Stormwater Fee Customer Advisory Committee. Summary of Meetings, Advisory Opinions and PWD Response

Transcription

1 Stormwater Fee Customer Advisory Committee Summary of Meetings, Advisory Opinions and PWD Response FINAL REPORT

2 Contents Executive Summary... 1 Introduction... 4 CAC Membership... 5 CAC Process... 5 CAC Roadmap... 5 Topics Summary and CAC Feedback... 6 Meeting Meeting Meeting Meeting Meeting Meeting Meeting Meeting Meeting Meeting Summary and Conclusions...30 Summary of Potential Impacts on Customers...32 Figures and Tables Figure 1. CAC Final Roadmap... 8 Table 1. Summary of Impacts of Envisioned Stormwater Fee Changes... 3 Table 2. CAC Meeting Roadmap Details... 7 Table 3. CAC Givens, Objective Criteria, and Ground Rules - Revised... 9 Table 4. CAC Interests and Concerns...11 Table 5. CAC Perspectives on Phase-in and Cap Options...15 Table 6. CAC Perspectives on Direct Dischargers...17 Table 7. CAC Ideas on GA/IA Charge...19 Table 8. CAC Perspectives on Incentives...22 Table 9. CAC Perspectives on Prioritizing Efforts Around Credits Trading/Banking...25 Table 10. CAC Perspectives on Credits Grandfathering...27 Table 11. CAC Most Important Topics...30 PWD_CAC_Final_Report_15DEC11 V3 i

3 Table 12. Revenue Requirements Pre- and Post-Reallocation...33 Table 13. Summary of Direct Dischargers Impact...35 Table 14. Summary of Impacts of Envisioned Stormwater Fee Changes...36 Table 15. The "Dow Jones" Summary of Impacts...37 Table 16. CAC Invitees, Members, and Alternates and Attendance...38 Appendices Appendix A: Meeting Handouts Appendix B: Meeting Summaries Appendix C: CAC Written Comments on Draft Final Report PWD_CAC_Final_Report_15DEC11 V3 ii

4 Executive Summary The Philadelphia Water Department (PWD or the Department) recognized that a small number of customers were experiencing very negative fee impacts as a result of the Department s transition from meter-based to parcel area-based stormwater fees and convened the Customer Advisory Committee (CAC) to examine potential changes to the stormwater rate structure programs in preparation for the upcoming rate case (FY ). The CAC met ten times from April through November of The meetings covered a defined set of topics, from introductory material and broad issues that influenced later topics (such as allocation methodology) to more specific issues (such as potential revisions to the credit program). The Department s goal was to gain insights and opinions from an engaged customer group. PWD s charge to the group was: To provide advisory opinions to PWD on topics related to rate structure, stormwater credits and incentives, and special ratepayer situations to be considered as a part of the Department s 2012 rate case (FY2013 FY2016). In the course of the CAC meetings some strong themes emerged that transcended individual topics: Gradualism: Customers with divergent views recognized that changes in stormwater rate structure and credit program policies need to be made in a way that allows highly impacted customers time for transitioning to the higher stormwater charges. This theme was reflected in the discussions on reallocation, phase-in and caps, direct discharger credits, and other topics. Predictability: From an economic and business perspective, members holding different viewpoints were interested in consistency and predictability with regard to fees and credits. For example, when it came to potential changes to the credits program, many felt investments made by credit holders to build stormwater infrastructure on their properties should be recognized and honored. PWD s obligations must be met: In discussions that involved policy decisions that would have an impact upon revenue, members pointed out that PWD should make changes that would further, not hamper, its ability to meet its regulatory and service provision obligations. Stronger nexus among rates, rate structure and cost causation are desirable: The CAC members were interested in and learned about PWD s cost allocation methodology and cost drivers. The members were clear that policy decisions should reflect PWD s costs and the impact that ratepayer activities have upon these costs. Decisions must be based upon good science and be technically rigorous: CAC members were especially interested in exercising technical rigor and due diligence in performing cost allocation, one of the fundamental topics addressed in the CAC sessions. This theme was emphasized during discussions on a number of other topics. Although the CAC generally came to consensus around these themes, their particular application to specific topics and concerns expressed during the meetings sometimes resulted in disagreement or diverging views. In the final meeting, while many members prioritized a reallocation of costs from the stormwater to sanitary sewer utility fee as long as good science was used, two members emphatically disagreed, expressing concern about the impacts upon the Department s most vulnerable customers: residential customers that were not represented equally with commercial customers on the CAC. Disagreements like these are natural within a diverse group and emphasize the need for balance and gradualism in any changes that may be proposed by PWD in the next or future rate cases. As the consultant team said frequently during the process, the sum of the potential changes is revenue neutral; PWD_CAC_Final_Report_15DEC11 V3 1

5 in the most immediate sense, when some people pay less, others would have to pay more to ensure overall revenue sufficiency for the stormwater program. In the long run though, when costs are recovered in a fair and equitable manner, this allows PWD to meet its obligations and environmental goals, resulting in a benefit to all customers. CAC Priorities During the final meeting, CAC members were asked to describe the ideas or potential changes that were discussed throughout the process that were most important to them. The question was designed to assist PWD in prioritizing possible actions in the next rate case. The voting reiterated the themes and areas of agreement that became clear during the CAC process. The item receiving the most votes was reallocation based on sound science. However, this item, unlike any other in the list, had two opponents. The second most votes went to capping to extend phase in for most impacted customers. Three items were tied in receiving the third most number of votes: ensure cost causation and ensure technical rigor, which were prevailing themes throughout the process and relate to reallocation in particular but also to other possible changes, and fee-in-lieu, trading, or banking program. Priorities with the least number of votes were: grants and loans, incentives for on-site management, and don t create disincentives [to stormwater management] through other policies. Summary of Impacts on Customers During the CAC process, PWD and the consultant team provided data and descriptions of impacts on ratepayers that resulted from various potential program and policy changes. From meeting to meeting, the CAC reviewed these changes mostly on an individual basis, rather than at the culmination of the changes taken in aggregate. The CAC wished to see the cumulative effects of potential changes and expressed concerns over the impacts of these changes to all ratepayers. Therefore, the PWD and consultant team modeled some of the key rate structure, policy, and program changes to establish the cumulative effect of these changes on future rates. 1 The potential changes listed below reflect the areas of strongest agreement among the CAC members for PWD action: Reallocation of costs from stormwater to sanitary sewer utility fee of approximately $17 million of FY 2012 costs, in accordance with program, data and engineering drivers. Changes to direct dischargers crediting policy, so that direct dischargers on the Delaware and Schuylkill Rivers that have not installed specific on-site stormwater management practices only retain a credit for peak flow control as these sites are not subject to flood protection requirements in accordance with the City s stormwater management regulations. Capping of stormwater service charge increases (on a monthly basis) to no more than 10% and $100 from one fiscal year to the next resulting from the parcel area-based transition or because of other policy changes to the credit structure (not related to an annual rate increase). The incremental impacts of these three currently envisioned changes are as follows: 1 The percentages used for these projections are best estimates available at the time of this report and will be vetted during the upcoming rate case process. In addition, the potential options below are those being considered by PWD currently. PWD is not precluded from considering other options, in the future, as stormwater policies and programs progress or change. PWD_CAC_Final_Report_15DEC11 V3 2

6 Table 1. Summary of Impacts of Envisioned Stormwater Fee Changes Reallocation Stormwater GA/IA Revenue Requirement Change Annual Cost Impact of Direct Discharger Billing Reductions Annual Cost Impact of Capping-related Billing Reductions $12.9 Million $2.0 Million $10.0 Million It should be noted that the latter two figures represent reductions in billings that will need to be translated to revenue impacts during the upcoming rate case. It is likely that the revised rates will be affected by the figures presented in the table, but these policies will go a long way to reduce the burden of some of the most highly impacted parcels under the parcel area-based fees. Two other short term changes are: Implementation of the proposed incentives described during the incentives meeting. The impacts were not modeled, as costs are included in the current year budget already. Restructuring of the credit criteria to address volume control, peak discharge reduction, and water quality factors. The impacts of these changes would be balanced by decreases in credits under the direct dischargers credit program change. As the parcel area-based fee is fully implemented and PWD emerges from the transition period, the Department will continue to align costs, rate structure, credits and incentive programs and the rates as necessary to maintain fairness and equity among and within customer classes, and to provide for adequate cost recovery each year. PWD_CAC_Final_Report_15DEC11 V3 3

7 The purpose of this report is to document the results of a series of meetings of the Citizens Advisory Committee (CAC) convened in 2011 to solicit opinions and ideas concerning the issues of equity, fee impact, and methodology with respect to the current parcel area-based stormwater rate structure and the stormwater credit/incentives and assistance programs. Introduction Over a decade ago, the Philadelphia Water Department (Department or PWD) convened a C ustomer Advisory Committee ("CAC") to recommend to the City a more equitable stormwater cost allocation methodology. After a two year deliberation, the CAC came to a consensus and recommended that the Department transition from a meter-based stormwater management charge to one that was based on a property or parcel s gross area (GA) and impervious area (IA). The initial phase -in of the parcel areabased system of stormwater cost allocation began in FY 2002 for residential customers (utilizing a typical parcel area for residential properties). At the time, however, the Department was unable to implement this recommendation for non-residential parcels (with widely varying parcel sizes), due to technological limitations. That was not the case at the time of the last PWD rate case proceeding (FY 2009). As a result of the decision in that proceeding, PWD began to implement parcel area-based stormwater cost allocation for non-residential customers. More specifically, in July 2010, the Department began a four year transition from the equivalent meterbased stormwater charge to a parcel area-based charge for non-residential customers and new customers without water/sewer accounts (e.g., commercial, con dominium, institutional and industrial customers). At the time of this report (FY 2012), the monthly stormwater charge is 50% GA/IA based and 50% meter size based. The transition to a parcel area-based system of cost recovery for non-residential customers will be completed in July The above described change in stormwater cost recovery has resulted in significant increases in the stormwater bills of a small number of customers. This is generally the case for properties with large impervious areas and/or large gross areas and no water meter or small water meter(s). Conversely, some properties with large water meters but small GA/IA footprints are favorably impacted with a decrease in their overall stormwater charge. As the CAC is aware, the Department is taking steps to mitigate the impact of stormwater charges for significantly affected customers through its Stormwater Assistance Phase-In Program (SWAPP) and other interim steps. It should be noted, however, that the new parcel area-based system is a more scientifically-based and supportable and a far more equitable system of stormwater cost recovery, compared with the equivalent meter system. This is because it is a better means of quantifying cost incurrence associated with stormwater runoff from customer parcels to the conveyance systems (operated by the Department) or to nearby streams (which the Department has responsibility to maintain). The Department recognized that the transition to a parcel area-based system of stormwater cost recovery would have its challenges and that reasonable adjustments would need to be made, based upon issues identified by PWD staff, its consultants and customers. The new Customer Advisory Committee (CAC) was convened in light of issues identified during the beginning of implementation of the new parcel based stormwater rate structure. The CAC was to specifically examine/investigate various rate structure options, potential rate relief options, special ratepayer situations, revisions to current credits and incentives programs, and other issues associated with the transition to the parcel area-based fee. The above was to be accomplished PWD_CAC_Final_Report_15DEC11 V3 4

