TRWD Customer Pricing Workshop Jeff Hughes, UNC Environmental - PowerPoint PPT Presentation

TRWD Customer Pricing Workshop Jeff Hughes, UNC Environmental Finance Center jhughes@sog.unc.edu www.efc.sog.unc.edu

Acknowledgements • Defining a Resilient Business Model for Water Utilities Water Research Foundation #4366

Topics and Challenges • Balancing water conservation and revenues • Water conservation and long-term avoided costs • How to justify increasing rates, while promoting water efficiency • Water conservation as a viable water supply • Explaining benefits of conservation

Workshop • Business Model • Trends • Pricing • Other Financial Resiliency Practices

Fixed vs. Variable Revenues and Expenses

WTP Expansion Time Line - 10 to 6 Watering

What sales growth do you want? What have you planned for? What are you seeing?

Challenge: Uncertain Revenue Changes in water use have had: Source: Water Research Foundation/Environmental Finance Center, Water Revenues Forum (#4405)

National Perspective

Industry Revenue Roller Coaster �

Changing Revenues of 2,838 Utilities in 6 States Data analyzed by the Environmental Finance Center at the University of North Carolina, Chapel Hill and Raftelis Financial Consultants, Inc. Revenues are: total operating revenues in CA, GA, NC, WI; gross revenues In OH; revenues that can pay for debt service in TX. The sample of utilities in each state is consistent across all Years (e.g.: the same 946 utilities in CA are analyzed every year). Data sources: California State Controller’s Office, Georgia Department of Community Affairs, North Carolina Local Government Commission, Ohio Water Development Agency, Texas Water Development Board, Wisconsin Public Service Commission.

Revenue Trends Among our Project Partners FY2002 to FY2011

City of Raleigh Sales Trends Source: City of Raleigh(in gallons) 20,000,000,000 18,000,000,000 16,000,000,000 14,000,000,000 12,000,000,000 10,000,000,000 8,000,000,000 6,000,000,000 4,000,000,000 2,000,000,000 - 2010 2011 2012 2013 * (projected) * Actuals through July 2013, projected to year end using 2012 numbers

10.0 20.0 30.0 40.0 50.0 60.0 70.0 0.0 1950 Newport News Waterworks’ Drop in Demand 1952 1954 1956 1958 1960 1962 1964 1966 And Another’s 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1992 - EPA Energy Policy 1994 1996 1998 2000 2002 2003 – Refinery Reuse 2004 2006 2008 – AB Reductions 2008 2010 2012 – Refinery Closed 2012 29 MGD

Historic Water Production 17

And others.. Average Household Water Use for the State of Texas and Selected Municipal Utilities, 2002-2012 (Gallons per Month) (TX annual n from 365 to 661) 8,500 8,000 7,500 Gallons per Month 7,000 Houston (-5%) 6,500 Corpus Christi (- 6,000 5%) Odem (-14%) (pop. 2,611) 5,500 Texas Statewide Average (-8%) 5,000 4,500 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Year

Shifting Water Demand Forecasts 19

Why? Breakdown of Louisville (KY) Water Company residential water decline between 1990 and 2007 Parameter 1990 2007 Allotment – gpd Household use – 208 187 -21 gpd PMDI 0.29 0.75 -2.6 People per 2.52 2.38 -5 household Educational index 2.45 2.81 +1.3 Average home $120,100 $144,600 +3.5 value Home size 2,155 sq. ft. 2,281 sq. ft. +0.6 Total =18.8 18.8 GPD Decrease Rockaway, T.D., P.A. Coomes, J.Rivard & B. Kornstein. (2011) Residential water use trends in North America. Journal AWWA. February 2011, 76-89.

Correlation between 2012 Average Monthly Household Water Use and Average Price/1,000 Gallons for a 5,000 GPM Water Bill (661 TX Municipalities) $18.00 $16.00 Average Perice per 1 kgal for a 5 kgal per Month Water Bill $14.00 $12.00 $10.00 $8.00 $6.00 $4.00 $2.00 $0.00 0 5,000 10,000 15,000 20,000 Average Household Water Use (Gallons per Month) Data Source: Analysis by UNC Environmental Finance Center using Data from Texas Municipal League

Birmingham Water Works Board

Raleigh Bill Comparison for 6 CCF Slide Source: City of Raleigh January 2010 July 2013 • • 6 CCF Residential Water 6 CCF Residential Water & Sewer Bill & Sewer Bill $52.63 ( $ 1.75/day) $ 36.53 ( $ 1.21/day) A 44% rate increase over time period FY 11 Revenue - $ A 22% revenue increase over 153,061,920 time period FY 13 Revenue – $ 187,332,838

Driving Revenue Through Rate Increases From 2007 to 2010 across 103 TX utilities 100% Change in the Total Revenue CPI inflation between the two years 80% 60% 40% 20% 0% 0% 20% 40% 60% 80% -20% Change in the Total Monthly Bill for 5,000 Gallons -40% Data analyzed by the Environmental Finance Center at the University of North Carolina, Chapel Hill. Data sources: Texas Municipal League annual TX water and sewer rate surveys (self-reported), Texas Water Development Board data from audited financial statements of utilities with outstanding loans.

