HomeMy WebLinkAbout4 - Final Report Utility Rate Structure and Billing System Evaluation Study - Volume 1
City of Boulder
Final Report
Utility Rate Structure and
Billing System Evaluation Study
Volume 1 – Utility Rate Structure Evaluation
January 2004
Prepared by
Economic and Engineering Services, Inc.
In Association with Langham Consulting
Economic and Engineering Services, Inc.
January 16, 2003
Ms. Joanna Crean
Ms. Carol Linn
City of Boulder
Department of Public Works
1739 Broadway
Boulder, Colorado 80306
Subject: Volume 1 – Evaluation of Rate Structures
EES Project #3-03-197
Dear Ms. Crean and Linn:
Economic and Engineering Services, Inc. (EES), in association with Langham Consulting
Services, Inc. (Langham) were retained by the city of Boulder to provide a comprehensive
evaluation of the city’s water rate structures and utility billing system. This volume represents
the culmination of our efforts to review the city’s water rate structures. Volume 2 of our report
provides the comprehensive review of the city’s utility billing system.
This report discusses our approach, findings, conclusions and recommendations concerning the
city’s water utility rate structures. We have developed this report based upon “generally
accepted” water rate setting techniques.
We appreciate your contributions and assistance, along with that of city’s management team and
the Water Resources Advisory Board (WRAB), in the development of this report. Thank you for
the opportunity to provide this technical assistance.
Sincerely,
EES,I.
CONOMIC AND NGINEERING ERVICESNC
Thomas E. Gould
Principal
TEG:smn
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10900 NE 4 Street, Suite 1110 Post Office Box 1989
Bellevue, Washington 98004 Bellevue, Washington 98009
www.ees-1.com
Bellevue • Olympia • Portland • Tri-Cities • Vancouver, B.C.
Telephone 425 452-8100 Fax 425 454-4189
Contents
Executive Summary
............................................................................................ES-1
1 Introduction and Overview of the Study
1.1 Introduction..........................................................................................................1-1
1.2 Goals and Objectives in Evaluating the Rate Structures......................................1-1
1.3 Overview of the Volume 1 Report.......................................................................1-1
1.4 Summary..............................................................................................................1-2
2 Review of the City of Boulder’s Goals and Objectives
for Setting Water Rate Structures
2.1 Introduction..........................................................................................................2-1
2.2 Evolution of the City’s Rate Structure.................................................................2-1
2.3 Review of the City’s Past Rate Design Goals and Objectives.............................2-2
2.4 Attributes of a Sound Rate Structure...................................................................2-4
2.5 Review of the City’s Current Rate Design Structure...........................................2-8
2.6 Review of the Attributes of the City’s Current Rates..........................................2-9
2.7 Summary............................................................................................................2-11
3 Overview of Water Rate Structure Terminology and the
Rate Structure Alternatives to be Evaluated
3.1 Introduction..........................................................................................................3-1
3.2 Rate Structure Terminology.................................................................................3-1
3.2 Overview of the Rate Structure Alternatives to be Evaluated.............................3-5
3.4 Summary............................................................................................................3-15
4 Evaluation of the Alternative Rate Structures
4.1 Introduction..........................................................................................................4-1
4.2 Prioritization of the Rate Design Attributes.........................................................4-1
4.3 Development of the Rate Structure Evaluation Criteria......................................4-2
4.4 Process Used to Score and Evaluate the Rate Structures.....................................4-6
4.5 Summary of the Rate Structure Evaluation and Scoring.....................................4-6
4.6 Summary..............................................................................................................4-9
Contents i
City of Boulder— Volume 1—Evaluation of Water Rate Structures
5 Selection of Final Rate Design Alternatives
and Development of Block Thresholds
5.1 Introduction..........................................................................................................5-1
5.2 Review of the Top Scoring Rate Structures.........................................................5-1
5.3 Establishment of Customer Classes of Service....................................................5-2
5.4 Definition of Seasons...........................................................................................5-5
5.5 Defining the First (Initial) Block Size.................................................................5-6
5.6 Defining the Second Block Size..........................................................................5-8
5.7 Defining Third and Fourth Block Sizes.............................................................5-13
5.8 Other Rate Design Features...............................................................................5-14
5.9 Considerations of Modifications to the City’s Existing Rate Structures...........5-15
5.10 Specific Rate Structures to be Evaluated by Class of Service...........................5-15
5.11 Summary............................................................................................................5-21
6 Development and Evaluation of the Rate Structures
6.1 Introduction..........................................................................................................6-1
6.2 Review of the City’s Existing Rate Structure......................................................6-1
6.3 Overview of the Approach to Pricing..................................................................6-1
6.4 Analysis of Customer Usage Characteristics.......................................................6-5
6.5 Establishment of Fixed Service (Meter) Charges................................................6-6
6.6 Overview of the Analysis.....................................................................................6-6
6.7 Review of the Single-Family Residential Rate Structures...................................6-8
6.8 Review of the Multi-Family Residential Rate Structures..................................6-30
6.9 Review of the Commercial/Large User Rate Structures....................................6-40
6.10 Review of the Metered Irrigation Rate Structures.............................................6-51
6.11 Summary Matrices of Proposed Rate Options...................................................6-58
6.12 Other Potential Rate Structure Enhancements...................................................6-63
6.13 Summary............................................................................................................6-64
7 Peer Review of Rate Structures
7.1 Introduction..........................................................................................................7-1
7.2 Review of Other Front Range Communities.......................................................7-1
7.3 Water Budget Rate Structure Review..................................................................7-3
7.4 Summary............................................................................................................7-10
8 Rate Structure Conclusions and Recommendations
8.1 Introduction..........................................................................................................8-1
8.2 Single-Family Residential Rate Structures Recommendations...........................8-1
8.3 Multi-Family Residential Rate Structures Recommendations.............................8-3
8.4 Commercial/Large User Rate Structures Recommendations..............................8-4
8.5 Metered Irrigation Rate Structures Recommendations........................................8-6
8.6 Summary..............................................................................................................8-7
Contents ii
City of Boulder— Volume 1—Evaluation of Water Rate Structures
Executive Summary
Introduction
Economic and Engineering Services, Inc. (EES) and Langham Consulting Services, Inc.
(Langham) were retained by the city of Boulder to provide a comprehensive evaluation of the
city’s water rate structures and utility billing system. In providing this review, a two-volume
report has been developed. Volume 1 discusses the evaluation of the city’s water rate structure.
Volume 2 discusses the review and evaluation of the utility billing system.
Goals and Objectives for the Study
In conducting this study, the city had multiple goals and objectives. Provided below is a listing
of the goals and objectives for the study.
Assist the city in developing and selecting a rate structure that focuses on using water
efficiently and conserving water during drought and non-drought years.
Assist the city in developing and selecting a rate structure that is flexible and responsive to
changing conservation needs under drought conditions.
Review the city’s current rate design/structure and provide, as appropriate, alternative rate
designs that are contemporary, cost-based, defensible and meet the specific rate design
objectives of the city.
Provide a detailed review and evaluation of the relevant business requirements needed in the
utility billing system, regardless of the rate structure selected.
Assist the city in an evaluation and analysis of software and vendor options, which meet the
city’s overall needs, and are also capable of billing the proposed rate structure(s).
Provide a well-written report of the findings, conclusions and recommendations associated
with the evaluation of the city’s water rate structure and utility billing system.
Provide effective public presentations to the Water Resources Advisory Board, the City
Council and the public concerning the findings, conclusions and recommendations of this
study.
Work effectively with the Water Resources Advisory Board (WRAB), the City Council and
the public concerning the findings, conclusions and recommendations of this study.
Evaluation of the City’s Water Rate Structures
The first major portion of the overall study undertaken for the city was to review the water rate
structures. Provided below is an overview of the process used to evaluate the rate structures, and
the findings, conclusions and recommendations of this portion of the study.
– The first step of the
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process used to evaluate the city’s rate structures was to gain an understanding of the past goals
Executive Summary ES-1
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
and objectives used to establish the city’s water rates. A number of city documents and reports
were reviewed and some understanding of the past rate design goals and objectives were
determined. The city’s rate design goals and objectives have evolved over time, however, it
appears that the focus has historically been upon the following areas:
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In moving forward, it was determined that the city should review and prioritize the rate design
goals and objectives that should be used for this study. In this process, specific rate design goals
and objectives were defined for the city, utilizing the generally accepted list developed by James
1
C. Bonbright. The list of ten rate design goals and objectives (rate design attributes), were then
prioritized based upon input from the Water Resources Advisory Committee and utility
management/staff. The prioritized rate design attributes were then weighted for purposes of
evaluating and scoring various rate structures. A summary of the weighting used to evaluate the
rate structures is shown below in Table ES-1.
Table ES-1
Summary of the Weighting of the Evaluation Criteria By the Ten Attributes
Attribute Description Weighting
Effectiveness in yielding total revenue requirements............................................................20%
Discourage wasteful use, while promoting all justified types and amounts of use................20%
Revenue stability and predictability.......................................................................................15%
Fair allocation of total cost of service among the customer classes of service
to attain equity................................................................................................................15%
Dynamic in its ability to respond to changing supply and demand conditions and/or
environmental concerns.................................................................................................10%
Simple and easy to understand; easy to administer..................................................................8%
Stability and predictability of the rates themselves..................................................................6%
Avoidance of undue discrimination in rate relationships.........................................................3%
Reflects all present and future costs (internalities and externalities) and
benefits of providing utility service.................................................................................2%
Freedom from controversy as to interpretation................................................................... 1%
Total Weighting ...........100%
James C. Bonbright; Albert L. Danielsen and David R. Kamerschen, Principles of Public Utility Rates, (Arlington,
VA: Public Utilities Report, Inc., Second Edition, 1988), p. 383-384.
Executive Summary ES-2
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
For each of the attributes mentioned in Table ES-1, specific evaluation criteria was utilized, and
a weighted scoring system developed. Given that, each conceptual rate structure could be fairly
evaluated and “scored” based upon the city’s prioritized list of attributes.
–
One of the objectives of the study was
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to review various rate structures and explore in detail those rate structures that appeared most
appropriate in meeting the city’s objectives. To begin this process, twenty different conceptual
rate structures were reviewed with the WRAB. The rate structures are conceptual in that they
describe the basic rate, but not the specifics of the size of the consumption blocks or the actual
rate to be charged for each block. By using conceptual rate structures at this point in the
evaluation, the focus is truly on the structure, and not on the technical/analytical details of the
rate structure.
In some cases, these rate structures were variations of a specific type of rate structure (e.g. water
budget). However, the purpose of creating the variations was to determine the specific
components of the structure that best fit the overall rate attributes of the city. In the end, the final
rate structures will be a balance of complexity to achieve water efficiency and conservation, and
simplicity for customer understanding and administrative purposes.
Upon reviewing the twenty (20) conceptual rate designs with the WRAB, two additional rate
structures were evaluated, to bring the total number of conceptual rate structures to twenty-two
(22). Each of the twenty-two conceptual rate structures were evaluated and scored to provide a
list of the “Top 5” rate structures. Shown in Table ES-2 is a summary of the “Top 5” rate
structures.
Executive Summary ES-3
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
Table ES-2
Summary of the “Top 5” Rate Structures
Final Score
Rate Structure Description (Out of 400)
Seasonal rates with fixed thresholds and a 2-block winter rate plus goal based incentives.........213
Seasonal rates with fixed thresholds and a 2-block winter rate...................................................195
4-block water budget; block 1 – fixed threshold, block 2 – “typical” lot size and
irrigation requirements, succeeding blocks based on relationship to outdoor goal
with the target set and fixed each year. No monthly adjustments for weather and ET..........187
4-block water budget; block 1 – fixed threshold, block 2 – “typical” lot size and
irrigation requirements, succeeding blocks based upon relationship to outdoor goal.
Target is set and fixed each year. No monthly adjustment for weather and ET plus
a discount for city approved irrigation systems with rain sensors and weather-based
controllers..............................................................................................................................181
Indoor water use based upon a fixed threshold, with outdoor use determined based
upon an assumed “typical” lot size and irrigation requirements. Succeeding
blocks based upon relationship to outdoor goal. Billing period goals are adjusted
for actual weather and ET. Forward looking goals are communicated via the
monthly billing statement......................................................................................................175
Seasonal rates with a fixed threshold adjusted based upon water supply availability
and a 2-block winter rate........................................................................................................175
It is important to note that the “Top 5” actually contained six different conceptual rate structures
because of a tie in scoring. In addition, the top scoring rate structure does not imply that this is
the “best” rate structure. The rate structure must be specifically analyzed and developed to
determine its suitability for city purposes.
– Using the
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selection of the “Top 5” conceptual rate structures, the next step in the process was to begin to
take the conceptual rate structures and develop the specific elements of each rate structure. This
aspect of the process is summarized below.
Water rates are often developed by customer classes of service. Customer classes of service
imply that there are differences between customers in their facility requirements and usage
characteristics. In summary, four different customer classes of service were analyzed as a part of
this study. They were as follows:
Commercial/Large User
Single-Family Residential
Metered Irrigation
Multi-Family Residential
Executive Summary ES-4
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
Given the defined customer classes of service, each of the conceptual rate structures was
reviewed for applicability for the class of service. The conceptual rate designs were now taking
shape as they could be applied to each customer class of service. An element of each rate design
was the size of the consumption blocks and the basis for establishing them.
A major focus of this study has been on water budget rate structures, and the method used to
stnd
establish an indoor budget (i.e. 1 block of consumptive use) and the outdoor budget (i.e. 2
block of consumption use/irrigable requirements). For single-family customers, the development
st
of the 1 block (indoor use) considered three different methods for establishing a reasonable
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amount. The primary method used to establish the 1 block was based upon the planning criteria
of the utility (gallons/capita/month) and an assumed household size. Each of the three methods
produced roughly the same results (amount of water), and the indoor allotment was established at
5,000 gallons/month for a single-family customer. There are a number of different methods that
nd
can be used to establish the outdoor (2 block) allotment of water. In general, an average lot
size of 9,000 square feet was assumed, with 5,200 square feet of irrigable area. Based upon this
irrigable area and an irrigation
rate of 15 gallons/square foot,
25,0000.60
the total water allotted for
0.50
20,000
irrigation was 78,000 gallons.
0.40
This amount of water was
15,000
Block 2
0.30
shaped on a monthly basis to
Ave. ETo
10,000
reflect changing irrigation re-
0.20
quirements (evapotranspiration)
5,000
0.10
throughout the year. In
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addition to the 78,000 gallons
for the irrigation period, addi-
tional water was provided in
the winter months, along with May and June (city’s water supply direct flow period). While the
previously described approach applies to a lot size of 9,000 square feet, the concepts can be
applied to any lot size, and rate structure alternatives were developed that used customer specific
nd
lot sizes to determine the customer’s 2 block size.
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The remaining single-family residential block sizes (3, 4, etc.) were established in relation to
the “outdoor” goal. The basic concept is that the majority of customers should be able to meet
their needs with the first two blocks of water. Any water over and above the first two blocks
may indicate inefficient use.
A similar process, as was described above, was used to establish the block sizes for each of the
customer classes of service. For each class of service, the block sizes were customized to reflect
the characteristics of the specific customer class of service.
Executive Summary ES-5
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
– The final key component of the evaluation was
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establishing the prices or rates for each rate structure. To develop the rates for each rate
structure, the city’s most recent cost of service study was utilized. This study provided the
foundation or basis for establishing the fixed service (meter) charges and the consumption
charges for the city. In that respect, the rate structures developed herein should be considered
“cost-based.”
– Six
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different rate structure alternatives were developed, analyzed and evaluated for the single-family
residential customers. In summary form, the six rate structures reviewed were as follows:
S-FRRS1
– Seasonally Differentiated Rate
INGLEAMILY ESIDENTIAL ATETRUCTURE
Structure With A 2-Block Winter Rate And A 3-Block Summer Rate.
S-FRRS2
– Water Budget With Four (4)
INGLEAMILY ESIDENTIAL ATETRUCTURE
Consumption Blocks. Block 1 Is Fixed For Indoor Use, Block 2 Is Based Upon The
Irrigation Requirements Of A 9,000 Square Foot Lot Size, And Block 3 Uses 150% Of Block
2 To Determine Size.
S-FRRS3
– Water Budget With Four (4)
INGLEAMILY ESIDENTIAL ATETRUCTURE
Consumption Blocks. Block 1 Is Fixed For Indoor Use, Block 2 Uses Three Different “Bins”
to Determine Irrigation Requirements, And Block 3 Uses 125% Of Block 2 To Determine
Size.
S-FRRS4
– Water Budget With Five (5)
INGLEAMILY ESIDENTIAL ATETRUCTURE
Consumption Blocks. Block 1 Is Fixed For Indoor Use, Block 2 Is Based Upon Tax
Assessed Lot Size, Block 3 Is 125% Of Block 2, And Block 4 Is 150% Of Block 2.
S-FRRS5
– Water budget with Four (4)
INGLEAMILY ESIDENTIAL ATETRUCTURE
Consumption Blocks. Block 1 is Fixed For Indoor Use, Block 2 is Based Upon Either a
Customer Provided Irrigable Size, or a Default of 5,200 square Feet of Irrigable Area.
Succeeding Blocks Based Upon Relationship to Block 2.
S-FRRS6
– Existing City Rate Structure Modified
INGLEAMILY ESIDENTIAL ATE TRUCTURE
To Reflect Current City Goals.
Of the six single-family residential rate structures that were evaluated, it was concluded that rate
structures 1, 4 and 6 appeared to be viable alternatives for the city to consider.
– Three
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different rate structure alternatives were developed, analyzed and evaluated for the multi-family
residential customers. In summary form, the three rate structures reviewed were as follows:
M-FRRS1
– Seasonally Differentiated Rate
ULTIAMILY ESIDENTIAL ATETRUCTURE
Structure with a 2-Block Winter Rate and a 3-Block Summer Rate.
Integrated Utilities Group Final Report, Volume II, Water, Wastewater, and Stormwater Rate Study and Plant
Investment Fee Analyses (November 2001)
Executive Summary ES-6
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
M-FRRS2
– Water Budget With Six (6)
ULTIAMILY ESIDENTIAL ATETRUCTURE
Consumption Blocks. Blocks 1 and 2 Are Fixed Per Unit Thresholds, Block 3 Is Based On
The Customer Specific Irrigable Area, and Succeeding Blocks Based Upon Relationship To
Outdoor Goal.
M-FRRS3
– Water Budget With Five (5)
ULTIAMILY ESIDENTIAL ATETRUCTURE
Consumption Blocks. Blocks 1 and 2 Are Fixed Per Unit Thresholds, Block 3 Is Based On
The Customer Specific Irrigable Area, and Succeeding Blocks Based Upon Relationship To
Outdoor Goal.
Based upon the evaluation of the three multi-family residential rate structures, it was concluded
that all three options are viable for the city to utilize. Of the three options, Option 2 may be the
least desirable because of the use of six blocks. It was concluded that rate alternatives 1 and 3
appear to be the most viable options for the city.
– Three
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different rate structure alternatives were developed, analyzed and evaluated for the
commercial/large user customers. In summary form, the three rate structures reviewed were as
follows:
C/LURS1
– Seasonally Differentiated Rate Structure
OMMERCIALARGE SERATETRUCTURE
With A 2-Block Winter Rate And A 2-Block Summer Rate. Block 1 set at 100% of Average
Monthly Consumption.
C/URS2
– Seasonally Differentiated Rate Structure
OMMERCIALLARGE SERATETRUCTURE
With A 2-Block Winter Rate And A 2-Block Summer Rate. Block 1 set at 90% of Average
Monthly Consumption.
C/URS3
– Non-Seasonal Rate Structure With Two
OMMERCIALLARGE SERATETRUCTURE
Blocks. The First Block Size Is Based Upon the Customer Meter Size and the Average
Monthly Use of the Customers With That Same Meter Size.
It was concluded that all three alternatives are viable options for the city. Alternative 2, which is
a variation of Alternative 1, appears to be the better choice of the first two alternatives.
Alternative 3, while a viable alternative may produce some large rate impacts to specific
customers, given that it is a significant change from the city’s current approach for commercial
customers (i.e. use of individual average winter consumption (AWC) vs. group average).
– Three different
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rate structure alternatives were developed, analyzed and evaluated for the metered irrigation
customers. In summary form, the three rate structures reviewed were as follows:
MIRS1
– Uniform Rate.
ETERED RRIGATION ATETRUCTURE
MIRS2
– Water budget with Three (3) Consumption
ETERED RRIGATION ATETRUCTURE
Blocks. Block 1 is Based Upon Customer Specific Irrigable Area, Succeeding Blocks are
Based Upon Relationship To Outdoor Goal (Block 1).
Executive Summary ES-7
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
MIRS3
– Inverted Block Rate with Three (3)
ETERED RRIGATION ATETRUCTURE
Consumption Blocks. Block 1 is Based Upon 90% of the Customer’s Average Summer
Consumption (ASC), Succeeding Blocks are Based Upon Relationship To Outdoor Goal
(Block 1).
Of the three alternatives, the first rate structure was too simple and lacked the incentives for
efficient use that the city desires. Of the remaining two options, the second rate structure, which
used measured irrigable area, seems to be the best choice. Water budgets are ideal for this type
of customer. While the third option is a viable option, it is simply a default should the city not
decide to implement a water budget rate structure for this particular class of service.
– A peer review was conducted of other Front-Range
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utilities to determine their rate structures. Of the sixteen (16) Front-Range utilities surveyed,
only one (1) utilized water budget rate structures (Highlands Ranch). The predominate rate
structure utilized appeared to be an inverted block rate structure. It should be noted that Boulder
currently utilizes a form of an inverted block rate structure.
The peer review also examined in detail those utilities that have or had water budgets in place.
This included the Irvine Ranch Water District in California. In most cases, water budget rate
structures were implemented during severe droughts as a response to the need for efficient use.
One of the more interesting findings was that cost of service was not used as a basis to establish
the rates or the prices for the blocks. When the prices were established for the water budget rate
structures, a comprehensive cost of service study was not conducted to determine the rates for
each block. Rather, some utilities determined a “melded rate” by dividing it water supply costs
by total consumption. This provided the pricing for the base rate block of consumption. The
pricing for the subsequent blocks was set at a "punitive" level to reduce excess water use. If
available, the excess revenue received from the “penalty rates” is used to offset the revenue
deficiency from the residential low volume discount rate. From a purely technical rate design
perspective, it could concluded that these are not cost-based rates since they are not based upon
cost of service principles, and they are not designed to collect a specific target revenue
requirement.
Finally, in the peer review it was noted that none of the utilities that use water budgets are
currently using water budget rate structures for their commercial customers. Rather, the utilities
used rate structures similar to those proposed herein for the commercial customers.
Evaluation of the City’s Billing System
The city’s present utility billing system was developed in-house in the early 1980’s and it has
served the city well over the years. However, during the drought of 2002, the limitations of the
present system came to light as alternative rate structures were suggested to encourage more
efficient use and conservation. The objective of this portion of the study was to evaluate the
city’s billing system. Provided below is a summary of the findings, conclusions and
recommendations of this portion of the study.
Executive Summary ES-8
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
– The city’s utility billing system,
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developed in the early 1980’s, was modified to a 3-tier client/server application in 1997. The
system bills, records payments, and tracks consumption for all water, wastewater, and
stormwater/ flood management customers. The current system also records meter inventory and
maintenance information.
– One of the first steps in evaluating the need for any new
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utility billing system software is to gain an understanding of the current business process. For
this study, the business process is documented such that it will enable the city to communicate to
potential vendors the specific software requirements needed to meet the city’s business process.
In developing the business process review, Langham obtained data and information in two
distinct and different ways. The information reviewed and included in this report was obtained
through written documentation provided by the city of Boulder, as well as personal interviews
conducted with city staff.
The business process review focused on the following areas:
Monthly Utility Rates and Fees (Water, Wastewater, Stormwater & Flood Management
Rates)
Billing Process
Bill Printing
Payment Process/Cash Receipting
Credit and Collections
Courtesy Reminder Letters
Final Notice Letters
Payment Agreement
Cash Only Designation
Bankruptcy
Customer Service
Meter Field Service/Work Orders
–
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After an extensive review of the current utility business process, it was evident that there were
several areas in which changes to the current utility billing system could potentially benefit the
city. Below is a summary listing of some of these possible enhancements to the current billing
system and business process. The list below only includes those enhancements that are
considered most beneficial or significant. Therefore, this list of enhancements is not meant to be
all encompassing.
Monthly Utility Rates and Fees (Water, Wastewater, Stormwater & Flood Management
Rates)
Increase Flexibility and Ease of Changing Rates
Bill for Additional Services (current system limited to only 3 services)
Executive Summary ES-9
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
Billing Process
Additional Automation of Functions Currently Manually Conducted by City Staff
Ability to “Master” Bill – Bill Consolidation
Flexible Bill Format and Messaging
Ability of Billing Service Representatives to Generate Duplicate Bills
On-Line Bill Review
Improved Cashiering
Credit and Collections
Improved Credit History by Customer
Customer Service
Enhanced Customer Information (identify life support customers, planned outages,
automatic generation of customer information letters, etc.)
Meter Field Service/Work Orders
Expanded Upload of Meter Reads (Areas) Per Evening (Note: current system is limited
to 18 areas per evening)
Increase Number of Meter Reads Per Billing Cycle (i.e. ability to read multiple times
per month, but only bill once per month. Current system bills once a month when
meter is read and information is uploaded).
While the city’s present billing system is operating properly and successfully achieving its main
task (i.e. billing the customer), the current system lacks flexibility in certain areas. As has been
noted in this section of the report, an updated system could provide benefits in the area of more
efficient operations, better customer communication, and most importantly, greater flexibility,
particularly as it relates to the potential for different rate structures.
– As the city moves forward with the decision on billing
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software solutions, a key decision will be whether to buy pre-packaged vendor software, or a
custom-built solution. As a part of the study, a comparison of the potential advantages and
disadvantages of each of these alternatives was developed.
The advantages of building custom software is the amount of control over the final design and
features of the software. Counter-balancing those advantages are the potential risks primarily
related to the cost of the development of the software, maintenance of the software and the
quality of the final software that is developed.
The advantages of purchasing vendor software center around a well developed, documented and
tested product that uses a “best practices” approach. In contrast, the disadvantages of purchasing
vendor software focus on those situations where the vendor software may not perfectly fit the
city’s business process, and the possible implications of modifying or not modifying the software
to exactly meet the city’s business process.
A cost analysis is an integral part of the review of the advantages and disadvantages for building
versus buying a system. Vendors that focus on the municipal utility market were contacted as a
part of this study. In addition to vendor products, the estimated cost to build a custom system
from “scratch” were provided by the vendor currently used to support the city’s utility billing
system. A summary of the estimated costs from the various vendors in comparison to a custom-
built system are shown in Graph ES-1.
Executive Summary ES-10
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
Graph ES-1
Comparison of Estimated Vendor Costs Versus Building Costs
$1,200,000.00
$1,000,000.00
$800,000.00
$600,000.00
Maintenance Fee
Implementation
$400,000.00
Licensing / Development
$200,000.00
$0.00
Vendors
As a part of the cost of any system are the implementation costs and issues. A checklist of
implementation issues was provided to assure that the city understands the potential problem
areas regardless of whether the system is custom-built or a pre-packaged software solution.
– The objective of the peer review is to understand the approach and
4IIV'SQTEVMWSRW
systems used by other comparative utilities. The utilities selected for this review were from
states with a focus on conservation and conservation-based rates. These states included Arizona,
California, Colorado, New Mexico and Utah. In addition, some Florida utilities were included
since water conservation is also an important issue in that state.
In general, the peer review found a number of utilities that have custom-built systems. However,
it appears that most utilities utilize pre-packaged vendor software. In addition, very few utilities
have “water budget” rate structures, but the vast majority do use an inverted block rate structure.
Those communities that have implemented “water budget” rate structures have used either a
custom developed billing system or have customized/ reprogrammed their existing billing
system. As would be expected, the level of satisfaction with both custom-built and pre-packaged
software varied from user to user.
– A review
6IZMI[SJ6EXI7XVYGXYVI%PXIVREXMZIWERH4SXIRXMEP:IRHSVW
was undertaken of each of the rate structures alternatives that were chosen to be evaluated in
detail. The objective was to identify for each rate structure any issues or concerns that a
potential vendor may have with using “pre-packaged” software to bill the rate structure.