8 prior to the next rate case proceeding, to gain input from customers and stakeholders on all of these issues, as PWD examined possible changes to the stormwater management program. PWD s charge to the CAC was as follows: To provide advisory opinions to PWD on topics related to rate structure, stormwater credits and incentives, and special ratepayer situations to be considered as a part of the Department s 2012 rate case. CAC Membership The CAC membership was comprised of customers representing diverse community and business interests, and City department representatives. A list of invited representatives, invitees who accepted the invitation to participate, and the members and their alternates that attended the CAC meetings is provided in Table 14. CAC Process The CAC members' role was to provide advisory opinions to the Department that were representative of their broader business community. In addition, a smaller group of members represented residential and environmental organizations that could be impacted by changes made to programs or credits to address nonresidential concerns. The CAC members were asked for their opinions on a range of topics. Before each meeting the CAC received an electronic mailing of handouts containing background information on the topics scheduled for discussion in the meeting. At each meeting, this information was reviewed and the CAC members then provided their opinions about the issues at hand and options for how to address those issues. CAC members asked for several details about the CAC process to be noted. First, from meeting to meeting, the CAC evaluated potential changes mostly on an individual basis, rather than the culmination of changes taken in aggregate. Thus, the group s opinions on individual topics do not necessarily reflect how they might have judged a particular option when grouped with all other program or policy changes. Second, the CAC examined very complex issues that often involved a great many detailed points. The CAC did not have time to explore all details of each issue; therefore, they relied upon PWD to provide a reasonable representation of issues based on its more detailed knowledge of some issues. CAC opinions are based upon the level of detail they were exposed to during the process and reflect their reliance on information provided by PWD. Thus, CAC members opinions and areas of agreement should be considered preliminary. Because the group members represented a variety of interests and issues and topics of discussion covered a broad spectrum, unanimous opinions (that is complete agreements) or consensus opin ions (compromise agreements) were not expected or required from the group. Instead, the goal was to hear and fully understand the range of concerns with the current rate structure, fee impact, and credit system approach and explore and gauge support for any alternatives and ideas presented by CAC members or by the PWD/consultant team. CAC Roadmap The CAC met over the course of ten meetings from April 28, 2011 through October 13, 2011, with the final meeting on November 14, The meetings, facilitated by PWD s consultant, covered a defined set of topics, from introductory material and issues that influenced later topics ( i.e. allocation methodology) to more specific issues ( i.e. potential revisions to the credit program and how to apply PWD_CAC_Final_Report_15DEC11 V3 5

9 those revisions to existing credit holders). The CAC meetings roadmap was revised several times during the process, shifting and adding topics, to reflect the interests and requests of CAC members and to better address their priorities. Topics related to residential rate structure were originally part of the CAC roadmap, but they were removed, in part because of the relatively low proportion of residential ratepayer representation in the CAC in comparison with the business ratepayer representation. PWD recognizes that some of the topics discussed, particularly reallocation, would have an impact upon residential customers, if implemented. PWD is sensitive to the impacts upon these customers, and they will weigh the effects upon customers that were under represented in this process as a part of arriving at final recommendations for the rate case. Figure 1. CAC Final Roadmap The roadmap presented in Figure 1 reflects the range of topics discussed in the CAC meetings. Topics Summary and CAC Feedback During each meeting, information and analyses were presented to the CAC to introduce concepts and/or policy options and to explain the impacts (if known) of various options on ratepayers and customer classes. This section contains a summary of the topics presented and discussed in each meeting, as well PWD_CAC_Final_Report_15DEC11 V3 6

10 as the opinions expressed by the committee members. The following table shows the integration of the roadmap with the meeting topics and handouts (found in Appendix A). Table 2. CAC Meeting Roadmap Details Category Roadmap Meeting No. Topics Related Handouts Introduction Rate Structure Rate Structure: Special Ratepayer Case Kickoff, Background 1 Stormwater Programs and Costs 2 1. Kickoff, Background, and Objectives 2. PWD Program, Systems, and Cost Allocation 3. CAC Interests Cost Reallocation 3 4. Cost Reallocation Extended Phase-in and Caps 4 5. Extended Phase-in and Caps 1. Logistics and Exercises 2. Historical 3. Background Current Situation 4. PWD System, Programs and Services 5. Stormwater Cost of Service 6. Long Term Control Plan Update 7. Stormwater Program 8. Rate Structure Adjustments 9. Cost Allocation Factors 10. Stormwater Cost Allocation Review 11. Rate Relief Options Direct Dischargers 5 6. Direct Dischargers 12. Direct Dischargers Gross Area Charge 6 Incentives Incentives 7 Credits Credit Options and Credit Fee Eligibility Banking, Trading, and Grandfathering Wrap up Final Wrap up Gross and Impervious Area 8. Economic Analysis 9. Incentives 10. Credit Options and Credit Fee Eligibility 11. Banking and Trading 12. Grandfathering 13. Report Review 14. Most Important Topic 13. Impervious and Gross Area Charges 14. Incentives 14a. and 14b. Incentives Worksheets 15. Credits 15a. Utility Credit Program Factsheets 16. Credits Banking Trading and Changes to the Credits Program 17. Stormwater Management Service Charge: GA/IA Rate Methodology Draft Final Report 18. Summary Input PWD_CAC_Final_Report_15DEC11 V3 7

11 Meeting 1 Topic 1 Kickoff, Background, and Objectives Question discussed: Would you make any changes, additions, or deletions to our framework documents of Givens, Objective Criteria, and Ground rules? Topic Summary: The group was introduced to basic concepts of stormwater utilities, PWD rates and rate structure, and credits and incentives. This meeting also laid the basic framework within which the CAC would provide its advisory opinions. The framework consisted of five basic items: the CAC charge, givens, roadmap, objective criteria, and ground rules. Member Input and Opinions on Topic 1 The CAC provided input and revisions to the draft roadmap, objective criteria and ground rules. CAC members were asked to suggest changes, additions or deletions to these three documents. CAC members suggested, and generally agreed to, modifications to the overall schedule/roadmap including: The CAC members requested that PWD provide a review of PWD stormwater programs, systems and cost allocation as an additional meeting topic during meeting 2. Changes were requested to the order of meeting topics. The CAC members asked that recognition of past investment and grandfathering be added to the objective criteria. The CAC added a ground rule, requesting that alternates for CAC members serve as eyes and ears and not impede the forward progress of the meetings by revisiting previous meeting topics or information previously discussed with the group. The charge to the group was discussed, slightly modified, and finalized as: To provide advisory opinions to PWD on topics related to rate structure, stormwater credits and incentives, and special ratepayer situations to be considered as a part of the Department s 2012 rate case. The givens, objective criteria, and ground rules, revised according to CAC input, are shown in the following table. PWD_CAC_Final_Report_15DEC11 V3 8

12 Table 3. CAC Givens, Objective Criteria, and Ground Rules - Revised Givens Objective Criteria Ground Rules Do not harm the City (residents Wait to be recognized or businesses) Stormwater costs will continue to be billed and collected as part of the water/sewer user charge Stormwater Fees must meet the program s revenue requirements revenue neutrality Stormwater costs will continue to be allocated using a parcel area-based system of cost recovery Stormwater fees will not violate legal requirements for rates and rate structures Stormwater management will remain a function of PWD and must meet program obligations and responsibilities Grandfather/recognize past investments Encourage good stormwater management behavior Guarantee payback on future investments Promote good stewardship of financial and environmental resources Be equitable and fair recognizing existing constraints Be clear and understandable Be revenue neutral Be efficient Promote stormwater revenue stability Be cost effective Reflect what has been learned elsewhere Stay on topic One question at a time Share time with others Avoid sidebar discussions Arrive on time and stay till the end Send an alternate if you cannot attend a meeting; alternate is eyes and ears only Meeting 2 Topic 2 PWD Programs, Systems, and Cost Allocation Question discussed: At the request of the CAC, information was provided. No specific input was requested by PWD from the CAC. Topic Summary: Meeting 2 was comprised of an informational portion and an input portion (see Topic 3). The informational portion, as requested by the CAC, focused on a more detailed explanation of PWD s system and programs and the Department s cost allocation approach, used to derive the stormwater rates to be discussed in detail in later meetings. The Department s rate consultant, Black and Veatch Corporation (Black & Veatch) presented an overview of the current cost allocation methodology, focusing in particular on the stormwater cost allocation. PWD_CAC_Final_Report_15DEC11 V3 9

