Rates, Rates, and More Rates

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1 Rates, Rates, and More Rates Jeff Hughes David Tucker February 10-11, 2016 Chapel Hill, NC

2 TOPICS - Headline stories? - Summary of rates and rate trends in N.C. - Rate increases, etc. - Dashboard Preview - Rate Design - Revenue stability (show new dial here) - Tiers, minimum charges - Other Resources - General Slide - New KPI Tool

3 Headlines?

7 What is biggest challenge to setting rates in your utility? 1. Falling consumption trends/ difficulty with projections 2. Governing board s unwillingness to raise rates 3. Communities ability to pay more for water and wastewater service 4. Pressure to keep rates comparable to other water utilities 5. Rising cost of other governmental taxes and fees 6. Other? 10% 32% 29% 26% 3% 0%

8 What is biggest challenge to setting rates in your utility (2015 Participants)? 29% 1. Falling consumption trends/ difficulty with projections 2. Governing board s unwillingness to raise rates 3. Communities ability to pay more for water and wastewater service 4. Pressure to keep rates comparable to other water utilities 5. Rising cost of other governmental taxes and fees 6. Other? 24% 24% 14% 5% 5%

9 How satisfied are you with the rates you have today? 1. Not at all need an overhaul 2. Not very they need a lot of work 3. Somewhat tweaks needed 4. Very no changes needed 52% 27% 12% 9%

10 How satisfied are you with the rates you have today (2015 Participants)? 1. Not at all need an overhaul 2. Not very they need a lot of work 3. Somewhat tweaks needed 67% 13% 10% 10% 4. Very no changes needed

11 State of Rates 2016

412 utilities included (79%). Free, online information to be released by late Feb.

12 Annual NC Water and Wastewater Rates Survey NC League of Municipalities Environmental Finance Center at the School of Government Collaboration since survey in progress. 412 utilities included (79%). Free, online information to be released by late Feb. or early March 2016: tables, summary report, Rates Dashboard, rate sheets at and

13 Factual Report and Data Tables Find it in Programs / Drinking Water Or

14 Which Rates are Studied? January 2016 rates for 412 utilities across NC Rates for water, irrigation, and wastewater services Rates for residential and for non-residential (small commercial) customers Rates for inside and outside customers Including base charges and allowances

15 Preliminary 2016* by the Numbers (Based on data submitted as of 2/8/16) Operating revenues collected by governmental utilities (FY 2015) Highest (FY 2014) Lowest with active water utility (FY 2015) Median charged by NC utility (January 2016 rates) Average number of blocks (in 2015) 4 Median multiplier for out-of-city rates (Among 83% percent of municipalities) (in 2015) Percent of utilities that raised rates (out of 299 water & 249 sewer rate structures since last year) Median increase for those that increased bills (at 5,000 gallons/month) >$2.6 billion $341 million (Charlotte Water) $34,804 (Sandyfield) $31.02 Water $38.05 Sewer $68.74 Combined 1.84x Water 1.92x Sewer 45% Water 44% Sewer 5.7% Water 5.4% Sewer

16 Preliminary 2016* by the Numbers (Based on data submitted as of 2/8/16) Highest rate per 1,000 gallons at 5,000 gallons/month Median base charge Highest base charge $12.66 Water $20.35 Sewer $14.31 Water $15.31 Sewer $30.00 Combined $40.00 Water $78.08 Sewer $ Combined Lowest non-zero base charge $3.07 Water $1.95 Sewer $3.77 Combined Median percentage of customer bill due to base charge at 5,000 46% Water 40% Sewer

17 Do Water and Wastewater Rates Cover System Costs? n = 436 (FY 2015)

18 FY 2016 Rates and FY 2015 Operating Ratios

19 Rates Dashboards Interactive tool to compare water & sewer rates (bills) among all utilities, or utilities with similar characteristics: System size (number of accounts or revenues) Technology (water source type or river basin) Location (regional council, 25 / 50 / 100 miles) Same rate structure (uniform, incr. block, etc.) Demographics (median household income) County economic development tiers Available online at

21 Advanced Technology Features Much faster load and response times Access it on tablets (e.g. ipad) Type in your utility's name to select Click on and select any utility on the map Edit your utility's data (temporarily / locally) View your rates at 500 gallon/month increments Simulate raising rates up to 100%

22 Rates Dashboard Demo

23 New Revenue Stability Dial (still under development)

27 Design and Strategy Issues How often and how much to raise? To tier or not to tier Big base or little base Customer classes Use of outside rates