Executive Summary ES-11
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
The majority of the components within the rate structures being evaluated by the city are
supported by existing software vendor products. These components include various customer
classes, summer/winter rate differentials, the tiered (inverted) block structure, history based
consumption calculations and the additional information such as impervious area, lot size,
pervious area, and number of living units. However, many of the water budget rate structures
reviewed included options for utilizing historical weather and ET. When reviewing these
structures, the calculation of the water allocation will require specific logic for the city. The cost
of this software modification will vary depending on the flexibility of the vendor’s current
product, and the complexity of the rate structure. As the rate structure becomes more complex,
the access to information via reports and ad hoc queries may become more complex even with
additional effort from city Information Technology and vendor staff.
In summary, it would appear that all of the non-water budget rate structures can be handled
currently by vendor software with potentially little or no modifications. The exception to that
comment is the calculation of average summer consumption and average monthly consumption
based upon a three-year historical period for the commercial and metered irrigation rate
structures. In contrast to this, the water budget rate structures may be difficult for vendors to
provide, depending upon the level of complexity of the final rate structure. Even the simplest
water budget rate structure may have a limited number of vendors capable of billing a water
budget rate structure, without some modification to their software. The more complex water
budgets may have a very limited number of vendors, and would probably require custom
modifications.
Billing System Evaluation Recommendations
– This report is the beginning of a
process to provide better tools to support the city of Boulder’s goals and objectives. An
improved billing system can automate processes that could improve productivity and eliminate
duplication of data and manual effort. These automated processes could be provided by
expanding the current system, redesigning and developing a system to meet the specific needs of
the city or purchasing a vendor supplied system. Obviously, there are advantages and
disadvantages to each potential solution, which must be carefully evaluated and weighed by the
city.
From analysis conducted as a part of this study, a number of conclusions and recommendations
have been reached. Provided below is a discussion of the billing system recommendations.
The next step for city of Boulder should be to complete the final definition of the functional
requirements and release a Request for Information (RFI) for a new billing system. Only
after reviewing the responses to the RFI will the city know whether there is a vendor supplied
package that can meet all the requirements, as currently defined.
Langham is of the opinion that the benefits to purchasing a vendor supplied product out-
weigh the benefits to building a product. Langham reaches this conclusion based upon the
fact that a vendor software product would be available and ready for configuration, while
involving less risk and more control of total costs. However, if the city selects a rate
structure that is not widely used in the industry then purchasing a pre-packaged vendor
product may not be quite as advantageous.
Executive Summary ES-12
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
Section 1
Introduction and Overview of the Study
1.1 Introduction
Economic and Engineering Services, Inc. (EES) and Langham Consulting Services, Inc.
(Langham) were retained by the City of Boulder to provide a comprehensive evaluation of the
city’s water rate structures and utility billing system. In providing this review, a two-volume
report has been developed. Volume 1 discusses the evaluation of the city’s water rate structure.
Volume 2 discusses the review and evaluation of the utility billing system.
1.2 Goals and Objectives in Evaluating the Rate Structures
The city had multiple goals and objectives in evaluating the water utility rate structures.
Provided below is a listing of the goals and objectives for this portion of the study.
Assist the city in developing and selecting a rate structure that focuses on using water
efficiently and conserving water during drought and non-drought years.
Assist the city in developing and selecting a rate structure that is flexible and responsive to
changing conservation needs under drought conditions.
Review the city’s current rate designs/structures and provide, as appropriate, alternative rate
designs that are contemporary, cost-based, defensible and meet the specific rate design
objectives of the city.
Work effectively with the Water Resources Advisory Board (WRAB), the City Council and
the public concerning the findings, conclusions and recommendations of this study.
In conducting this study for the city, the approach used to evaluate the various rate structures was
designed specifically to meet the above goals and objectives. At the same time, it was designed
specifically to provide to WRAB and the city, a non-biased decision framework to evaluate the
various rate structures.
1.3 Overview of the Volume 1 Report
This report is designed to document the approach used to evaluate the various rate structures. As
the rate structure evaluation study progressed, technical memorandums were written at key
decision points. This report has incorporated the technical memorandums into this report to
provide a detailed discussion and review of the study. In addition, other material and discussion
has been included within this report to provide a complete and comprehensive documentation of
our findings, conclusions and recommendations.
Introduction and Overview of the Study 1-1
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
The following section of this report will discuss the City of Boulder’s goals and objectives in
designing and setting their water rate structures. This section of the report provides the basis
around which rate structures are often established, and compares those rate structure attributes to
the city’s existing rate structures. Next, Section 3 of the report provides an overview of rate
setting terminology and begins the process of considering a number of different rate structures
for evaluation and review. In total, twenty-two (22) different rate structures are evaluated using
an evaluation process. Section 4 discusses the prioritization of the city’s rate design goals and
objectives and the evaluation process that was undertaken to take the twenty-two rate structures
and narrow them down to a “Top 5” for further detailed review. Section 5 uses the “Top 5” rate
structures as a starting point to place greater clarity and definition of how the “Top 5” rate
structures will be specifically applied to each class of service. Given specific definitions of the
rate structure for each class of service, the final task in the evaluation process is the development
of the pricing for each of the rate structures, along with a comparison to the city’s existing rate
structure. This aspect of the study is discussed in Section 6. Section 7 of the report provides a
“peer” review of the rate structures used by other water utilities, how they compare to the rate
structures being proposed within this study, and some of the issues associated with those rate
structures. Finally, Section 8 summarizes the findings, conclusions and consultant
recommendations from this study.
1.4 Summary
This section of the report has provided a brief overview of the report prepared for the city
reviewing the current water rate structure, and evaluating alternative water rate structures. The
next section of the report will discuss the process used to review the city’s goals and objectives
in establishing their water rates.
Introduction and Overview of the Study 1-2
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
Section 2
Review of the City of Boulder’s Goals and
Objectives for Setting Water Rate Structures
2.1 Introduction
The City of Boulder has been providing water service to its citizens since the mid-1870’s. Since
that time, the methods of charging for water service have changed dramatically as the system has
expanded, but more importantly, as the need to protect and encourage efficient use for the
resource has changed. The city’s water rates have always functioned around the major goal of
collecting sufficient revenues to meet the utility’s financial requirement. However, in more
recent years, other rate setting goals and objectives, other than simply meeting the city’s revenue
requirements, have become more prominent.
The review that follows will examine the city’s historical rate design goals and objectives. This
has been documented by reviewing the city’s historical documents (e.g. past rate studies,
comprehensive planning documents and City Council/Water Resources Advisory Board
minutes/notes). The purpose of the review is to gain a better understanding of the city’s
historical perspective as it related to the establishment of rates. The city’s historical rate setting
goals and objectives can then be compared to “generally accepted” or traditional rate design
goals and objectives, that other contemporary water utilities may utilize. From this list of goals
and objectives, a comparison can be made to the city’s existing rate structure to determine how
well it meets the city’s desired goals and objectives (attributes).
2.2 Evolution of the City’s Rate Structure
A review was undertaken of the city’s historical documents to gain a better understanding of the
evolution of the city’s rates and the goals and objectives that may have been used to establish
them. The purpose of this review was not to document the actual rates, per se, but rather the
policy perspectives that were used to establish the rates.
Our review identified the evolution of the city’s water rates that first began as “rents” for
services since there were virtually no meters when water service began. Historically, this was a
common practice for water utilities to base their rates on potential end uses (e.g. number of seats
in a restaurant, etc.). By the early 1900’s water use was restricted due to drought conditions.
The city’s customers were requested to conserve water during this time, which prompted the
discussion of metering of water and selling “rents” at a fair price.
In 1908, metering of service began with those who had “extensive” water use. Two years later,
additional metering was installed. Charges for different customers varied from continuing the
Review of the City of Boulder’s Goals 2-1
and Objectives for Setting Water Rate Structures
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
“rents” philosophy, to a flat rate and even free service for the Hotel Boulderado to encourage
tourists to sample Boulder’s “famous” water. By 1965, the city’s residential customers were
completely metered. The utility ran into a deficit during the first few years requiring an increase
in rents. The deficit necessitated that more industries be metered to solve the deficit issue.
Throughout time the city has attempted to add greater equity and fairness to the water rates
through variable meter charges and a consumption rate based on the amount of water consumed.
In 1988, the city adopted an inverted block rate charge in an effort to encourage water
conservation. Under this approach, average winter consumption is calculated to determine the
size of the first block of consumption. The following two blocks of the inverted block structure
are determined based upon the size of the first block. The city continues to use the inverted
block rate structure that was developed and implemented in 1988. However, with the drought of
2002, the city has modified its rates to incorporate “drought surcharges” or “drought rates”
whereby the rate to be charged during drought conditions is established, and implemented as the
city declares the various stages of drought. As the drought conditions worsen, the rate charges
increase.
As indicated by the city’s historical documentation, the first rate structure was a simple charge
assessed to citizen’s for the opportunity to receive water service and to provide a means for the
city to recover costs. Throughout time, and as changing conditions dictated, the city has
implemented more sophisticated rates that take into account a blend of financial, operational,
environmental and community goals.
2.3 Review of the City’s Past Rate Design Goals and
Objectives
A review of city documents was undertaken to determine the city’s past goals and objectives in
setting its water rates. A variety of documents were reviewed that had some relationship to the
rate setting process (e.g. past rate studies, drought plans, etc.).
In establishing water rates, some typical goals and objectives may be items such as, rates that are
easy to understand and administer, that produce sufficient revenues, that provide revenue
stability and encourage conservation. This list is by no means all inclusive, but rather illustrates
the types of goals and objectives that are often considered in the rate setting process.
In summary, we found a limited amount of written documentation concerning the specific goals
and objectives that were used to establish the city’s rates, past and present. In many cases, we
believe the goals and objectives were discussed in the rate setting process, but not clearly
documented in written form. In addition, EES did not find any prioritization of the goals and
objectives. In other words, we found no documentation that stated that one goal was more
important or preferable over another.
With the change of the city’s rates and rate structures over time, as would be expected, the goals
and objectives have also evolved. The review of the city’s past and present rate structures
indicates a significant change from the initial approach of charging “rent” for water service to the
drought rates that are in place today. As with any growing and evolving utility, some of the
Review of the City of Boulder’s Goals 2-2
and Objectives for Setting Water Rate Structures
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
goals and objectives of the past have been refined to account for the changing issues and
concerns of modern times. Our review of the city’s historical and current documentation
revealed the following city rate design goals and objectives:
RSR.
The rate structure should minimize fluctuation in
EVENUE TABILITY AND ELIABILITY
revenues due to changes in demand.
During the 1988 rate review the city determined that
revenue stability was one of its most important objectives.
RS.
The rate structure should be formulated to meet the utility’s
EVENUE UFFICIENCY
operating and maintenance costs, maintain required reserves and meet debt service coverage
(DSC) requirements. Utility assesses fees and charges to ensure that revenues are
sufficient to meet operating and maintenance costs, and to maintain the financial integrity of
the utility. In order to meet the goals of providing safe and reliable water to its customers,
all water utilities must collect revenues sufficient to cover their operating and maintenance
costs, meet DSC requirements and fund designated reserves.
E.
Any discomfort, difficulty and sacrifice due to the drought should be shared and
QUITY
not borne by just one type of customer or water use. Fairness to all customers in the
establishment of the rates.
RS,CCI.
These three objectives
EVENUE TABILITYONSERVATION AND USTOMER MPACT
were initially defined by Boulder’s City Council during the 1987 rate study. Reflects
balancing of conservation goals, customer impacts and fiscal management. Boulder’s
current rate structure is conservation-oriented and designed to encourage efficient use of
water by sending a clear price signal for high or excessive water use.
C/EU.
Enhance the city’s philosophy of conservation by using
ONSERVATIONFFICIENT SE
the water pricing structure to encourage the efficient use of water and to discourage or
penalize inefficient uses.Relying on pricing mechanisms or rate structures alone, without
mandatory restrictions (in a drought), may not produce water use reductions fast enough to
deal effectively with a serious drought situation.
3
Water Resources Advisory Board (WRAB) Meeting Minutes, March 17, 2003, p. 11.
4
Rate and PIF Review/Update, IUG, October 16, 1995, p. ES-2.
5
Debt service coverage is a financial test and legal rate covenant associated with the issuance of revenue bonds and
other certain types of long-term debt. Debt service coverage is used to assure bondholders of the City’s ability to
repay the debt.
6
Water Resources Advisory Board (WRAB) Meeting Minutes, March 17, 2003, p. 1.
7
City of Boulder 2003 Budget, Volume 1, Utility Rates Section, p. 29.
8
City of Boulder Drought Plan, Volume 2, February 2003, p. 59.
9
City of Boulder Drought Plan, Volume 1, February 2003, p. 9.
10
Rate and PIF Review/Update, IUG, October 16, 1995, Volume 2: Appendix D - initial project meeting of the
commercial/industrial pricing and implications for rate structures.
11
Rate and PIF Review/Update, IUG, October 16, 1995, p. 3-1.
12
Comprehensive Utility Rate Evaluation, Ernst & Young, June 1992, p. C-8.
13
City of Boulder Drought Plan, Volume 2, February 2003, p 60.
14
Comprehensive Utility Rate Evaluation, Ernst & Young, June 1992, page B-1
15
City of Boulder Drought Plan, Volume 2, February 2003, p. 53.
Review of the City of Boulder’s Goals 2-3
and Objectives for Setting Water Rate Structures
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
R
:
ATE DESIGN EVALUATION CRITERIA
Legally defendable
Administrative burden
Support of conservation goals
Fairness to all customers
Public acceptance
Equitability
CSB(..C-B).
The city employs a cost of service
OST OF ERVICE ASED IEOSTASED
methodology in designing water rates consistent of four steps; definition of revenue
requirements, allocation of revenue requirements to functional cost components, distribution
of functional costs to customer classes and rate design. The Boulder water rate design
methodology incorporates the following customer service characteristics - base, extra
capacity (maximum day and maximum hour), conservation, customer/billing and meter.
As can be seen from the above listing, over the years and in various documents, the city has
considered a number of different goals and objectives in establishing its rates and the resulting
rate structures. However, it is clear that the city does not have a specific detailed list of rate
design goals and objectives that they can point to and state that those specific goals and
objectives formed the basis for the decision to implement a specific rate structure.
2.4 Attributes of a Sound Rate Structure
The attributes of sound rate structures have been documented in a number of rate setting
manuals. However, the foundation for evaluating rate structures is generally credited to James
C. Bonbright in the Principles of Public Utility Rates. The manual Principles of Public Utility
Rates provides utility managers and policymakers an understanding of pricing policies, theories
and economic concepts that support various rate designs. Bonbright’s list of the attributes of a
sound rate structure is quoted in a number of other rate manuals and is often paraphrased and
simplified in reading utility rate study reports. Bonbright certainly wasn’t the first person to
consider the attributes of a sound rate structure. Bonbright simply considered many of the
opinions and discussions of the time and condensed them into a compact list. Bonbright offers
the following thoughts concerning his list of attributes:
“The list that follows is fairly typical, although we have derived it from a variety
of sources, instead of relying on any one presentation. Of the ten proposed
attributes enumerated in this section, the first three relate to the provision of
adequate stable and predictable revenues and rates; the next five are based on
cost, efficiency, and equity considerations, and the remaining two deal with the
16
Rate and PIF Review/Update, IUG, October 16, 1995, Volume 2: Appendix D - initial project meeting of the
commercial/industrial pricing and implications for rate structures.
17
City of Boulder Drought Plan, Volume 2, February 2003, p 59-60.
18
Rate and PIF Review/Update, IUG, October 16, 1995, p. 3-1.
19
James C. Bonbright; Albert L. Danielsen and David R. Kamerschen, Principles of Public Utility Rates, (Arlington,
VA: Public Utilities Report, Inc., Second Edition, 1988), p. 383-384.
Review of the City of Boulder’s Goals 2-4
and Objectives for Setting Water Rate Structures
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
matters of practicality and acceptability. However, the sequence in which the ten
attributes are presented is not meant to suggest any order of importance.
Moreover, there is, perforce, some inconsistency and redundancy in any such
listing. We are simply trying to identify the desirable characteristics of utility
performance that regulators should seek to compel through edict.”
Bonbright recognized the challenge of establishing rates and suggests that the list of attributes
should be used as a reminder of the many possible considerations in the rate design process.
However, he also noted that the list is “also useful in suggesting important reasons why problems
of practical rate design do not yield readily to scientific principles of optimum pricing.”
Finally, Bonbright recognized that his list of attributes lacked clear definitions (e.g. how does
one define “undue discrimination”), along with overlapping and conflicting characteristics.
Provided below are the ten attributes to a sound rate structure as identified by Bonbright. For
each of Bonbright’s attributes, we have tried to clarify and state the attribute in easy to
understand terminology, along with providing a better definition of those attributes that may be
directly applicable to the City.
6IZIRYIVIPEXIH%XXVMFYXIW
B:
Effectiveness in yielding total revenue requirements under the fair return
ONBRIGHT
standard without any socially undesirable expansion of the rate base or socially undesirable
20
level of product quality or safety.
R:
The city’s rates should meet the total revenue requirement needs of the city.
ESTATED
D:
The rate structure will be developed to cover the total costs of utility
EFINITION
operations, under a “cash needs” approach – operating, capital, debt service coverage and
reserves.
B:
Revenue stability and predictability, with a minimum of unexpected changes
ONBRIGHT
seriously adverse to utility companies.
R:
Revenue stability and predictability, with a minimum of unexpected changes
ESTATED
seriously adverse to the city’s utility.
D:
The rate structure will be developed to eliminate swings in revenue generation
EFINITION
from year to year based on such factors as weather, conservation and customer usage
changes. Annual swings in planned revenue should be no greater than 5% and 10%.
20
Ibid, p. 382-383.
21
Ibid. p. 384.
22
The AWWA M-1 Manual, Principles of Water Rates, Fees and Charges, discusses two “generally-accepted”
methodologies for establishing revenue requirements. Bonbright refers to a “fair return standard” which
typically applies to the “utility/accrual” basis of establishing revenue requirements. Under this methodology, the
utility is entitled to earn a “fair” return on its investment. This is the methodology used by privately owned
utilities, and some public utilities. In contrast, most municipal utilities, including the City, use the “cash-basis”
methodology. Under this approach, the City sums its O&M, debt service and capital improvements funded from
rate revenues to equal its revenue requirements. Over time, both methodologies should produce roughly the
same revenue requirements.
Review of the City of Boulder’s Goals 2-5
and Objectives for Setting Water Rate Structures
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
B:
Stability and predictability of the rates themselves, with a minimum of
ONBRIGHT
unexpected changes seriously adverse to ratepayers with a sense of historical continuity.
(Compare “The best tax is an old tax”).
R:
From the customer’s perspective, the rates should appear to be stable and result
ESTATED
in customer bills that are relatively predictable. There should be a continuity of philosophy
in the establishment of the rates, with a minimum of unexpected changes seriously adverse to
customers.
D:
The implementation of new rate structures should be consistent with past utility
EFINITION
rate setting philosophy and minimize customer impacts during any change in rate structure.
A typical customer, under normal conditions, and “normal” usage, should not have an
adjustment greater than 10% on an annual basis, unless based upon cost of service.
'SWXVIPEXIH%XXVMFYXIW
B:
Static efficiency of the rate classes and rate blocks in discouraging wasteful
ONBRIGHT
use of service while promoting all justified types and amounts.
in the control of the total amounts of service supplied by the company.
in the control of the relative uses of alternative types of service by ratepayers (on-peak
versus off-peak service or higher quality versus lower quality of service).
R:
Efficiency and effectiveness of the rate classes and rate blocks in discouraging
ESTATED
wasteful use of service while promoting all justified types and amounts.
D:
The rate structure should promote efficient use of water and discourage or
EFINITION
penalize inefficient uses.
B:
Reflection of all of the present and future private and social costs and benefits
ONBRIGHT
occasioned by a service’s provision. (i.e., all internalities and externalities).
R:
The rate should reflect all of the utility’s present and future internal costs, along
ESTATED
with the external private and social costs/benefits.
D:
The rate structure should reflect all traditional internal costs (direct and
EFINITION
indirect) that the city incurs, and, under appropriate situations and conditions (e.g. severe
drought) may also include externalities of present and future costs and benefits (i.e. marginal
cost and/or value of water).
B:
Fairness of the specific rates in apportionment of total costs of service among
ONBRIGHT
the different ratepayers so as to avoid arbitrariness and capriciousness and to attain equity in
three dimensions: (1) horizontal (i.e., equals treated equally); (2) vertical (i.e., unequals
treated unequally); and (3) anonymous (i.e. no ratepayer’s demands can be diverted away
uneconomically from an incumbent by a potential entrant).
R
Fairness of the rates in the allocation of total costs of service among the different
ESTATED
ratepayers so as to avoid arbitrariness, capriciousness and to attain equity.
D:
The rates and the rate structure shall be based upon a fair allocation of total
EFINITION
cost of service among the customer classes of service by use of a “generally accepted” cost
of service methodology such as defined in the AWWA- M1 manual.
Review of the City of Boulder’s Goals 2-6
and Objectives for Setting Water Rate Structures
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
B:
Avoidance of undue discrimination in rate relationships so as to be, if possible,
ONBRIGHT
compensatory (i.e. subsidy free with no inter-customer burdens).
R
: The rates should be, as practically possible, non-discriminatory, between
ESTATED
customer groups, and within each customer group.
D:
The rate structures should avoid interclass subsidies whenever possible to
EFINITION
ensure each class pays its full cost of service.
B:
Dynamic efficiency in promoting innovation and responding economically to
ONBRIGHT
changing demand and supply patterns.
R:
The ability and efficiency of the rate to respond to changing demand and supply
ESTATED
patterns.
D:
The rate structure should be developed such that it either responds
EFINITION
appropriately and directly to changes in supply, demand, etc, or alternatively, contains the
flexibility to allow the utility to respond to the changing needs as a result of supply, demand,
and/or environmental concerns (e.g. drought conditions).
4VEGXMGEPVIPEXIH%XXVMFYXIW
B:
The related, practical attributes of simplicity, certainty, convenience of
ONBRIGHT
payment, economy in collection, understandability, public acceptability and feasibility of
application.
R:
The attributes of simplicity, certainty, convenience of payment, economy in
ESTATED
collection, understandability, public acceptability and feasibility of administration.
D:
From the customer’s perspective, the rate structure should be simple to
EFINITION
understand, such that the customer can easily understand the bill. From the utility’s
perspective, the rate structure should be easy to administer and collect. Finally, the rate
structure should have acceptance by the majority of the customers that the rate structure and
resulting bills are “fair and equitable.”
B:
Freedom from controversies as to proper interpretation.
ONBRIGHT
R:
Freedom from controversies as to the application of the rate schedule to the
ESTATED
customer and calculation of the customer’s bill.
D:
The rate structure should not be ambiguous in its terminology and structure. It
EFINITION
should be simple to explain and understand by the average customer to minimize any
misinterpretation regarding the customer’s bill and the overall goals that the rate structure
has been developed to meet.
Given clearer definitions of Bonbright’s attributes of a sound rate structure, these definitions can
be used to review and evaluate the city’s existing rate structure and identify those attributes
which are being fully or partially met, and those attributes that are not being met.
Review of the City of Boulder’s Goals 2-7
and Objectives for Setting Water Rate Structures
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
2.5 Review of the City’s Current Rate Design Structure
An important starting point for reviewing the attributes of the city’s existing rate structure is
having a good understanding of the city’s current rate design and its structure. In reviewing water
rate designs, consideration is given to both the level of the rates and the structure of the rates.
Level refers to the amount of revenue to be collected from a specific rate design (i.e., the rate
design is intended to collect $2.0 million over a 12 month period). In contrast, structure refers to
the way in which the $2.0 million is collected from the customers. At this point, we are focused
on reviewing structure, as opposed to the level of the rates.
The current rate design of the city consists of a fixed monthly service charge based on the size of
meter service and a three block inverted (increasing) rate structure. The monthly meter service
charge has a differential for outside city customers. The consumption charge increases as the
amount of consumption increases. The size of each block is specific to a customer. The initial
block is generally determined based upon the user’s average winter consumption (December to
March bills). From the average winter consumption (AWC), the remaining two blocks are
related to the size of the initial block. Most recently, the city added drought surcharges to the
rate structure for residential and irrigation customers. Drought surcharges only apply when
droughts are declared, and the rates adjust according to the various stages of drought. It should
also be noted that the single-family residence AWC is capped at a maximum of 8,000 gallons a
month to determine the appropriate water billing block. A summary of the current water rate
structure is presented in Table 2-1.
Review of the City of Boulder’s Goals 2-8
and Objectives for Setting Water Rate Structures
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
Table 2-1
Overview of the City of Boulder’s Present Rates
Typical Drought Drought Drought Drought
Conditions Stage I Stage II Stage III Stage IV
Service Charges – $/Month [1]
3/4” $8.12 Service Charges Apply to All Customer and All Water Conditions
1” 13.88
1–1/4” 21.28
1–1/2” 30.30
2” 53.32
3” 119.02
4” 211.00
6” 473.93
8” 841.99
Residential/Irrigation
Consumption Charges –
$/1,000 gallons
Per Unit Rate + Drought Surcharges
Block 1 [2] $1.65 $0.00 $0.00 $0.00 $0.00
Block 2 [3] $3.30 $0.50 $1.00 $2.00 $4.00
Block 3 [4] $6.60 $1.00 $2.00 $4.00 $8.00
Per Unit Effective Price -
Block 1 [2] $1.65 $1.65 $1.65 $1.65 $1.65
Block 2 [3] $3.30 $3.80 $4.30 $5.30 $7.30
Block 3 [4] $6.60 $7.60 $8.60 $10.60 $14.60
Commercial/Industrial
Consumption Charges –
$/1,000 gallons
Per Unit Rate
Block 1 [2] $1.65 Drought surcharges currently do not apply to
Block 2 [3] $3.00 Commercial/Industrial customers
Block 3 [4] $4.40
Per Unit Effective Price -
Block 1 [2] $1.65
Block 2 [3] $3.00
Block 3 [4] $4.40
[1] – There is a 50% differential on outside City customers for the service charge portion only
[2] – Block 1 is determined based upon average winter water use of the customer (December to March bills)
[3] – Block 2 is 350% of Block 1
[4] – Block 3 is over 350% of Block 1
2.6 Review of the Attributes of the City’s Current Rates
A comparison was undertaken of the city’s current rate design structure to the attributes of a
sound rate structure listed by Bonbright. The objective of this comparison is to better understand
the strengths and weaknesses of the city’s current rate design. Our review of the attributes are
shown below in Table 2-2.
Review of the City of Boulder’s Goals 2-9
and Objectives for Setting Water Rate Structures
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
Table 2-2
Comparison of the City’s Current Rate Structure to
Bonbright’s Attributes of a Sound Rate Structure
Rate Design Attribute Partially Meets MeetsDoes not Meet
1.Effectiveness in yielding
Under mild drought Under typical conditions rates Under severe drought
total revenue requirements. conditions, or wet are designed to meet O&M conditions, or extreme wet
conditions, there may be and capital needs. conditions, unclear as to
a slight shortfall in whether the rates would
covering operating and yield the total revenue
capital needs. requirements.
2.Revenue stability and
Inverted block rate The fixed monthly service Current rate structure may
predictability.
structure creates some charge provides for revenue have revenue swings
instability, even under stability, regardless of water during drought conditions
typical water conditions. conditions. due to the uncertainty of
water use and restriction
levels.
3.Stability and predictability Steepness of the The current rate structure Implementation of severe
of the rates themselves. inverted block rates may continues the City’s drought surcharges (Stage
create bills that are philosophy of inverted block II and above) may have a
unusually large and rates.very large impact on
unexpected for the certain customers.
customer.
4.Discourage wasteful use, Focus of the City’s rates The current inverted block AWC may encourage
while promoting all justified appears to be on rate and drought rates clearly “inefficient” use.
types and amounts. discouraging wasteful promote efficient use and
use. May not achieve conservation.
all justified uses, while
avoiding block 3 rate.