13 Member Input and Opinions on Topic 2 General sense from Committee: CAC members asked questions during the information session but did not provide input on a specific question or issue. The committee wanted to know how the cost allocation related to the current programs and systems, particularly how money was spent on the natural system (as opposed to the built system in the combined and separate sewered areas). Information on the current program and systems was provided in meeting 3. Topic 3: CAC Interests Question discussed: What is important to you during this CAC process? The CAC members expressed a variety of interests in and hopes for outcomes from the CAC process. Many were focused on achieving greater fairness in the fee structure. Member Input and Opinions on Topic 3 General sense from committee: The CAC members feedback has been grouped into themes in the following table: PWD_CAC_Final_Report_15DEC11 V3 10

14 Table 4. CAC Interests and Concerns Theme Residential Properties Business Concerns Direct Discharge Credits Stormwater Fee Equitable Fees Green Initiatives and the Environment Incentives City Special Ratepayer Cases What s Important to You? Impacts on residential property owners Impacts to residents Costs to business owners - keeping employees employed, continue to serve and attract tenants Understand situation from business perspective Impact on business Concern for businesses with high fees and residents of the City Direct dischargers/costs to manufacturer Concern from customers perspective Direct Discharges along the Delaware River Direct Dischargers who cannot offset costs Credits complement their mission of sustainability University has invested in stormwater management and seen reductions in their fees at some campuses, wants to see continued benefit from being proactive Expansion of credits Fee itself (amount) Preserve previous CAC recommendations while recognizing impacts to others Fairness in allocation for all both business and residential Work towards fairness Balance between those hit hardest and those finally getting relief Fair and consistent application of fees Preserve direction of fairness to all Interest in equitable distribution of costs/education Interest in green initiatives Charge for impact on Creeks Incentives for private stormwater management Impacts to City Operation/general oversight from City perspective Voices are heard/ representing City Council as a whole/not specific wards Understanding of stormwater/differences between parcels/education to address questions Parcels with no water and sewer infrastructure PWD_CAC_Final_Report_15DEC11 V3 11

15 Meeting 3 Topic 4: Changes to Cost Allocation Question discussed: Should PWD investigate a reallocation of costs from stormwater to sanitary sewer? Issue Summary: Having been presented with the current rate methodology used to allocate PWD costs between the stormwater and sanitary sewer portions of the utility in meeting 2, the Committee moved on to the topic of a potential reallocation of PWD wastewater costs from stormwater utility to sanitary sewer utility, based on defensible cost of service rationale. During meeting 3, the CAC was presented with data that illustrated potential fee impacts on customers due to cost reallocation of varying magnitudes. An evaluation of the cost of service allocation methodology was necessary, as the current methodology was designed several years ago and in light of customer concerns. The CAC was presented with two cost reallocation scenarios: the impacts of a relatively small reallocation ($14 million) versus larger reallocation ($29 million or more). Impacts were shown for categories of ratepayers (such as warehouses) and for a select set, or index, of representative ratepayers (called the Dow Jones group). The data provided to the CAC concerning the impacts of cost reallocation are found in Handout 9 in Appendix A3. It was explained that several points are pertinent when considering a reallocation of some stormwater program cost back to sanitary sewer utility (holding all else constant and assuming full transition to GA/IA based charge): The reallocation of program costs back to sanitary sewer utility (to be billed on the basis of meter size and water usage) helps mitigate the impact of the transition from equivalent meterbased stormwater charge to fully GA/IA based stormwater charge. Under reallocation of costs from stormwater utility to sanitary sewer utility, all parcel areabased stormwater charges decrease (under FY 2012 revenue requirements). Under FY 2012 revenue requirements, the stormwater cost reallocation would have varying impacts on customers: o o o Sewer customers with high water usage: As sewer charges increase under reallocation, some categories of sewer ratepayers would experience an overall increase in utility charges (sum of the parcel area -based stormwater charge and usage charge). This is likely especially if a property has very large water usage and low GA and IA square footage. Large properties with low water usage: Large and highly impervious properties with low water usage would realize an overall decrease in utility charges Average residential customer: The average residential water user would experience a decrease in parcel area-based stormwater fee, and the overall utility charge would be slightly lower. The Summary of Potential Impact on Customer section depicts the effects of reallocation in conjunction with other potential changes to the rate structure and incentives and credits programs. PWD_CAC_Final_Report_15DEC11 V3 12

16 Member Input and Opinions on Topic 4 General sense from committee: General support for a science/engineering-based reallocation of stormwater costs from stormwater utility to sanitary sewer utility. Other feedback: CAC members each spoke on the ideas presented, expressing preference, if any, for one of the reallocation options, discussing the rationale for their preference, and explaining any related concerns or questions. Based on the CAC preferences expressed for the options, it was evident that the majority of CAC Members supported some level of reallocation, as long as it is based on reasonable engineering and science based logic. Several were in favor of reallocation coupled with some other form of rate relief, such as phase-in, or significant incentives for those greatly impacted by both the shift to full GA/IA and the potential reallocation. Of significance, several members of the committee were concerned by the subjectivity that they perceived in the allocation methodology and expressed a desire to have better alignment between program expenses and stormwater revenue requirements. They also cautioned that the reallocation not be driven by just rate relief concerns. Finally, members representing residential customers were concerned about the impacts upon residential ratepayers. It was noted in a later discussion that while the issue had the potential to impact residential customers adversely, residential customers were under represented in the process compared with commercial customers. In response to the CAC s concerns, PWD s rate consultant, Black & Veatch, presented a succinct explanation of the drivers for cost reallocation, namely PWD s evolving program needs; the availability of reliable estimates of wet weather and dry weather flow volumes; and, some changes in pollutant strength standards. In addition, the rate consultant provided a description of the areas of cost reallocation that would be supportable by defensible rationale and data. Black & Veatch noted that the existing allocation approach was determined from reliable functional costs derived from PWD s annual budget. Costs were then allocated between sanitary sewer and stormwater utilities using the defined cost allocation factors for each functional cost: a. Conveyance Cost: Allocated based on Piping size ratio b. Treatment Cost: Allocated based on Flows & Strength factors and c. Customer Cost: Allocated equally between stormwater and sanitary sewer. The CAC was reminded that the resulting cost allocation is based on cost of service principles (i.e. defensible science and a reasonable nexus). It was noted that the cost allocation approach currently used was established years ago and, at that time, it adequately supported program needs and aligned with the usage based and meter size based stormwater cost recovery. Over the years, several changes including program evolution, enhanced data availability, and transition to parcel area-based charges have occurred. Hence, with the upcoming rate case, the Department considered it prudent to review the cost allocation methodology to better align revenue requirements with cost of service. As detailed in Handout 10, Black & Veatch has identified the following three potential areas of change for evaluation during the next rate case: PWD_CAC_Final_Report_15DEC11 V3 13

17 Change 1: Conveyance Costs - Conveyance Costs - allocate capital and O&M costs on the basis of peak wet weather to peak dry weather flow ratios derived from a typical year. Change 2: I&I Strength Factors revise I&I strength factors for Total Suspended Solids (TSS) and Biochemical Oxygen Demand (BOD) used in the treatment allocation to reflect current industry practices. Change 3: Customer Cost apportion customer costs based on the magnitude of sanitary sewer versus stormwater revenues Meeting 4 Topic 5: Extended Phase-in and Caps Question discussed: Would you support an extended phase-in and/or caps that provided rate relief for the most impacted customers? Issue Summary: Both before the CAC process began and in early meetings, CAC members expressed a desire for PWD to examine rate relief options for the most highly impacted customers. The CAC examined potential rate relief options during meeting 4. It was noted that: The current four-year phase-in to parcel area-based fees was lengthened from the three-year phase-in recommended by the original CAC. The Department was implementing a two-year fee cap program, the Stormwater Assistance Phase-In Program (SWAPP), starting July 1, This program was designed to further mitigate the impacts of the transition, by capping fee increases for non-residential ratepayers who experience a rate increase of 10% and $100 on their monthly stormwater charge from one fiscal year to the next. Customers must be current on tax and water and sewer fees to qualify for the program. The CAC was presented with data that illustrated the aggregate impacts on ratepayers of: (1) extending the remaining two years of the current phase-in by an additional two or three years so that the phase-in would occur over a total of six or seven years or, (2) extending the phase-in and adding a cap (similar to the SWAP). Extended phase-ins and capping fee increases each provide rate relief and each has disadvantages: Extended phase-ins help highly impacted customers, since their fees go up more slowly, but customers who expected to experience fee decreases will see their fees decrease at a slower pace than they would otherwise. Capping benefits a few highly impacted customers but must be subsidized by other ratepayers. The subsidy varies in magnitude, depending on the capping threshold chosen, and it varies by year, as the number of ratepayers who fall under the cap each year varies. The options examined cost an average of $4 million a year for 3 to 5 years. The cost drops significantly after a few years, since most ratepayers reach full phase-in and are no longer capped. Member Input and Opinions on Topic 5 General sense from committee: There was general support for an extended phase-in with a cap, with some members favoring varying thresholds for capping. Several members declined to weigh in on the PWD_CAC_Final_Report_15DEC11 V3 14

