Can a Water Rate Structure Really Promote Conservation by fsd65350

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									     U.S. Conference of Mayors
        Urban Water Council




 Can a Water Rate Structure
Really Promote Conservation?


      October 21-22, 2004
      Jeffrey Clunie
                  Background

   Conservation-oriented rates are rates
    that provide an incentive price signal to
    wisely use water
   Why adopt conservation rates?
       To promote efficient use of a limited resource
       To recognize that future sources of water are
        more expensive than past sources of water
   Conservation rates are increasingly
    prevalent across the country
     Water rate structures
                            $3.00
                            $2.50




            Rate ($/kgal)
                            $2.00

Declining                   $1.50
                            $1.00
 Block                      $0.50
                            $0.00
                                    1   4     7   10   13   16   19   22   25   28

                                             Usage (thousand gallons per month)


                            $3.00
            Rate ($/kgal)   $2.50
                            $2.00

Uniform                     $1.50
                            $1.00
 Block                      $0.50
                            $0.00
                                    1 3 5 7 9 11 13 15 17 19 21 23 25 27 29

                                            Usage (thousand gallons per month)
      Water rate structures
                                 $3.00
                                 $2.50




            Rate ($/kgal)
                                 $2.00

Inverted                         $1.50
                                 $1.00
  Block                          $0.50
                                 $0.00
                                         1 3 5 7 9 11 13 15 17 19 21 23 25 27 29
                                              Usage (thousand gallons per month)



                                 $3.00
           Rate ($/thou. gal.)                                             Summer Rate
                                 $2.50
                                 $2.00
                                 $1.50

Seasonal                         $1.00
                                                                               Winter Rate
                                 $0.50
                                 $0.00
                                         1 3 5 7 9 11 13 15 17 19 21 23 25 27 29
                                                    Usage (thou. gal. /mth.)
Nationwide survey of water utilities

                                             38% have
                                             conservation-
                                             oriented rates


                                                Inverted Block
                                                Seasonal
                                                Uniform Block
                                                Declining Block
                                                Other



 Source: Adapted from the 2002 RFC Water and Wastewater Rate Survey;
         148 systems surveyed
  Prior water rate structures in Hawai'i

                            Rate Structure
County                      in 2001


Hawai'i County             Inverted (3 blocks)
Department of Water Supply



Kaua'i County               Uniform (1 block)
Department of Water
    Changes in water rate structures

             Rate Structure Rate Structure
County       in 2001        2003


Hawai'i DWS Inverted        Inverted
             (3 blocks)      (4 blocks)


Kaua'i DOW   Uniform        Inverted
             (1 block)       (3 blocks)
            Water usage analysis

   Examined monthly Kaua'i DOW and
    Hawai'i DWS consumption data before
    and after 2001 rate change
   Focused on single-family residences (if
    possible)
   Normalized for precipitation (as rainfall
    affects water consumption)
   Completed statistical analysis of monthly
    water usage over a 4-year period
Kaua'i DOW Case Study
        Summary of 2001 rate changes

   Change from uniform block to inverted
    block rate structure
   Average 32 percent rate increase
   Rate blocks vary by meter size
       5/8 inch meters: 10,000 gallons per month
        in lower cost first block
       Larger meters: higher water allowance in
        the lower cost first block
             Kaua'i DOW rate structure

                                         July 1997   July 2001
Service Charge, $/month
  5/8-inch meter                           $6.00      $9.00

Consumption Charge, $/thousand gallons
  0 to 10,000 gallons               $1.78             $2.10
  10,001 to 20,000 gallons          $1.78             $2.40
  > 20,001 gallons                  $1.78             $3.40

Consumption amounts are over a one-month period
                                   Kaua'i DOW inverted block
                                 rate structure (5/8-inch meter)
                         $6.00
                                                                 Pre 2001 Rates
                                                                 Post 2001 Rates
                         $5.00
Volume Charge ($/kgal)