5.Reflect all present and
Rates reflect internal The current rate structure The City’s rates will never
future costs (internalities accounting costs. attempts to include all utility fully reflect the full
and externalities) and Severe drought rates costs through the use of an “social” costs and benefits
benefits of providing utility may reflect internal and annual budget process that of the water.
service. external costs. defines cost requirements.
Fair allocation of total cost Rate blocks may not be Cost allocation method used Under severe drought
6.
of service among the cost-of-service based to develop the current rates conditions, the rates may
customer classes of service under certain water utilizes a “generally accepted” be inequitable by class of
to attain equity.
conditions and levels of methodology as defined in the service.
use.AWWA M-1 Manual.
7.Avoidance of undue Level of rates and lack Use of a cost of service No clear or obvious signs
discrimination in rate of drought surcharges methodology establishes of rate discrimination
relationships. for C/I customers may average unit costs by class of (legal perspective).
appear to other service.
customers as being
inequitable.
8.Dynamic in its ability to
Clearly responds to Clearly contemplates drought Does not respond to years
respond to changing supply drought conditions, but conditions and is sufficiently with plentiful water
and demand conditions may not reflect surplus flexible to allow different supply conditions.
and/or environmental (run-off) conditions. rates depending upon supply
concerns. levels (drought only).
Review of the City of Boulder’s Goals 2-10
and Objectives for Setting Water Rate Structures
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
Table 2-2 (continued)
Comparison of the City’s Current Rate Structure to
Bonbright’s Attributes of a Sound Rate Structure (continued)
Rate Design Attribute Partially Meets MeetsDoes not Meet
9.Simple and easy to Simple in the structure, City has successfully carried Customers may not fully
understand; easy to but somewhat complex out the administration and understand the rate
administer. in the establishment of
collection of the existing rate structure, and only
the block sizes and the design. City’s billing system understand the amount of
AWC. The City’s is capable of handling the the bill.
billing system does not current rate structure.
segregate and
differentiate surcharges.
10.Freedom from controversy Questions by individual City has used this rate Does not appear to be any
as to interpretation. customers concerning structure for many years and community wide concerns
the establishment of emphasized customer as to the administration of
their block sizes based education, including during the rate structure.
upon average winter the implementation of the
consumption (AWC), drought surcharges in 2003.
and the differential
between
residential/irrigation
and the C/I rate levels.
In summary, it appears that the city’s existing rate structure partially or fully meets most of
Bonbright’s attributes of a sound rate structure. Given the complexity and conservation-oriented
goals of the city’s current rate structure, it appears that the trade-offs in the attributes of the city’s
rate structure have been in the areas of simplicity, understandability and under certain conditions,
rate stability.
The city’s present rate structure is attempting to communicate and send a proper price signal as
to the value of water, thereby providing the customer the ability to make an informed decision
whether to consume or not consume. As the city strives to develop rate structures that target
specific uses (e.g. outdoor irrigation), any changes must be evaluated against the city’s overall
goals and objectives for rate design.
2.7 Summary
The rate structure review undertaken has identified the evolution of the City’s first rate structure
to the current multi-block, conservation-oriented rate structure. The review has also identified
the attributes the city currently uses in developing rate structures and what attributes are and are
not meeting the “generally accepted” attributes of a sound rate structure. The summary and
findings should provide the city with the knowledge of how rates have historically and currently
met the goals and objectives of the city and provide the information necessary to define which
attributes are important to carry forward with any future rate structure options.
Review of the City of Boulder’s Goals 2-11
and Objectives for Setting Water Rate Structures
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
Section 3
Overview of Water Rate Structure
Terminology and the Rate Structure
Alternatives To Be Evaluated
3.1 Introduction
An important aspect of reviewing and evaluating alternative water rate structures is
understanding the terminology of rate structures, the basic concepts of rate structures, and the
various alternative structures that may be developed from these basic concepts. Provided within
this section of the report is a discussion of the basic rate structure terminology, and the
alternative structures that were used as a starting point for the evaluation of the water rate
structures.
3.2 Rate Structure Terminology
A review of the rate structures from other water utilities across the U.S. reveals a wide variety of
structures and approaches in use today. While it may seem that there is an endless number of
different rate structures to be found, the reality is that they are all
“While it may seem
based upon a few basic rate design concepts. It is how these basic
that there is an endless
concepts are applied, modified and combined that create what
number of different
appears to be endless possibilities. Provided below is a brief
rate structures to be
discussion of these basic rate design concepts.
found, the reality is
that they are all based
The initial starting point in considering a rate structure is the
upon a few basic rate
relationship between fixed costs and variable costs. Fixed costs do
design concepts.”
not vary with the production or flow of water. Debt service is an
example of a fixed cost. In contrast, variable costs tend to change
with the quantity of water produced. Examples of variable costs are the cost of chemicals and
electricity. Most rate structures contain a fixed or minimum charge, and a volumetric
consumption (commodity) charge.
Fixed costs are generally collected as a fixed charge on a monthly basis (e.g. $5.00 per
month/meter). This charge may be called by various names (e.g. customer charge, meter charge,
readiness to serve charge, etc.), but in all cases, it is intended to collect the fixed costs that the
utility incurs, regardless of the customer’s level of consumption. The most basic form of a fixed
customer charge is a meter charge. While the charge is a fixed amount, regardless of
consumption, it typically varies (increases) by meter size.
Overview of Water Rate Structure Terminology 3-1
and the Rate Structure Alternatives To Be Evaluated
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
The rate at which the meter charge increases is typically a function of either meter investment
(cost) or meter capacity. Provided in Table 3-1 is the “generally accepted” approach used to
establish fixed meter charges based upon the safe operating capacity of the meter for 5/8” meter
through a 12” meter. In this example, it assumes a $5.00/month charge for a 5/8” meter.
Table 3-1
Example of the Development of Fixed Meter Charges Based Upon Meter Capacity
Safe Maximum Oper. Equivalent Meter Charges at
Meter Size Capacity GPM [1] Meter Ratio Equivalent Ratios
3/4” 30 1.00 $5.00/month
1” 50 1.66 8.30
1-1/2” 100 3.33 16.65
2” 160 5.33 26.65
3” 300 10.00 50.00
4” 500 16.66 83.30
6” 1,000 33.33 166.65
8” 1,600 53.33 266.65
10” 2,300 76.66 383.30
12” 3,375 112.50 562.50
[1] AWWA C-700-77 Cold Water Meters - Displacement Type
As Table 3-1 indicates, the fixed meter charge increases in relationship to the safe operating
capacity of the various meter sizes. Meter capacity is an important concept in that a customer
that has a 3” meter is regarded, from a capacity perspective, as the equivalent of ten (10) 3/4”
customers. Another way of saying this is the customer with a 3” meter is, from a capacity
perspective, the equivalent of ten (10) customers with 3/4” meters. Knowing that a large portion
of a typical utility’s costs are related to meeting capacity requirements, one can see the
importance of taking into account capacity in establishing rates for customers.
Fixed charges are typically used to collect, at a minimum, the costs associated with meter
reading, billing, customer service and accounting. It often includes a portion of the cost of
maintenance of the distribution system and capital/debt service costs. In the city’s case, the fixed
charges are designed to collect the customer related costs, plus 30% of the cost of the city’s
improvement program.
While it was noted that there are different approaches that can be used to collect fixed charges,
the same can be said for variable or volumetric charges. Volumetric consumption charges are
generally based upon metered consumption and charged on a $/unit cost. Although the unit of
measurement may vary, (e.g. gallons, thousands of gallons, cubic feet, hundreds of cubic feet,
acre feet, etc.) this is not a critical element in the development of the rates. This is because the
charge per unit is simply adjusted to reflect the units of measurement being used. In other
words, if you are charging $2.00 per 1,000 gallons, and wanted to charge on a per gallon basis,
the rate would be $0.002/gallon. It is the structure of the variable charges where numerous
options exist.
Overview of Water Rate Structure Terminology 3-2
and the Rate Structure Alternatives To Be Evaluated
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
There are four basic rate structures for variable charges; a uniform charge, a declining block
charge, inverted (increasing) block charge and seasonal. Figure 3-1 provides an overview of
each of these variable charge rate structures.
Figure 1
Overview of the Various Variable Charge Rate Structures
URS
Per
NIFORMATE TRUCTURE
Unit
The cost per unit of consumption under a uniform rate
Cost
structure does not increase or decrease with additional
units of consumption
sage
U
Per DBRS
ECLINING LOCK ATETRUCTURE
Unit
The cost per unit of consumption under a declining block
Cost
rate structure decreases with additional units of
consumption
sage
U
Per IBRS
NVERTEDLOCK ATETRUCTURE
Unit
The cost per unit of consumption under an inverted block
Cost
rate structure increases with additional units of
consumption
sage
U
Per SRS
EASONAL ATETRUCTURE
Peak Season
Unit
The cost per unit of consumption under a seasonal rate
Cost
structure changes with time periods. The peak season is
the most expensive time period.
NonPea
–k
sage
U
Figure 3-1 illustrates that the basic philosophy of each of these variable charge rate structures
varies significantly. Under a uniform rate structure, the cost per unit does not change with
consumption. The uniform structure is a simple and straightforward approach from the
perspective of customer understanding and rate administration/billing. In contrast, the declining
block rate structure is a bit more complex. The number of blocks (e.g. 3 stepped blocks) and size
Overview of Water Rate Structure Terminology 3-3
and the Rate Structure Alternatives To Be Evaluated
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
of the blocks (e.g. 0 – 10,000 gallons) may vary. However, the number of blocks should be
reasonable (i.e. 2 – 5 blocks) for reasons of simplicity and administration. Declining block rates
may imply that there are certain economies of scale with additional consumption, or improved
capacity use, and not necessarily a “volume discount.” Depending upon the utility, this may or
may not be a true statement. An inverted (increasing or tiered) block rate structure attempts to
send a price signal to consumers that their consumption costs more, as more water is consumed.
This may or may not be the proper price signal regarding the utility’s water resource costs. As
with the declining block rate structure, the number and size of each block may vary, but should
be reasonable for purposes of customer understanding and rate administration. Finally, a
seasonal rate structure is a form of a time-differentiated rate structure. That is, the price varies
based upon the time of use. Under a seasonal rate structure, water consumed in the summer is
priced at a higher level than winter water consumption. This rate structure attempts to reflect the
difference in costs associated with consumption during a peak period when water supply
resources may be constrained.
The rate structure concepts noted above may be combined and used to form various different rate
structures. As an example, a seasonal inverted block rate structure is developed by combining
the seasonal rate structure concept with the inverted block rate structure.
One of the rate forms that the city is interested in reviewing is the water budget rate structure.
Simply stated, a water budget rate structure is a form of an inverted block rate structure. The
main difference between the water budget rate structure and a “typical” inverted block rate
structure is how the size of the blocks is determined within the water budget rate structure. Most
inverted block rate structures have fixed thresholds for block sizes (e.g. 0 – 5,000 gallons, 5,000
gallons – 100,000 gallons, and all consumption over 100,000 gallons), which may be determined
using various criteria. Some of these criteria include essential (lifeline) needs, average customer
class usage (base usage), etc. In the water budget rate structure, the block sizes are individually
established, and they may be established using a number of different criteria and methods (e.g.
average winter water use, number of people in the home, lot size, type of plantings,
evapotranspiration (ET), etc.). The water budget rate structure attempts to establish a rational
basis for individually tailored “indoor” and “outdoor” consumption budgets (i.e. block sizes). In
addition, water budgets may reward customers for beating their budget goal, or penalize them for
going over their water budget.
It is interesting to note that some people may view the city’s current rate as a simplified form of
a water budget rate structure. The initial or first block of consumption is established based upon
the customer’s average winter consumption. The second block is determined as a percentage of
the first block, and the tail block is all consumption over and above the second block. Therefore,
in essence, each customer has individualized block sizes. The second block is considered the
“outdoor” amount, and the third or tail block is the “excess use” block. Where there is a
disconnect from the more sophisticated examples of water budgets, is in the rational for the
establishment of the block sizes (i.e. indoor, outdoor and excessive use).
23
“Blocks” or “Consumption Blocks” is used in a declining block or inverted block rate structure and refers to the
amount of consumption allowed before the price changes to a succeeding price block. The initial block refers to the
first price block (e.g. 0 to 5,000 gallons). The tail block refers to the last price block (e.g. all usage over 5,000
gallons).
Overview of Water Rate Structure Terminology 3-4
and the Rate Structure Alternatives To Be Evaluated
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
Given this brief overview of rate design terminology, the focus shifts to the development of the
rate structure alternatives to be evaluated in the city’s study. From this evaluation process, a
limited set of rate structures will undergo further review and analysis.
3.3 Overview of the Rate Structure Alternatives to Be
Evaluated
Provided below is a listing of the rate structures to be evaluated using the evaluation criteria
developed by EES and reviewed by city staff. As discussed above, a typical water rate design
contains both a fixed and variable charge. The focus of the review at this point is on the
structure of the rates, and not on the level of the rates, or the proportion of revenue to be
collected from the fixed versus variable charges. After the rate structures are evaluated and
reduced in number to a more manageable total, the focus will shift to consideration of the
appropriate cost-based level of the rates, and specifically the fixed and variable charges.
Four additional items should be noted before reviewing the descriptions below. First, the
descriptions below discuss the consumption charge portion of the rate. It is presumed that
regardless of the structure selected, it will contain a fixed monthly service (meter) charge that is
based upon meter size. Therefore, in the descriptions below, no mention is made of the fixed
charge portion of the overall rate structure, but all final rate designs will include both a fixed
monthly meter charge and a consumption charge. Next, the other important item to note is that
there could be endless permutations of these rate structures (e.g. 2 blocks, 3 blocks, 4 blocks, 5
blocks, etc.) For this evaluation process, we have attempted to list a variety of structures that
provide a reasonable array of the choices available to the city. Based upon this evaluation
process, the city may discover that it likes portions of two or three different rate structures being
reviewed, which, when taken together, may create a whole new structure. Any new rate
structure developed during the evaluation process will be included and reviewed further. Third,
it is also presumed that any final rate structures will incorporate drought surcharges or another
mechanism to reflect drought situations. That is, the rates will be segregated between typical
periods and drought stages 1-4. The rate structures shown below are for “non-drought” periods,
and will in the final development of the rates be modified to deal with the city’s various drought
stages. Finally, the rate structures discussed below do not make any distinction between class of
service (e.g. single-family, commercial, etc.). As the rate structures are narrowed down and
eliminated via this screening process, the final 3-5 rate structures will then be analyzed as to their
applicability to the specific customer classes of services.
Provided below are the descriptions of the rate structures to be reviewed and evaluated using the
rate structure evaluation criteria.
Overview of Water Rate Structure Terminology 3-5
and the Rate Structure Alternatives To Be Evaluated
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
RS1–CRS
ATETRUCTURE URRENT ATE TRUCTURE
The current rate structure is individually tailored to the customer’s indoor usage pattern and uses
average winter consumption (AWC) to establish the first block of consumption. The second
block is a fixed percentage in relation to the first block, and the third or tail block is all remaining
consumption.
Basis for
Block Determining Block Size Pricing of the Block
Block 1 Based on AWC Inverted Block Price
Block 2 Set % of Block 1 Inverted Block Price
Block 3 All Usage Over Block 2 Inverted Block Price
RS2–MCRSWSR
ATETRUCTURE ODIFIEDURRENT ATETRUCTURE ITH EASONAL ATES AND A
UWR
NIFORM INTER ATE
Under this rate structure, the pricing is split between the winter and summer period. Pricing of
water in the wintertime is uniform, and not subject to inverted block pricing. Usage in the
summer is an inverted block rate structure, and priced based upon summer period costs. The first
block is established based upon AWC.
Basis for
Block Pricing of the Block
Determining Block Size
Winter Period -
Block 1 All consumption Uniform Price for Winter
Summer Period -
Block 1 Based on AWC Same Price as Winter
Block 2 Set % of Block 1 Inverted Block Price
Block 3 All Usage Over Block 2 Inverted Block Price
Overview of Water Rate Structure Terminology 3-6
and the Rate Structure Alternatives To Be Evaluated
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
RS3–MCRSWSR
ATETRUCTURE ODIFIEDURRENT ATETRUCTURE ITH EASONAL ATES AND A
2-BWR
LOCKINTER ATE
Under this rate structure, the pricing is again split between the winter and summer period.
Pricing of water in the winter period has two blocks. The first block is based upon AWC, with
the second block being all usage over and above the first block. In this pricing scheme, it is
presumed that summer usage in the second block is higher than the wintertime price.
Basis for
Block Determining Block Size Pricing of the Block
Winter Period -
Block 1 Based on AWC Inverted Block Winter Price
Block 2 All Usage Over Block 1 Inverted Block Winter Price
Summer Period -
Block 1 Based on AWC Same Price as Winter
Block 2 Set % of Block 1 Inverted Block Summer Price
Block 3 All Usage Over Block 2 Inverted Block Summer Price
RS4–SRWFTUW
ATETRUCTURE EASONAL ATESITH IXED HRESHOLDS AND A NIFORM INTER
R
ATE
Under this rate structure, the pricing is split between the winter and summer period. Pricing of
water in the winter is uniform, and not subject to inverted block pricing. Usage in the summer is
an inverted block rate structure, and priced based upon summer period costs. The first block in
the summer period is a fixed threshold. This threshold can be determined in a number of
different ways (e.g. class averages, fixture counts, etc.).
Basis for
Block Determining Block Size Pricing of the Block
Winter Period -
Block 1 All consumption Uniform Price for Winter
Summer Period -
Block 1 Fixed Threshold Same Price as Winter
Block 2 Set % of Block 1 Inverted Block Price
Block 3 All Usage Over Block 2 Inverted Block Price
Overview of Water Rate Structure Terminology 3-7
and the Rate Structure Alternatives To Be Evaluated
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
RS5–SRWFT2-BW
ATETRUCTURE EASONAL ATESITHIXED HRESHOLDS AND A LOCKINTER
R
ATE
Under this rate structure, the pricing is again split between the winter and summer period.
Pricing of water in the winter period has two blocks. The first block is based upon a fixed
threshold, with the second block being all usage over and above the first block. In this pricing
scheme, it is presumed that summer usage in the second block is higher than the wintertime
price.
Basis for
Block Determining Block Size Pricing of the Block
Winter Period -
Block 1 Fixed Threshold Inverted Block Winter Price
Block 2 All Usage Over Block 1 Inverted Block Winter Price
Summer Period -
st
Block 1 Fixed Threshold Same Price as 1 Block Winter
Block 2 Set % of Block 1 Inverted Block Summer Price
Block 3 All Usage Over Block 2 Inverted Block Summer Price
RS6–SRWAAWCTBUW
ATETRUCTURE EASONAL ATEITH NHRESHOLD ASED PONATER
SA2-BWR
UPPLY VAILABILITY AND A LOCKINTER ATE
Under this rate structure, the pricing is again split between the winter and summer period.
Pricing of water in the winter period has two blocks. The first block is a block size based upon
AWC, but the block size adjusts based upon water supply conditions. Under drier or drought
conditions, the size of the first block would be reduced based upon a pre-determined sliding
scale. By reducing the first block size, all succeeding blocks are also reduced accordingly. In
this pricing scheme, it is presumed that summer usage in the second block is higher than the
wintertime price.
Basis for
Block Determining Block Size Pricing of the Block
Winter Period -
[1]
Block 1 Based on Adj. AWC Inverted Block Winter Price
Block 2 All Usage Over Block 1 Inverted Block Winter Price
Summer Period -
[1]st
Block 1 Based on Adj. AWC Same Price as 1 Block Winter
Block 2 Set % of Block 1 Inverted Block Summer Price
Block 3 All Usage Over Block 2 Inverted Block Summer Price
[1]
AWC block size established annually, on the basis of supply availability, using a
predetermined and fixed sliding scale
Overview of Water Rate Structure Terminology 3-8
and the Rate Structure Alternatives To Be Evaluated
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
RS7–SRWAFTABU
ATETRUCTURE EASONAL ATESITH IXED HRESHOLD DJUSTEDASED PON
WSA2-BWR
ATERUPPLY VAILABILITY AND A LOCKINTER ATE
This rate structure uses a fixed threshold to establish the first block, and similar to the previous
alternative, is adjusted based upon water supply conditions.
Basis for
Block Determining Block Size Pricing of the Block
Winter Period -
[1]
Block 1 Fixed Threshold Inverted Block Winter Price
Block 2 All Usage Over Block 1 Inverted Block Winter Price
Summer Period -
[1]st
Block 1 Fixed Threshold Same Price as 1 Block Winter
Block 2 Set % of Block 1 Inverted Block Summer Price
Block 3 All Usage Over Block 2 Inverted Block Summer Price
[1]
Threshold size established annually, on the basis of supply availability, using a
predetermined and fixed sliding scale
RS8–SRFSPB,UAWC
ATETRUCTURE EASONAL ATE WITH OURUMMER ERIOD LOCKSSING
UWR
AND A NIFORM INTER ATE
This rate structure is similar to Rate Structure 2, but has added a fourth block to the summer
rd
period. The additional block is intended to provide two benefits. The first benefit is that the 3
th
block consumption is penalized, but not at an overly “punitive” rate. The 4 or tail block is
intended for those users who are clearly being excessive and should pay a punitive rate. The
additional block allows for a clearer and broader definition of excessive or wasteful use. An
example of how the blocks would be established is Block 2 is 200% of Block 1, and Block 3 is
201% through 400% of Block 1, and Block 4 is all consumption over Block 3.
Basis
Block Determining Block Size Pricing of the Block
Winter Period -
Block 1 All consumption Uniform Price for Winter
Summer Period -
Block 1 Based on AWC Same Price as Winter
Block 2 Set % of Block 1 Inverted Block Price
Block 3 % Range of Block 1 Inverted Block Price
Block 4 All Usage Over Block 3 Inverted Block Price
Overview of Water Rate Structure Terminology 3-9
and the Rate Structure Alternatives To Be Evaluated
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
RS9–SRFSPB,UF
ATETRUCTURE EASONAL ATE WITH OURUMMER ERIOD LOCKSSING A IXED
TUWR
HRESHOLD AND A NIFORM INTER ATE
This is similar to the prior rate structure, but uses a fixed threshold to establish the first block of
the summer period. Each of the following blocks in the summer period is derived from size of
the first block.
Basis for
Block Determining Block Size Pricing of the Block
Winter Period -
Block 1 All consumption Uniform Price for Winter
Summer Period -
Block 1 Fixed Threshold Same Price as Winter
Block 2 Set % of Block 1 Inverted Block Price
Block 3 % Range of Block 1 Inverted Block Price
Block 4 All Usage Over Block 3 Inverted Block Price
RS10–TSRS1–9,PGB
ATETRUCTURE OPCORER OF ATE TRUCTURES LUSOALASED
I
NCENTIVES
This alternative will take the top scorer from the first nine (9) rate structures and add a goal-
based incentive. That is, if the customer uses less than the block size, a discount will be
provided. The size of the discount is dependent upon their variance from the stated goal. The
discount would only apply in the summer time period.
RS11–IWUBUI’AWC,W
ATETRUCTURE NDOORATERSE ASEDPON THE NDIVIDUALSITH
OUDBUCSLS/IA.
UTDOOR SEETERMINED ASED PONUSTOMER PECIFIC OT IZERRIGABLE REA
BPGAAWET.F
ILLING ERIOD OALS ARE DJUSTED FOR CTUAL EATHER AND ORWARD
LGACVMBS.
OOKINGOALSRE OMMUNICATED IA THE ONTHLY ILLING TATEMENT
This rate structure allocates an amount of water for indoor and outdoor use. The indoor
allocation is based upon the individual’s AWC. The outdoor allocation is determined based
upon customer specific lot size and irrigable area. The irrigable area is assumed to be the highest
water using type of irrigable turf. As with the previous rate structure, outdoor use is based upon
assumed “typical” weather and water supply conditions. At billing, the outdoor block sizes are
adjusted based upon actual weather conditions and ET. Performance against the previous
month’s goals, and the goals for the coming month are communicated via the billing statement.
Basis for
Block Determining Block Size Pricing of the Block
Block 1 Individualized AWC Inverted Block Price
Block 2 Based on Specific Lot Size,
and Adjusted for ET Inverted Block Price
Block 3 All Usage Over Block 2 Inverted Block Price
Overview of Water Rate Structure Terminology 3-10
and the Rate Structure Alternatives To Be Evaluated
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
RS12–IWUBUNO,
ATETRUCTURE NDOOR ATERSEASEDPONUMBER OF CCUPANTS WITH
OUDBUCSLS/IA
UTDOORSEETERMINED ASED PONUSTOMER PECIFIC OT IZERRIGABLE REA
TTP.BPGAA
YPE OF URFLANTINGILLING ERIOD OALS ARE DJUSTED FOR CTUAL
AND
WET.FLGACVM
EATHER AND ORWARD OOKING OALSRE OMMUNICATED IA THE ONTHLY
BS.
ILLING TATEMENT
Under this rate structure, the customer is also allocated an amount of water for indoor and
outdoor use. The indoor allocation is based upon the number of occupants and multiplied by an
assumed per capita usage level. The outdoor allocation is determined based upon customer
specific lot size and irrigable area. In addition, the type of turf planting is taken into account
(e.g. buffalograss vs. bluegrass). Finally, outdoor use is based upon assumed “typical” weather
and water supply conditions. At billing, the outdoor block sizes (block 2 and 3) are adjusted
based upon actual weather conditions for the month and ET. Performance against the previous
month’s goals, and the goals for the coming month are communicated via the billing statement.
Basis for
Block Determining Block Size Pricing of the Block
Block 1 Based on # of Occupants Inverted Block Price
Block 2 Based on Specific Lot Size,
Turf Type & Adjusted for ET Inverted Block Price
Block 3 All Usage Over Block 2 Inverted Block Price
RS13–IWUBUI’AWC,W
ATETRUCTURE NDOORATERSE ASEDPON THE NDIVIDUALSITH
OUDBUCSLS/IA.
UTDOOR SEETERMINED ASED PONUSTOMER PECIFIC OT IZERRIGABLE REA
SBBUROG.BP
UCCEEDING LOCKS ASEDPONELATIONSHIP TO UTDOOROALILLING ERIOD
GAAWET.FLGA
OALS ARE DJUSTED FOR CTUAL EATHER AND ORWARD OOKINGOALSRE
CVMBS.
OMMUNICATED IA THE ONTHLY ILLING TATEMENT
This rate structure is another variation of allocating an amount of water for indoor and outdoor
use. The indoor allocation is based upon the individual’s AWC. The outdoor allocation is
determined based upon customer specific lot size and irrigable area. The irrigable area is
assumed to be the highest water using type of irrigable turf. Usage over and above the
customer’s goal is penalized with a higher rate. The third block is considered “inefficient” use,
and the fourth block is considered “Excessive or Wasteful.” As with the previous rate structure,
outdoor use is based upon assumed “typical” weather and water supply conditions. At billing,
the outdoor block sizes are adjusted based upon actual weather conditions and ET. Performance
against the previous month’s goals, and the goals for the coming month are communicated via
the billing statement.
Basis for
Block Determining Block Size Pricing of the Block
Block 1 Individualized AWC Inverted Block Price
Block 2 Based on Specific Lot Size
and Adjusted for ET Inverted Block Price
Block 3 101% to 150% of Goal Inverted Block Price
Block 4 Over 150% of Goal Inverted Block Price
Overview of Water Rate Structure Terminology 3-11
and the Rate Structure Alternatives To Be Evaluated
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
RS14–IWUBUFT,W
ATETRUCTURE NDOORATERSE ASED PON A IXED HRESHOLDITH
OUDBUCSLS/IA.
UTDOOR SEETERMINED ASED PONUSTOMER PECIFIC OT IZERRIGABLE REA
SBBUROG.BP
UCCEEDING LOCKS ASEDPONELATIONSHIP TO UTDOOROALILLING ERIOD
GAAWET.FLGA
OALS ARE DJUSTED FOR CTUAL EATHER AND ORWARD OOKINGOALSRE
CVMBS.
OMMUNICATED IA THE ONTHLY ILLING TATEMENT
For this rate structure, indoor allocation is a fixed threshold. This is typically developed based
upon an assumed average number of occupants, multiplied by an assumed per capita use. The
outdoor allocation and blocks are the same as the previous rate structure. Outdoor use is based
upon assumed “typical” weather and water supply conditions. At billing, the outdoor block sizes
are adjusted based upon actual weather conditions and ET. Performance against the previous
month’s goals, and the goals for the coming month are communicated via the billing statement.