18 topic, feeling that they lacked an overall sense of the impacts to all ratepayers, as well as implications for PWD s program and needs. Other feedback: The CAC weighed in on the options presented and added their own ideas regarding how to achieve equitable rate relief. Members were asked to provide their opinion, both from the perspective of benefits to themselves ( Self weigh in), and from the perspective of the well-being of ratepayers as a whole ( City Parent weigh in). Additional options posed by the group were: Cap with lower threshold than current SWAP for large increases (5%/$50); Cap with a higher threshold with the idea that the threshold should be set where job loss was on the line and the fee increase was not simply an inconvenience (5-10% but $1,000); Continue current phase-in plus cap (extend the SWAPP); Longer phase-in period with lower percentage threshold but higher dollar increase threshold; None of the presented options. Table 5. CAC Perspectives on Phase-in and Cap Options Extended Phase-in/Cap Options "Weigh In" "Self" "City Parent" Benefit Self Benefit Others 1 No Extension/Status Quo Longer Phase-in Period (+5 years) Longer Phase-in Period and Cap Lower Threshold for "Large" Increase (5%/$50) Status Quo (2 years) with Cap Cap with increase $ Threshold (5%/$1,000) None of the Above 4 3 While the voting was somewhat scattered across the various options, the concentration of the votes centered around the idea that the cap threshold should be set high enough such that only properties that faced potential job loss or other related economic damage, as a result of a significant annual increase in the stormwater charge, would be afforded the cap. Meeting 5 Topic 6: Direct Dischargers Total Questions discussed: How should Direct Dischargers be handled with respect to the stormwater user fee and credit system? Should Direct Dischargers be charged in a different manner than other ratepayers, and if so, on what basis? What approach is fair, equitable and consistent with the handling of the rest of the ratepayer charges? Issue Summary: The CAC discussed direct dischargers (DDs), which are properties that do not discharge stormwater runoff from their parcels into a PWD constructed ditch or conveyance system (e.g. pipes). These properties directly discharge to a natural stream or river or discharge across only privately-owned and operated drainage systems to a natural drainage system. Currently, DDs can qualify for a 100% impervious area (IA) credit. PWD sought the CAC s input on a change to that policy. The CAC was presented with arguments both for and against a change, including the magnitude of the issue in terms PWD_CAC_Final_Report_15DEC11 V3 15

19 of potential revenue loss from credits, implications for the overall customer base and the impact of changes to current credit holders, and utility practices nationwide. For the CAC s reference, data on existing and potential DDs was provided: At the time of this CAC meeting, 45 parcels had applied for and were granted IA Credit because they directly discharged to a waterway. At the 50% phase-in, the total amount of the credit (realized as revenue reduction to PWD) for DDs totaled $1.1M. In 2014 when the rate structure is 100% IA/GA based, the total would be double that number at $2.3M. A worst case scenario, from a revenue reduction standpoint, was provided. Geographic analysis revealed that maybe as many as 1,400 non-residential parcels could be potential DDs. Of those, 450 are along the major water bodies of the Delaware and the Schuylkill Rivers. If all of the parcels identified as potential DDs in our analysis applied for and obtained 100% applicable IA credit, the revenue reduction on full phase-in of the parcel area-based fee in 2014 would be approximately $16.6M. If only the identified DDs along the Delaware and Schuylkill received the IA credit revenue reduction would be approximately $7.6M in Member Input and Opinions on Topic 6 General sense from committee: While the current policy was preferred by one or two members, most favored a change in policy. The most favored policy was to grant a peak discharge credit only to Schuylkill and Delaware direct dischargers. This idea best matches national practices of exempting or crediting categories of ratepayers who discharge to an outlet that is significantly different than others. Several members favored credits for direct dischargers that reflected the special activities that these customers might be able to undertake to provide water quality benefits, such as constructing or enhancing riparian buffers. Of all the issues discussed with the CAC, this issue gained the highest level of agreement among the members. Other feedback: The CAC members each spoke on the ideas presented and weighed in on their first and second choices for direct discharger policy. Many members expressed concern, as reflected by the member comments and with the addition of option 5 as detailed in Table 6, that direct dischargers fees should reflect the impact that they have on water quality and on PWD s water quality related costs. This idea means that a water quality requirement, or portion of the costs associated with water quality, cannot be waived even if portion of the costs associated with peak flow portion can be waived. This perspective essentially leads to the consideration of a two-part credit, one of which reflects peak flow and the other reflects water quality. PWD_CAC_Final_Report_15DEC11 V3 16

20 Table 6. CAC Perspectives on Direct Dischargers Option Description How should direct dischargers be handled? No special recognition of DD disconnection Little or no change from current approach (i.e. current recognition) Recognize properties that directly discharge to the Schuylkill and Delaware Rivers on the basis of flood control Special credit/some recognition for DD Option 2 with added requirement that DDs address water quality requirements to receive credit 1 st Favorite Results 2 nd Favorite Results Total Weighted Total (first place doubled) Meeting 6 Topic 7: Gross Area Charge Questions discussed: Can we ensure a reasonable GA charge basis whose structure automatically recognizes basic differences in open space land use and also provides an incentive to improve land use from a runoff volume reduction perspective? Issue Summary: The CAC reviewed the current fee structure in which parcels are charged for both Impervious Area (IA) and Gross Area (GA), at rates such that PWD recovers 80% of its stormwater revenue from IA and 20% from GA. The reasoning from the original CAC that resulted in the GA/IA rate structure, the corresponding current apportionment of costs between the GA/IA factors, and the customer costs was reviewed. Issues of interest to PWD that are driving the current discussion regarding the gross area charge, particularly the gross area fee credit, were presented to the CAC. The specific issues are as follows: 1. Highly impacted large GA properties, regardless of the quality of land cover, are typically eligible for 100%; 2. Perceived unfairness in the current GA credit approach that limits credit for properties with poor underlying soils; 3. Perceived need for the rate structure or an automatic mechanism to account for existing open space conditions and recognize beneficial stormwater characteristics (such as forest); and 4. Whether greater incentives are appropriate to encourage better use of open space especially maintenance of tree cover. To address these issues, several options were initially proposed for discussion: 1. Change the credit approach so that underlying soils are not a component of it and different land uses are recognized. PWD_CAC_Final_Report_15DEC11 V3 17

21 2. Use automated land use recognition processes to compute a new kind of GA charge that automatically differentiates trees and other land uses, granting a lower rate to tree covered areas. 3. Change the ratio between IA and GA from 80:20 to a lower cost allocation to GA to reduce the overall GA charge impact on a property. It was opined by PWD that any of these options may have a large ripple effect on the total rate base and specific large effects on the properties with a very large GA component, who are currently receiving the GA credit. In addition, conversion to an automated option that recognizes tree and turf cover within the rate structure would need to await availability of GIS tree canopy coverage. Finally, converting the billing system and database may be expensive and time consuming, as components of the current stormwater database would need to be revised and/or rebuilt once new data layers are available (i.e., not a quick fix). The change indicated in Option 2 would result in about a 13% increase in impervious area rates for all non-residential ratepayers, though the GA rate would go down. Member Input and Opinions on Topic 7 General sense from committee: Multi-voting revealed a strong interest in automating the credit process in some form (as in Option 2 above). Consideration for soils and trees should be investigated and green open space should be encouraged or rewarded, if possible. Additionally, much of the discussion focused on fairness and PWD s customer focus. Other feedback: The CAC members discussed their ideas in response to the discussion question. These ideas were recorded as the CAC members offered them. The CAC then were able to provide multiple votes on the listed ideas that is, each member was allotted several votes and distributed the votes among his or her top-ranked ideas. PWD_CAC_Final_Report_15DEC11 V3 18

22 Table 7. CAC Ideas on GA/IA Charge No. IA/GA Charge - Ideas for Change RANK 1 Differentiate between trees, grass and impervious surface types - get closer to fairness RANK 1 2 Automate the credit but keep soils as a consideration RANK 1 3 Give credit for things that can be changed by the landowner RANK 1 4 Fully notify customers of available credits RANK 2 5 Litmus test - any option needs to encourage open space RANK 2 6 Tier green space automatically / provide data to customers and establish appeals process RANK 1 7 Extra credit for trees RANK 1 8 Credits should reflect program costs for both peak and volume NO RANK 9 Shift IA/GA charge split from 80:20 to 90:10 NO RANK 10 Sponsor Credits on other properties / Credit Banking option NO RANK 11 Balance available credits with administrative costs NO RANK 12 Drop GA Fee / Charge only for IA Only NO RANK 13 Differentiate between Income and Non-Income Producing Properties for GA Charge NO RANK 14 Consider affordability via caps - declining block NO RANK 15 Amended Soils Credit NO RANK 16 Properties Should be Charged for Stormwater Cost Burden to PWD RANK 2 17 Require City certification for Property/Include Soil Type in Agreement of Sale NO RANK 18 Properties Pay Fair Share with Consideration of Water Quality and Flood Control RANK 2 19 Balance of Impact of Goals/Cost on Others/Don't Penalize to Advance Goals of City NO RANK 20 Base charges on actual cost to the utility - Cost of Services Principles NO RANK The discussion also revealed several other themes: Customers should be made fully aware of their charges, available credits and appeals process. There is a tension between the program focus on peak flow and runoff volume, which is impacting the underlying charges. Some CAC Members felt this should be better reflected in the charges, as well as in the credits and incentives programs. The focus of any credit should be on what property owners can do and not be based on an inherent characteristic of their property. Much of the membership felt that green space is valuable and any charge and/or credit should not act as a disincentive, resulting in the development of these areas. Some members of the CAC felt that more information should be made available or perhaps included in property deeds, so that potential stormwater related issues or resulting charges were readily known to all. Other members countered that these considerations and investigations should be part of any normal due diligence process a business undertakes while assessing a land/property purchase. PWD_CAC_Final_Report_15DEC11 V3 19

