Welcome to the Webinar! Webinar will be 90 minutes in length with - PDF document

Alliance for Water Efficiency 9/9/2014 Welcome to the Webinar! � Webinar will be 90 minutes in length with time for questions � Audio is through your telephone or computer microphone & speakers � The webinar phone line will be muted during the presentation because we are recording � Questions can be typed in throughout the webinar and will be answered at the end by the speakers Financing Sustainable Water Webinar 1

Alliance for Water Efficiency 9/9/2014 Webinar Speakers � Mary Ann Dickinson, Alliance for Water Efficiency � Thomas Chesnutt, A&N Technical Services, Inc. � Bill Christiansen, Alliance for Water Efficiency � Megan Chery, Alliance for Water Efficiency Utility Financial Management: Becoming Harder Than Ever? Financing Sustainable Water Webinar 2

Alliance for Water Efficiency 9/9/2014 Residential Water Sales Isn’t this a Success Story? � Yes, but with side effects � Lowered demand means reduced sales revenue � Reduced sales revenue can mean not fully collecting fixed costs � Short ‐ run variable costs (water, pumping energy, chemicals) � Long ‐ run capacity costs (supply, transmission, storage, treatment) � Revenue stability therefore becomes an issue – and conservation is often blamed Financing Sustainable Water Webinar 3

Alliance for Water Efficiency 9/9/2014 What Really Affects Revenue Stability? � Reduced demand from: � efficient fixture replacement under the plumbing and appliance codes � active conservation programs � the recession: industrial shift layoffs, home foreclosures � Reduced peak demand in wet years � Increased infrastructure costs � Rise in other fixed costs � Continuing Inflation The Challenges � The extent of the reduced demand, and therefore reduced sales, is catching many utilities by surprise � Water costs are rising faster than for other utilities like energy, telephone, and cable, so rates must rise too � The customers understand very little about their rates, or bills, or shortages and with auto ‐ pay are understanding even less Financing Sustainable Water Webinar 4

Alliance for Water Efficiency 9/9/2014 The Political Reality We don’t like to revise our rates � � It is politically unpopular, so rates are changed as little as possible The inevitable inflationary increase is � postponed until it is a crisis, much less increases in other costs Conservation is often blamed for � financial challenges – even when there are no active conservation programs in place This sends the wrong message to � consumers Financing Sustainable Water Webinar 5

Alliance for Water Efficiency 9/9/2014 Conservation is Part of the Solution � It is a long ‐ term cost reducer to the utility � Revenue loss is often due to other drivers � Every gallon saved is water that does not have to be pumped, treated and delivered � Conservation is an investment and short ‐ term effects must be planned for � Reduced utility costs generally mean reduced customer rates in the long ‐ term due to avoided infrastructure capacity increases Westminster’s Story � Citizens complained about being asked to conserve when rates would just go up anyway � Westminster reviewed marginal costs for future infrastructure if conservation had not been done � Since 1980 conservation has saved residents and businesses 80% in tap fees and 91% in rates compared to what they would have been without conservation Financing Sustainable Water Webinar 6

Alliance for Water Efficiency 9/9/2014 Systems are Still Growing � 2006 EPA Study showed that 52.6% of community water system capital improvement expenditures were for expansion, not just repair and replacement � Efficiency helps with reducing expansion costs � Long ‐ term planning is critically important What is Financing Sustainable Water? � Practical resources needed for utility employees with varying technical ability � A Handbook to explain key concepts, provide case studies and implementation advice � A public domain Rate Model to model various scenarios � Web ‐ based resources to provide the latest research and information in one location Financing Sustainable Water Webinar 7

Alliance for Water Efficiency 9/9/2014 FSW: Key Concepts � Revenue instability is a feature of ALL rate structures � Efficiency objectives should be identified at the start � One size does not fit all � Embracing uncertainty enables better decision ‐ making � Better rate analysis requires good data � Customer understanding and empowerment is key � Sound financial policies can support fiscal sustainability Building Better Water Rates for an Uncertain World: Handbook and Model Financing Sustainable Water Webinar 8