Basis for
Block Determining Block Size Pricing of the Block
Block 1 Fixed Threshold Inverted Block Price
Block 2 Based on Specific Lot Size
and Adjusted for ET Inverted Block Price
Block 3 101% to 150% of Goal Inverted Block Price
Block 4 Over 150% of Goal Inverted Block Price
RS15–IWUBUI’AWC,W
ATETRUCTURE NDOORATERSE ASEDPON THE NDIVIDUALSITH
OUDBUAA“T”LS
UTDOOR SEETERMINEDASED PONNSSUMED YPICALOT IZE AND
IR.SBBUR
RRIGATION EQUIREMENTSUCCEEDING LOCKSASEDPON ELATIONSHIP TO
OG.BPGAAWET.
UTDOOROALILLING ERIOD OALS ARE DJUSTED FOR CTUAL EATHER AND
FLGACVMBS.
ORWARD OOKINGOALSRE OMMUNICATED IA THE ONTHLY ILLING TATEMENT
The indoor allocation for this rate structure is based upon the individual’s AWC. The outdoor
allocation is determined based upon an assumed “typical” lot size for the type of customer (e.g.,
single family, etc.), and assumes the highest water using type of irrigable turf. Succeeding
nd
blocks 3 and 4 are similar to the previous rate structure. The 2 Block for outdoor use is based
upon assumed “typical” weather and water supply conditions. At billing, the outdoor block sizes
are adjusted based upon actual weather conditions and ET. Performance against the previous
month’s goals, and the goals for the coming month are communicated via the billing statement.
Basis for
Block Determining Block Size Pricing of the Block
Block 1 Individualized AWC Inverted Block Price
Block 2 Based on “Typical” Lot Size/
Typical Weather/Water Supply
and Adjusted for ET Inverted Block Price
Block 3 101% to 150% of Goal Inverted Block Price
Block 4 Over 150% of Goal Inverted Block Price
Overview of Water Rate Structure Terminology 3-12
and the Rate Structure Alternatives To Be Evaluated
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
RS16–FBWUBUCC
ATETRUCTURE IRST LOCKATER SE ASED PON THE USTOMER LASS
AWU,WOUDBUAA
VERAGE ATERSEITH UTDOOR SEETERMINED ASED PONNSSUMED
“T”LSIR.SBBU
YPICALOTIZE AND RRIGATION EQUIREMENTSUCCEEDING LOCKSASEDPON
ROG.BPGAA
ELATIONSHIP TO UTDOOR OALILLING ERIOD OALS ARE DJUSTED FOR CTUAL
WET.FLGACVM
EATHER AND ORWARD OOKING OALSRE OMMUNICATED IA THE ONTHLY
BS.
ILLING TATEMENT
The first block is determined based upon the class average water use. Note that this is a different
value than the class average winter water consumption. The outdoor allocation is determined
based upon an assumed “typical” lot size for the type of customer (e.g. single family, etc.), and
assumes the highest water using type of irrigable turf. This is similar to previous rate structures.
At billing, the outdoor block sizes are adjusted based upon actual weather conditions and ET.
Performance against the previous month’s goals, and the goals for the coming month are
communicated via the billing statement.
Basis for
Block Determining Block Size Pricing of the Block
Block 1 Class Average Water Use Inverted Block Price
Block 2 Based on “Typical” Lot Size
and Adjusted for ET Inverted Block Price
Block 3 101% to 150% of Goal Inverted Block Price
Block 4 Over 150% of Goal Inverted Block Price
RS17–IWUBUFT,W
ATETRUCTURE NDOORATERSE ASED PON A IXED HRESHOLDITH
OUDBUAA“T”LS
UTDOOR SEETERMINEDASED PONNSSUMED YPICALOT IZE AND
IR.SBBUR
RRIGATION EQUIREMENTSUCCEEDING LOCKSASEDPON ELATIONSHIP TO
OG.BPGAAWET.
UTDOOROALILLING ERIOD OALS ARE DJUSTED FOR CTUAL EATHER AND
FLGACVMBS.
ORWARD OOKINGOALSRE OMMUNICATED IA THE ONTHLY ILLING TATEMENT
This rate structure simplifies the city’s data requirements by establishing a fixed indoor
threshold, and the outdoor block size is based upon an assumed “typical” lot size for the type of
customer (e.g. single family, etc.). It assumes the highest water using type of irrigable turf.
nd
Succeeding blocks 3 and 4 are similar to the previous rate structure. The 2 Block for outdoor
use is based upon assumed “typical” weather and water supply conditions. At billing, the
outdoor block sizes are adjusted based upon actual weather conditions and ET. Performance
against the previous month’s goals, and the goals for the coming month are communicated via
the billing statement. It should be noted that this rate structure most closely matches the rate
structure and approach used by Irvine Ranch Water District.
Basis for
Block Determining Block Size Pricing of the Block
Block 1 Fixed Threshold Inverted Block Price
Block 2 Based on “Typical” Lot Size/
Typical Weather/Water Supply
and Adjusted for ET Inverted Block Price
Block 3 101% to 150% of Goal Inverted Block Price
Block 4 Over 150% of Goal Inverted Block Price
Overview of Water Rate Structure Terminology 3-13
and the Rate Structure Alternatives To Be Evaluated
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
RS18–FBSIOA,
ATETRUCTURE IRST LOCK IS THE UM OF NDOOR AND UTDOOR LLOCATION
SBBURFBG.B
ANDUCCEEDING LOCKS ASED PONELATIONSHIP TO IRST LOCKOALILLING
PGAAWET.FLG
ERIOD OALS ARE DJUSTED FOR CTUAL EATHER AND ORWARD OOKING OALS
ACVMBS.
REOMMUNICATED IA THE ONTHLY ILLING TATEMENT
This rate structure simplifies the city’s data requirements by establishing a fixed indoor
threshold, and the outdoor block size is based on an assumed “typical” lot size for the type of
customer (e.g. single family, etc.), and assumes the highest water using type of irrigable turf.
nd
The 2 block size is adjusted for ET. Performance against the previous month’s goals, and the
goals for the coming month are communicated via the billing statement.
Basis for
Block Determining Block Size Pricing of the Block
Block 1 Sum of Indoor & Outdoor Inverted Block Price
Block 2 101% to 150% of Goal Inverted Block Price
Block 3 Over 150% of Goal Inverted Block Price
RS19–TS11–18,TF
ATETRUCTURE OPCORER OF WITH THE ARGET SET AND IXED EACH
Y.NAWET.
EARO MONTHLY DJUSTMENTS FOR EATHER AND
This rate structure uses the top scorer of rate structure alternatives 11 – 18, and makes a
simplifying assumption. That is, the targets are set and fixed at the start of the year (based upon
the criteria selected), and they are not adjusted through the year for actual weather conditions and
ET.
RS20–TS11–19,DC
ATETRUCTURE OPCORER OF WITH A ISCOUNT FOR ITY APPROVED
IRSW-BC.
RRIGATION SYSTEMS WITH AINENSORS AND EATHERASEDONTROLLERS
This rate structure uses the top scorer of rate structure alternatives 11 – 19, and adds a discount,
or eliminates penalties for customers with a city-approved state-of-the-art irrigation system that
includes rain sensors and weather-based controllers. Under this rate structure, those customers
that do not have approved systems will pay the “standard” rate (top scorer of 11 – 19), but
customers with approved irrigation systems will pay no penalties for usage over and above the
outdoor goal. The presumption is that these customers, by using efficient irrigation systems,
should meet or exceed their outdoor goal, and on those few occasions when they do not, they
should not be penalized since they have made a significant capital investment to attempt to be as
efficient as possible.
The twenty (20) rate structures discussed above were developed by EES, with input and
suggestions from city staff. In presenting the above rate structures to the WRAB and the public,
two additional rate structures were suggested for inclusion in the evaluation process. These two
additional rate structures are noted below.
Overview of Water Rate Structure Terminology 3-14
and the Rate Structure Alternatives To Be Evaluated
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
RS21–FBBULO,A
ATETRUCTURE IRST LOCK IS ASED PON THE EGAL CCUPANCY AND SSUMED
PCU.TSBIDBUCS
ERAPITASEHEECOND LOCKSETERMINED ASEDPONUSTOMER PECIFIC
LS/IA.BPGUHME.
OTIZERRIGABLE REAILLING ERIOD OALSSESISTORICAL ONTHLY T
FLGACVTMBS.
ORWARD OOKINGOALSRE OMMUNICATED IAHE ONTHLY ILLING TATEMENT
Basis for
Block Determining Block Size Pricing of the Block
Block 1 Based on Legal Occupancy Inverted Block Price
Block 2 Based on Specific Lot Size Inverted Block Price
and Uses Historical
Average Monthly ET
Block 3 All Usage over Block 2 Inverted Block Price
RS22–FBFTBU“AD”
ATETRUCTURE IRST LOCK IS A IXED HRESHOLD ASED PONVERAGE AY
CUWC’PIF(PIF),S
ONDITIONS SEDITHIN THE ITYSLANT NVESTMENT EES AND FOR THE IZE OF
MC.TSBBU“PD”
THE ETER OF THE USTOMERHE ECOND LOCK IS ASED PON THE EAK AY
ACC’PIF.U(BGU)C
SSUMPTIONS ONTAINED IN THE ITYSNUSED WATER ELOWOALSAGEAN
“”“U.
BELOANED OR RENTED TO OTHER WATER SERS
Basis for
Block Determining Block Size Pricing of the Block
Block 1 Fixed Threshold – Ave. Day Inverted Block Price
Block 2 Fixed Threshold – Peak Day Inverted Block Price
Block 3 All Usage over Block 2 Inverted Block Price
3.4 Summary
This section of the report has provided a brief overview of the terminology and elements of rate
designs. In addition, twenty-two (22) rate structures have been identified for the evaluation
process. From these twenty-two rate structures, three (3) to five (5) will be considered for
further evaluation and analysis by the city. This aspect of the study is discussed in the next
section of this report.
Overview of Water Rate Structure Terminology 3-15
and the Rate Structure Alternatives To Be Evaluated
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
Section 4
Evaluation of the Alternative Rate Structures
4.1 Introduction
In order to evaluate the various alternative rate structures, the previously defined rate design
attributes must be prioritized, the evaluation criteria developed and weighted based upon those
prioritized attributes, and each rate structure must be evaluated and scored against those criteria.
This section of the report will review each of these elements in the evaluation process. At the
end of the evaluation process, the city should have narrowed down the possible rate structure
alternatives from 22, to 3 to 5 that will be analyzed further.
4.2 Prioritization of the Rate Design Attributes
The first step of the evaluation process was to prioritize the previously defined rate structure
attributes. As will be recalled in Section 2 of this report, these attributes, also referred to as
goals, were defined using James C. Bonbright’s Attributes of a Sound Rate Structure. These
attributes can be found in Bonbright’s Principles of Public Utility Rates. For purposes of this
study, the ten attributes needed to be prioritized. To accomplish this, city staff members and the
individual members of the Water Resources Advisory Board (WRAB) were asked to list their top
5 goals. Each individual was provided with a written list of the ten attributes and asked to place
a “1” by their top goal, a “2” by their second goal, and so on, until they had selected their top 5
attributes. From each of the individual tallies, a final prioritization list was created based upon
st
the weighted number of “votes” each attribute received. For a goal that received a top (1)
st
priority, it received 5 points for each 1 place vote. For a second place vote, the attribute
received four points, and so on. The points received for each attribute was summed and the
attributes were then placed in a top to bottom order.
Each of the rate attributes received at least one vote. However, it is interesting to note that both
the WRAB and city staff selected the same top five priorities, but not in the same order. For
purposes of summarizing the prioritized attributes, the results are summarized between WRAB
and city staff. Each party has a different and relevant perspective of the goals and objectives in
setting the rates, and it was concluded by EES that neither party’s viewpoint should take
precedence over the other. Provided below is a summary of prioritized attributes separated
between WRAB and city staff.
24
James C. Bonbright; Albert L. Danielsen and David R. Kamerschen, Principles of Public Utility Rates, (Arlington,
VA: Public Utilities Report, Inc., Second Edition, 1988), p. 383-384.
Evaluation of the Alternative Rate Structures 4-1
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
Table 4-1
Prioritization of the Rate Structure Attributes By The
Water Resources Advisory Board (WRAB) and City Staff
WRAB Prioritization RankCity Staff Prioritization
1
Discourage Wasteful Use Yields Total Revenue Requirements
2
Dynamic Ability to Respond To Changing Revenue Stability and Predictability
Supply & Demand Conditions
3
Fair Allocation of Costs to Attain Equity Discourage Wasteful Use
4
Revenue Stability and Predictability Fair Allocation of Costs to Attain Equity
5
Yields Total Revenue Requirements Dynamic Ability to Respond to Changing
Supply and Demand Conditions
In developing the evaluation criteria, the top priority of both WRAB and city staff will be
weighted equally and given 20 percent each of the final weighting. Each of the other eight
remaining attributes will be given a lesser weighting in the evaluation process.
Given this prioritized list of attributes, the focus can shift to the development of the evaluation
criteria that will be used to evaluate the various rate structures.
4.3 Development of the Rate Structure Evaluation Criteria
The next step in the rate structure evaluation process is to develop the evaluation criteria. The
evaluation criteria will be used to “judge” each of the various rate structures. The top scoring
rate structures, using these evaluation criteria, will be considered for further review and analysis.
In developing the evaluation criteria, the first step was to list the relevant criteria for each of the
ten rate structure attributes. In some cases, this process created multiple sub-criteria for a single
rate structure attribute. For each criteria, a range of relationships was created as to how well the
rate structure met that criteria. An example of the development of a criteria is shown below in
Figure 4-1.
Evaluation of the Alternative Rate Structures 4-2
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
Figure 4-1
Example of the Overall Approach Used to Develop Evaluation Criteria
LowHigh
12345
REVENUE RELATED ATTRIBUTES
1Effectiveness in yielding total revenue requirements
Definition:
The rate structure will be developed to cover the total costs of
utility operations, under a “cash needs” approach - operating, capital,
debt service coverage and reserves.
Evaluation Criteria:
Rate structure is designed to equal (target) the city's Little or No Relationship Some GoodVery Strong100% Relationship
revenue requirements (i.e. the total revenue requirementsRelationshipRelationshipRelationshipto the Rev. Requir.
to the City's Rev. Requir.
are divided by the billing units - customers and usage to
equal the rate).
Comments/Basis for Rating:
For each of the attributes, the criteria were listed and the basis for a low to high score defined. In
some cases, the criteria are subjective and will require judgment on the part of the evaluators to
determine a fair score. However, by creating a broad range to evaluate and score each rate
structure, the subjective measures should be relative to each of the structures evaluated. The
evaluation criteria was reviewed by city staff and presented to the WRAB prior to undertaking
the evaluation process.
Given the above framework, the evaluation criteria were developed for each of the rate structure
attributes. Provided below in Table 4-2 is a summary of the evaluation criteria.
Evaluation of the Alternative Rate Structures 4-3
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
Table 4-2
Overview of the Rate Structure Evaluation Criteria by the Ten Attributes
1 Effectiveness in yielding total revenue requirements
2 Revenue stability and predictability
Revenue within the range of 5% to +10% of target revenue
From the city’s perspective, rates are predictable
Rate revenues can be projected with reasonable accuracy
3 Stability and predictability of the rates themselves
Compared to existing rates:
Potential impacts to “conserving” customers
Potential impacts to “non-conserving” customers
From the customer’s perspective:
Stability (predictability) of customer’s bill in the winter period
Stability (predictability) of customer’s bill in the summer period
Stability (predictability) of customer’s bill from year-to-year
4 Discourage wasteful use, while promoting all justified types and amounts of use
Targets and encourages indoor water conservation
Targets and encourages outdoor water conservation
Encourages peak use reduction
Uses positive incentives to encourage conservation
Uses penalties or punitive measures to discourage waste
5 Reflects all present and future costs (internalities and externalities) and
benefits of providing utility service
Reflects, under all conditions, direct and indirect costs
Reflects, in some manner, marginal costs or externalities
6 Fair allocation of total cost of service among the customer classes of service to
attain equity
7 Avoidance of undue discrimination in rate relationships
Equitable and cost-based across all classes of service
Legal and defendable
8 Dynamic in its ability to respond to changing supply and demand conditions
and/or environmental concerns
9 Simple and easy to understand; easy to administer
Billing method is easy for customer to understand and customer will respond accordingly
Technical complexity of developing the rate
Ease of implementation (billing system constraints; implementation issues and customer
education)
On-going administrative costs/issues
Provide for on-going communication/feedback
Anticipated public acceptance (fair and reasonable?)
10 Freedom from controversy as to interpretation
Evaluation of the Alternative Rate Structures 4-4
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
The final step of creating the evaluation criteria was to determine the relative weighting that
should be applied to each attribute. Table 4-3 provides a summary of the weighting by major
attribute, placed in the order of importance (priority/weighting).
Table 4-3
Summary of the Weighting of the Evaluation Criteria By the Ten Attributes
Attribute
No. Attribute Description Weighting
1 Effectiveness in yielding total revenue requirements..................................20%
4 Discourage wasteful use, while promoting all justified
types and amounts of use..........................................................................20%
3 Revenue stability and predictability.............................................................15%
6 Fair allocation of total cost of service among the
customer classes of service to attain equity...............................................15%
8 Dynamic in its ability to respond to changing supply
and demand conditions and/or environmental concerns...........................10%
9 Simple and easy to understand; easy to administer........................................8%
2 Stability and predictability of the rates themselves.......................................6%
7 Avoidance of undue discrimination in rate relationships...............................3%
5 Reflects all present and future costs (internalities and
externalities) and benefits of providing utility service................................2%
10 Freedom from controversy as to interpretation......................................... 1%
Total Weighting ...........100%
In viewing the above weightings, it should be noted that the “bottom 5” attributes were also
prioritized and given different weightings. In prior discussions with WRAB, it was initially
proposed that the “bottom 5” attributes would be weighted equally. After further thought, it was
concluded that these attributes should also be prioritized and given different weighting based
upon the votes received in the prioritization process. By doing so, the “bottom 5” was prioritized
and weighted using the same methodology as was used for the “top 5.”
Using the above percentage weighting, maximum scores for each attribute were developed. The
sum of the total points for a “perfect” rate structure was set equal to 400 points. The total of 400
points was then divided between the ten attributes based upon the weighting shown in Table 4-3.
Therefore, as an example, a high score on the first attribute; effectiveness in yielding total
revenue requirements, was set equal to 80 points (20% x 400 points = 80 points). Scoring the
lowest rating would have the opposite impact and score; a 80 points. A score in the middle was
considered to be neutral and set equal to 0 (zero) points. Using this approach to scoring, a rate
design may have very strong attributes in one area, but that positive attribute may be counter-
balanced or outweighed by a negative attribute. All rate structures, and their effectiveness, are
the sum or net of their positive and negative attributes. By using negative scores for low
attributes, it provides the appropriate counter-balance within the scoring to properly reflect the
lower or negative attributes.
Evaluation of the Alternative Rate Structures 4-5
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
4.4 Process Used to Score and Evaluate the Rate
Structures
It was determined that it would be most appropriate for EES to evaluate and score each of the
rate structures using the evaluation criteria discussed above. To aid in this process and help
assure a fair and balanced evaluation process, EES retained Mr. Tom Chesnutt of A&N
Technical Services, Inc. to participate in the evaluation process. Mr. Chesnutt is nationally
recognized for his work in the area of conservation-based water rates and his research and work
with utilities in California using water budgets.
The evaluation panel consisted of Tom Gould, EES Project Manager, Shawn Koorn, EES project
rate analyst and Tom Chesnutt, A&N Technical Services. The process used to evaluate the rate
structures was a “round table” discussion of each rate structure and the group’s consensus on the
scoring of each rate structure. In other words, the rate structures were not scored by each
individual evaluator, and the final results reflect the average evaluation. Rather, each rate
structure was evaluated and scored based upon the discussion and general consensus of the
evaluators.
While different individuals may score the rate structures differently than shown within this study,
EES believes that the process used to score and evaluate the rate structures was consistent in both
its application and the scores provided.
4.5 Summary of the Rate Structure Evaluation and Scoring
The twenty-two (22) rate structures previously discussed in Section 3 of this report were
evaluated in this study. As discussed previously, the original list of rate structures for evaluation
purposes, presented by EES to the WRAB, was twenty (20). The WRAB identified two
additional rate structures to be evaluated, and those two additional rate structures were included
within the evaluation process.
Shown below in Table 4-4 is a summary of the “Top 5” rate structures, as scored, using the
evaluation criteria.
25
David M. Pekelney and Thomas W. Chesnutt, Landscape Water Conservation Programs: Evaluation of Water
Budget Based Rate Structures, Prepared for the Metropolitan Water District of Southern California, (A&N
Technical Services, Inc., September 1997).
Evaluation of the Alternative Rate Structures 4-6
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
Table 4-4
Summary of the “Top 5” Rate Structures
Rate
Structure Final Score
NumberRate Structure Description (Out of 400)
10 Top scorer of rate structures 1 – 9 (#5 Seasonal rates with fixed
thresholds and a 2-block winter rate), plus goal based incentives. 213
5 Seasonal rates with fixed thresholds and a 2-block winter rate. 195
19Top scorer of 11 – 18 (#17 4-block water budget; block 1 – fixed
threshold, block 2 – “typical” lot size and irrigation requirements,
succeeding blocks based on relationship to outdoor goal), with the
target set and fixed each year. No monthly adjustments for weather
and ET. 187
20Top Scorer of 11 – 19 (#19 4-block water budget; block 1 – fixed
threshold, block 2 – “typical” lot size and irrigation requirements,
succeeding blocks based upon relationship to outdoor goal. Target
is set and fixed each year. No monthly adjustment for weather and ET.),
plus a discount for city approved irrigation systems with rain sensors
and weather-based controllers. 181
17 Indoor water use based upon a fixed threshold, with outdoor
use determined based upon an assumed “typical” lot size and
irrigation requirements. Succeeding blocks based upon relationship
to outdoor goal. Billing period goals are adjusted for actual
weather and ET. Forward looking goals are communicated via
the monthly billing statement. 175
7 Seasonal rates with a fixed threshold adjusted based upon water
supply availability and a 2-block winter rate. 175
As can be seen from the above table, there are actually six rate structures in the “Top 5.” There
was a tie for the fifth highest score, so both rate structures have been included within the “Top
5.” In viewing Table 4-4, three of the rate structures are variations of “water budget” rate
structures and three are variations of seasonal rate structures. It is the recommendation of EES
that the rate structures shown above in Table 4-4 be further analyzed for their appropriateness for
the city.
In viewing Table 4-4 and the results, it is important to understand and recognize that the top
scorer does not imply the “best” rate structure, nor does the lowest score imply the “worst” rate
structure. Each rate structure must be further analyzed, evaluated and judged based upon the
city-specific application or use of that rate structure. Simply stated, one rate structure that may
work well for single-family residential customers may not work well or be appropriate for multi-
family or commercial/industrial customers. At the same time, as these rate structures are being
further evaluated, elements of those rate structures that are not included in the “Top 5” may be
utilized and incorporated into the “Top 5” to further enhance and improve a rate structure (e.g.
legal occupancy as a method of establishing first block consumption for multi-family customers).
Evaluation of the Alternative Rate Structures 4-7
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
Provided below in Table 4-5 is a summary of the scoring for all twenty-two rate structures.
Table 4-5
Summary of the Scoring of the 22 Rate Structure Alternatives
Rate
Structure Final Score
NumberRate Structure Description (Out of 400)
1 Current rate structure.......................................................................................139
2 Current rate structure modified for seasonal rates; 1-block winter..................146
3 Current rate structure modified for seasonal rates; 2-block winter..................143
4 Seasonal rates, fixed threshold; 1-block winter...............................................156
5 Seasonal rates, fixed threshold; 2-block winter...............................................195
6 Seasonal rates, AWC threshold based upon water supply, with
2-block winter..............................................................................................170
7 Seasonal rates, fixed threshold based upon water supply, with
2-block winter..............................................................................................175
8 Seasonal rates, 4-block summer, 1-block winter, uses AWC..........................146
9 Seasonal rates, 4-block summer, 1-block winter, uses fixed threshold...........156
10 Top scorer of rate structures 1 – 9 (#5), plus goal based incentives................213
11 3-block water budget; block 1 – AWC, block 2 – customer specific
lot size, adjusted for weather and ET...........................................................154
12 Same as 11, with addition of customer specific turf type................................139
13 4-block water budget, block 1 – AWC, block 2 – customer specific
lot size, succeeding blocks based upon relationship to outdoor goal..........158
14 Same as 13, but uses a fixed threshold for block 1..........................................161
15 4-block water budget; block 1 – AWC, block 2 – “typical” lot size,
succeeding blocks based upon relationship to outdoor goal........................165
16 Same as 15, but uses class average usage to establish block 1........................170
17 Same as 15, but uses a fixed threshold to establish block 1............................175
18 3-block water budget; indoor and outdoor is summed as block 1...................123
19 Top scorer of 11 – 18 (#17), with the target set and fixed each year, no
monthly adjustments for weather or ET......................................................187
20 Top scorer of 11 – 19 (#19), with a discount for city approved irrigation
systems with rain sensors and weather-based controllers............................181
21 3-block water budget; block 1 based upon legal occupancy, block 2 –
specific lot size and uses historical average monthly ET.............................163
22 3 block; blocks based upon PIF and meter size, water can be “loaned”..........142
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City of Boulder—Volume 1 – Evaluation of Water Rate Structures
As can be seen from Table 4-5, the scores ranged from a low of 123 to a high of 213. The city’s
current rate structure was scored as 139. It received this low score not necessarily because of the
structure, but rather because of the way in which it is being administered between classes of
service and the questions surrounding the equity of that application. In our opinion, the city’s
current rate structure is still a valid rate structure that can be improved via changes to the way it
is applied.
4.6 Summary
This section of the report has described the evaluation process used to review the twenty-two rate
structure alternatives. From this process, six rate structures have been identified for further
analysis, review and consideration. The next section of the report will begin the process of better
defining these rate structures and evaluating them for potential use by the city.
Evaluation of the Alternative Rate Structures 4-9
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
Section 5
Selection of Final Rate Design Alternatives
and Development of Block Thresholds
5.1 Introduction
The previous section of the report evaluated twenty-two (22) water rate structures, and provided
a list of six rate structures for further evaluation. While this screening process helped to narrow
the numerous alternatives to a more manageable level, it did not begin the process of more
clearly defining the specifics of the rate structure (e.g. size of the blocks, definition of seasons,
etc.). The objective of this section of the report is to provide clarity and a detailed discussion of
the approach and methodology that will be used to establish the various components of the rate
structures for different customer classes. These structures were reviewed by the WRAB and
approved as to form, prior to EES conducting any technical analysis related to pricing. This
section of the report will not discuss or focus on price. The next step of the technical analysis is
to use the findings and conclusion from this section of the report to then be able to begin the
process of determining the pricing within each rate structure.
5.2 Review of the Top Scoring Rate Structures
As noted in the previous section of the report, from the evaluation process, six rate structures
were selected for further review. The rate structures were all inverted block rate structures.
There were two basic rate structures – a seasonal rate structure and the water budget rate
structure. Certain elements of the top scoring rate structures could be common to all (e.g. goal
based incentives). In the screening process, the objective was to determine whether these
additional elements “enhanced” or “detracted” from the overall rate structure. At the same time,
it was recognized that these rate structures would need to be further refined to better reflect the
specific customers being served. Therefore, the six “screened” rate structures provided the
starting point for further refining and enhancing the structures to match the specific objectives of
the city.
Provided below in Table 5-1 is a summary of the six rate structures that were selected for further
review and development.