23 Any proposed change or credit automation should be evaluated, so that any additional administrative expenses are understood before PWD implements a change. Members of the CAC recognized that any change to the GA charges would potentially shift costs to IA charges. A member of the CAC felt that if trees are recognized or rewarded the eligibility criteria should be well defined and defensible. A member of the CAC, whose business has invested in stormwater management on his site, felt that properties should pay their fair share and credits should be appropriately aligned to what property owners do on their sites. Another member furthered this point by stating that the credits should reflect the benefits of on-site stormwater management, as they relate to flood protection and water quality management, and that credits should recognize and be proportional to the benefit provided to the City s stormwater system or programs. Meeting 7 Topic 8: Economic Analysis Questions discussed: The economic analysis was provided for informational purposes only no specific input was requested. Issue Summary: PWD s consultant team includes the local economic consulting firm, Econsult Corporation (Econsult). Econsult was asked to analyze how the stormwater fee transition from equivalent meter to the parcel area-based fee affects properties and businesses in the City. Specifically, the first phase of the firm s work was to perform a relocation analysis to compare the costs of doing business in the City, such as property and business privilege taxes, including the parcel area-based fee, with the costs in alternative locations where businesses might consider relocating. Econsult presented the first phase of its work to the CAC as it related to the meeting 7 topic: stormwater incentives. The relocation analysis results were summarized: In most cases the impacts of the fee are moderate relative to other tax and operational costs. o Various mitigation measures may be able to reduce the impact of the fee on individual properties. The change in stormwater costs was not likely to change location decisions. o Some mobile industries (such as distribution centers) would be incentivized to move if lease reductions were not possible. Member Input and Opinions on Topic 8 General sense from committee: This was for informational purposes no specific input was requested. CAC members requested a copy of the final report. Other feedback: CAC members posed a number of questions to both Econsult and PWD regarding the study and its results: A CAC member asked how many parcels experienced an impact of more than $976 per year, which was the average increase. PWD stated that 19 of 20 parcel owners will see an increase of less than $3,000, and 1 in 20 will see an increase of greater than $3,000, under full transition to parcel area-based billing. Some 120 parcels will experience not only a significant percent increase (500%) but also a significant dollar increase ($25,000). These parcels comprise less than 0.2% of the total parcels in the City. PWD_CAC_Final_Report_15DEC11 V3 20

24 A CAC member asked if the Navy Yard was exempt from stormwater charge. Per PWD, the Navy Yard is charged. A CAC member asked if Econsult looked at wage tax as a part of costs and whether the CAC would be provided details of the analysis. Econsult did look at these and other costs and the final report will include these details. A CAC member asked if Econsult was able to quantify the overall cost to the City, due to the potential reduction in property values because of the stormwater charge impact. Econsult did quantify this cost and the magnitude is in the millions, rather than tens of millions of dollars. A CAC member asked if Econsult had compared the potential reduction in City property tax revenue versus the revenue increases to PWD. The change to parcel area-based charges does not result in a change in revenue to PWD. A CAC member pointed out that his property is significantly impacted (approximately$440,000 per year), for which he applied and received some property tax reductions. The member wanted to know the dollar amount of the incentives that are available. A CAC member asked if Econsult looked at the retail market differently from the industrial type business. Econsult stated that these business sectors were analyzed separately. A CAC member asked if the CAC could see the complete report. PWD stated that the report would be made available to the CAC. Topic 9: Incentives Questions discussed: Among possible incentives, which ones are the most attractive and would be the most effective? Issue Summary: Incentives are rewards, typically one time, which encourage property owners to support stormwater goals that will benefit all PWD ratepayers. Incentives differ from credits, which are typically ongoing reductions in a property s calculated stormwater fee for ongoing activities that reduce demand on the stormwater system or reduce PWD s cost of service. The goals PWD is supporting through incentives include: Reducing flow to combined sewers to meet the requirements of PWD s Green City, Clean Waters program (i.e., Long Term Control Plan Update). Increasing water quality treatment and reducing flow to improve and protect watershed health. PWD has implemented several incentive programs and currently plans to implement others. PWD is interested in implementing the most effective incentives program it can, using the pool of resources available for incentives. The CAC members were asked for their input and feedback to assist in crafting these programs. CAC members reviewed and rated three sets of incentives prior to the meeting and submitted worksheets with their ratings following the meeting. The sets of incentives were: current PWD incentives, planned incentives, and other incentive ideas (examples from other jurisdictions). During the meeting a subset of incentives was discussed and rated. Member Input and Opinions on Topic 9 General sense from committee: The CAC members were polled during the meeting on which incentives they would rank high, medium, and low. Then the consultant team applied a weighting system to the CAC scores. The scores indicated that the incentives most favored by the committee overall were developer incentives, such as transferable development rights and multi-year property tax credits, followed by a grant program and free assistance, all of which have the highest potential to decrease PWD_CAC_Final_Report_15DEC11 V3 21

25 project costs. During the final meeting, members reiterated that grants would be more effective than loans in incentivizing behavior. The CAC offered constructive feedback during the meeting about current and potential hurdles in incentives implementation, including rate fairness implications (why should some pay for others to get free money), administrative burdens, and wage/benefit requirements that accompany all money given by the City. A few wondered about the efficacy of implementing little used or insubstantial incentives. The CAC members provided written comments and ratings in addition to their feedback during the meeting. Table 8. CAC Perspectives on Incentives Status Type H M L WEIGHTED SCORE Other Transferable Development Rights Other Multi-year Property Tax Credit Planned Stormwater Retrofit Grant Program Current Free Assistance Program Other Floor Area Ratio/Density Bonus Current Stormwater Mgmt Incentive Program Loan Other Rebate Program Current Decreased Stormwater Plan Review Standards Other Reduction in Mandated Parking Planned Stormwater Pioneers Recognition Program Current Green Roof Tax Credit Current Fast Track Development Project Review Meeting 8 Topic 10: Credits Program Changes and Credits Eligibility Questions discussed: What suggestions do you have to improve and change the current credit program to make it more effective? How much of the user fee should PWD make available for credits? Issue Summary: Credits are reductions in a property s calculated stormwater fee for ongoing activities that reduce demand on the stormwater system or reduce PWD s cost of service. The current PWD credit program is intended to achieve the following objectives: Motivate property owners to implement and maintain functional Stormwater Management Practices (SMPs) to help the City meet its stormwater management goals. Provide property owners with the opportunity to reduce their monthly Stormwater Management Service (SWMS) Charge commensurate with on-site stormwater management. Three classes of credits are currently given: Impervious Area Stormwater Credit (IA Credit) Gross Area Stormwater Credit (GA Credit) National Pollutant Discharge Elimination System Permit Stormwater Credit (NPDES Credit) PWD_CAC_Final_Report_15DEC11 V3 22

26 Credits are currently only available to non-residential parcels with non-delinquent accounts, for up to 100% of the GA and IA charges, excluding the minimum monthly stormwater service and billing and collections charge. PWD posed several ideas for consideration by the CAC during the discussion of credit program improvements: Addition of a peak runoff credit, or credit component, that reflects PWD s program costs for peak runoff control and provides opportunity to property owners to obtain ongoing fee reductions for controlling peak runoff. Addition of other types of credits, such as education or infrastructure maintenance credits. The second discussion question centered on revisiting PWD s current policy of allowing 100% of GA and IA credit, less the monthly minimum charge. The current policy fully matches the current fee structure and furthers PWD s goal of strongly encouraging greening practices. However, logical arguments could be made to limit the amount of user fee available for crediting, in order to balance the greening goal with the revenue sufficiency and equity goals of ensuring all non-residential ratepayers contribute their fair share to meet all PWD cost requirements. These costs include general program costs, such as administration, planning, and education, that are more dependent on the numbers of accounts or parcels than impervious area. Some ideas proposed included: 1. Retain the current approach. 2. Set limits on credits on one of the following bases: a. Fixed costs for administration (other than billing and collections costs) should be reserved from credit. b. Some portion of fees should be reserved from credits, because ongoing creditable stormwater practices may not mitigate all stormwater impacts, and PWD will continue to bear these costs. c. Some portion of fees should be reserved from credits to account for shared impervious areas, such as streets. The idea is that the cost associated with streets should be borne equitably among all ratepayers, but as some ratepayers achieve full credit, the burden is shifted to the rest of the ratepayers, who are not eligible (e.g. residential properties) or cannot achieve credit via on-site mitigation. In the future, if private mitigation truly takes hold, the shared impervious area cost will need to be revisited, to assure that these costs are equitably apportioned. Member Input and Opinions on Topic 10 General sense from committee: 1. Credit Types. The CAC members strongly supported PWD pursuing peak flow credits and credits appropriate for retrofit projects, but opinions were divided on educational and other credits most felt like they were not important or could be handled another way. 2. Credit Capping. Many members support 100% credit (with conditions), a few supported a cap, and a couple suggested that more than 100% credit should be achievable under some circumstances, such as providing on site mitigation beyond the minimum criteria requirements. Members advised that credit should be linked as directly as possible to PWD costs and correlations between PWD cost reductions and credited activities should be drawn. That is, if the cost reductions PWD_CAC_Final_Report_15DEC11 V3 23

27 were as great as the credit, then 100% credit should be given. It was recognized that 100% credit furthers the greening goals acting as an incentive and that green infrastructure is less likely to be implemented without full credit. Members who supported caps were concerned about PWD s ability to recover its full stormwater costs under a 100% credit scenario, but one recognized the difficulties in implementing a reduced credit as it is a change from the current policy. Subsequent to this meeting PWD staff did an analysis of its own cost for greening acres and found it to be in excess of 100% of the IA charge. They tentatively concluded that a 100% credit might be appropriate. In addition, consultant staff performed analyses of landowner return on investment (ROI) for investments of various amounts per acre for green infrastructure, and they also concluded that, at a high credit amount, there was a positive ROI for investments, within the range of current green infrastructure cost estimates. Following the CAC Meeting, a CAC member posed the following questions regarding the credit program and potential capping of the fee: If all non-residential parcels took full advantage of the credit program and managed their contribution of stormwater such that they are only required to pay the minimum monthly charge, would there be enough money to cover the remaining costs of stormwater management in the city? If not, wouldn't that present some problems? With the development of the Philadelphia Water Department (PWD)'s plan to convert the meter based stormwater rates to parcel based stormwater fees and the establishment of our 2008 proposed stormwater rates, a policy decision was made to set the minimum charge for every non-residential parcel to equal the monthly charge of one residential unit. Given that a uniform charge was established for every residential parcel (even a row home), PWD did not want to create a situation in which a nonresidential property the size of a row home could end up with a monthly charge lower than that of a row home (i.e., PWD didn t believe that a low income customer or senior citizen should pay more for stormwater than a commercial establishment). To address this particular situation, a minimum charge was established using the residential rate. No other calculation was involved in the determination of the minimum charge in the last rate case. If all eligible non-residential properties completed mitigation projects, or otherwise configured their properties such that they were able to reduce their stormwater charge to the minimum, the end result would be that PWD would not generate stormwater revenues that were adequate to cover the capital and operating cost related to stormwater management. It should be noted that most, if not all, of the stormwater costs that PWD currently incurs would not be reduced proportionally, as non-residential properties complete credit eligible mitigation projects. The stormwater mitigation projects may reduce PWD's future cost of stormwater collection and treatment by substituting private investment in mitigation practices for public investment. Alternatively, such private mitigation practices may increase the amount of stormwater captured, than what PWD has committed to in the Long Term Control Plan. Because it is often cheaper to manage stormwater on private land versus the public right of way, PWD recognized that it could be economically advantageous to develop a credit program that would encourage private stormwater management practices. The larger public benefit gained through a credit/incentives program over the next 25 years justified, at the time of the 2008 rates process, a 100% credit program, while the minimum fee ensured that credited nonresidential properties continued to pay a fee representative of the average residential parcel. PWD_CAC_Final_Report_15DEC11 V3 24