Households that REDUCED their average use in FY10 from FY07 70% Cumulative % of Households Durham 60% Raleigh 50% 40% 30% 20% 10% 0% -50% -45% -40% -35% -30% -25% -20% -15% -10% -5% Reduced average use by at least...

Monthly water use averages have declined since the end of the drought Average Residential Water Use 10,000 DROUGHT PERIOD 1200 9,000 1100 8,000 1000 900 7,000 Gallons / Month 800 6,000 Liters/Day 700 5,000 600 4,000 500 400 3,000 Durham 300 2,000 Winston-Salem (>= 6ccf only) 200 Raleigh 1,000 100 Durham - Trend since 2002 0 0 26

Avoided Costs are the Silver Lining Rev. Constr. Start Date Amount Capacit borrowed at y Projected Actual with time of Increas Constr. 10-6 Projected with 2- projected Estimated Avoided Project e (MGD) Start Date Watering day Watering Cost in 2011 ($) installation P&I 2015 200 MGD Holly 20 2006 2016 2019 $11,530,000 $11,530,000 $(925,197) 35 MGD Westsid e 23 2008 2018 2021 $15,686,000 $15,686,000 $(1,258,685) 250 MGD Rolling Hills 50 2010 2020 2024 $90,134,000 $90,134,000 $(7,232,585) 25 MGD Southwe st 25 2013 2024 2034 $70,686,000 $70,686,000 $(5,672,028) 140 MGD Eagle Mtn. 35 2015 2028 2039 $68,544,000 $68,544,000 $(5,500,148) $(20,588,643)

PRICING

Rising Rates…... Texas: 194 Utilities Cumulative Increase to Bill for 5,000 gal/month 80% 70% 60% Since 2003 50% 40% 30% 20% 10% 0% 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Data analyzed by the Environmental Finance Center at the University of North Carolina, Chapel Hill. Rates data for all utilities in this analysis were known for all consecutive years. Data sources: Rates surveys conducted by GEFA/EFC (GA), OH EPA (OH), WI PSC (WI), TML (TX).

Annual Water & Sewer Bills at 5,000 Gallons/Month in 2012 Compared to Community's Income Levels in 2011 in North Carolina (n=365 utilities) 10.0% Percent $20k Income (Annual Bill / $20,000) Communities with fewer 9.0% than 20% hhlds with 8.0% income less than $20k 7.0% 6.0% Communities with 20-39% 5.0% hhlds with income less 4.0% than $20k 3.0% 2.0% Communities with 40% or 1.0% more hhlds with income 0.0% less than $20k 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% Percent MHI (Annual Bill / Median Household Income) Analysis by the Environmental Finance Center at the Unversity of North Carolina, Chapel Hill. Data Sources: NCLM/EFC 2012 NC Water & Wastewater Rate Survey; U.S. Census Bureau 2007-2011 5-year American Community Survey.

Pricing

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Base versus variable DURHAM CARY % of household % of household revenue collected from revenue collected from base charges base charges FY07: 8.6% FY07: 18% FY08: 9.2% FY08: 18% FY09: 9.6% FY09: 29% FY10: 8.9% FY10: 27% FY11: 7.7% FY11: 28%

Portion of Monthly Bill that is Fixed (Base Charge) Across 84 CA Utilities in 2011 100% 90% Middle 80% of utilities 80% Middle 50% of utilities, inc. median line Base Charge / Total Monthly Charge 70% 60% 50% 40% 30% 20% 10% 0% 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 1,000 Gallons / Month

Charlotte-Mecklenburg Utilities Water and Sewer Revenues Fixed versus variable Data sources: Mickey Hicks, CFO, Charlotte-Mecklenburg Utilities

2011 Data analyzed by the Environmental Finance Center at the University of North Carolina. Data sources: EFC and NC League of Municipalities Annual NC State Rates Survey, 2011, & EFC and GA Environmental Finance Authority Annual Rates Survey, 2011.

CO, NC, and TX Reductions in 2012 Water & Sewer Bill for Decrease in Consumption from 10,000 to 5,000 gal/month 70% 60% 50% Total Price Decrease as Percent 40% TX NC 30% CO 20% 10% 0% $0 $20 $40 $60 $80 $100 $120 -10% Total Price Decrease in Dollars Data analyzed by the University of North Carolina Environmental Finance Center

Conservative Pricing Paired with Rebates or Dividends • Dividends linked to sales, cost of service, and/or policy goals ACE 2012: Skepticism Among the Judges…