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City of Boulder—Volume 1 – Evaluation of Water Rate Structures
Table 5-1
Summary of the “Top Scoring” Rate Structures
Rate
Structure Final Score
NumberRate Structure Description (Out of 400)
10 Top scorer of rate structures 1 – 9 (#5 Seasonal rates with fixed
thresholds and a 2-block winter rate), plus goal based incentives. 213
5 Seasonal rates with fixed thresholds and a 2-block winter rate. 195
21Top scorer of 11 – 18 (#17 4-block water budget; block 1 – fixed
threshold, block 2 – “typical” lot size and irrigation requirements,
succeeding blocks based on relationship to outdoor goal), with the
target set and fixed each year. No monthly adjustments for weather
and ET. 187
22Top Scorer of 11 – 19 (#19 4-block water budget; block 1 – fixed
threshold, block 2 – “typical” lot size and irrigation requirements,
succeeding blocks based upon relationship to outdoor goal. Target
is set and fixed each year. No monthly adjustment for weather and ET.),
plus a discount for city approved irrigation systems with rain sensors
and weather-based controllers. 181
17 Indoor water use based upon a fixed threshold, with outdoor
use determined based upon an assumed “typical” lot size and
irrigation requirements. Succeeding blocks based upon relationship
to outdoor goal. Billing period goals are adjusted for actual
weather and ET. Forward looking goals are communicated via
the monthly billing statement. 175
7 Seasonal rates with a fixed threshold adjusted based upon water
supply availability and a 2-block winter rate. 175
From the above list, individual WRAB members provided comments and suggestions to the city
for enhancing the rate structures noted above. Given these additional comments and suggestions,
it was determined that for purposes of this study, the number of rate structures to be reviewed
should remain at a maximum of 5 to 7, and that the final 5 to 7 rate structures should attempt to
incorporate, as best as possible, the various comments and suggestions that were received from
the various parties.
Provided below is a detailed discussion of the approach used to establish the final set of rate
structures that will be further evaluated for each customer class of service.
5.3 Establishment of Customer Classes of Service
Each class of service places different demands upon the system, while at the same time, the city
may have different objectives (e.g. conservation) for the various types of customers served on the
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City of Boulder—Volume 1 – Evaluation of Water Rate Structures
system. Given this challenge, it is often advisable and prudent to establish water rates by
customer class of service.
In establishing customer classes of service, two criteria are often used. Customer classes of
service are often established around facility requirements and usage characteristics. As an
example, a single-family residential customer has significantly different facility requirements
and usage patterns, when compared to a large industrial customer. A single-family customer
may be served via a ¾” meter, while the industrial customer is served via a 6” meter. Their
usage patterns may also vary significantly. The industrial customer may be fairly even in their
use from day-to-day and from month-to-month. In contrast, a single-family residential customer
may have large swings in their consumption from season-to-season, with their highest peak use a
function of lawn sprinkling (irrigation).
In the case of the city, it is proposed that for each customer class of service, rate structures be
utilized that reflect the specific characteristics of the class of service, along with any
administrative/billing considerations.
For the city, it is recommended that five distinct customer classes of service be considered for
purposes of designing water rates. These five customer classes of service are as follows:
Single-Family Residential Large Users
Multi-Family Residential Metered Irrigation
Commercial
One of the concepts suggested by some individual members of WRAB for commercial and large
users is establishing numerous sub-categories of classes of service (e.g. grocery stores, office
buildings, restaurants, etc.) and ultimately individual rates for each subcategory. EES agrees that
any new billing system selected by the city should have the capability to collect and report data
by selected subcategories. This information can be very useful for identifying consumption
trends and usage characteristics of subcategory customers, and in developing and implementing
conservation programs.
For rate setting purposes, our understanding of the subcategory rate concept is that each
subcategory rate has a first block of consumption that is based upon either the subcategory
average use, or “best of class.” It may also be based upon a standard of “gallons/unit/day” where
the “unit” is defined for each type of subcategory. Examples of the units may be the square
footage of the building, number of students in a school, seats in a restaurant, beds in a hospital,
members of a church or country club, etc. While these standards can be established, it does
create various issues from a rate setting perspective.
It appears that the main objective in proposing a subcategory rate setting approach is to segregate
customers by business type and to identify those customers that have “inefficient” consumption.
While this approach may appear logical from a conceptual standpoint, EES believes that there
are significant drawbacks and equity issues associated with this approach. Most significantly, to
26
AWWA Research Foundation and the American Water Works Association, Commercial and Institutional End
Uses of Water, AWWARF, 2000.
Selection of Final Rate Design Alternatives and Development of Block Thresholds 5-3
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
assume that any consumption over and above the “subcategory” average or per unit volume is
“inefficient” use is, in our opinion, flawed and inappropriate as a method to establish rates.
If the city’s main objective is to identify and work with “inefficient” commercial users, then the
city should focus on collecting commercial/large user data by subcategory, identify those users
that may appear to have high/inefficient use, and provide conservation audits to that customer.
Given the above noted issues and discussion on subcategories, EES would recommend that the
city establish and collect consumption data by subcategory, but establish rates at the current time
using two customer classes of service – commercial and large user.
In order to classify the city’s customers to a class of service, each customer class of service must
be defined. Provided below is a set of definitions for each of the five customer classes of
service. These definitions may be refined over time to help clarify any unique customer class
characteristics.
S-FR
INGLEAMILY ESIDENTIAL
Single-family residential shall include: one single-family dwelling, one single-family dwelling
which includes an accessory dwelling unit within the dwelling, or one common wall single-
family unit all served by a single meter.
M-FR
ULTIAMILY ESIDENTIAL
A multi-family structure or facility shall mean any residential structure or facility containing two
(2) or more dwelling units, including, but not limited to, duplexes, triplexes, apartment buildings,
condominiums, trailer parks and parcels containing two (2) or more separate dwelling units
served through common meter(s), but shall not include hotels or motels.
C
OMMERCIAL
Commercial shall include all uses not classified as single-family residential, multi-family
residential, large user, or irrigation, and shall include, but not be limited to, structures used for
retail sales, offices, manufacturing, schools, convalescent centers and nursing homes, and each
such business shall be considered as a separate unit even though two or more may be in the same
building. In the event there is more than one type of operation in the same building, and the
operations are seperately metered, (i.e., a professional office, a retail store, a restaurant, or an
apartment) then each separate category or type shall pay at the rate fixed under that particular
category or type.
LU
ARGE SER
Large users are defined as customers whose individually metered average annual monthly
potable water consumption is in excess of 2,500,000 gallons per month. This breakpoint was
determined by reviewing consumption data for the city’s commercial and industrial customers
and represents the highest level of usage on a monthly basis. The majority of the commercial
and industrial customers fall below this breakpoint of 2.5 million gallons a month. Those
customers that use in excess of 2.5 million gallons a month would then be classified as the large
user customer class of service. The average annual monthly consumption shall be calculated on
the average of the most recent three-year period. The three-year period shall be based upon the
three most-recent calendar years. An exception and modification shall be made to adjust for
those years that are designated as drought years or contain extraordinary consumption.
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City of Boulder—Volume 1 – Evaluation of Water Rate Structures
MI
ETERED RRIGATION
This rate schedule applies to customers for purposes of irrigation. Irrigation shall include meters
installed which serve primarily landscape irrigation systems and include meters which serve
municipal park properties, except for those meters which serve only non-irrigation uses.
Given the above customer classes of service, rate structures can be selected that best fit the
characteristics of the various customer classes of service.
5.4 Definition of Seasons
In the evaluation of the rate structures, the seasonal rate structures contained a “winter” and
“summer” time period. In order to move forward and develop these alternatives, a clear
definition of these two time periods is needed.
For purposes of developing any rate structure that contains seasonality, the seasons shall be
defined as follows:
Winter Period – October through April
Summer Period – May through September
These seasonal definitions were selected since the summer time period closely matches the
seasonal usage patterns of the city. The importance of defining seasonal time periods is to allow
for different pricing of water during different periods of demand and supply.
5.5 Defining the First (Initial) Block Size
As mentioned previously, all of the proposed rate structures are inverted block rate structures.
Regardless of the total number of blocks, all of the rate structures have an initial or first block of
consumption. The purpose of this discussion is to define the intended consumption that should
occur within the first block, and the methodology or basis for quantifying the block size.
One of the weaknesses of many rate structures is the lack of rationale around which block sizes
are established. One of the criticisms of the city’s existing water rate structure was the lack of a
clear and rational basis for the establishment of the block sizes. The approach to be used herein
attempts to eliminate that concern.
Philosophically, for each rate structure, the first block should be established based upon some
rational and reasonable amount. For single-family residential and multi-family residential
customers, the philosophical basis to be used is “indoor” use. For commercial, large user and
irrigation customers, a slightly different approach is used, whereby the average class
consumption is used as the starting point for establishing the block size. Provided below is a
detailed discussion of the approach used to establish the initial block size for each class of
service.
Single-Family Residential Initial Block Size
– A number of different methods were examined to
establish the first block for single-family residential customers. The basis for establishing the
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City of Boulder—Volume 1 – Evaluation of Water Rate Structures
block size is that it should reflect “indoor” use. While the city’s current use of AWC could be
viewed as a method to establish “indoor” use for single-family residential customers, there
appears to be a number of concerns with the AWC. The recent capping of the AWC at 8,000
gallons reflected one of the concerns related to “cheating” the system by inflating the AWC and
corresponding block thresholds or by not encouraging efficient water use. Given that, AWC was
not strongly considered as a method to establish the first block size for single-family residential
customers. However, AWC will be used as a basis for establishing the initial block size for any
rate alternatives that modify the existing (current) rate structure.
The first method that was examined as a method to establish the first block size was based upon
the single-family class average use in the winter period. Based upon a three-year average, this
produced a block size of 5,200 gallons/month. The next method examined was suggested by
individual members of WRAB. Under this approach, the first block would be established based
upon an assumed 150 gallons/day/household. Assuming 30 days in a month, this equates to a
first block size of 4,500 gallons/month. The third method reviewed was using the city’s planning
criteria. Based on preliminary information used by the Planning Department, the city assumes
that single-family homes have 2.2 occupants, and a reasonable amount of water for indoor use is
66 gallons/capita/day. Using these assumptions, this is the equivalent of 143
gallons/day/household or 4,356 gallons/month.
Another potential method that was considered for establishing the initial block size was fixture
counts. Each type of fixture has an assumed use, and when added together, each individual
household would have an individual block size. The use of fixture counts was deemed to be too
administratively complex and was eliminated for that reason.
The three basic methods discussed above all appear to provide comparable results. In
discussions with the city, it was determined that the final selected block size should be rounded
to thousands of gallons. This rounding was suggested to simplify the administration of the rate.
The city and EES believe that the methodology using the average number of occupants (2.2) and
a per capita usage provided the most rational basis for the establishment of the block size. With
rounding to thousands of gallons, this method would imply an initial block size of 5,000 gallons
per month.
The initial block size should be consistent, season-to-season and month-to-month. That is, the
initial block size should be the same each month, which in this case, for single-family residential,
is 5,000 gallons per month.
M-FRIBS
ULTIAMILY ESIDENTIAL NITIALLOCK IZE
The establishment of the first block size for multi-family residential considered three different
approaches. The first approach considered a class average AWC per unit, multiplied by the
number of units, to establish the total block size. This method was not pursued since there were
concerns about using the class average AWC. Given that AWC changes from year-to-year, by
definition, the initial block size may also change from year-to-year. The next method reviewed
used a value of 100 – 125 gallons/day/unit to establish the block size. This amount per unit was
27
City of Boulder Water Conservation Futures Study (Hydrosphere and Aquacraft, 2000).
Selection of Final Rate Design Alternatives and Development of Block Thresholds 5-6
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
suggested by an individual WRAB member and is comparable to multi-family per unit volumes
assumed within the industry. Under this approach, the block size may be in the range of 3,000 –
3,750 gallons/unit/month. The final approach considered was to develop the consumption per
unit, in relationship to the single-family residential block size. Under this approach, a multi-
family residential customer would be provided, on a per unit basis, the equivalent of 80% of the
block size established for the single-family residential class of service. Using this method, this
would equate to 4,000 gallons/unit/month (5,000 gallons x 80% = 4,000 gallons). This last
approach was deemed to be the most appropriate since it had a clear relationship to the single-
family residential block size, and would be stable from year-to-year. The use of 80% is a
common and reasonable factor for establishing the relationship between single-family residential
consumption and multi-family residential per unit consumption, and has been used in the past by
the city as a reasonable measure of multi-family residential per unit “indoor” consumption in
Plant Investment Fee (PIF) calculations. As with the single-family residential class of service,
the initial block size for multi-family residential will be consistent month-to-month.
CLUIBS
OMMERCIAL AND ARGE SERNITIAL LOCK IZE
For these two customer classes of service, a consistent methodology needs to be established to
determine the initial block size. Up to this point, the focus has been on “indoor” use when
reviewing single-family and multi-family residential. Many of the commercial and large user
customers certainly have an “indoor” and “outdoor” component to their consumption. However,
the approach used to establish the single-family and multi-family initial block sizes does not
work well for these two customer classes of service.Therefore, two alternative methodologies to
establish the initial block sizes were reviewed. The first method considered each individual
customer’s AWC to establish the initial block size. One of the issues that the city is aware of
concerning the use of AWC for commercial customers is the seasonal nature of some businesses,
and the fact that the AWC may not account for the seasonality aspect. Therefore, the alternative
methodology would be very similar to the previous approach, but the first block would be
established based upon the annual average monthly use. Under this approach, the average
reflects both winter and summer usage, and not just winter period use. The city believes that this
approach is fairly comparable to using the AWC, but has the potential to address some of the
concerns the commercial customers have raised. Therefore, it is recommended that annual
average monthly consumption be used to establish the initial block size for commercial and large
user customers.
Individual WRAB members have suggested another alternative approach that may be considered
and implemented by the city at a later date. Under this approach, commercial customers would
be categorized into separate sub-categories or classes (e.g. restaurants, supermarkets, etc), and
block sizes be developed based upon the sub-class average. It has also been suggested that water
budgets may be established on a gallons per square foot basis of the establishment. As discussed
previously, the city, at this point in time, believes that the most effective method to encourage
conservation from these customers is to work directly with them, conduct conservation audits,
and use other methods (e.g. equipment rebates) to encourage efficient use.
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City of Boulder—Volume 1 – Evaluation of Water Rate Structures
MIIBS
ETERED RRIGATION NITIAL LOCKIZE
Obviously, metered irrigation customers do not have “indoor” use. Therefore, the initial block
size should be based upon the irrigation needs of the specific customer, and any succeeding
blocks should reflect “inefficient” use. Under this approach, the specific area needing irrigation
is measured to determine the initial block size and then multiplied by an assumed per square foot
application rate, to determine the total volume of water within the initial block. In measuring
irrigable area, the area will be rounded to the nearest 100 square feet, to simplify the
administrative aspects of determining the initial block size. The irrigable lot area will be
multiplied by 15 gallons/square foot to determine the annual volume of water. This volume of
water per square foot assumes a turf grass irrigation need. Finally, the annual requirement will
be shaped to the monthly requirements using evapotranspiration (ET). This aspect of developing
the block size is discussed in more detail under the second (outdoor) block size determination.
The other approach that was reviewed for determining initial block size was to use 90% of the
customer’s average summer consumption.
5.6 Defining the Second Block Size
Each of the rate structures has a second block component within the rate structure. The second
block size is critical in those instances where there are at least three blocks to the rate structure.
For example, the seasonal rate structure in the winter time only has two blocks, but in the
summer time it has three blocks. Therefore, in the winter time, the second block is all
consumption over and above the first block. In contrast to this, the summer time period must
define a second block size. How the second block size is determined will be the focus of this
discussion.
The primary or philosophical basis for establishing the second block size is outdoor watering
needs. This is particularly true for single-family and multi-family residential customers.
Therefore, for the single-family and multi-family customers, irrigable requirements will be
factored into the determination. At the same time, the irrigable requirements may be “shaped” to
reflect evapotranspiration (ET) and differing irrigation needs. Provided below is a discussion of
the development of the second block size for the various customer classes of service.
S-FRSBS
INGLEAMILY ESIDENTIAL ECONDLOCKIZE
The second block for single-family residential customers should reflect the irrigation
requirements of these customers. The general approach is to consider the amount of area to be
irrigated and multiply that area by the assumed irrigation requirements on a per square foot basis.
Three different approaches were reviewed to determine irrigation needs and the area to be
irrigated. The first approach would require the city to measure each individual customer’s
irrigable area. Alternatively, the city can work from existing data that may group single-family
lots into various size categories. From these lot size categories, average irrigation requirements
could be determined. Finally, the city can assume an “average” size lot and irrigation needs. In
reviewing each of these methods, the city was concerned with the level of effort and cost
associated with measuring individual customer properties and irrigable areas. Using the first
approach could also potentially create a large number of appeals by customers claiming that their
property was incorrectly measured. Given those concerns, the first method of individually
Selection of Final Rate Design Alternatives and Development of Block Thresholds 5-8
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
measuring customer lots was not considered for use within this study. The next alternative is to
group customers into various sized lots, by potentially using existing data and information. The
city collects data for stormwater/flood management fees and groups single-family residential
customers into lot sizes of 0 – 15,000 square feet, 15,001 – 30,000 square feet, and greater than
30,000 square feet. In reviewing the data, over 93% of the single-family residential lots (inside-
city residents) fell into the first “bin” of 0 – 15,000 square feet. Given the magnitude of
customers that fall into the first “bin” it was unclear as to the advantage of creating three “bins”
or categories for single-family lot sizes, using the breakpoints from the flood data. From a
geographical information system (GIS) analysis, property densities and building footprints were
examined. Table 5-2 provides a summary of this analysis.
Table 5-2
Summary of the GIS Analysis of Average Parcel (Lot) Sizes
Lot Size Definition From Zoning Code Lot Size (Sq. Ft.)
Rural/Estates–
Total Lot Size 19,311
Building Footprint 2,232
Low Density –
Total Lot Size 9,940
Building Footprint 1,684
Medium Density –
Total Lot Size 6,360
Building Footprint 2,234
Neither the stormwater/flood management fee information nor the GIS data appeared to provide
obvious or easy groups to segregate the single-family residential customers. The final approach
that was reviewed was to establish an assumed lot size and determine the irrigable needs of that
lot size. From the information reviewed above, an average lot size of 9,000 square feet was
established. This lot size should capture the vast majority of single-family lot sizes in the city.
From this assumed lot size, assumed impervious areas were subtracted. For this analysis, it was
assumed that the building footprint was 2,500 square feet, a patio was 200 square feet (10’ x
20’), a driveway is 600 square feet (20’ x 30’), and a garage is 500 square feet (20’ x 25’).
Sidewalks were not included to recognize the numerous differences in individual property, and to
keep the impervious area to a reasonable total. The total for the assumed impervious area is
3,800 square feet. This leaves an irrigable area of 5,200 square feet. Turf grass annually
requires approximately 18 gallons/square foot (conservative requirement without any irrigation
efficiencies) for irrigation purposes. However, the annual requirement of 18 gallons/square feet
can be adjusted downward to reflect irrigation efficiencies which may still result in a healthy,
sustainable lawn. After reviewing the initial block sizes, the city selected an adjustment factor of
approximately 80% to reflect the efficiencies which result in an application rate of 15
gallons/square foot. Using these assumptions, the calculated irrigation requirement is
approximately 78,000 gallons.
An important objective of the city is to minimize the administrative requirements, along with the
number of customer appeals for variances. For past planning purposes the city had assumed
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City of Boulder—Volume 1 – Evaluation of Water Rate Structures
60,000 gallons of water use during the summer time irrigation period. Therefore, in order to help
minimize the potential number of appeals, the typical lot size of 9,000 square feet will be used,
with summer irrigation requirements of 78,000 gallons. Based upon these assumptions, the
irrigation requirements per square foot, based upon total lot size (pervious and impervious), is
8.66 gallons/square foot. If a customer appeals for a variance, their total lot size would be
measured and multiplied by 8.66 gallons to determine their irrigation needs.
One of the concepts noted earlier was the establishment of groups of lot sizes (i.e. bins) to create
a more equitable establishment of irrigation needs. The above approach can be modified to
achieve this objective. Provided below in Table 5-3 is an example of this approach.
Table 5-3
Establishing Irrigation Requirements For Varying Lot Sizes (Bins)
Lot Sizes (Categories) Determination of Annual Water
First 9,000 square feet of the total lot size 8.66 gallons/square foot
(Assumes 5,200 sq. ft. irrigable area @15 gallons/s.f.)
Next 9,000 square feet of the total lot size 12.00 gallons/square foot
(Assumes 9,000 sq. ft. irrigable area @ 12 gallons/s.f.)
All over 18,000 square feet of the total lot size 10.00 gallons/square foot
Example: Assuming a 20,000 square foot lot:
9,000 square feet x 8.66 gallons/square foot = 78,000 gallons
9,000 square feet x 12.00 gallons/square foot = 108,000 gallons
2,000 square feet x 10.00 gallons/square foot = 20,000 gallons
20,000 square feet 206,000 gallons
As can be seen in Table 5-3, the allocation per square foot is decreased as the lot size increases.
It is presumed that the lot is planted with less turf grass, and instead contains plantings requiring
lower irrigation needs. At the same time, the city desires to encourage owners of larger lots to
landscape with grass and plantings that use less water per square foot, when compared to turf
grass, or to use efficient irrigation techniques.
If desired, the approach shown above in Table 5-3 could also be used to establish only two bin
sizes. In that case, the third bin size would be eliminated and all square footage over the initial
9,000 square feet would be provided 12 gallons/square foot.
Another approach that has been suggested for establishing “individualized” block sizes for
single-family residential is to use the tax assessed lot size for each parcel. Under this approach,
the tax assessed lot size would be multiplied by 8.66 gallons per square foot to determine the
block size. An alternative to this, which is based upon the approach shown in Table 5-3, is to use
8.66 gallons per square foot for the first 9,000 square feet, and 12 gallons per square foot for all
square footage over the initial 9,000 square feet allocation.
Using the above approaches, block sizes can be established for any of the rate structure
alternatives being reviewed by the city. The remaining issue concerning block 2, is how it is
shaped for irrigation needs.
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Given a total amount of water needed for outdoor irrigation, the focus shifts to the potential
shaping of the water to reflect the monthly irrigation requirements and ET. One method that can
be used to accomplish this is to use the Boulder ET and shape the water into monthly allocations
to create the block size for each month. In discussions with the city, it was noted that two items
should be taken into account in establishing the annual shape of monthly water required for irri-
gation purposes. First, from a water supply perspective, the city incurs three different periods.
The first period is a “direct flow” period. This period is generally May and June. At the end of
the “direct flow” period, the city relies primarily upon its supply storage for water supply. This
period is generally July through September. The remaining months of October through April is
considered the non-irrigation period from a supply perspective. The importance of distinguish-
ing the supply periods is that the city wants to encourage irrigation in an efficient manner during
the direct flow period of May and June. Therefore, the city has indicated that the second block
size for the months of May and June should be sized to encourage irrigation use in an efficient
manner. Given that, in establishing the block sizes for May and June, they will not be based
upon ET, but rather, set equal to the block size for July, which is based upon ET. The second
issue that needs to be taken into account in shaping the block sizes is that the city also wants to
encourage irrigation of trees and
shrubs during the winter period.
25,0000.60
Therefore, during the winter
0.50
20,000
period, the block size is pro-
0.40
vided with extra water to allow
15,000
Block 2
0.30
for irrigation of trees and
Ave. ETo
10,000
shrubs.
0.20
5,000
0.10
The average ET for the city was
00.00
used as a starting point for
shaping the annual water re-
quirements. The single-family
allowance of 78,000 gallons was allocated over the average monthly ET. At the same time, the
allocation of water for May and June was increased to equal the allocation in July (12,000
gallons). This additional water in May and June is over and above the original 78,000 gallon
allocation. This additional allocation of water in May and June adds approximately 8,000
gallons for irrigation purposes during this period. Finally, during the winter period, additional
allocations of water have been added to allow for irrigation of trees. This additional allocation of
water in the winter period adds approximately 25,000 gallons of water over the months of
November through April. The chart above shows the relationship between the city’s average ET
and the final block sizes established for block 2. Given this approach to establishing the shape
and allocation of water for irrigation purposes, the final allocation of water for the 9,000 square
foot single-family residential lot would be78,000 gallons.
One concept that has been discussed previously is the “banking” of water. “Banking” of water
would allow a customer to carry-forward any unused allocation of water in a particular month to
another month. While “banking” of water may be useful from a customer perspective there are
two drawbacks from the city’s perspective. First, the administrative complexity of “banking”
could be significant and problematic. Secondly, and more importantly, is that the city does not
want customer’s to “bank” their water from the “direct flow” period and shift their “banked”
consumption to the peak irrigation periods. By doing so, it defeats the entire purpose of shaping
Selection of Final Rate Design Alternatives and Development of Block Thresholds 5-11
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
the water block size to the irrigation requirements. Therefore, our recommendation would be to
disallow any “banking” of water by customers.
M-FRSBS
ULTIAMILY ESIDENTIAL ECONDLOCKIZE
Establishing the second block size for multi-family customers is similar to the approach used for
single-family residential. One of the issues surrounding multi-family residential customers was
the fact that there are multi-family customers that have metered irrigation, and those that do not.
Consideration was given to establishing two multi-family rate schedules, with and without
metered irrigation. In discussing this issue further, the city believed that this was not necessary
or desirable at this time. Most of the larger multi-family customers with significant irrigation
requirements are already metered for irrigation. It was suggested that a three block rate structure
could be established in which the second block is based upon the specific irrigable area of each
multi-family customer. This irrigable area could be determined from the data collected and used
to calculate the stormwater/flood management fee. Using the relationship determined in the
single-family residential analysis, the irrigable area for each customer would be multiplied by 15
gallons per square foot to determine the annual volume for the second block size. As with the
single-family residential customers, this annual volume of water, determined for each specific
customer would be shaped based upon historical monthly ET.
The above approach should be acceptable to both metered irrigation and non-metered irrigation
multi-family customers. The assumption is that any multi-family customer that has metered
irrigation should not use any significant amounts of block 2 water, and should never be billed for
block 3 water. In contrast, the multi-family customer that does not have metered irrigation is
provided an allocation of block 2 water that is based upon their specific irrigable area.
C/LUSBS
OMMERCIALARGE SERECOND LOCK IZE
For the commercial/large user customers, it is proposed that a two block rate structure be
utilized. Therefore, the second block will represent all consumption over and above the first
block consumption. As discussed previously, each individual customer will have a first block
established based upon their specific consumption characteristics (annual average monthly).
Many of these customers have irrigation meters and as a result, the second block of consumption
does not relate to outdoor usage. Furthermore, there are commercial customers that have
minimal irrigation requirements, if any. Therefore, the focus of this class of service is not
necessarily on outdoor consumption.
As mentioned previously, the city believes that working directly with the customers and
establishing “best management practices” is the most effective tool for achieving efficient water
use with these customers. Given that, it did not appear reasonable or prudent to establish
additional blocks, beyond the second block, for this group of customers.
MISBS
ETERED RRIGATION ECOND LOCKIZE
Initially it was proposed that a maximum of a two-block rate structure be used for the metered
irrigation customers and block 2 would be all usage over block 1. However, in discussion with
the city it was determined that a three-block rate structure would be proposed at this time.
Similar to block 2 for the other customer classes of service, the first block for metered irrigation
is established based upon the customer’s specific irrigable area. Therefore, the second block for
Selection of Final Rate Design Alternatives and Development of Block Thresholds 5-12
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
metered irrigation will be calculated in the same manner as the third and fourth blocks for the
other customer classes of service and will be set at 101% to 150% of block 1. For example, if
block 1 is 10,000 gallons then block 2 will be 10,001 – 15,000 gallons, or 50% of block 1. All
consumption over block 2 will then be charged at the block 3 rate.
5.7 Defining Third and Fourth Block Sizes
There are certain rate structures that have third and fourth block sizes. In all cases, the block
sizes are based upon the relationship to the “goal.” Previously, block 3 may have been described
as “101% to 150% of Goal.” The question that arises is how the “goal” is defined. The “goal”
may be defined as the outdoor goal only (i.e. block 2), or the sum of both the indoor and outdoor
goals (i.e. the sum of block 1 and block 2). Essentially, how the “goal” is defined creates
different block sizes. Provided below in Table 5-4 is a simple example of this issue.