28 Meeting 9 Topic 11: Credits Banking and Trading Questions discussed: Is there a banking or trading framework that appeals to you? Do you have ideas for other frameworks? Issue Summary: Throughout the CAC process, the idea of credits banking and trading was raised as an option that members wanted PWD to explore. CAC members were interested in credits banking and trading as a means of meeting rate relief, equity, and greening goals. Banking and trading programs have been used in wetlands mitigation, phosphorus and other nutrient trading, and stream restoration. Usually, these programs are used as a means for private development to meet regulatory and environmental goals. A credits bank for stormwater volume treatment is a new idea. Because banking and trading present numerous technical, legal, and administrative issues that have not been vetted, the CAC discussion focused on options for structuring such a program and touched on, but did not attempt to resolve implementation issues. The four main parties that would potentially be involved in these systems are as follows: 1. Client the property owner needing or wanting to meet volume requirements on one or more parcels. 2. Bank Sponsor an entity responsible for offering credits trading. 3. Long-term Owner the entity that holds fee title to the site where the offset is built or provided. 4. PWD a/k/a the Permitting Agency entity through which development/stormwater management is permitted. The framework options discussed were: 1. Individual private transactions between a Client and Long-term Owner, facilitated by PWD. 2. Private banking, certified by PWD 3. Fee-in-lieu of treatment option, made available by PWD, into which Clients would pay. PWD would construct improvements. Member Input and Opinions on Topic 11 General sense from committee: The CAC membership generally viewed Option 3 Fee in Lieu as the most viable in the short term, because it is relatively easier than the other options to get it up and running more quickly, though many members felt strongly that all options should be pursued eventually and some felt that all should be pursued simultaneously. A summary of the CAC polling on the topic is shown below: Table 9. CAC Perspectives on Prioritizing Efforts Around Credits Trading/Banking Which of these options seems most attractive/which should PWD start with? Option Description Results 1 Individual private transactions facilitated by PWD 4 2 Private Banking 1 3 Fee In Lieu 7/2* 4 Explore all options at once 2 *Two members of the CAC felt strongly when weighing-in and stated that concentrating on the Fee in Lieu approach should not preclude other options PWD_CAC_Final_Report_15DEC11 V3 25

29 Topic 12: Credits Grandfathering Questions discussed: Is there a credits grandfathering option that appeals to you? Do you have other options or ideas? Issue Summary: For the CAC discussion, grandfathering was defined as to fully exempt from new credit regulations or to offer special considerations to someone already involved in an activity. As a result of potential credit program changes, some properties that were not eligible for credit before may be eligible under a new system, while some current credit holder properties may not be eligible for as much credit as they were prior to the change or for any credit at all. The CAC was asked to consider, if changes were made to the current credit system, what would that change mean for a credit holder that obtained a 100% IA credit during the last year and a half? From a timing standpoint, three possibilities were presented to the CAC that span the horizon: Immediate Change: The credit holder will immediately lose the credit obtained under the previous requirements on the GA/IA charges, once a revised credit program is adopted, and receive the appropriate credit under the revised criteria. Slow Transition: The credit holder will slowly transition away from the credit, under the same transition plan used for phasing-in and capping, while moving to the revised credit criteria. Grandfathered In No Change: The credit holder will retain the existing level of credits forever, even though the property is no longer eligible for the existing level of credits or for any credits at all under a revised credit program. For context, the CAC was reminded of changes to the current credit regulation and policy that were under consideration at the time of the meeting based on previous input provided by the CAC. These changes included adjustments to direct discharger policy, the addition of a peak flow credit, and modification to the existing GA credit methodology. The CAC was presented with the following options on how changes might be addressed: 1. Cap annual change similar to other capping methodology (i.e., $100 and 10% increase). 2. Grandfather until credit renewal credits are renewed every 4 years implement the change on renewal then properties eligibility would be determined under the revised regulations. 3. Grandfather those who made voluntary, structural investments (retrofits) to facilitate the realization of the return on investment expected under the original credit scenario. PWD_CAC_Final_Report_15DEC11 V3 26

30 Member Input and Opinions on Topic 12 General sense from committee: The CAC generally felt that it was important to recognize the investments made for structural controls, both as a result of development and for credit-designed retrofits, and that it was important that property owners keep the credit, as long as they maintained the SMP constructed to receive the credit. Many CAC members thought a credit should be maintainable forever. Some members of the CAC suggested that any grandfathering policy be aligned with the City s LTCP, which is to be implemented over a 25-year period. Others stated that the credit should be kept in place until the payback period of the structure was reached probably on the order of twenty years, but not forever. One member of the CAC declined to weigh in on the options presented without having additional information on both the potential impact to current credit holders and the impact to the overall customer base, under the various grandfathering policy scenarios. A summary of the CAC s weigh in is provided in the table below: Table 10. CAC Perspectives on Credits Grandfathering Credits Grandfathering Summary Option Description Results* 1 Grandfather forever 9 2 Grandfather until next reapplication/renewal 1 3 Grandfather structural controls built for that purposed only (retrofits) 1 4 Grandfather for the payback period 4 *A member of the CAC abstained from weighing-in. Other feedback: During the discussion, the CAC provided additional feedback on the ideas, issues and potential options surrounding grandfathering. The following items were discussed: It was noted that credits must be renewed every four years, which allows PWD to verify operation and maintenance of the system. Renewal requirements are advertised and credit holders are informed of the expiration on issuance of credit. It was suggested that, to ensure return on investment (ROI) associated with the SMP construction, both rates and credits could be locked in at the time of construction. CAC members noted the importance of SMP maintenance. Some members felt strongly that verification of conformance with operation and maintenance plans should be required for a property to be considered for both grandfathering and/or renewal. A CAC member, representing the United Business Owners Association of Philadelphia (UBOAP) who asked to go on record, felt that they had not been grandfathered as it applies to stormwater. His own property is subject to both large taxes and stormwater fees. A CAC member suggested aligning the grandfathering period with the long-term control plan which is to be implemented over 25 years. A CAC member felt there was confusion amongst the group in regard to the scope of the grandfathering discussion. He felt that some members had a broader interpretation and were discussing grandfathering, in regards to any future changes or adjustments in the stormwater fee and credits program, versus modifications to current crediting criteria that might result from recommendations of the current CAC. It was noted that the grandfathering discussion is focused on changes to the current credit program and not future adjustments. However, it was PWD_CAC_Final_Report_15DEC11 V3 27

31 noted that the impact of future program changes on future private investments is a concern of both the CAC and PWD. Some CAC members expressed opinions and views in relation to grandfathering in terms of the previous rate case that is, not charging properties under the current parcel area-based fee but instead maintaining the previous meter-based fee. PWD and the consultant team restated that the grandfathering discussion was solely focused on changes to the current credit program criteria and not the transition from equivalent meter-based charges to the parcel area-based fee, which the previous CAC addressed. The current CAC had previously discussed extended phase-in and capping on annual incremental increases to ease the transition for the most highly impacted customers. A CAC member abstained from weighing-in as she wished to have a better understanding of what the possible impacts were to both credit holders and all rate payers as a result of changes to the credits system. A CAC member noted that the consensus seems to indicate that 100% credit would be important to incentivize retrofits. Another CAC member felt that the change to ROI expectations, from capping credits from say 100% to 90%, would likely be minimal. Meeting 10 Topic 13: Review of Draft Report Questions discussed: In the final report, was the CAC s input documented fairly and effectively? If not, how specifically could it be improved? Issue Summary: Throughout the CAC process, the charge to the CAC was stressed at the beginning of every meeting. The overall goal of the process was, as stated, To provide advisory opinions to PWD on topics related to rate structure, stormwater credits and incentives, and special ratepayer situations to be considered as a part of the Department s 2012 rate case. As the report would serve as an input into the upcoming rate case, the CAC members were given a copy of the initial draft and asked to provide feedback during the final meeting. The goal of this exercise was to help further refine the final version of the report and to better provide the CAC with a voice which reflected both their individual and summary opinions, including both convergent and divergent views on the various topics, covered throughout the meeting process. Member Input and Opinions on Topic 13 General sense from committee: The majority of the CAC membership felt the report was well written and viewed the report as a good representation of both the topics covered as well as the overall discussions held with the CAC. Several members felt that the Summary and Conclusions section of the report could be given more weight and moved to the front of report to provide more emphasis on the changes suggested by the CAC and those being considered by the PWD. In addition, members of the CAC thought it was important to note that they had not reviewed the summary of the overall impacts their suggestions might have. This was largely due to the CAC process, which had been structured to primarily review topics on an individual basis and not in aggregate. Additionally, the amount of information available to the CAC was limited by the upcoming rates process PWD_CAC_Final_Report_15DEC11 V3 28