Alliance for Water Efficiency 9/9/2014 An Alliance for Water Efficiency Handbook B UILDING B ETTER W ATER R ATES FOR AN U NCERTAIN W ORLD B ALANCING R EVENUE M ANAGEMENT , R ESOURCE E FFICIENCY , A ND F ISCAL S USTAINABILITY Thomas Chesnutt, A&N Technical Services SECTION I: Introduction SECTION II: Today’s Imperative for Utility Financial Management SECTION III: The Role of Ratemaking SECTION IV: Building a Better (Efficiency ‐ Oriented) Rate Structure SECTION V: Financial Policies and Planning for Improved Fiscal Health SECTION VI: Implementing an Efficiency ‐ Oriented Rate Structure Appendices � Appendix A ‐ Costing Methods � Appendix B – Demand and Revenue Modeling � Appendix C – AWE Sales Forecasting and Rate Model User Guide What Do Utilities Have to Achieve? � Ends of Water Utilities: Water Services � Reliable Delivery of Quality Water � Handling of Waste water, Storm water, Watershed management � By what financial means do utilities achieve these ends? � Cost Recovery (Short term) � Resource Efficiency (Short and Long term) � Fiscal Sustainability (Long term) Financing Sustainable Water Webinar 9

Alliance for Water Efficiency 9/9/2014 Why Is This Hard To Achieve? Why is this harder than ever? � � New Challenges and Constraints • scarce supply • rising and uncertain costs (source, distribution, treatment) • regulations • larger public role and more exposure for utility � Increased Uncertainty • weather • economic factors • declining demand • changing customer bases How is this done? � � How can water utility rates help incentivize efficiency, contribute to revenue stability, and support long ‐ term financial health? � I want details ‐‐ designing and implementing efficiency ‐ oriented rate structures What Questions Need Answers for Better Rates? In an uncertain world, what information could lead to better water rates? � Customer Consumption Variability —How can weather, drought/shortage, or external shock affect customer consumption? � Demand Response —If I change rates, what happens to demand volume and revenue? � Drought Pricing —How should I plan for water rates under the contingency of nonzero drought/shortage occurrence? � Probability Management —What is the likelihood of deficit? � Fiscal Sustainability —What are likelihoods over a 5 ‐ year time horizon � Affordability —Can customers afford water service? Financing Sustainable Water Webinar 10

Alliance for Water Efficiency 9/9/2014 Water Flow and Flow of Economic Logic Costs System Water Design Rates Demand The Heart of the Problem � Water rates have traditionally been focused solely on historical cost ‐ recovery � When system costs change quickly, and perhaps unpredictably, historical rates do not reflect today’s cost consequences � Rates do not then give customers correct information to make consumptive decisions Financing Sustainable Water Webinar 11

Alliance for Water Efficiency 9/9/2014 Water Rates, Efficiency, and Revenue Water Rates: A Balancing Act for Water Utilities � Revenue Generation ‐ (to pay prudent costs) � Resource Efficiency ‐ (to avoid consumptive or productive waste) � Fiscal Sustainability ‐ (for sustainable water service delivery) (Other details include Customer Acceptance, Affordability, Legality, etc.) Impact to Average Water Bill Impact to Average Water Bill $2.00 $2.00 $1.00 $1.00 Change from Baseline Avg. Bill ($/month) Change from Baseline Avg. Bill ($/month) Do Nothing $0.00 $0.00 Customer ($1.00) ($1.00) Bills ($2.00) ($2.00) Do Water Efficiency ($3.00) ($3.00) ($4.00) ($4.00) ($5.00) ($5.00) ($6.00) ($6.00) ($7.00) ($7.00) 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 Year Year Change in Average Bill Change in Average Bill Annualized Impact Annualized Impact What is an Efficient Water Rate? What is Efficiency? What is Conservation? � Technical Efficiency – Energy per � any reduction in human water unit mass consumption? � Financial Efficiency ‐‐ Dollars per � minimizing loss or waste, that is Output any water reaching the ocean? Nope. Resource Efficiency ‐ Cost and � � Conservation is Resource Efficiency. Benefits broadly defined (TBL) Conservation that squanders other resources is not very efficiency-oriented. Financing Sustainable Water Webinar 12