                         $4.00


                         $3.00


                         $2.00


                         $1.00


                         $0.00
                                 0   5   10   15  20     25   30    35   40   45   50
                                                Monthly Usage (kgal)
                              Kaua'i DOW monthly bills
                                  (5/8-inch meter)
                   $300
                   $275                              Pre 2001 Rates
                                                     Post 2001 Rates
                   $250
                   $225
Monthly Bill ($)




                   $200
                   $175
                   $150
                   $125
                   $100
                   $75
                   $50
                   $25
                    $0
                          0   5   10 15 20 25 30 35 40 45 50 55 60 65 70
                                          Monthly Usage (kgal)
     Impact of water rate changes at
               Kaua'i DOW

                       Single-family Residential
                       Water Usage, kgal/month
                                     Weather           Average*
                      Actual        Normalized        Rainfall (in)
Avg 2000 – 2001        12.0             11.7              33.3

Avg 2002 – 2003        11.4             11.3              36.6

Change                -5.4%            -3.7%




 * Normal rainfall is 43.0 inches per year (Lihu‘e)
Hawai'i DWS Case Study
        Summary of the 2001 rate changes

   Changed from 3-block to 4-block inverted
    rate structure
   Average 29 percent rate increase
   Made rate blocks “steeper”
   Rate blocks vary by meter size
        5/8 inch meters: 5,000 gallons per month in
         the lower cost first block
        Larger meters: higher water allowance in
         the lower cost first block
             Hawai'i DWS rate structure

                                July 1997                          April 2001
Service Charge, $/month
  5/8-inch meter                  $8.00           5/8-inch meter    $10.00

Consumption Charge, $/thousand gallons
  0 to 5,000 gallons       $1.65       0 to 5,000                    $1.78
  5,001 to 19,000 gallons  $2.00       5,001 to 15,000               $2.43
  > 19,001 gallons         $2.81       15,001 to 40,000              $3.48
                                       > 40,001 gallons              $4.29

Consumption amounts are over a one-month period
                                  Hawai'i DWS inverted block
                                 rate structure (5/8-inch meter)
                         $6.00
                                                                 Pre 2001 Rates
                                                                 Post 2001 Rates
                         $5.00
Volume Charge ($/kgal)




                         $4.00


                         $3.00


                         $2.00


                         $1.00


                         $0.00
                                 0   5   10   15  20     25   30    35   40   45   50
                                                Monthly Usage (kgal)
                          Hawai'i DWS monthly bills
                              (5/8-inch meter)
                   $300
                   $275                              Pre 2001 Rates
                                                     Post 2001 Rates
                   $250
                   $225
Monthly Bill ($)



                   $200
                   $175
                   $150
                   $125
                   $100
                   $75
                   $50
                   $25
                    $0
                          0   5   10 15 20 25 30 35 40 45 50 55 60 65 70
                                          Monthly Usage (kgal)
      Hawai'i DWS impact of water rate
                 changes

                                Water Use
                             (customers billed
                          bimonthly1), kgal/month
                                        Weather          Average2
                         Actual        Normalized       Rainfall (in)
Avg 2000 – 2001           17.2             17.1             35.6

Avg 2002 – 2003           17.8             17.7             41.2

Change                   +3.5%           +3.7%




1   Primarily single-family residences
2   Normal rainfall is 49.3 inches per year (Lanihau)
Findings and Conclusions
         Findings and conclusions

   Kaua'i DOW: water usage appears
    to have been affected by large rate
    increase implemented with addition
    of an inverted block rate structure
   Converting to an inverted block rate
    structure from a uniform block rate
    structure helped to reduce water use
           Findings and conclusions

 Hawai'i DWS: a large rate increase
  implemented with increasing steepness
  of inverted block rate structure did not
  lead to significantly lower water use
 Reasons are not known, but could be:
       Increasing steepness of rate blocks
        impacted relatively few customers
       Customers with long-standing inverted
        block rates may have already changed
        their water use patterns
            Findings and conclusions

   Inverted block rate structures may not
    always be sending a strong conservation
    price signal:
       Unit cost of water for most water users is
        typically decreasing
       Unit cost of water often increases only for
        water usage that is much higher than
        average
       Result: Most customers do not see a large
        bill impact from the inverted block rate
        structure
Questions?

								
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