Revenue Stability Through Rate Design

June 13, 2014 Chris Loomis Environmental & Water Conservation Manager

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Addressing the Water Conservation Conundrum

• Currently the City of Conroe has a high ratio of variable water revenue to fixed revenue.

• The city has experienced in past years a drop in sales volume due to drought, wet weather and conservation.

• Increasing the variable portion of the water rates would increase revenue vulnerability.

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City of Conroe Rate Design Committee Goals

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• Develop a rate structure that supports water and sewer system expenses and also meets current financial, political and social goals.

• The new rate structure must take into consideration that water conservation may end up raising rates.

• It’s important to have a higher ratio of fixed revenue.

Rate Considerations

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• The City of Conroe has a set fixed and variable cost that need to be recovered.

• High water conservation rates run the risk that higher users will use less water in a wet season.

• Should high users subsidize low users.• Too high of water rates will elicit a behavioral

response that will drop sales volume.

Average Per Capita Demands

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The City of Conroe uses Inclining Block Rates

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Pro’s• Sends a strong pricing signal.• Discourages usage.Con’s• Discourages usage.• Weather sensitive.• Can be politically unpopular.

Conroe’s Current Water Meter Rates

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Conroe’s Current Water Rates

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Water Rate Recommendations

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• Future price increases will go to the base rate to increase fixed revenue.

• Consider a surcharge for Stage 3 Drought Contingency.

• Increase water meter rates to reflect the rate of similar cities.

• Consider a 4 tier rate structure instead of the current 6 tier rate structure.

Tracking the Static Water Levels of the Jasper Aquifer

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Tracking the Static Water Levels of the Jasper Aquifer

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Questions?

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