28 Anticipated Rate Increase Request for Next Year 1. No change 2. 0 to 2.99% 3. 3 to to or above 19% 41% 41% 0% 0%

29 Anticipated Rate Increase Request for Next Year (2015 Participants) 1. No change 2. 0 to 2.99% 25% 29% 36% 3. 3 to to or above 7% 4%

30 Changes in Rates Since Last Year Median increase to monthly bill for 5,000 gallons: $1.72 water, $1.88 sewer Half of the rate increases were for more than 5.7% (water) and More than 5.4% (wastewater)

31 When did you last increase your rates? (January 2015 rates) 49% increased rates last year 62% changed rates within the past 2 years Only 11% of rate structures have not changed since total rate structures Source: 2015 NCLM/EFC North Carolina Water & Wastewater Rates Survey Report

32 Utilities that Raise Rates Frequently Have Lower Rate Increases Each Time Average rate adjustment by frequency of raising rates Reported in Defining a Resilient Business Model for Water Utilities, Water Research Foundation Report #4366.

33 But they Also Accumulate Greater Rate Increases in the Long-Run Average 5-year cumulative rate increase by frequency of rate adjustments Reported in Defining a Resilient Business Model for Water Utilities, Water Research Foundation Report #4366.

34 Increases to the 5,000 Gallons/ Month Water Bill by Utilities that Raised Rates out of the Same 196 Utilities Source: 2015 NCLM/EFC North Carolina Water & Wastewater Rates Survey Report

35 Residential Rate Structures Water (2015 rates) Wastewater Rate structures applicable to residential customers for consumption up to 15,000 gallons/month only Source: 2015 NCLM/EFC North Carolina Water & Wastewater Rates Survey Report

36 Median Monthly Water Charge at Different Levels of Consumption for the Same 196 Utilities Source: 2015 NCLM/EFC North Carolina Water & Wastewater Rates Survey Report

37 What happens at your utility when customers reduce their use from 10,000 to 5,000 gallons/ month? (January 2015 rates) 287 Uniform Rates 161 Increasing Block Rates 38 Decreasing Block Rates Source: 2015 NCLM/EFC North Carolina Water & Wastewater Rates Survey Report

38 Pricing Different Services 31% use separate rate structures for non-residential customers 19% use separate rate structure for residential irrigation water

39 Base Charges Median combined: $30.00 Low Bills for Low Consumption Amount vs. Revenue Stability

40 Inside/Outside Billing (2015 rates) ~62% of utilities (83% of municipalities) have different outside rates Median differential: 1.84 water, 1.92 sewer Median combined bill for 5,000 gallons: Inside $73.82 Outside $ Source: 2015 NCLM/EFC North Carolina Water & Wastewater Rates Survey Report

41 NC Rate Setting Resources Call the EFC / SOG Guide to Billing and Collecting Public Enterprise Utility Fees for Water, Wastewater, and Solid Waste Services (by Kara Millonzi, SOG) NC Rates Dashboard (EFC web) Do-it-yourself Excel tools for rate scenarios and capital planning (EFC web) Designing Rate Structures that Support Your Objectives guide (EFC web) 2010 NCLM/EFC Financial Practices & Policies Survey (EFC web) Other EFC web resources (blog posts, data, guidelines/reports, tools) at LGC Fiscal Analysis Dashboard Painful Art of Rate Setting article in Popular Government AWWA M1 Manual, EPA Rate Setting workbooks, etc. Rural Water Association, Consultants, etc. EFC s blog:

Webpage on NC Rates (with report, tables, Dashboards, more) http://efc.sog.unc.

42 Webpage on NC Rates (with report, tables, Dashboards, more) Find it in Programs / Drinking Water The 2016 Rates Dashboard, report, and tables will be posted by late Feb. or early March 2016 on the EFC website, and an will be sent to utility managers, finance directors and town clerks / administrators.

43 Subscribe to Keep Up-to-Date with the Environmental Finance Blog Examples of relevant blog posts: Declining demands in NC Increasing rates in NC Operating ratios in NC Water debt in NC What s wrong with %MHI Financial strategies And much more!

44 SMART MANAGEMENT FOR SMALL WATER SYSTEMS PROJECT c

Rates, Rates and More Rates

Rates, Rates and More Rates Jeff Hughes David Tucker February 5-6, 2013 Chapel Hill, NC www.efc.unc.edu Session Objectives 1. Provide update on state of rates 2. Provide strategies for dealing with rate