to Financial Health

Roadmap to Financial Health Jeff Hughes Shadi Eskaf March 5-6, 2012 Chapel Hill, NC www.efc.unc.edu Session Objectives 1. Improve ability to assess financial health 2. Improve understanding of strategies