Table 5-4
Defining the “Goal” for Establishing Block 3 and 4
Rate Indoor + Outdoor
ndstnd
Block Outdoor (2 Block) = Goal (1 & 2 Block) = Goal
Block 1 0 – 5,000 gallons 0 – 5,000 gallons
Block 2 5,001 – 15,000 gallons 5,001 – 15,000 gallons
Block 3 (101 – 150% of Goal) 15,001 – 20,000 gallons 15,001 – 22,500 gallons
Block 4 (All Excess Use) All Use Over 20,000 gallons All Use Over 22,500 gallons
As can be seen above in Table 5-4, how the “goal” is defined changes the block sizes. For
nd
purposes of this study, the “goal” shall be defined as outdoor use only (i.e. 2 block
consumption). This definition was selected since many water budgets and traditional rate
structures target outdoor use,
and customers that are billed in
block 3 or 4 are using water
greater than their defined needs.
Furthermore, the majority of
customers that will be billed in
block 3 or 4 will likely be
during the summer irrigation
period. They will have most
likely encountered block 3 or 4
as a result of inefficient outdoor
watering, and not inefficient
indoor use.
Using the above approach for establishing the size of the third block, the graph provides an
example of the size of the blocks, the shaping of the second block, and the total consumption for
the first three blocks. Using the example in Table 4, the third consumption block is set at 101%
to 150% of the second, or outdoor use block size. In other words, the third block size is 50% of
the second block. As shown in Table 4, if the second block size is 10,000 gallons then the third
block size would be 5,000 gallons. In this particular example, all consumption over and above
Selection of Final Rate Design Alternatives and Development of Block Thresholds 5-13
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
block 3 would then be charged at the higher block 4 rate. Depending upon the specific rate
structure and class of service, the various block sizes will change. However, the general shape of
nd
the curve should remain fairly consistent given the use of the city’s ET to shape the 2 block for
each class of service.
5.8 Other Rate Design Features
Within the original “top scoring” rate structures shown on Table 5-1, there are features which
can be applied to any of the final rate structures developed (e.g. adjustment for water supply
conditions, incentives for exceeding goals, etc.). In other cases, the feature may be
administrative, and not necessarily structural (e.g. adjusting for actual ET for billing purposes).
While developing the evaluation process, it was important to determine whether these “features”
enhanced or detracted from the rate designs. Given that these features can be applied to any of
the final rate designs, for purposes of developing further detailed evaluations of the rate
structure, these features will be removed from the analysis. By doing so, it “collapses” certain
“top scoring” rate structures into identical rate alternatives. For example, the only difference
between the original rate structures #5 and #10 is the use of goal-based incentives on #10.
In summary, the four features that will be taken out of the evaluation process at this point, and
potentially added back in later, include the following:
Adjustment of blocks and price for water supply availability
Goal based incentives
Adjustment of block sizes for actual ET (weather)
Discounts for city approved irrigation systems
5.9 Consideration of Modifications to the City’s Existing
Rate Structure
The city recognizes that many of the rate structures being discussed within this study cannot be
immediately implemented due to the limitations of the city’s current billing system. Therefore,
one of issues discussed is whether the city’s existing rate structure can be modified to address
some of the concerns that have been raised in the past. These modifications may be a way to
transition to a new rate structure, or may be of a level of acceptability that they would be used
going forward.
In reviewing the existing rate structure for each class of service, the city felt that the rate
structure as it applied to multi-family residential, commercial and metered irrigation was
acceptable for the time being, or that the constraints of the city’s billing system did not allow for
meaningful modifications. Therefore, the focus was on the modifications that could be made to
the existing single-family residential rate structure.
28
“Goal-based incentives” are related to block 2 usage, and rewards a customer for consuming less then their block
2 allotment in the peak use period. For example, if a customer has a block 2 size of 10,000 gallons, and uses only
8,000 gallons in the month, they would be given a credit for 2,000 gallons times a fixed incentive rate. The
customer is still charged the standard rate for the 8,000 gallons consumed, but is given some level of credit (reward)
for consuming below their allotted amount.
Selection of Final Rate Design Alternatives and Development of Block Thresholds 5-14
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
S-FRM
INGLEAMILY ESIDENTIAL ODIFICATIONS
For single-family residential, the existing rate could be modified to improve the assumptions
concerning the second block size. The first block size would remain at its current structure;
AWC capped at 8,000 gallons. The second block size would be established in a manner similar
to that discussed earlier. That is, single-family residential customers would be provided with a
nd
2 block size that is based upon the July requirements of 16,000 gallons of water. The third
block would be all consumption over and above the second block. At this point, it is unclear
whether the city’s existing billing system could bill for a shaped block based upon ET. If the
nd
city’s existing billing system can handle a shaped 2 block, then that is the approach that would
be used.
5.10 Specific Rate Structures to Be Evaluated By Class of
Service
The above discussion has examined a number of areas of the potential rate structures for each
class of service. Specifically, this technical memorandum has indicated the need for and defined
the customer classes of service to be used for rate design purposes. At the same time, for each
class of service, the methodology to be used to establish the first and second blocks of the
various rate designs have been provided. Therefore, the final step in defining the rate structures
to be further evaluated is to incorporate those findings into the various “top scoring” rate
structures.
In working with the “top scoring” rate structures, it was noted that these structures would need to
be modified to better conform to the specific characteristics of each class of service. At the same
time, the city’s existing rate structure could be modified for the single-family residential
customers to better meet the goals and objectives of the city. Given that, specific rate structure
alternatives have been developed for each class of service (see below). A main objective in
developing these alternatives was to incorporate input from both city staff and the individual
WRAB members who provided comments as well as to improve and tailor the rate structures for
each class of service. Provided below is a summary of the specific rate structures to be
developed and quantified for purposes of further evaluation by customer class.
Selection of Final Rate Design Alternatives and Development of Block Thresholds 5-15
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
Single-Family Residential Rate Structures To Be Evaluated
S-FRRS1–SDR
INGLEAMILY ESIDENTIAL ATETRUCTURE EASONALLY IFFERENTIATED ATE
SWA2-BWRAA3-BSR.
TRUCTURE ITHLOCK INTER ATENDLOCK UMMER ATE
Basis for
Block Determining Block Size Pricing of the Block
Winter Period -
Block 1 First 5,000 gallons Inverted Block Winter Price
Block 2 All Usage Over 5,000 gallons Inverted Block Winter Price
Summer Period -
st
Block 1 First 5,000 gallons Same Price as 1 Block Winter
Block 2 Next 16,000 gallons Inverted Block Summer Price
Block 3 All Usage Over 21,000 gallons Inverted Block Summer Price
S-FRRS2–WBWF(4)
INGLEAMILY ESIDENTIAL ATETRUCTURE ATERUDGET ITHOUR
CB.B1IFFIU,B2IBUT
ONSUMPTION LOCKSLOCK SIXED ORNDOOR SELOCK SASED PONHE
IROA9,000SFLS,AB3U150%
RRIGATION EQUIREMENTS FQUAREOOT OTIZEND LOCK SES
OB2TDS.
FLOCKOETERMINE IZE
Basis for
Block Determining Block Size Pricing of the Block
Block 1 First 5,000 gallons Inverted Block Price
[1]
Block 2 Varies by Month - Uses 9,000 sq. ft. Inverted Block Price
Block 3 101% to 150% of Outdoor Goal Inverted Block Price
Block 4 Over 150% of Outdoor Goal Inverted Block Price
[1]
Each month will have a set outdoor goal based on an average lot size of 9,000 square feet and an
outdoor application rate of 8.66 gallons per square foot of lot size. The monthly irrigation
requirements will be shaped by historical weather and ET.
Selection of Final Rate Design Alternatives and Development of Block Thresholds 5-16
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
S-FRRS3–WBWF(4)
INGLEAMILY ESIDENTIAL ATETRUCTURE ATERUDGET ITHOUR
CB.B1IFFIU,B2UT
ONSUMPTION LOCKSLOCK SIXED ORNDOOR SELOCK SESHREE
D“B”DIR,AB3U125%
IFFERENT INS TO ETERMINE RRIGATION EQUIREMENTSND LOCKSES
OB2TDS.
FLOCKOETERMINE IZE
Basis for
Block Determining Block Size Pricing of the Block
Block 1 First 5,000 gallons Inverted Block Price
[1]
Block 2 Varies By Month – Uses 3 “Bins” Inverted Block Price
Block 3 101% to 125% of Outdoor Goal Inverted Block Price
Block 4 Over 125% of Outdoor Goal Inverted Block Price
[1]
Each month will have a set outdoor goal based on three separate lot size “bins” (0- 9,000 sq. ft.,
9,001 – 18,000 sq. ft., and greater than 18,000 sq. ft.) and an outdoor application rate of 8.66
gallons per square foot of “typical” lot size. The irrigable requirements for the 0 –9,000 sq. ft. bin
will be allocated based upon 9,000 sq. ft. The 9,001 – 18,000 sq. ft. bin size will be based upon
15,000 sq. ft, and the third bin will be based upon irrigable requirements for 24,000 sq. ft. The
monthly irrigation requirements will be shaped by historical weather and ET.
S-FRRS4–WBWF(5)
INGLEAMILY ESIDENTIAL ATETRUCTURE ATERUDGET ITHIVE
CB.B1IFFIU,B2IBT
ONSUMPTION LOCKSLOCK SIXED ORNDOOR SELOCKSASEDAX
ALS,B3I125%OB2,AB4I150%OB2.
SSESSED OTIZELOCKSFLOCK NDLOCKSFLOCK
Basis for
Block Determining Block Size Pricing of the Block
Block 1 First 5,000 gallons Inverted Block Price
[1]
Block 2 Varies–Uses Tax Assessed Lot Size Inverted Block Price
Block 3 101% to 125% of Outdoor Goal Inverted Block Price
Block 4 125% to 150% of Outdoor Goal Inverted Block Price
Block 5 Over 150% of Outdoor Goal Inverted Block Price
[1]
Each month will have a set outdoor goal based on the tax assessed lot size and an irrigation
application rate of 8.66 gallons per square foot of total assessed lot size. The monthly irrigation
requirements will be shaped by historical weather and ET.
Selection of Final Rate Design Alternatives and Development of Block Thresholds 5-17
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
S-FRRS5–WF(4)
INGLEAMILY ESIDENTIAL ATETRUCTURE ATER BUDGET WITH OUR
CB.B1FFIU,B2BU
ONSUMPTION LOCKSLOCK IS IXED ORNDOOR SELOCK IS ASEDPON
ECPIS,D5,200F
ITHER A USTOMER ROVIDEDRRIGABLE IZE OR A EFAULT OF SQUARE EET OF
IA.SBBURB2.
RRIGABLE REAUCCEEDINGLOCKSASED PONELATIONSHIP TO LOCK
Basis for
Block Determining Block Size Pricing of the Block
Block 1 First 5,000 gallons Inverted Block Price
[1]
Block 2 Customer Provided or Default Size Inverted Block Price
Block 3 101% to 125% of Outdoor Goal Inverted Block Price
Block 4 Over 125% of Outdoor Goal Inverted Block Price
[1]
Each month will have a set outdoor goal based on either the customer provided irrigable area or
assumed “default” irrigable area of 5,200 and an application rate of 15 gallons per square foot.
The monthly irrigation requirements will be shaped by historical weather and ET.
S-FRRS6–ECRS
INGLEAMILY ESIDENTIAL ATETRUCTURE XISTING ITY ATE TRUCTURE
MTRCCG.
ODIFIEDOEFLECT URRENT ITY OALS
Basis for
Block Determining Block Size Pricing of the Block
Block 1 AWC, capped at 8,000 gallons Inverted Block Price
Block 2 Next 16,000 gallons Inverted Block Price
Block 3 All Excess Usage Inverted Block Price
Multi-Family Residential Rate Structures To Be Evaluated
M-FRRS1–SDR
ULTIAMILY ESIDENTIAL ATETRUCTURE EASONALLY IFFERENTIATED ATE
S2-BWR2-BSR.
TRUCTURE WITH A LOCKINTER ATE AND A LOCK UMMER ATE
Basis for
Block Determining Block Size Pricing of the Block
Winter Period -
Block 1 First 4,000 gallons per unit Inverted Block Winter Price
Block 2 All Excess Usage Inverted Block Winter Price
Summer Period -
st
Block 1 First 4,000 gallons per unit Same Price as 1 Block Winter
Block 2 All Excess Usage Inverted Block Summer Price
Selection of Final Rate Design Alternatives and Development of Block Thresholds 5-18
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
M-FRRS2–WBWF(5)
ULTIAMILY ESIDENTIAL ATETRUCTURE ATERUDGET ITH IVE
CB.B1IAFPUT,B2IBO
ONSUMPTION LOCKSLOCKSIXED ERNIT HRESHOLDLOCK SASEDN
TCSIA,SBBU
HEUSTOMER PECIFIC RRIGABLE REA AND UCCEEDING LOCKS ASEDPON
RTOG.
ELATIONSHIP OUTDOOROAL
Basis for
Block Determining Block Size Pricing of the Block
Block 1 First 4,000 gallons per unit Inverted Block Price
[1]
Block 2 Varies By Month – Irrigable Area Inverted Block Price
Block 3 101% to 125% of Outdoor Goal Inverted Block Price
Block 4 125% to 150% of Outdoor Goal Inverted Block Price
Block 5 Over 150% of Outdoor Goal Inverted Block Price
[1]
Each month will have a set outdoor goal based on the irrigable area as determined by the city and
an irrigation application rate of 15 gallons per square foot. The monthly irrigation requirements
will be shaped by historical weather and ET.
M-FRRS3–WBWF(4)
ULTIAMILY ESIDENTIAL ATETRUCTURE ATERUDGET ITH OUR
CB.B1IAFPUT,B2IBO
ONSUMPTION LOCKSLOCKSIXED ERNIT HRESHOLDLOCK SASEDN
TCSIA,SBBU
HEUSTOMER PECIFIC RRIGABLE REA AND UCCEEDING LOCKS ASEDPON
RTOG.
ELATIONSHIP OUTDOOROAL
Basis for
Block Determining Block Size Pricing of the Block
Block 1 First 4,000 gallons per unit Inverted Block Price
[1]
Block 2 Varies By Month – Irrigable Area Inverted Block Price
Block 3 101% to 125% of Outdoor Goal Inverted Block Price
Block 4 Over 125% of Outdoor Goal Inverted Block Price
[1]
Each month will have a set outdoor goal based on the irrigable area as determined by the city and
an irrigation application rate of 15 gallons per square foot. The monthly irrigation requirements
will be shaped by historical weather and ET.
Selection of Final Rate Design Alternatives and Development of Block Thresholds 5-19
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
Commercial/Large User Rate Structures to Be Evaluated
C/LURS1–SDR
OMMERCIALARGE SERATE TRUCTURE EASONALLY IFFERENTIATED ATE
SWA2-BWRAA2-BSR.
TRUCTURE ITHLOCK INTER ATENDLOCK UMMER ATE
Basis for
Block Determining Block Size Pricing of the Block
Winter Period -
[1]
Block 1 Average Monthly Use Inverted Block Winter Price
Block 2 All Usage Over Block 1 Inverted Block Winter Price
Summer Period -
[1]st
Block 1 Average Monthly Use Same Price as 1 Block Winter
Block 2 All Usage Over Block 1 Inverted Block Summer Price
[1]
Average monthly use is to be determined for each individual customer based upon a three-year
average, reviewed and established periodically. The same block 1 size is used for both winter and
summer time periods.
C/URS2–SDR
OMMERCIALLARGE SERATETRUCTURE EASONALLY IFFERENTIATED ATE
SWA2-BWRAA2-BSR.
TRUCTURE ITHLOCK INTER ATENDLOCK UMMER ATE
Basis for
Block Determining Block Size Pricing of the Block
Winter Period -
[1]
Block 1 90% Average Monthly Use Inverted Block Winter Price
Block 2 All Usage Over Block 1 Inverted Block Winter Price
Summer Period -
[1]
Block 1 90% Average Monthly Use Same Price as Winter Block 1
Block 2 All Usage Over Block 1 Inverted Block Summer Price
[1]
Average monthly use is to be determined for each individual customer based upon a three-year
average, reviewed and established periodically. The same block 1 size is used for both winter and
summer time periods. The use of 90% represents the city’s perception of this class to improve
water efficiency.
Selection of Final Rate Design Alternatives and Development of Block Thresholds 5-20
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
MIRSTBE
ETEREDRRIGATION ATETRUCTURES OEVALUATED
MIRS1–UR.
ETERED RRIGATION ATETRUCTURE NIFORM ATE
Basis for
Block Determining Block Size Pricing of the Block
Block 1 All Metered Consumption Fixed Price
MIRS2–WT(3)C
ETERED RRIGATION ATETRUCTURE ATER BUDGET WITH HREEONSUMPTION
B.B1BUCSIA,S
LOCKSLOCK IS ASEDPON USTOMER PECIFIC RRIGABLE REAUCCEEDING
BBURTOG.
LOCKS ARE ASED PON ELATIONSHIP OUTDOOROAL
Basis for
Block Determining Block Size Pricing of the Block
[1]
Block 1 Customer Specific Irrigable Area Inverted Block Price
Block 2 101% to 150% of Outdoor Goal Inverted Block Price
Block 3 Over 150% of Outdoor Goal Inverted Block Price
[1]
Each month will have a set outdoor goal based on the irrigable area as determined by the city and
an irrigation application rate of 15 gallons per square foot. The monthly irrigation requirements
will be shaped by historical weather and ET.
MIRS3–WT(3)C
ETERED RRIGATION ATETRUCTURE ATER BUDGET WITH HREEONSUMPTION
B.B1BU90%C’AS
LOCKSLOCK IS ASEDPON OF THE USTOMERSVERAGE UMMER
C(ASC),SBBURTO
ONSUMPTION UCCEEDING LOCKS ARE ASED PONELATIONSHIP OUTDOOR
G.
OAL
Basis for
Block Determining Block Size Pricing of the Block
[1]
Block 1 90% of Customer’s ASC Inverted Block Price
Block 2 101% to 150% of Block 1 Inverted Block Price
Block 3 Over 150% of Block 1 Inverted Block Price
[1]
Average summer consumption is to be determined for each individual customer based upon a
three-year average, reviewed and established periodically. The use of 90% represents the city’s
perception of this class to improve water efficiency.
5.11 Summary
This section of the report has described the approach and methodology to be used to establish the
classes of service and block sizes for the various rate structures to be evaluated. The next section
of the report will discuss the development of the pricing for each of the rate structures.
Selection of Final Rate Design Alternatives and Development of Block Thresholds 5-21
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
Section 6
Development and Evaluation of the
Rate Structures
6.1 Introduction
The previous section of the report discussed the rate structures and the block thresholds for each
customer class of service that are to be evaluated. An important element of the development of
each rate structure is the pricing that is used for the fixed and variable portions of the rate design.
This section of the report will review each of the rate designs and provide specific pricing for
each. At the same time, bill comparisons will be provided to compare the rate structure being
evaluated to the city’s existing rate structure.
6.2 Review of the City’s Existing Rate Structure
In developing alternative rate structures, an important perspective is the city’s existing rate
structure and the level of the prices within that rate structure. The city’s current rate structure is
composed of both a fixed monthly service charge and a variable consumption charge. The fixed
monthly service charge varies by the size of the customer’s meter. The consumption charge is a
three (3) block structure. The size of the first block is established based upon the customer’s
average winter consumption (AWC). The succeeding blocks of consumption are sized in
relationship to the customer’s first block size.
Within Section 2 of this report, a summary of the city’s existing rate structure was provided
(Table 2-1). The city has established, in essence, two different rate schedules. The first rate
schedule applies to residential and irrigation customers. Compared to the commercial/industrial
rate schedule, the residential and irrigation rate has higher consumption charges for the second
and third block. In addition, drought surcharges apply to the residential and irrigation customers,
but not to those customers served under the commercial/industrial rate schedule during a drought
period.
In developing the bill comparisons for the rate structures reviewed, the city’s existing rates, for
that particular type of customer (e.g. residential, commercial, etc.) will be used for the
comparison.
6.3 Overview of the Approach to Pricing
For each rate structure selected for further evaluation, an inverted block rate structure was
proposed. Under an inverted block rate structure, the price per unit of consumption increases
with additional consumption. The key issue associated with an inverted block rate structure is
Development and Evaluation of the Rate Structures 6-1
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
the basis or justification for establishing the price within each block. At the same time, the final
rate structure must produce the desired or target level of revenue for that specific class of service,
based upon the price charged within each block, and the amount of consumption that is
anticipated to occur within each block. The following discussion will focus on the cost-basis for
the establishment of the prices within each block. It is from this approach that the final proposed
rate structures will be developed.
Traditional water utility rate setting uses an average embedded cost of service analysis to
determine pricing for rate setting purposes. Average embedded pricing uses historical or
accounting costs to establish price. Alternatively, marginal cost of service pricing is the cost
associated with expanding system capacity. A more recent pricing perspective is value of
service pricing. “Instead of analyzing and allocating costs alone, value-of-service pricing
involves factors that reflect customer perceptions about the value of utility service, as well as
their willingness to pay for different levels or types of service. In other words, value of service
pricing considers customer preferences beyond those traditionally represented in cost-based
pricing.”
Pricing based upon marginal costs “theoretically provide the foundation for efficient use of
existing system capacity as well as efficient capital investment in future capacity. True marginal
costs, however, typically produce revenues that differ substantially from average cost rates,
requiring modification to collect the proper level of revenue. In other words, if “pure”
marginal costs are used for pricing, the utility will over-recover their revenue requirement.
Given that, marginal costs are often adjusted to collect the appropriate level of revenue for the
utility. However, marginal cost theory and average cost approaches can often be successfully
blended in water rate design. In general, this blended pricing approach will be utilized for the
city’s study.
In an average embedded cost of service study, costs are classified to various cost components,
and allocated to each customer class of service based upon proportional use. In very simplified
form, the basic cost components for a water utility under an average embedded cost of service
analysis are as follows:
Base Costs
– Base costs are those costs that tend to vary with the total quantity of water used
under average load (demand) conditions.
Extra-Capacity Costs
– Extra-capacity costs are related to meeting the capacity (flow)
needs of customers over and above their average demand conditions.
Customer Costs
– Costs related to the addition or deletion of a customer on the utility
system, irrespective of the amount of water use.
Fixed meter (service) charges generally include all of the costs classified as customer related
costs, and may also include a portion of other fixed costs associated with the maintenance of the
distribution system. In the case of the city, they have historically included the customer related
costs, plus 30% of the cost of the city’s capital costs.
29
American Water Works Association M-1 Manual, Principles of Water Rates, Fees and Charges (Denver, CO,
AWWA, Fifth Edition, 2000), p. 120.
30
Ibid. p. 161.
31
Ibid. p. 120.
32
Ibid. p. 120.
Development and Evaluation of the Rate Structures 6-2
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
Base costs are related to the total flow of water on the city’s system and represent average
demand flow conditions. Base costs are allocated to each class of service on the basis of average
volumetric use (demand), and as a result, the base cost, stated in $/1,000 gallons, is the same for
all customer classes of service.
Extra-capacity costs represent the difference between average demand usage and peak demand
usage for each customer class of service. For those customers that tend to have a fairly level
pattern of use year-round, they will have a small component of extra-capacity costs. In contrast,
those customers that have wide variations of use (e.g. irrigation use) will have a larger allocation
of extra-capacity costs. It is the difference in peak usage patterns that creates the difference in
costs between customer classes of service. For a water utility, the costs associated with meeting
peak use capacity requirements are significant.
Given the above overview the cost components within the city’s cost of service analysis, the
focus shifts to how the cost of service analysis will be used to establish prices for each customer
class of service, and in particular for the different block sizes. The objective in developing the
pricing was to establish prices based upon “cost of service” or other pricing approaches, and not
to rely upon arbitrary methods. The general approach used in establishing the city’s prices is
discussed in detail below.
EES began by reviewing the city’s most recent cost of service study. Within that study, the
costs are classified by the basic cost components noted above. The customer related costs are
stated as fixed per customer meter charges. EES has assumed that these costs provide the
foundation or basis for establishing the fixed meter charges for the city.
The volumetric costs are separated between base costs, extra-capacity peak day, and extra-
capacity peak hour costs. While the cost of service makes the distinction between peak day and
peak hour, for cost allocation purposes, no major distinction has been made within the pricing.
To establish the first or initial block, it is assumed that base-related costs represent average
demand conditions, which are relatively synonymous with the definition of the first block of
consumption within the rate structures developed as a part of this report. Therefore, in general,
base costs were used to establish the first block of each class of service.
The second block is used to collect the extra-capacity costs of the system. Given that the
demand patterns differ for each of the customer classes of service, different costs and prices
result for each class of service. The second block price assumes the class capacity
characteristics, or in other words, the class average use to peak use characteristics. In
establishing the blocks beyond the second block, a different technique is used. Usage beyond the
second block assumes that the customer is placing higher peak demands upon the system than
the average customer within that class of service. Therefore, the higher use customer has a
capacity peaking factor that is greater than the class average. In that case, the customer should
33
Integrated Utilities Group Final Report, Volume II, Water, Wastewater, and Stormwater Rate Study and Plant
Investment Fee Analyses (November 2001).
34
Capacity peaking factor is a ratio that is the relationship between peak use and average demand. For example a
customer with a peak use of 25,000 gallons and an average use of 12,500 gallons has a peaking factor of 2.0
(25,000/12,500).
Development and Evaluation of the Rate Structures 6-3
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
be allocated a greater share of the extra capacity costs, which implies a greater price in $/1,000
gallons. In order to determine the prices for succeeding blocks, EES used the results of the city’s
cost of service analysis, and assumed different peaking factors for a class of service to determine
the cost/price impact of customers who exceed the class average peaking factor. From these
analyses, the prices for blocks over and above the second block was determined.
In those cases where there are more than three blocks of consumption, the tail block has been set
at the city’s marginal cost. The marginal cost was estimated assuming the marginal cost of new
water rights and expansions to the city’s water supply reservoirs and treatment plants. The
balance of the costs (rate) associated with the delivery of water was priced at the city’s current
average embedded cost. Using this approach, the city’s marginal costs were estimated at
approximately $6.80/1,000 gallons. While the approach used to estimate the city’s marginal
costs was not a formal or detailed study, the results are within the range of costs that might be
anticipated if a more formal analysis were conducted. The range of marginal costs that was
anticipated was in the $5.00 - $7.00/1,000 gallon range. Given that the estimated marginal costs
fell within this anticipated range, it was assumed that the marginal cost value of $6.80/1,000
gallons was reasonable for purposes of this study. This marginal costing analysis is provided in
the Technical Appendices.
Finally, certain rate designs contain a seasonal component to the rate designs. The seasonal
differential is a function of capacity costs and the period over which the capacity related costs are
collected. For non-seasonal rate structures, the capacity related costs are collected over the entire
year. In contrast, a seasonal rate structure may collect a greater proportion of the extra-capacity
related costs over the peak-use period (i.e. summer period). By recognizing that the capacity
related costs are more seasonally related, the price charged during that period better reflects the
cost of providing services in that period. Therefore, to establish the seasonal price differential,
the extra-capacity costs within the city’s cost of service study were assumed to be collected
primarily over the summer peak use period. This pricing concept is sometimes referred to as
“tailored rates.”
While the above basic costing/pricing concepts were used to establish the prices within the city’s
rates, the final prices needed to be established to meet the specific revenue requirements of each
class of service. For purposes of this study, it has been assumed that all rate structures should be
“revenue neutral” or in other words, collect the same level of overall revenue as the city’s
existing rates.
Finally, different approaches have been suggested by individual members of WRAB concerning
the assumptions of usage and pricing in the various blocks. Some utilities that use water budget
rate structures establish the first and second block price to cover their entire revenue
requirements, and then assume that any revenues collected in succeeding blocks is considered
“excess” revenue and available to fund additional conservation programs. In our opinion, this
approach develops rates that are technically incorrect and clearly not “cost-based” since they are
purposely and intentionally designed to exceed a utility’s revenue requirements. Therefore, in
designing the city’s rates, it has been assumed that consumption will, as indicated by the
consumption information, occur in all of the rate blocks of the rate structure. As such, the rate
35
Manuel P Teodoro, “Tailored Rates,” Journal AWWA 94:10 October 2002.
Development and Evaluation of the Rate Structures 6-4
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
design will produce total revenues that are approximately equal to the targeted total revenue
requirement for that particular customer class of service.