32 and ongoing work by PWD s rate consultant, Black and Veatch, which wasn t complete and therefore not available to the CAC at the time of the meetings. Some members felt that they should have been provided with additional information and specifics on the proposed changes to the stormwater fee, revenue requirements, and credits systems. (PWD noted that the CAC would be informed and provided additional information on proposed changes and their impacts throughout the rates process, as this information becomes available). The following list summarizes the requested revisions to the draft CAC report suggested by the membership: Further stress the potential negative impacts from the current stormwater fee structure. Recognize importance of the transfer of credits from one property owner to the next, allowing for SMPs to positively impact property values. Provide grants to help incentivize retrofits. Emphasize when the CAC reached consensus. Emphasize the summary and conclusions section of the report /reorganize the report. Note suggested special Water Quality Credits unique to Direct Dischargers (e.g. Riparian Buffer credits). Confirm reallocation is based upon sound science. Confirm the proposed cap threshold is correct and balances the costs and benefits. Detail the cascading impacts in the report appendix. Note residential properties were treated as second class citizens during the process many of the changes suggested by the CAC won t be extended to residential properties. Note that the report is built upon topics which were presented to the CAC in a piecemeal fashion, and their corresponding suggestions/opinions don t necessarily consider the total impact of their decisions on customers. Recommend more study around costs / an audit of PWD s costs and budget. Consider how the report is to be used Summary for the CAC versus use in the upcoming rate case. Note that these are preliminary recommendations. Note the symbiotic relationship between businesses throughout the City and with the City itself. Provide additional details on suggested revisions to the credit structure. Topic 14: Most Important Topic/Issue Questions discussed: Out of all the issues/topics what is most important to you? Issue Summary: As with the previous topic, PWD wished to emphasize the CAC s voice in the upcoming rate case. The CAC was asked, of those issues/topics discussed throughout the process, which were most important to the both them as individuals, as well as for the groups that they represented throughout the City. As presented to the CAC, the following themes had emerged throughout the course of the CAC meetings, and that these were informing/influencing PWD s decisions leading into the upcoming rate case. Gradualism: the more impact, the greater amount of time needed for a transition. Predictability: consistency in policies is key. Obligations: changes should enhance, not detract, from regulatory and service requirements. Strong nexus: among rates, rate structure and cost. Decisions: sound science and technical rigor. PWD_CAC_Final_Report_15DEC11 V3 29

33 The PWD asked the CAC to further help them prioritize the changes currently being considered by providing input on what they felt were the most important topics and issues based on their discussion, after having the opportunity to reflect on the CAC process. Member Input and Opinions on Topic 14 General sense from committee: The committee provided feedback which generally reiterated the themes and areas of agreement that became clear during the CAC process. The item with the most votes was reallocation based on sound science. However, this item, unlike any other in the list, had two opponents. The main objections to the reallocation were voiced by members of the CAC who noted that impacts to residential customers was a concern, as they were under represented in the process and had the potential to be negatively impacted. The second most votes went to capping to extend phase in for most impacted customers. The third most votes tied among three items: ensure cost causation and ensure technical rigor, which were themes throughout the process and relate to reallocation in particular but also to other possible changes and fee-in-lieu, trading, or banking program. Priorities that got fewer votes were: grants (2 votes), and loans, incentives for on -site management, and don t create disincentives [to stormwater management] through other policies. Each of the last four items received one vote each. A summary of the most important topics for the CAC is provided in the following table: Table 11. CAC Most Important Topics What is most important to you? Topic/Issue In Favor Not In Favor Reallocation 6 2 Capping 4 Grants 2 Fee in lieu/trading/banking 3 Incentives for on-site Management 1 Don t create disincentives through other policies 1 Ensure cost causation basis 3 Use technical rigor 3 Loans 1 Summary and Conclusions The implementation of the revised GA/IA-based rate structure for the stormwater management fee is still relatively new, as PWD is in the second year of a currently planned 4-year transition. PWD recognized the impacts to customers, resulting from the transition, and they convened the CAC to examine potential changes to the parcel area-based stormwater rate structure and related programs, in preparation for the upcoming rate case (FY ). The Department s goal was to gain insights and opinions from an engaged customer group. The group s charge was as follows: PWD_CAC_Final_Report_15DEC11 V3 30

34 Themes To provide advisory opinions to PWD on topics related to rate structure, stormwater credits and incentives, and special ratepayer situations to be considered as a part of the Department s 2012 rate case. Over the course of the CAC meetings some strong themes emerged, transcending individual topics: Gradualism: Some of the most impacted customers, with both increased and decreased bills, were represented in the group. These customers, who sometimes held divergent views, as well as members representing City departments, recognized that changes in stormwater rate structure and credit program policies need to be made in a way that allows highly impacted customers time for transitioning to the higher stormwater charges, as well as allowing property owners and business time to adjust to the new fee structure. This theme was reflected in the discussions on reallocation, phase-in and caps, changes to direct discharger credits, and changes to the credits program. Predictability: From an economic and business perspective, members holding different viewpoints were interested in consistency and predictability with regard to fees and credits. For example, when it came to changes to the credits program, many felt investments made by credit holders to build stormwater infrastructure on their properties should be recognized into the future and at a minimum over the life of the investment. PWD s obligations must be met: In discussions that involved policy decisions that would have an impact upon revenue, members pointed out that PWD should make changes that would further rather than detract from its ability to meet its regulatory and service provision obligations. One illustrative example is PWD s obligation under the Green City, Clean Waters program. During the discussions, held during meeting 8, on the portion of fees eligible for credits, some were concerned that revenue sufficiency would be threatened by continuing to allow 100% credit of the parcel area-based portion of the monthly fee. On the other hand, some recognized that one of the means of meeting the Green City, Clean Waters Program obligations is through the installation of private infrastructure, and that private infrastructure investment would be difficult to incentivize without the availability of substantial credit. Stronger nexus among rates, rate structure and cost causation are desirable: The CAC members were interested in and learned about PWD s cost allocation methodology and cost drivers. When the group discussed topics, such as the gross area charge and its link with runoff characteristics, credits and credit eligibility, and cost allocation to stormwater, the members were clear that policy decisions should reflect PWD s costs and the impact that ratepayer activities have upon these costs. Decisions must be based upon good science and be technically rigorous: CAC members were especially interested in exercising technical rigor and due diligence in performing the cost allocation analysis, one of the fundamental topics addressed in the CAC sessions. This theme was emphasized during discussions on a number of other topics. Although areas of agreement and common themes and concerns were expressed during the meetings, members sometimes emphatically disagreed on points throughout the process and continue to hold diverging views in many areas. For example, while some members desired generous incentive programs, others questioned whether the rate base should bear the additional burden of incentive programs. Likewise, in the discussion on phase-ins and caps, some members wanted the most beneficial program for highly impacted properties, while others felt that an aggressive program that only helped a small number of the total parcels imposed an unfair burden on all other ratepayers. PWD_CAC_Final_Report_15DEC11 V3 31

35 Disagreements like these are natural within a diverse group and emphasize the need for balance and gradualism in any changes that may be proposed by PWD in the next or future rate cases. As the consultant team said frequently during the process, the sum of the potential changes is revenue neutral. In the most immediate sense, when some people pay less others would have to pay more, to ensure overall revenue sufficiency for the stormwater program. In the long run though, when costs are recovered in a fair and equitable manner, which also allows PWD to meet its obligations and environmental goals, all customers benefit. As the parcel area-based fee is fully implemented and PWD emerges from the transition period, the Department will continue to align costs, rate structure, credits and incentive programs and the rates as necessary to maintain fairness and equity among and within customer classes, and to provide for adequate cost recovery. Some of the potential program and policy changes discussed with the CAC that had the most potential for short term implementation have been modeled as a part of this report and are described in the final section below. Summary of Potential Impacts on Customers During the CAC process, PWD and the consultant team provided data and descriptions of impacts on ratepayers, due to individual changes to the rate structure or due to changes in PWD s current programs and policies. The CAC wished to see the cumulative effects of potential changes. Therefore, the PWD and consultant team modeled some of the key rate structure, policy, and program changes to evaluate the cumulative effect of these changes on future rates. It must be noted that the percentages used for these projections were best estimates available at the time of this report, and they will be vetted further during the upcoming rate process. In addition, the potential options below are those being considered by PWD currently. PWD is not precluded from considering other options in the future, as stormwater policies and programs progress. The current potential changes are as follows: Reallocation of costs from stormwater utility to sanitary sewer of approximately $17 million of FY 2012 costs to sanitary sewer, in accordance with the data and engineering drivers described in Handout 10. Changes to direct dischargers crediting policy, so that direct dischargers on the Delaware and Schuylkill, that have not installed specific on-site stormwater management practices, only retain a credit for peak flow control. Capping of stormwater service charge increases to no more than 10% and $100 from one fiscal year to the next, which result from the parcel area-based transition or because of other policy changes to the credit structure, and are not related to an annual rate increase. Implementation of one or more of the options described during the incentives meeting after the approximate expected cost of each incentive program has been reviewed and studied. Restructuring of the credit criteria to address volume control, peak discharge reduction, and water quality factors, balanced by decreases in credits under the direct dischargers credit program change. A summary of each potential change is provided on the following pages. Stormwater Cost Reallocation The existing cost of service allocation methodology was reviewed as part of the periodic cost of service analysis and in light of customer concerns, as expressed by CAC members. Based on the analysis PWD_CAC_Final_Report_15DEC11 V3 32

