Embed Size (px)
Citation preview
www.efc.unc.edu
Alternative Business Models for Water
and Wastewater Utilities
MNGWPD Board Meeting
Stacey Isaac Berahzer
Environmental Finance Center at the University of North Carolina, Chapel Hill
March 7, 2013
Atlanta, GA
Outline
• Introduction
• Why we need innovation
• Overview of Alternate
Models
1. Volume-Based Tiered
Base Charge – Austin,
TX
2. PeakSet Base Model
3. CustomerSelect Model
2
INTRODUCTION
3
Dedicated to enhancing the ability of governments and
organizations to provide environmental programs and
services in fair, effective and financially sustainable ways
5
Defining a Resilient Business Model
for Water Utilities
• Water Research Foundation Project #4366
• Objectives: – To define new financial approaches and paradigms for water
utilities in addressing current and future fiscal challenges
– To explore new methods of identifying and reducing the risks
associated with revenue variability
• You can join the on-going research discussion at
www.efc.web.unc.edu
• Final research will be at www.waterrf.org
Water Research Foundation Project #4366 EPCOR
NEOMSD
Aqua America
Loveland
Denver
Austin
Water Research Foundation Project #4366 – Utility Partners
Louisville
WHY WE NEED INNOVATION
8
The Status Quo Will Not Work
1. Traditional rate structures create a
paradoxical relationship between
conservation and financial health
2. Revenue is too variable
3. There is a large national infrastructure
gap
4. Weather is becoming less predictable
9
The Status Quo Will Not Work
1. Traditional rate
structures create a
paradoxical
relationship between
conservation and
financial health
10
Source: Fayetteville Observer
2/6/04
Selling less water is creating a
revenue problem for the utility
2. Revenue is
too variable
The Status Quo Will Not Work
Revenue and Expenses for Charlotte-Mecklenburg Utilities in a Given Year
Source: CMU Past Director Doug Bean’s presentation to the Charlotte City Council on December 1, 2008.
Status Quo – A Broken Model,
With Not Enough Fixed
Rate Structure Anatomy:
Base vs. variable charge
The Status Quo Will Not Work
3. Large National Infrastructure Gap
• In a 2007 EPA study, gap = $334 billion through 2026 to simply maintain existing infrastructure
• In a 2012 American Water Works Association (AWWA), gap = $1 trillion by 2035
12
The Status Quo Will Not Work
4. Weather is
Becoming Less
Predictable
13
East Village flooding.
via http://instagram.com/p/RY57HLNzpI/?fb_acti
on_ids=10151215240594507
Simply Raising Rates is Not Solving the Revenue
Problem
14
Preliminary Results
ALTERNATE PRICING MODELS
15
New Pricing Structures
• Volume-Based Tiered Base Charge –
Austin, TX
• PeakSet Base Model (based on rolling
average per customer)
• CustomerSelect Model (think cell phones!)
Austin Water Utility’s Rate Case
Joint Subcommittee of the
• Water and Wastewater Commission,
• Resource Management Commission, and
• Impact Fee Advisory Committee
http://www.austintexas.gov/department/joint-subcommittee
Excerpts from Committee Final Recommendations:
Volume-Based Tiered Base Charge
In addition to monthly customer account charge
(based on meter size), bills will include a
monthly tiered minimum charge based on total
billed volume:
Single-Family Residential
0-2,000 Gallons $2.00
2,001-6,000 Gallons $4.50
6,001-11,000 Gallons $7.45
11,001-20,000 Gallons $12.55
20,001 – over Gallons $12.55
Rates adjusted
annually to meet
fixed revenue goal
of 20% of the total
water revenue
requirements
+ Revenue Stability Reserve Fund Surcharge $0.12/gallon
19
Facing a $116 million
surface water project
Currently under
consideration: 1. Uniform Rate
2. Increasing Tiered Rate
(where base charge is
determined by meter
size)
3. Volume-based tiered
rate
• Inspiration: electricity peak charge
• A customer’s base charge would be individually set based on their
three-year rolling average peak
Comparison of BJWSA current residential rate to “revenue neutral”
PeakSet Base model
Peakset Base Model
Current BJWSA
residential rate structure
PeakSet base
residential rate structure
% fixed revenue 18% 57%
Base rate $6.00/meter – water + $6.00/meter - irrigation
$1.85/kgal applied to 3-
year rolling average of peak month of demand
Variable rate $3.46/kgal of previous month’s use
$0.52/kgal of previous month’s use
$-
$20.00
$40.00
$60.00
$80.00
$100.00
$120.00
July(25)
Aug(21.1)
Sept(14.4)
Oct(9.9)
Nov(7.2)
Dec(7.3)
Jan(8.4)
Feb(6.5)
Mar(6.6)
Apr(11.4)
May(18.7)
June(29.9)
Wate
r C
harg
e
Fiscal Year 2011 (kgal consumed)
Current Rate($647.744)
AR1 ($621.548)
How Would it Impact Individual Customers?