6.4 Analysis of Customer Usage Characteristics
In order to further analyze the various rate structures still under consideration, various customer
specific city data was collected and analyzed. In some cases, this data was readily available, and
in other cases, the data was difficult to capture or was not captured in a manner that allowed for
ease of use within our analyses. In those instances, additional analysis and data manipulation
was required to produce data suitable for this study.
In order to develop rate structures with varying sized blocks, the city must have an understanding
of the amount of consumption that occurs, by class of service, at varying levels of consumption,
e.g. the total consumption used by a customer class at the 1,000 gallon level, the 10,000 gallon
level, etc. This analysis is called a bill frequency analysis, and is often generated via a report
writer within the utility’s billing system software. In the case of the city, the current billing
system software provides consumption information only by the three existing blocks, e.g. usage
in block 1. The city’s existing report of consumption by existing blocks was not suitable or
useful for analyzing alternative block sizes. Given that, monthly consumption data for each class
of service was placed in an Excel file and sorted to provide the necessary data. Data was
analyzed for three different time periods. Bill frequency analyses were prepared for calendar
years 1997, 1998 and 2002 consumption data. These years were selected not only because they
represented a variety of weather conditions but also because historical utility billing data was not
available electronically prior to 1996. Calendar year 1998 was considered to be a “typical” year
for purposes of consumption patterns. In contrast, 1997 was considered to be a “wet” year for
purposes of consumption patterns. Finally, calendar year 2002 was considered to be the
dry/drought year for purposes of the analyses. The objective in looking at the three different
years is to test the various rate designs and determine how revenue sensitive they may be under
wet, dry and normal conditions.
The other area of data that was analyzed extensively was the single-family residential customers.
Certain proposed rate structures utilize lot size as the basis for establishing the second block size
of consumption. The most detailed rate structure utilizes individual customer lot sizes to
establish the block. Given that, the city was able to provide a file of information for single-
family residential customers that contained information on each account, the tax assessed lot
size, and the monthly consumption. While the data that was provided was not 100% of all
single-family residential customers, it was a significant share. There were approximately 18,300
of the 20,000 single-family residential accounts that were reviewed as a part of this analysis. In
some cases, accounts were removed from the data set because of partial or incomplete monthly
consumption data or data that appeared to be incorrect (e.g. SFR lot sizes of 25 square feet).
From this data set, each account was analyzed to determine the appropriate block sizes for each
account, and the consumption that would have been billed each month, given the various and
differing block sizes for each account. From this information, an estimate of the anticipated
amount of consumption that might be billed in the various blocks was derived. These billing
relationships were then applied to the test period consumption for purposes of designing the final
rates.
Development and Evaluation of the Rate Structures 6-5
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
Other city data and information was analyzed as a part of this study. For example, multi-family
and commercial accounts were also analyzed in detail. However, the above described analyses
represented the most detailed and complex analyses undertaken.
6.5 Establishment of Fixed Service (Meter) Charges
The city currently has two components to their rate structure; a fixed service charge and a
consumption charge. Up to this point of the study, the discussion has focused on the structure of
the consumption charge. While that is a major focus of this study, it is also important to review
and establish fixed service charges. The fixed monthly service charges must be included within
the final proposed rate structures for each class of service.
In establishing the fixed monthly service charges, there are a number of different perspectives as
to what should be included within these charges. At a minimum, they should reflect the costs
associated with meter reading, billing, customer accounting and the customer service function.
These costs are included within the fixed monthly service charge since they are incurred,
regardless of the amount of volumetric use by the customer. At the same time, utilities often
include a portion of the other fixed costs associated with the utility. As an example, it is not
uncommon to include a portion of a utility’s fixed costs associated with the maintenance of the
distribution system, debt service, or a portion of the capital improvements. By doing so, the
utility is recognizing that there is a significant portion of the utility’s costs that are truly fixed,
but also at the same time, attempting to provide revenue (financial) stability to the utility.
Section 3.2 and Table 3-1 of this report discussed the “generally-accepted” method for
establishing fixed service charges that vary by meter size. For this study, the city’s most recent
cost of service study was reviewed to determine a cost-based level of monthly charges. From the
review of that cost of service study, it was determined that the city’s existing fixed service
charges appear to be set at an appropriate and reasonable level. Therefore, for purposes of this
study, it has been assumed that the city’s monthly service charges should remain at their existing
level, and use the same structure or approach. The next time the city conducts a comprehensive
cost of service study the fixed service charges should be reviewed again, and updated as
appropriate.
6.6 Overview of the Analysis
The analyses undertaken to review each of the rate structures is a culmination of the tasks and
efforts undertaken in the previous sections of the report. One of the key tasks undertaken as a
part of this study was to identify the city’s rate design goals and objectives and to prioritize the
rate structure attributes. These rate structure attributes were previously summarized in Table 4-
1. In summary form, these rate structure attributes identified were as follows:
Yields Total Revenue Requirements
Revenue Stability and Predictability
Fair Allocation of Costs to Attain Equity
Discourage Wasteful Use
Dynamic Ability to Respond To Changing Supply & Demand Conditions
Development and Evaluation of the Rate Structures 6-6
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
The rate structures evaluated within this section of the report were a part of the 22 rate structures
that were evaluated against these attributes. These final rate structures represent the highest
scoring rate structures against those attributes. Therefore, in reviewing each of the rate structures
analyzed within this section of the report, it is important to understand that each of the rate
structures is designed to meet (yield) the total revenue requirements, and provide comparable
revenue stability and predictability. Next, each of the rate structures uses cost of service
techniques to assure a fair allocation of costs to attain equity and establish cost-based prices. At
the same time, all of the rate structures, as inverted block pricing structures, are intended to
encourage conservation and discourage wasteful use. Finally, the feature of responding to
changing supply and demand conditions is an enhancement that can be added to any of the rate
structures developed herein. Given that each of the rate structures are relatively comparable in
meeting the city’s goals for rate structure attributes, the focus of the discussion for each of the
rate structures will be on the final rate structure, the prices of the blocks, the perceived strengths
and weaknesses of each rate structure, the administrative issues associated with the rate structure,
and the rate structure’s compatibility with the city’s existing billing system.
Another aspect in the evaluation process of each rate structure is the issue of customer appeals.
Customer appeals refer to the situation where a customer may disagree with the city’s billing
records as they relate to lot size or irrigable area. It has been assumed for purposes of this study,
that some rate structures may not be appealed (i.e. the block sizes are fixed and non-appealable).
In other cases, it is assumed that the rate structure may contain elements that are appealable (e.g.
lot size, irrigable area, bin assignment, number of persons per household, etc.). This study has
made no determination of the elements of the rate structure that may be appealable. In theory, if
the city so desires, all elements of a rate structure may be appealed by their customers, and it is a
policy decision of the city to make that determination. At the same time, if the city allows
appeals, they would need to establish a process for appeals. While this study has not attempted
to determine the process that would be used for appeals, we have attempted to estimate the
potential number of appeals that may arise from the implementation of a rate structure and a
range of costs associated with these appeals. For purposes of estimating these costs, it has been
assumed that the city would attempt to resolve all appeals in the most cost and time-efficient
manner by working directly with the customer to resolve any differences. However, it has also
been assumed that some appeals may require a formal hearing process and be more expensive to
resolve.
For purposes of this study it was assumed that the number of persons per household is an
element that would not be appealable. As described in section 5.5, block 1 for single-family
residential was established after reviewing several different methods including allocating a
reasonable amount of water per person and assuming that the city’s average household size is 2.2
occupants. If the city decided to accept appeals for the indoor block size, then the estimated
number of appeals for single-family residential could be approximately 500-750. This assumes
that approximately 25% of the 20,000 single-family residential accounts have more than four
persons per household and that 10-15% of these would appeal. If the cost for addressing these
appeals were $10.00 to $25.00 per account (on average) the total cost to the city would be $5,000
to $18,750. Some appeals may require a formal hearing process and therefore be more
expensive to resolve. The first block for each unit of a multi-family account was set based on
80% of the single family first block size. The number of multi-family appeals was estimate to be
approximately 115-175. This was calculated on the total number of multi-family accounts of
Development and Evaluation of the Rate Structures 6-7
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
4,600 and that 25% have more than 4 people, and 10% – 15% of those would appeal. It was then
determined that these appeals would also range in cost from $10-$25 per appeal. Therefore, if
the indoor allocation for the multi-family class were also appealable, the impact to the city would
range from $1,150 to $4,375. As with the single family appeals, it was assumed that some of the
appeals would require a more formal hearing process and therefore would be more costly.
During the review of each of the rate structures, it has been noted that the rate structure either is
or is not compatible with the city’s current billing system. In making this assumption it was
determined that the current billing system was compatible if it could implement the rate structure
with some additional software programming. However, if the billing system was not able to be
reprogrammed to handle the requirements of a rate structure it was determined that it was not
compatible with the current system. Each rate structure was evaluated in this manner. For each
rate structure that was determined to be compatible, the different required functions were
discussed in more detail with a software programmer. These functions included: having different
rate calculations for different customer classes; establishing a block size on a fixed amount or a
percentage of the previous block; or setting the block size at average monthly use based on a
three-year average. It was determined that if the system was reprogrammed it would be best to
do it in a way that would meet one or all of the required functions. This would allow the city
greater flexibility to add or change specific functions in the future. The cost for this
reprogramming effort would be $100,000 to $150,000. This then assumes that the
reprogrammed billing system is capable of handling one or all of the rate structures that are
assumed to be compatible with the current billing system.
In addition, the rates, as designed in this analysis, are based on an inside-city customer. Any
final rate design that is selected would need to be developed for both inside and outside-city
customers. Also, within this study, the city has stated a goal that annual swings in planned
revenue should be no greater than 5% and 10% throughout the typical range of wet to dry
years. Dry years of a severity that fall within the Drought Management Plan may produce
revenue fluctuations outside of this range but this could be addressed by implementing drought
surcharges, changing block sizes, or other means.
Given the above background discussion of the approach used to develop the various rate
structures, the focus of the discussion now shifts to the review of each of the individual classes of
service and the development of the rates.
6.7 Review of the Single-Family Residential Rate Structures
The first class of service reviewed is the single-family rate structures. In the previous section of
the report, each of the six (6) single-family rate structures was discussed. Provided below is a
detailed review of each of the rate structures, along with a discussion of the perceived strengths
and weaknesses of each rate structure, along with any administrative issues/costs associated with
the rate design.
Single-Family Residential Rate Structure 1 –
The first single-family residential rate structure reviewed is a seasonally differentiated rate
structure. As will be recalled, the block 2 usage in the summer period is based upon the assumed
irrigation requirements for a 9,000 square foot lot, with 5,200 square feet of irrigable area.
Provided below is the proposed pricing for the single-family residential rate structure 1.
Development and Evaluation of the Rate Structures 6-8
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
S-FRRS1–SDR
INGLEAMILY ESIDENTIAL ATETRUCTURE EASONALLY IFFERENTIATED ATE
SWA2-BWRAA3-BSR.
TRUCTURE ITHLOCK INTER ATENDLOCK UMMER ATE
Fixed Monthly Service Charges -
3/4” Meter $8.12/Month
1” 13.88/Month
1-1/4” 21.28/Month
1-1/2” 30.30/Month
2” 53.32/Month
Consumption Charges -
Winter Period – (Oct. – April)
Block 1 - First 5,000 gallons $1.75/1,000 gallons
Block 2 - All Usage Over 5,000 gallons $2.60/1,000 gallons
Summer Period – (May – Sept.)
Block 1 - First 5,000 gallons $1.75/1,000 gallons
Block 2 - Next 16,000 gallons $3.05/1,000 gallons
Block 3 - All Usage Over 21,000 gallons $6.80/1,000 gallons
As can be seen from above, this is a
st
Overview of the Block Sizes
seasonal rate structure. The 1 and
Single-Family - Option 1
nd
2 blocks are intended to capture
indoor and outdoor water use needs.
25,000
The block sizes were established
20,000
around an average or typical single-
Tail Block
15,000
family residential customer. As
Block 2
10,000
such, for purposes of this study, it is
Block 1
5,000
assumed that the block sizes can not
0
be appealed by the customer. This
rate design is attempting to provide
a structure that generally reflects the
typical single-family residential
indoor and outdoor water use needs,
Single-Family Residential Rate Structure 1
without the administrative com-
Average Annual Bill
plexity found in some of the other
$1,000.00
rate structure options. The graph at
$800.00
left illustrates the approach used to
$600.00
Present
establish the monthly block sizes.
Proposed
$400.00
For this particular rate structure,
$200.00
nd
$0.00
there is no “shaping” of the 2
AWC = 3AWC = 5AWC = 8
block to reflect evapotranspiration
(ET).
PresentProposedDifference% Change
AWC = 3$196.44$200.64$4.202.1%
st
The price associated with the 1
AWC = 5$397.74$376.89($20.85)-5.2%
AWC = 8$701.34$795.59$94.2513.4%
block of consumption represents
Note: Assumes an Average Customer has an AWC of 5
´base” costs or the costs incurred
Development and Evaluation of the Rate Structures 6-9
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
under average demand conditions.
Single-Family Rate Structure 1
Base costs are assumed to be the
Consumption By Block
same for both the winter and sum-
70%
61%
mer seasons. The second block
60%
51%
price reflects the costs associated
50%
39%
with the extra-capacity required to
Block 1
40%
31%
serve customers. Extra-capacity is
Block 2
30%
18%
the difference between peak demand
Block 3
20%
and averagedemand (base) condi-
10%
tions. The price differential between
0%
seasons for the second block is cre-
WinterSummer
ated by collecting a greater propor-
tion of the extra-capacity costs in the summer period than the winter period. This follows the
costing principle of “those that create the peak capacity requirements, should pay for the peak
capacity.” Therefore, this rate design attempts to collect the extra-capacity requirements from
those customers creating the peak in that particular time period. Finally, the pricing of the tail
block is set at the city’s estimated marginal cost.
The bill comparison for this rate option indicates that on an annual basis, customers with below
average consumption may see a slight increase in their annual bill. Customers with above
average consumption would see an increase in their annual bill.
The impact to customers in the seasonal periods is similar to the annual bills displayed above.
Those customers with consumption below the class average will have a fairly comparable
decreases in the bills between winter and summer periods. In contrast, the above average use
customers will remain at current levels in the winter period, but should increase in the summer
period by up to 20%, particularly at the highest (excessive) levels of use.
PSS-FRRS1
– There are
ERCEIVED TRENGTHS OF INGLEAMILY ESIDENTIAL ATETRUCTURE
four perceived major strengths associated with this rate structure. These strengths are as follows:
Price Differential for Seasonality
Block Sizes Reflect Typical Requirements
Ease of Administration
Ease of Customer Understanding
The use of a seasonal price differential is, in our opinion, a strength since it reflects the different
impacts of seasonal usage on the city and sends a price signal to consumers in the peak use
period concerning the value of the resource. If this rate design is ultimately selected the city may
wish to redefine the seasons to better reflect Boulder’s unique water supply characteristics such
as the direct flow period. This would further refine the price signal to consumers regarding the
value of water at different times of the year. This rate structure also has developed block sizes
that bear a strong relationship to the indoor and outdoor water requirements of the typical single-
family residential customer. This is also an easy rate design to implement as there are very few
administrative issues associated with it. The major billing issue associated with it is proration of
bills between seasons. Finally, this rate design is not overly complex, such that customers should
be able to understand the city’s approach and philosophy concerning the allocation and pricing of
the water.
Development and Evaluation of the Rate Structures 6-10
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
PWS-FRRS1
– There are
ERCEIVED EAKNESSES OF INGLEAMILY ESIDENTIAL ATE TRUCTURE
three perceived weaknesses associated with this rate structure. These weaknesses are as follows:
Does Not Reflect Individual Customer Irrigation Requirements
nd
Irrigation Block (2 Block) Is Not Shaped For Irrigation Requirements
nd
2 Block Size Does Not Relate Well to System Water Supply Characteristics
This rate structure has used an assumed “typical” lot size to establish the outdoor water
requirements and thus the second block of summer consumption. Those customers with lot sizes
larger than 9,000 square feet may have irrigation requirements that would place their use in the
third block of consumption. Some may believe that this is inequitable to those customers with
nd
larger lots. At the same time, this rate structure has not attempted to shape the 2 block based
nd
upon the monthly irrigation requirements. Rather, the 2 block was sized to meet the peak
requirements and does not decrease in the shoulder periods of the summer period or follow the
city’s water supply characteristics.
ACS-FRRS1
–
DMINISTRATIVE ONSIDERATIONS OF INGLEAMILY ESIDENTIAL ATE TRUCTURE
For purposes of this study, it is assumed that this particular rate structure, and the elements
within it, are not appealable by the customer. That is, the block sizes are designed to relate to the
stnd
typical or average customer, and are fixed and may not be appealed to change the 1 or 2 block
size. The vast majority of current water rate structures in the U.S. use fixed blocks and are not
appealable by the customer. In terms of administrative costs, this particular rate structure does
not have any significant implementation costs or ongoing administrative costs associated with it.
Any new billing system would be capable of handling a seasonal rate structure. In addition,
given the fixed block sizes, the billing of the customer is greatly simplified. The only major
administrative issue associated with this rate design is the issue of proration. Proration refers to
the billing of customers as they change from one time period to another (e.g. winter to summer).
There are typically two options for dealing with this issue. The first approach is to ignore the
proration issue, and simply bill the customer for all consumption based upon the rates that are in
effect as of the day of billing. This approach is generally used in those instances where the
utility’s billing system is incapable of prorating the bill between seasons. In contrast to this, a
prorated bill will take the consumption for the billing period, and split it between the two
seasonal periods, based upon the number of days in each period. The prorated consumption for
the winter period is billed at the winter rates, and the prorated summer consumption is billed at
the summer rates. It is our understanding that a new billing system would have the capability of
prorating bills to two billing periods. In summary, it appears that there would be no significant
implementation costs associated with this rate structure, and no significant on-going costs
associated with this rate structure.
RSS-FRRS1–
In reviewing this
EVENUE TABILITY OF INGLEAMILYESIDENTIAL ATE TRUCTURE
rate structure, the potential revenue volatility of a wet year or drought year was examined. For
this particular rate design, during a wet year the annual swing in revenue may be approximately -
5.89%, while in a drought year, the annual revenue swing may be 18.21%. It should be noted
that the revenue derived in the drought year is calculated without any drought surcharges. It is
assumed that any drought period may require the implementation of drought surcharges.
Development and Evaluation of the Rate Structures 6-11
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
CS-FRRS1C’
OMPATIBILITY OF INGLEAMILY ESIDENTIAL ATETRUCTURE TO THE ITYS
ESBS
– This particular rate design is currently compatible
XISTING OFTWARE ILLING YSTEM
with the city’s existing billing software but would require some reprogramming efforts.
7MRKPI*EQMP]6IWMHIRXMEP6EXI7XVYGXYVIz
The second rate structure reviewed is a water budget rate structure. Block 2, or the outdoor
water requirement, is based upon an assumed 9,000 square foot lot size, and the irrigation
requirements for 5,200 square feet of irrigable area are shaped based upon the monthly
evapotranspiration (ET). Provided below is a summary of the rate design.
S-FRRS2–WBWF(4)
INGLEAMILY ESIDENTIAL ATETRUCTURE ATERUDGET ITHOUR
CB.B1IFFIU,B2IBUT
ONSUMPTION LOCKSLOCK SIXED ORNDOOR SELOCK SASED PONHE
IROA9,000SFLS,B3U150%O
RRIGATION EQUIREMENTS FQUARE OOT OTIZELOCKSES F
B2TDS,AB4IAUOB3.
LOCK OETERMINE IZEND LOCK SLLSAGE VERLOCK
Fixed Monthly Service Charges -
3/4” Meter $8.12/Month
1” 13.88/Month
1-1/4” 21.28/Month
1-1/2” 30.30/Month
2” 53.32/Month
Consumption Charges -
Block 1 - First 5,000 gallons $1.75/1,000 gallons
[1]
Block 2 - Varies by Month - Uses 9,000 sq. ft. $3.05/1,000 gallons
Block 3 - 101% to 150% of Outdoor Goal $3.65/1,000 gallons
Block 4 - Over 150% of Outdoor Goal $6.80/1,000 gallons
[1]
Each month will have a set outdoor goal based on an average lot size of 9,000 square feet and an
outdoor application rate of 8.66 gallons per square foot of lot size. The monthly irrigation
nd
requirements are shaped by historical weather and ET. 2 Block size is as follows:
January 5,000 gal. May 18,000 gal. September 12,000 gal.
February 5,000 gal. June 20,000 gal. October 8,000 gal.
March 5,000 gal. July 20,000 gal. November 5,000 gal.
April 7,000 gal. August 16,000 gal. December 5,000 gal.
Development and Evaluation of the Rate Structures 6-12
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
As can be seen, this is a water
Overview of the Block Sizes
budget rate structure and it has a
Single-Family - Option 2
fixed block size for the initial use,
nd
and the 2 block size varies by
40,000
35,000
month. The third and fourth block
Tail Block
30,000
are a function of the outdoor goal
25,000
Block 3
20,000
(i.e. block 2 size). As with the
Block 2
15,000
previous rate structure, it has been
10,000
Block 1
5,000
assumed for purposes of this study
0
that the block sizes are fixed and
non-appealable.
This particular rate structure is again
attempting to provide an allocation
Single-Family Residential Rate Structure 2
of water for an average or typical
Average Annual Bill
residential customer. As noted
$1,000.00
nd
earlier, the 2 block assumes a
$800.00
9,000 square foot lot size with 5,200
$600.00
Present
square feet of irrigable area. The
$400.00
Proposed
$200.00
rate structure has added the shaping
$0.00
nd
of the 2 block to reflect the
AWC = 3AWC = 5AWC = 8
differing irrigation requirements
throughout the year as they relate to
PresentProposedDifference% Change
ET. The graph at left shows the size
AWC = 3$196.44$200.64$4.202.1%
AWC = 5$397.74$387.39($10.35)-2.6%and shaping of the blocks for this
AWC = 8$701.34$763.64$62.308.9%
particular option.
Note: Assumes an Average Customer has an AWC of 5
As with the previous rate structure,
Single-Family Rate Structure 2
st
the price associated with the 1 block
Consumption By Block
of consumption represents “base”
50%
42%
costs or the costs incurred under
42%
40%
average demand conditions. The
second block price reflects the costs
30%
associated with the extra-capacity
20%
required to serve customers under
7%
9%
the assumed class peaking
10%
characteristics (peaking factor). The
0%
rd
prices developed for the 3 block
Block 1Block 2Block 3Block 4
reflect the costs associated with a
customer that places a higher than
normal demand upon the system. Finally, the tail block is set at the city’s marginal cost. This
rate structure is designed to collect the same overall level of revenue as rate structure 1.
The bill comparison developed for this particular rate structure indicates results similar to rate
structure 1. That is, those customers with below average consumption may see a slight increase
in their annual bill, while those with average consumption may see a slight decrease. Finally,
those customers with above average consumption should see an increase in their annual bill. In
looking at the impacts during various times of the year, the winter period should see minimal
Development and Evaluation of the Rate Structures 6-13
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
changes in the bills. It is the “shoulder” periods when customers may be irrigating more than
needed that the large impacts may be seen on their bill. These impacts may be as high as 20%
increases. Finally, in reviewing the consumption that occurs within each of the blocks under this
rate structure, the vast majority of the consumption will be billed in the first and second block of
the rate structure.
Provided below is a discussion of the perceived strengths, weaknesses and any administrative
consideration in the implementation of this rate design.
PSS-FRRS2
– There are
ERCEIVED TRENGTHS OF INGLEAMILY ESIDENTIAL ATETRUCTURE
three perceived major strengths associated with this rate structure. These strengths are as
follows:
Outdoor Watering Allocation
Shaping of the Water Allocation
Establishment of a Standard Lot Size
nd
The strength of the water budget rate structure is in the establishment of the 2 block of
consumption based upon the irrigation requirements of the customer. In this case, the outdoor
irrigation requirements are based upon a typical lot size of 9,000 square feet, and this water is
then shaped to reflect the historical ET. In this particular case, the establishment of a standard
lot size is perceived as a strength. This is based upon the administrative perspective that this
particular water budget is not as administratively complex to implement as some of the other
water budget rate structures being proposed.
PWS-FRRS2
– There are
ERCEIVED EAKNESSES OF INGLEAMILY ESIDENTIAL ATE TRUCTURE
two perceived major weaknesses associated with this rate structure. These weaknesses are as
follows:
Use of a Standard Lot Size
Complexity/Customer Understanding
While the use of the standard lot size was perceived as a strength from an administrative
perspective, it can also be perceived as a weakness from a water budget perspective. The
concept of a water budget is to provide an allocation of water to the customer that reflects their
indoor and outdoor water needs. In this case, the use of the typical lot size may under or over-
nd
allocate 2 block water to customers. However, in the data that was analyzed, approximately
65% of the single-family residential customers had lot sizes of 9,000 square feet or less, and
approximately 75% of the single-family residential customers have lots of 11,000 square feet or
less. The other perceived weakness of this rate design is simply the complexity. In particular,
the changing block sizes from month-to-month has the potential of being confusing to customers
particularly if customers are attempting to stay within their “budget.”
ACS-FRRS2
–
DMINISTRATIVE ONSIDERATIONS OF INGLEAMILY ESIDENTIAL ATE TRUCTURE
As previously discussed, it has been assumed that this particular rate structure, for purposes of
this study, is non-appealable. Given that, this particular rate structure has one major
administrative issue associated with it. The previous rate structure discussed the issue of
proration between seasons. In this particular case, given the change in block sizes on a monthly
basis, and the timing of the billing of customers, the bills will need to be handled on a monthly
basis, in a manner similar to the discussion of seasonal rates. That is, the customer will simply
be given the block size for the month they are billed in, or they will be prorated between months.
Development and Evaluation of the Rate Structures 6-14
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
While proration is simply an algorithm within the billing program, the program must be able to
handle proration. Finally, the bill will appear more complex than other approaches, depending
upon the level of detail provided concerning the proration. In summary, it appears that there
would be no significant implementation costs associated with this rate structure, other than
establishing within the billing program the proration formula. At the same time, there does not
appear to be any significant on-going costs associated with this particular rate structure.
RSS-FRRS2–
In reviewing this
EVENUE TABILITY OF INGLEAMILYESIDENTIAL ATE TRUCTURE
rate structure, the potential revenue volatility of a wet year or drought year was examined.
Within this study, the city has stated a goal of annual swings in planned revenue should be no
greater than 5% and 10%. For this particular rate design, during a wet year the annual swing
in revenue may be approximately 6.30%, while in a drought year, the annual revenue swing
may be 18.86%. As noted with the previous rate structure, the calculation of the revenue swing
assumes no drought surcharges within the drought period.
CS-FRRS2C’
OMPATIBILITY OF INGLEAMILY ESIDENTIAL ATETRUCTURE TO THE ITYS
ESBS
– This particular rate design is currently not compatible
XISTING OFTWARE ILLING YSTEM
with the city’s existing billing software.
7MRKPI*EQMP]6IWMHIRXMEP6EXI7XVYGXYVIz
The third rate structure reviewed for single-family residential is another form of a water budget.
Under this particular rate structure the approach is to segregate lot sizes into three “bins” for
nd
purposes of establishing the outdoor watering allocation (i.e. 2 block size). The concept of
“bins” is to attempt to better match the irrigation requirements of the customer, without the need
for measuring individual customer lots. Provided below is an overview of the rate structure and
design.
Development and Evaluation of the Rate Structures 6-15
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
S-FRRS3–WBWF(4)
INGLEAMILY ESIDENTIAL ATETRUCTURE ATERUDGET ITHOUR
CB.B1IFFIU,B2UT
ONSUMPTION LOCKSLOCK SIXED ORNDOOR SELOCK SESHREE
D“B”DIR,B3U125%O
IFFERENT INS TO ETERMINE RRIGATION EQUIREMENTSLOCKSES F
B2TDSAB4IAUOB3.