36 performed by the rate consultant, a reallocation of approximately 14% of wastewater costs from stormwater to sanitary sewer is estimated to be necessary. This reallocation would better align stormwater revenue requirements with the appropriate cost causation. This reallocation has the added benefit of mitigating the impacts of transitioning from meter-based to parcel area-based stormwater charge for most customers. However, ratepayers with small parcel area and high water usage will be adversely impacted by the reallocation. Example of Parcel Impacted with a Higher Fee: Our first example is a relatively small parcel with a high water usage. Under the existing cost allocation methodology, this parcel is to transition from a meterbased charge of $9,500 in FY 2010 to a parcel area-based charge of $200 in However, the reallocation from stormwater to sanitary sewer that is being considered will likely result in the parcel having an overall higher stormwater and sanitary sewer charge of $3,000, due to the parcel s high water usage. This parcel is adversely impacted by the reallocation, and would end up paying a very similar fee to what it is paying right now in Example of Positively Impacted Parcel: On the other hand, is an example of a large parcel with little to no water usage. Under the existing cost allocation methodology, this parcel is to transition from a meter-based charge of $11 in FY 2010 to a parcel area-based charge of $2,000 in Reallocation will likely result in the parcel having an overall lower fee of $1,700, because of its limited water usage. The revenue requirements for stormwater and sanitary sewer before and after reallocation are provided below. Please note that, before any cost reallocation, the FY 2012 stormwater revenue requirement is $125.6 million, while the FY 2011 stormwater revenue requirement is $124.7 million. This increase of nearly $0.9 million between FY 2011 and FY 2012 is the result of normal increase in annual stormwater revenue requirements, net of stormwater s proportionate share of miscellaneous revenues, including withdrawals from the rate stabilization fund. Table 12. Revenue Requirements Pre- and Post-Reallocation FY 2012 Revenue Requirements Existing Allocation After Reallocation Difference IA GA Related Costs Billing & Collection Costs Stormwater Costs (16.7) Sanitary Sewer Costs Total Wastewater Costs Direct Discharger Policy Revisions The revision to the direct discharger credit policy currently being considered has the potential to cause fee increases for all of the current direct dischargers. Current direct dischargers who have applied for PWD_CAC_Final_Report_15DEC11 V3 33

37 credits have been given 100% impervious area credit in most cases. As the impervious area component of the parcel charge is significantly larger than the gross area component, any reduction in the maximum IA credit offered will adversely impact the direct dischargers. Potential Overall Changes to Credits and Direct Discharger Credit Partially in response to CAC members input on aligning program elements with costs, PWD is likely to make several revisions to the credits program. These revisions also align with the CAC opinions on direct dischargers policy. Creditable activities will be aligned under the IA and GA credits, with the program cost and program cost percentages that these activities affect. These changes will better correlate activities which property owners can undertake, which in the long-term, have the potential to reduce PWD s cost obligations and service requirements. The majority of these costs and services are associated with meeting water quality, peak runoff, and runoff volume requirements, set forth by the State and Federal governments. Preliminary study by the Department s rate consultant indicates that the proportion of stormwater program costs attributable to these elements is: 35% of costs to water quality, 40% of costs to peak runoff control, and 25% of costs to runoff volume. The IA and GA credits themselves will be maintained. Thus, for example, treatment of the first inch of runoff from impervious area will continue to be an impervious area credit, and, because treatment of the first inch benefits both water quality and volume of runoff, it would be eligible for 60% credit (water quality at 35% and runoff volume at 25%). It is imagined by PWD Staff and the consultant team that current IA credit will now be extended to apply to the charges for both the impervious area treated and the gross area that intersects that impervious area, that is, the gross area that underlies the treated impervious area. These two areas are currently treated separately. Gross area credits on the other hand likely will now apply only to nonimpervious GA (GA that does not underlie or intersect with IA) or Gross Area Open Space. Impacts upon direct dischargers were analyzed under this likely approach. It was assumed that direct dischargers on the Delaware and Schuylkill do not impact PWD costs for peak or volume of runoff, because PWD does not currently incur significant costs for riverine flooding program elements on these two unique water bodies, as discussed in the CAC meetings. This would mean that a DD would be eligible for 65% credit (peak runoff at 40% and runoff volume at 25%) for its treated IA and for the GA underlying the IA in the parcel. Unless a parcel is also eligible for water quality credit, a parcel with current direct discharger credit will generally have to pay more than it did previously. It should be noted that PWD is still under obligations to meet water quality related requirements for both the Delaware and Schuylkill. However, water quality creditable activities, such as riparian buffer credits, that would be unique to DD properties, are currently being considered by PWD. In addition, the current NPDES credit would remain in place. An example of a parcel that is currently a direct discharger is parcel # owned by the City of Philadelphia. This parcel currently receives 4,617,360 square feet of impervious area credit, resulting in a current charge of $5,200. Under the new direct discharger policy they will be paying approximately $14,000. Parcels that are currently receiving a direct discharger credit and are not directly discharging to the Delaware or Schuylkill rivers will certainly have a significant increase in their monthly stormwater fee. These properties will go from having significant impervious area credits to having no direct discharger credits, if the credit program were to be revised. An example parcel that is currently receiving a direct discharger IA credit and would be adversely impacted currently receives 5,570,429 square feet of impervious area credit, resulting in a current charge of $7,400. Under the new direct discharger policy they will be paying approximately $46,000. PWD_CAC_Final_Report_15DEC11 V3 34

38 A mitigating factor is that, many existing direct dischargers who will not qualify for any impervious credit, under the proposed approach, may ultimately qualify for other credits. Also, some parcels will, however, have the opportunity to be awarded the direct discharger credit, even though they are not currently receiving it. The 65% impervious area and 65% of gross area under impervious area credit will certainly reduce the fees associated with these parcels. An example parcel that is not currently receiving any credits but that could, if the credit program were to be revised, currently receives no credit. However, this parcel could receive approximately 2,202,010 square feet of impervious area credit and 2,202,010 square feet of gross area credit. These credits will reduce this parcel s monthly fee by $20,500. The scope of the impact due to changes to the direct discharger policy revision follows: Table 13. Summary of Direct Dischargers Impact Current Direct Discharger Possible Direct Discharger Based upon Revised Policy Number of Parcels Yes No 21 Yes Yes 28 No Yes 261 Impact Higher charges Higher charges Lower charges Note These properties could lose the existing credits Many of these parcels are reduced from 100% IA Credit to 65% IA and 65% GA Credit Parcels will only be helped if they apply for the credit It is difficult to quantify the aggregate impact of this policy revision on the subset of parcels that would be considered direct dischargers, as it is hard to say who would apply for the credit and who would not. It can be suggested, however, that if all of the possible direct discharger properties on the Delaware and Schuylkill were awarded credit under the new policy, that this program would require approximately $2 million more in funds than what PWD is currently awarding to direct dischargers. Caps Stormwater fee caps for non-residential parcels may turn out to be a costly program for PWD, but it will greatly benefit those property owners most negatively impacted by the transition to a parcel area-based charge and by other changes to the stormwater credits program. It is estimated that approximately 2,000 properties will meet the requirements to be awarded a cap under the 10% and $100 increase threshold, if the revised direct discharger policies and changes to stormwater credit program were to be implemented. These parcels would cause a revenue shortfall of approximately $10 million, under full transition to parcel area-based charge. This equates to an average rate relief of $5,000 per capped parcel per year, though this will vary significantly across the capped parcels. It will be nearly impossible for small ratepayers (i.e. less than ½ acre lot size) to qualify, as only small parcels greatly affected by reallocation will see an increase in fees sufficient to warrant a cap. The maximum rate relief cost impact will occur in the first year of the full transition to parcel area-based charge. The cost impact due to capping will gradually decrease in the subsequent years. PWD_CAC_Final_Report_15DEC11 V3 35

39 Incentives and Credits The current and soon to be implemented PWD nonresidential incentive programs, which were discussed during the CAC process, total approximately $10 million. The cost of the incentive programs will be borne solely by nonresidential ratepayers. Other incentive programs that were favored by the CAC will be investigated by PWD in the future and their costs have not yet been quantified. The most significant change to the credits program is the credit changes to the direct dischargers, as presented in Table 11 above. PWD is currently awarding $4.5 million in credits, in addition to the direct discharger policy, and this number is expected to increase slowly over time. Credit impacts are difficult to model at this time as it is hard to quantify who would be eligible and who would apply. The Dow Jones An exhibit showing how the Dow Jones parcels are affected by the policies envisioned in the current rate case is presented in Table 15. This table presents calculations using billing data from October, 2011 and has been updated to use FY 2012 rates. As the policies are applied, parcels that benefit are highlighted in green, while parcels that are negatively impacted are highlighted in orange. In the final column, showing those parcels that could benefit from a cap, those parcels that would qualify are shown in blue. Most Dow Jones members are helped significantly by reallocation, with 21 parcels seeing a reduction in fees and five seeing an increase. This fact may reveal some selection bias in the Dow Jones parcels, as they generally represent ratepayers that were previously negatively impacted by the shift to parcel area-based fees. Only one of the 26 parcels of the Dow Jones would be helped by the revised direct discharger policy. This parcel will be negatively impacted by reallocation, so the revision to the direct discharger policy may mitigate that change, to some degree. An example of a parcel that loses credit under a revised direct discharger policy has also been included. Of the 26 Dow Jones parcels, 13 will qualify for caps. The assistance that they receive through caps will help to slowly transition these parcels to higher fees, so the impacts from policy revisions will be mitigated, until the new fee is reached. After all of the revised policies are applied, nearly all of the Dow Jones parcels will see an improvement in their fees, when compared with the full phased in parcel area-based charge. However, this improvement will be tempered when, under the current rate study, the revenue reductions or impacts of the various policies must be applied back to the GA/IA rates, which will raise the overall rates. Summary The incremental impacts of the three currently envisioned changes are presented below. Table 14. Summary of Impacts of Envisioned Stormwater Fee Changes Reallocation Stormwater GA/IA Revenue Requirement Change Annual Cost Impact of Direct Discharger Billing Reductions Annual Cost Impact of Capping-related Billing Reductions $12.9 Million $2.0 Million $10.0 Million It should be noted that the latter two figures represent reductions in billings that will need to be translated to revenue impacts during the upcoming rate case. It is likely that the revised rates will be impacted by the figures presented in Table 12, but these policies will go a long way to reduce the burden of some of the most aggrieved parcels under the parcel area-based fees. PWD_CAC_Final_Report_15DEC11 V3 36

40 Table 15. The "Dow Jones" Summary of Impacts PWD_CAC_Final_Report_15DEC11 V3 37