Comparison of monthly charges for water under current rate vs Peakset Base scenario, BJWSA
Rate structure (annual charge for water)
FY10 Peak Demand 24,100 gallons
Resident 1
Potential Benefits
• Increased revenue stability: There would be a
larger percentage of revenue coming from base
charge
• Promotes steady customer water use: A high
peaking ratio would be costly to a customer all
year long
• Customers can expect more steady bills: This
might also mean reduced customer cutoffs
• Should not require metering upgrades
Customerselect Pricing Structure
• Inspiration = cell phone plans
• Customer buys into a “plan” that allows them a certain “bundle of consumption:” – x Gallons of water provided
– x Gallons of wastewater treated
– Access to online usage data
– Insurance on service line
– Etc.
• Customers who use beyond their “plan” limit face much higher rates
Customerselect Pricing Structure
• Inspiration = cell phone plans
• Customer buys into a “plan” that allows them a certain “bundle of
consumption”
Plan name Monthly water allotment
Cost for w&s under current rate structure
Customerselect cost (w&s)
Overage
Lifeline 2,000 gallons $18.38-$27.10 $25.99 $12.00/kgal
Basic service/Small family
6,000 gallons $31.46-$62.51 $59.99 $12.00/kgal
Light irrigation/Large family
10,000 gallons $72.86-$107.51 $89.99 $12.00/kgal
Heavy irrigation 15,000 gallons $119.06-$165.26 $129.99 $12.00/kgal
Water waster Unlimited >$176.81 $229.99* NA
Example residential structure
How Many Residential Customers Would Have Exceeded
Their Plan? – Clayton County, GA
Customerselect Pricing Structure
Addressing Revenue Stability with the
CustomerSelect Model
26
$-
$5
$10
$15
$20
$25
$30
$35
Year & Month
Average Residential Water & Irrigation Monthly Bill, Clayton County, GA
Existing Rate Structure
Customer Select Model
Potential Benefits
• Increased revenue stability: Customers “lock into” plans
• Gives customer a choice
• Moves more to a model of water and sewer service, rather than a commodity
• Promotes conservation, especially around the “break points”
• Relatively easy to add ancillary services (like service line protection) a la carte
Potential Challenges
• Complicates budgeting process:
-How do you predict what plan customers will choose?
-When will they “lock in”?
-Can they change plans? How often? What is the optimal length of the contract?
• Does not fit with seasonal use of water: Water use is not as consistent month-to-month as cell phone use. Allowing roll-overs could help this, but would dissuade conservation
• Customers will request real-time water use information: In order to provide this service, metering upgrades will be required
Revisiting
Outline
• Introduction
• Why we need innovation
• Overview of Alternate Models
1. Volume-Based Tiered Base Charge – Austin, TX
2. PeakSet Base Model
3. CustomerSelect Model
Necessity if the mother of invention - new models are emerging to address the “new normal”
29
www.efc.unc.edu
Acknowledgements
Metro Chamber of Commerce
Water Research Foundation
Clayton County WSA
EFC Project Team: Mary Tiger, Dr.
Christine Boyle,
30
CALL TO ACTION??
31
32
Provide Feedback:
• Be part of the
conversation …
• Direct Contact
• Blog
• Provide your
utility data, e.g.
Customer
Profile work
Water Research Foundation Project #4366 EPCOR
NEOMSD
Aqua America
Loveland
Denver
Austin
Water Research Foundation Project #4366 – Utility
Partners
Louisville
Tailored Collaboration with the Water Research
Foundation: Household Water Consumption Behavior
34
Stacey Isaac Berahzer
UNC Environmental Finance Center
www.efc.unc.edu
770-509-3887
Copyright 2012, Water Research Foundation & US EPA
ALL RIGHTS RESERVED
No part of this presentation may be copied, reproduced, or otherwise utilized
without permission.