LOCK OETERMINE IZE ND LOCK SLLSAGE VERLOCK
Fixed Monthly Service Charges -
3/4” Meter $8.12/Month
1” 13.88/Month
1-1/4” 21.28/Month
1-1/2” 30.30/Month
2” 53.32/Month
Consumption Charges -
Block 1 - First 5,000 gallons $1.75/1,000 gallons
[1]
Block 2 - Varies By Month – Uses 3 “Bins” $2.95/1,000 gallons
Block 3 - 101% to 125% of Outdoor Goal $3.30/1,000 gallons
Block 4 - Over 125% of Outdoor Goal $6.80/1,000 gallons
[1]
Each month will have a set outdoor goal based on three separate lot size “bins” (0- 9,000 sq. ft.,
9,001 – 18,000 sq. ft., and greater than 18,000 sq. ft.) and an outdoor application rate of 8.66
gallons per square foot of “typical” lot size. The irrigable requirements for the 0 –9,000 sq. ft. bin
will be allocated based upon 9,000 sq. ft. The 9,001 – 18,000 sq. ft. bin size will be based upon
15,000 sq. ft, and the third bin will be based upon irrigable requirements for 24,000 sq. ft. The
monthly irrigation requirements will be shaped by historical weather and ET. Provided below are
the Block 2 allocations based upon bin size.
Block 2 - Water Allocation (Gallons)
Up to 9,001 – . Over
9,000 S.F. 18,000 S.F. 18,000 S.F.
January 5,000 5,000 5,000
February 5,000 5,000 5,000
March 5,000 5,000 5,000
April 7,000 7,000 7,000
May 18,000 35,000 57,000
June 20,000 38,000 63,000
July 20,000 38,000 63,000
August 16,000 31,000 50,000
September 12,000 23,000 38,000
October 8,000 8,000 8,000
November 5,000 5,000 5,000
December 5,000 5,000 5,000
Development and Evaluation of the Rate Structures 6-16
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
This particular rate structure is a
Overview of the Block Sizes
variation of the previous rate
Single-Family - Option 3
structure. In the previous rate
Bin Size - Less than 9,000 sq. ft.
structure, no consideration was
35,000
given to the size of a customer’s lot
30,000
Tail Block
25,000
size and their irrigable area. As
20,000
Block 3
discussed above, this rate structure
15,000
Block 2
10,000
attempts to address this issue
Block 1
5,000
without presumably incurring the
0
administrative costs associated with
determining individual customer lot
sizes or irrigable areas. Rather,
three “bins” are created based upon
the estimated lot size of the
customer. The three lot sizes are
large enough that any appeals
associated with the placement of a
customer within a bin should be
minimized.
nd
In each case, the 2 block is sized
and shaped for historical ET. The
amount of water within the second
block was established based upon
the range of lot sizes to be irrigated.
For the first bin size, it is assumed
nd
that the 2 block of water is based
upon a 9,000 square foot lot size,
with 5,200 square feet of irrigable
area. For the next bin, the lot sizes
range from 9,001 to 18,000 square
feet. For purposes of this study, it
has been assumed that the allotment
of water would be sufficient for a
lot size of 15,000 square feet.
Therefore, customers with lot sizes
smaller than 15,000 square feet would be allocated an amount of water greater than their
requirements, and customers with lot sizes greater than 15,000 square feet, but less than 18,000
square feet would be allocated an amount slightly less than their irrigation requirements. Finally,
nd
for lots over 18,000 square feet, the amount of water provided within the 2 block would be
sufficient to irrigate a 24,000 square foot area.
In pricing the block sizes, an approach similar to that described for the previous option was used.
That is, the first block is priced at the base costs, and succeeding blocks are priced based upon
the capacity requirements each different block size places upon the system. Finally, the tail
Development and Evaluation of the Rate Structures 6-17
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
block has been priced at the marginal cost. While there are three bins, the price for each block is
the same, regardless of the bin that the customer is assigned to.
In looking at the impacts to
customers from this rate structure,
Single-Family Residential Rate Structure 3
the impacts are similar to rate
Average Annual Bill
structures 1 and 2 discussed
previously. While the charts at left
$800.00
relate to a customer with a 9,000
$600.00
Present
square foot lot (i.e. the first bin
$400.00
Proposed
size), the impacts indicate that a
$200.00
customer with below average
$0.00
AWC = 3AWC = 5AWC = 8
consumption will potentially see a
slight increase in their overall
annual bill, while the average
PresentProposedDifference% Change
customer may see a slight decrease.
AWC = 3$196.44$200.24$3.801.9%
AWC = 5$397.74$380.29($17.45)-4.4%
However, customers that have
AWC = 8$701.34$741.89$40.555.8%
above average consumption will
Note: Assumes an Average Customer has an AWC of 5
potentially see a slight increase in
their annual bill. Between seasons,
Single-Family Rate Structure 3
Consumption By Block
the winter period bills should be
60%
similar for below average and
47%
average customers. Customers with
50%
39%
an AWC greater than 5,000 gallons
40%
may see a slight increase since the
30%
st
1 block size under the proposed
20%
10%
4%
rate structure is 5,000 gallons.
10%
Finally, it is the shoulder periods to
0%
the summer period where the largest
Block 1Block 2Block 3Block 4
increases or impacts to customers
may occur. This is due to the
nd
shaping of the 2 block and that excessive usage is most likely to occur in these shoulder periods
(early spring and late fall). The consumption that falls in each block is also interesting to note.
For this particular rate structure, the vast majority of the consumption again will fall within the
first and second block of the rate structure.
PSS-FRRS3
– There are
ERCEIVED TRENGTHS OF INGLEAMILY ESIDENTIAL ATETRUCTURE
two perceived major strengths associated with this rate structure. These strengths are as follows:
Outdoor Watering Allocation Generally Related to Lot Size
Shaping of the Water Allocation
This particular rate structure for single-family residential has attempted to allocate the water
resource for block 2, based upon the irrigation needs of the customer. In this particular case, the
use of “bins” has been utilized as a method to help minimize the administrative issues associated
with the measurement of individual lots. At the same time, similar to the previous rate structure,
Development and Evaluation of the Rate Structures 6-18
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
the shaping of the water allocation to reflect the varying irrigation requirements is a perceived
strength.
PWS-FRRS3
– There are
ERCEIVED EAKNESSES OF INGLEAMILY ESIDENTIAL ATE TRUCTURE
four perceived major weaknesses associated with this rate structure. These weaknesses are as
follows:
Use of Bins Requires Determination and Verification of Lot Sizes
Potential for a Limited Number of Customer Appeals
Possible Customer Perception of Significant Inequities
rd
Small Block Size for the 3 Block
The weaknesses for this rate structure may be significant. While the use of “bins” has provided
some simplification of the administrative issues associated with this rate structure, it will still
require the city to determine lot sizes for each single-family residential account, and verify the
lot to the account, and then place it within the proper bin. As lot sizes are determined, and
customers are placed in a bin, there will be some potential for customer appeals, particularly
given the magnitude of difference in the volume of water provided from one bin to the next. As
an example, a customer with a property size of 8,999 square feet will be provided with 20,000
gallons of water in July for the second block. In contrast to this, a customer with a lot size of
9,001 square feet will be provided with 38,000 gallons of water in July at the second block price.
Given this difference, some customers may challenge the city’s placement of their property
within a certain bin. Finally, the issue of the perception of equity may surface under this
approach. As noted above, a customer with as little as 10 square feet of additional property, may
be allocated as much as 18,000 gallons per month of additional water in the peak use period.
Some customers may perceive this as inequitable; that is; receiving a larger block of low-cost
water simply because the customer owns a slightly larger piece of property. Finally, the use of
125% as the goal for establishing the tail block may be set at too low of a level and push
individuals into the higher cost blocks.
ACS-FRRS3
–
DMINISTRATIVE ONSIDERATIONS OF INGLEAMILY ESIDENTIAL ATE TRUCTURE
The administrative issues associated with this rate structure are very similar to the previous rate
structure, with the added administrative consideration of the need to determine and verify lot
sizes for each single-family residential account, and properly place the account with the
appropriate “bin.” As a result of this process, it is anticipated that there would be a customer
appeal process whereby a customer could appeal their lot classification, claiming that it is either
incorrectly measured, or has been placed in an inappropriate bin.
There are approximately 19,000 inside city single-family residential accounts, and 750 outside
city single-family customers. The data for the outside city customers may be limited. Assuming
a range of cost of $1.00 to $2.50/account to initially determine, verify and place accounts, the
total cost may be in the range of approximately $20,000 to $50,000. After the initial
classification, there may be customer appeals. Based upon the lot size data reviewed as a part of
this study, there may be approximately 175 accounts that are within 100 square feet of the next
largest bin size. Assuming that only 25% of those accounts appeal, there would be
approximately 45 appeals. While it is difficult at this time to estimate the cost to the city of an
appeal, for purposes of this study, it has been estimated at $50 - $250 per appeal. This cost
Development and Evaluation of the Rate Structures 6-19
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
would cover the administrative time associated with the appeal process, plus any time associated
with meeting with the customer and determining the lot size for purposes of establishing the final
lot size. Given these assumed per appeal costs, it could cost the city $2,250 to $11,250 to resolve
any appeals by single-family residential customers. Should there be more or fewer appeals than
the anticipated 45 assumed within this study, then the cost to the city would change accordingly.
As with the previous rate structure, the issue of proration between time periods is also an issue
with this rate structure. While it is not technically difficult, it does create a more complex billing
statement depending upon the level of detail contained within the customer’s monthly billing
statement.
In summary, the implementation costs to the city from this rate structure may be as high as
approximately $50,000. Any customer appeals to the initial classification process would be
additional. Once the lot size is determined and finalized for each account, then the on-going
costs should be minimal. However, as property is developed or sub-divided, it will require
updating of the city’s billing information database. It is anticipated that the on-going costs for
this particular rate structure should not be significant.
RSS-FRRS3–
In reviewing this
EVENUE TABILITY OF INGLEAMILYESIDENTIAL ATE TRUCTURE
rate structure, the potential revenue volatility of a wet year or drought year was examined.
Within this study, the city has stated a goal of annual swings in planned revenue should be no
greater than 5% and 10%. For this particular rate design, during a wet year the annual swing
in revenue may be approximately 3.00%, while in a drought year, the annual revenue swing
may be 14.03%. As with the previous rate structures, the revenue variability shown for this
particular rate structure has not included the use of a drought surcharge.
CS-FRRS3C’
OMPATIBILITY OF INGLEAMILY ESIDENTIAL ATETRUCTURE TO THE ITYS
ESBS
– This particular rate design is currently not compatible
XISTING OFTWARE ILLING YSTEM
with the city’s existing billing software.
7MRKPI*EQMP]6IWMHIRXMEP6EXI7XVYGXYVIz
The fourth rate structure reviewed for single-family residential is another form of a water budget.
Under this particular rate structure the approach is to use individual lot sizes to establish the
outdoor watering block (block 2). By using individual customer lot sizes, the rate structure does
not require or use “bins.” The rate structure also has a total of five blocks. Provided below is a
summary of the rate structure.
Development and Evaluation of the Rate Structures 6-20
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
S-FRRS4–WBWF(5)
INGLEAMILY ESIDENTIAL ATETRUCTURE ATERUDGET ITHIVE
CB.B1IFFIU,B2IBT
ONSUMPTION LOCKSLOCK SIXED ORNDOOR SELOCKSASEDAX
ALS,B3I125%OB2,B4I150%OB2,A
SSESSED OTIZELOCKSFLOCKLOCK SFLOCK ND
B5IAUOB4.
LOCK SLL SAGE VERLOCK
Fixed Monthly Service Charges -
3/4” Meter $8.12/Month
1” 13.88/Month
1-1/4” 21.28/Month
1-1/2” 30.30/Month
2” 53.32/Month
Consumption Charges -
Block 1 - First 5,000 gallons $1.75/1,000 gallons
[1]
Block 2 - Varies–Uses Tax Assessed Lot Size $2.80/1,000 gallons
Block 3 - 101% to 125% of Outdoor Goal $3.25/1,000 gallons
Block 4 - 125% to 150% of Outdoor Goal $3.70/1,000 gallons
Block 5 - Over 150% of Outdoor Goal $6.80/1,000 gallons
[1]
Each month will have a set outdoor goal based on the tax assessed lot size and an irrigation
application rate of 8.66 gallons per square foot of total assessed lot size. The monthly irrigation
requirements will be shaped by historical weather and ET.
This particular rate structure creates individual block allocations for each customer based upon
the specific tax assessed lot size of the customer.
The customer’s tax assessed lot size
nd
Overview of the Block Sizes - Assumes 9,000 s.f.
is used to determine the 2 block
Single-Family - Option 4
of water consumption. Given this
approach, it has been assumed that
40,000
this aspect of the rate design is
35,000
30,000
appealable. By moving to the use
Tail Block
25,000
of tax assessed lot sizes, this rate
20,000
Block 4
15,000 structure attempts to better match
Block 3
10,000
the irrigation requirements of the
Block 2
5,000
customer to the actual lot size. The
0
Block 1
nd
2 block size is shaped to the
specific irrigation requirements of
rdth
the customer. At the same time the succeeding blocks (3 block – 5 block) are based upon the
nd
relationship to the 2 block allocation of water.
Development and Evaluation of the Rate Structures 6-21
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
The establishment of the prices for
this particular rate structure is
Single-Family Residential Rate Structure 4
based upon the approach discussed
Average Annual Bill
for the previous options. That is,
$800.00
the initial block is priced at the
$600.00
base rate, and the succeeding
Present
$400.00
blocks are based upon the extra-
Proposed
$200.00
capacity costs associated with
$0.00
serving those customers. Finally,
AWC = 3AWC = 5AWC = 8
the tail block is set at the marginal
costs. Given the various lot sizes
of customers, the amount of water
PresentProposedDifference% Change
AWC = 3$196.44$199.64$3.201.6%
nd
allocated to the 2 block is
AWC = 5$397.74$371.54($26.20)-6.6%
different than under the previous
AWC = 8$701.34$727.64$26.303.7%
alternatives. Therefore, the price
Note: Assumes an Average Customer has an AWC of 5
nd
of the 2 block varies slightly from the other rate structures previously reviewed. However, the
prices of the blocks are adjusted to generate the appropriate revenue to meet the target revenue
level for this class of service.
In developing this particular rate
Single-Family Rate Structure 4
structure, data was reviewed for
Consumption By Block
individual accounts and their tax
100%
assessed lot sizes. In this process,
approximately 18,300 accounts
80%
were reviewed and the monthly
60%
41%41%
consumption associated with it.
40%
11%
3%
4%
The bill impacts as a result of this
20%
rate structure are similar to the
0%
previous two (2) rate structures
Block 1Block 2Block 3Block 4Block 5
reviewed. That is, average users
will see a slight decrease in their annual bills while below and above average users should see a
slight increase in their bill. The graph of annual bill impacts assumes a customer with a 9,000
square foot lot size. One of the more interesting aspects of this particular rate design is the
amount of consumption that occurs in each of the blocks. Given that this rate structure is
designed around each individual customer lot size, the vast majority of consumption falls within
the first and second block. However, interestingly there is a large proportion of consumption
that falls within the fifth block, or the tail block. This appears to result from the setting of the
block sizes based upon the specific lot size of the customer, and possibly a result of undersized
allowances for blocks 3 and 4.
PSS-FRRS4
– There are
ERCEIVED TRENGTHS OF INGLEAMILY ESIDENTIAL ATETRUCTURE
two perceived major strengths associated with this rate structure. These strengths are as follows:
Outdoor Watering Allocation Individually Tailored to Lot Size
Shaping of the Water Allocation
Development and Evaluation of the Rate Structures 6-22
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
While this rate structure may appear to be similar to the previous water budget, it is significantly
different in the way that it is applied to customers. In the previous rate structure there could be
nd
significant differences in the allocation of 2 block water to customers with lot size differences
as small as 100 square feet because of the “bins”. A major advantage of this rate structure is that
each individual customer is provided an outdoor watering allotment that attempts to take into
nd
account their specific lot size. By doing so, the allocation of water for the 2 block bears a
nd
direct relationship to the lot size. At the same time, this rate structure has shaped the 2 block of
water to reflect the irrigation requirements in that time period.
PWS-FRRS4
– There are
ERCEIVED EAKNESSES OF INGLEAMILY ESIDENTIAL ATE TRUCTURE
three perceived weaknesses associated with this rate structure. These weaknesses are as follows:
Potential for a Large Number of Customer Appeals
Overall Complexity of the Rate Structure
Possible Customer Perception of Inequities
As with the previous rate structure, there is the potential for some appeals. The major difference
with this rate structure is that the entire single-family residential class of service ( 19,000
nd
customers) may appeal the lot size used by the city for determining the 2 block size. The use of
the bins in the previous rate structure was intended to minimize appeals. In this rate structure,
any customer who believes their lot size is not correct (i.e. under-measured) may have the basis
for appealing. However, while it is difficult to judge at this time, we would anticipate a limited
number of appeals unless there is a significant error in the measurement/assessment. The reason
we believe there would be a limited number of appeals is the volume of additional water
achieved from an appeal is minimal (i.e. there is not a lot to be gained). Under the previous rate
structure, using the bin approach, customers on the cusp of a larger bin would gain a significant
nd
amount of water within their 2 block allocation by being moved up one bin size. In contrast,
under this rate structure, a change of 100 – 200 square feet of additional lot size gained through
nd
an appeal process simply adds 866 – 1,732 gallons annually to the 2 block. Therefore, there is
not a large incentive to going through the appeals process unless there clearly is a significant
problem or error with the tax assessor’s records. The other weakness of this rate structure is the
complexity of the number of blocks and the shaping of the blocks. While the shaping of the
water may be perceived as a strength as it relates to irrigation patterns, it does add a level of
complexity to the rate that some consumers would find very confusing. Finally, the issue
nd
concerning the allocation of the 2 block of water on the basis of lot size may be perceived as
inequitable by some customers. From their perspective, a customer may not understand why
nd
another customer should receive a greater allocation of 2 block water simply because another
customer’s lot size is larger.
ACS-FRRS4
–
DMINISTRATIVE ONSIDERATIONS OF INGLEAMILY ESIDENTIAL ATE TRUCTURE
The administrative issues associated with this rate structure are very similar to the previous rate
structure. In this case, for every account the city must determine and verify lot sizes for each
single-family residential account. The cost associated with the initial determination of lot sizes
would not be significantly different from the previous rate structure. Therefore, the cost may be
in the range of $20,000 to $50,000 to establish the lot sizes.
Development and Evaluation of the Rate Structures 6-23
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
Similar to the previous rate structure, the city would also need an appeal process for any
customer who disputes their lot size measurement. As noted earlier, it is difficult, if not
impossible, to anticipate the potential number of appeals. Using a similar approach as the
previous rate structure, and assuming that ½ of 1% of all accounts appeal (many people may not
question the assessor’s records), that would imply approximately 100 appeals. Using the same
per appeal cost of $50 - $250 per appeal, the cost to the city may be in the range of $5,000 to
$25,000 to resolve any appeals. Should there be more or less appeals than the anticipated 100
assumed within this study, then the cost to the city would change accordingly.
Similar to the previous water budget rate structures, the bills may be prorated between the time
periods. In terms of the proration, this rate structure is no more complex or difficult than the
previous water budgets from a proration perspective.
In summary, the initial implementation costs to the city from this rate structure may be as high as
$50,000. Any customer appeals to the initial classification process would be additional costs to
the city depending upon the number of appeals and the process used to resolve the appeal. Once
the lot size is determined and finalized for each account, then the on-going costs should be
minimal. It is anticipated that the on-going costs for this particular rate structure should not be
significant.
RSS-FRRS4–
In reviewing this
EVENUE TABILITY OF INGLEAMILYESIDENTIAL ATE TRUCTURE
rate structure, the potential revenue volatility of a wet year or drought year was examined.
Within this study, the city has stated a goal of annual swings in planned revenue should be no
greater than 5% and 10%. For this particular rate design, during a wet year the annual swing
in revenue may be approximately 7.02%, while in a drought year, the annual revenue swing
may be 19.93%. As with the previous rate structure, the calculation of revenue stability under a
drought condition has not assumed the use of a drought surcharge.
CS-FRRS4C’
OMPATIBILITY OF INGLEAMILY ESIDENTIAL ATETRUCTURE TO THE ITYS
ESBS
– This particular rate design is currently not compatible
XISTING OFTWARE ILLING YSTEM
with the city’s existing billing software.
7MRKPI*EQMP]6IWMHIRXMEP6EXI7XVYGXYVIz
The fifth rate structure reviewed for single-family residential is another form of a water budget.
In this particular case, the city will assume a default size of 5,200 square feet of irrigable area
(i.e. same assumption used in rate structure 2). In this particular case, the customer could
provide their specific irrigable area and have a different amount of water provided for their
nd
outdoor watering requirements (2 block). Provided below is an overview of this particular rate
structure.
Development and Evaluation of the Rate Structures 6-24
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
S-FRRS5–WF(4)
INGLEAMILY ESIDENTIAL ATETRUCTURE ATER BUDGET WITH OUR
CB.B1FFIU,B2BU
ONSUMPTION LOCKSLOCK IS IXED ORNDOOR SELOCK IS ASEDPON
ECPIS,D5,200F
ITHER A USTOMER ROVIDEDRRIGABLE IZE OR A EFAULT OF SQUARE EET OF
IA.SBBURB2.
RRIGABLE REAUCCEEDINGLOCKSASED PONELATIONSHIP TO LOCK
Fixed Monthly Service Charges -
3/4” Meter $8.12/Month
1” 13.88/Month
1-1/4” 21.28/Month
1-1/2” 30.30/Month
2” 53.32/Month
Consumption Charges -
Block 1 - First 5,000 gallons $1.75/1,000 gallons
[1]
Block 2 - Customer Provided or Default Size $2.90/1,000 gallons
Block 3 - 101% to 125% of Outdoor Goal $3.25/1,000 gallons
Block 4 - Over 125% of Outdoor Goal $6.80/1,000 gallons
[1]
Each month will have a set outdoor goal based on either the customer provided irrigable area or
assumed “default” irrigable area of 5,200 and an application rate of 15 gallons per square foot.
The monthly irrigation requirements will be shaped by historical weather and ET.
This particular rate structure is a
Overview of the Block Sizes
variation of the previous water
Single-Family - Option 5
budget rate structure. Under the
previous rate structure, the city
35,000
30,000
would use the customer’s tax
25,000
Tail Block
assessed lot size to determine the
20,000
Block 3
nd
allotment of water for the 2 block
15,000Block 2
size. In contrast to this approach,
10,000Block 1
this rate structure assumes a default
5,000
irrigable area of 5,200 square feet
0
(i.e. the equivalent of a lot size of
9,000 square feet). The customer
could provide to the city a customer specific irrigable area. Irrigable area is technically the most
nd
accurate method of determining 2 block irrigation requirements. With this rate structure, the
nd
2 block size is shaped by historical ET and succeeding blocks are in relationship to this goal.
The determination of the block prices under this option is similar to the other water budget
previously discussed. The difficult part of determining the block prices for this particular option
nd
is establishing the amount of sales that may occur within the 2 block. As noted above, a default
size of 5,200 square feet of irrigable area may be used, or the customer could provide their
specific irrigable area.
Development and Evaluation of the Rate Structures 6-25
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
7 he annual bill impacts for this rate
structure are very similar to the
Single-Family Residential Rate Structure 5
previous rate structures reviewed.
Average Annual Bill
For this particular graph, the
$800.00
assumed irrigable area is 5,200
$600.00
square feet. Using that assumption,
Present
$400.00
a customer that has below average
Proposed
$200.00
consumption will see a slight
$0.00
increase in their annual bill. In
AWC = 3AWC = 5AWC = 8
contrast, the average consumer
should see a decrease in their annual
PresentProposedDifference% Change
bill. As with the previous rate
AWC = 3$196.44$200.04$3.601.8%
AWC = 5$397.74$377.24($20.50)-5.2%
structure those customers with
AWC = 8$701.34$734.89$33.554.8%
higher than average use will see an
Note: Assumes an Average Customer has an AWC of 5
increase in their annual bill. The
Single-Family Rate Structure 5
impacts within the various seasons
Consumption By Block
are also similar to the previous rate
50%
structures. That is, the winter period
42%
42%
appears to have minor impacts to
40%
customers, while the shoulder
30%
periods in the fall and spring produce
20%
the largest impacts. Similar to the
12%
4%
10%
other rate structures, the vast
majority of the consumption occurs
0%
in the first two blocks. There is a
Block 1Block 2Block 3Block 4
fairly significant amount of
th
consumption that does occur in the tail (4) block of this rate structure. In part, this may be due
rd
to the setting of a low 3 block at 125% of the goal.
PSS-FRRS5
– There are
ERCEIVED TRENGTHS OF INGLEAMILY ESIDENTIAL ATETRUCTURE
three perceived major strengths associated with this rate structure. These strengths are as
follows:
Outdoor Watering Allocation
Shaping of the Water Allocation
Use of Customer Irrigable Area
Given that this rate structure is very similar to the single-family rate structure 2, the strengths
associated with it are also very similar. The major difference between this rate structure and rate
structure 2 is the opportunity for the customer to provide their actual irrigable area and use that
nd
figure to determine their allocation of water for the 2 block of consumption. As noted
nd
previously, irrigable area provides the best relationship for establishing the 2 block of water.
PWS-FRRS5
– There are
ERCEIVED EAKNESSES OF INGLEAMILY ESIDENTIAL ATE TRUCTURE
two perceived major weaknesses associated with this rate structure. These weaknesses are as
follows:
Development and Evaluation of the Rate Structures 6-26
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
Customer Provided Irrigable Area – Highest Potential for Appeals
rd
Small Block Size for the 3 Block
One of the strengths of this structure was that it allowed customers to provide to the city their
nd
irrigable area and use that for purposes of establishing the 2 block size. At the same time, this
aspect of the rate structure creates a major weakness for this structure. At this point, it is unclear
and undefined how the city would obtain and determine the customer specific irrigable area. For
purposes of this study, it is assumed that customers would submit their specific irrigable area
through an appeal process to determine the irrigable area to be used for billing purposes. It
should also be noted that the use of irrigable area is difficult to measure and determine. In
comparison to the use of tax assessed lot sizes, the tax assessed lot sizes ultimately would use
legal property lines for the boundaries. In contrast, irrigable area doesn’t contain such clear
boundaries. In addition, irrigable area may change over time as changes in landscaping occur
(e.g. sidewalks added, decks enlarged, etc.) The other weakness of this rate structure is the small
rd
size of block 3. Given the small size of the block, customers may quickly pass through the 3
th
block and be billed at the higher cost 4 block. Even in the summer period of peak use, the size
rd
of the 3 block is only 5,000 gallons. Having this small block size may lead to customer
complaints and higher bills.
ACS-FRRS5
–
DMINISTRATIVE ONSIDERATIONS OF INGLEAMILY ESIDENTIAL ATE TRUCTURE
The major administrative issue associated with this rate structure is how to handle the customer
provided irrigable area measurements. In every case, the city will need to modify their billing
database for that specific account to reflect the customer provided data. While this is a “one-
time” adjustment, it is assumed that customers will only provide their irrigable area if it is over
and above the default value of 5,200 square feet. The city does not currently have information
on individual property irrigable areas for this class of service, however, it may be reasonable to
assume that any customer with a lot over 9,000 square feet may provide a customer specific
irrigable area. Using those assumptions, there may be the potential for approximately 6,600
customers to provide account/lot specific information on their irrigable area. Assuming that 10%
of the potential 6,600 customer would appeal, this would mean that there could be up to 660
appeals. Of this number of appeals, it is anticipated that 90% can be resolved at a cost of $50.00
-$100.00 per account or a total cost of $29,700 - $59,400. For the remaining 66 customers, a
more formal appeal process may be required. Assuming a formal appeal cost of $100 - $250 per
appeal, this may translate into a cost of $6,600 - $16,500. Therefore, the total cost for appeals
could range from $36,300 to $75,900 for this rate structure.
As with the previous water budget rate structures, this rate structure may be prorated between the
time periods, based upon the billing date. This rate structure is no more complex, from a
proration perspective, than the other water budgets.
RSS-FRRS5–
In reviewing this
EVENUE TABILITY OF INGLEAMILYESIDENTIAL ATE TRUCTURE
rate structure, the potential revenue volatility of a wet year or drought year was examined.
Within this study, the city has stated a goal of annual swings in planned revenue should be no
greater than 5% and 10%. For this particular rate design, during a wet year the annual swing
in revenue may be approximately 6.51%, while in a drought year, the annual revenue swing
may be 19.56%. As with the other rate structures discussed, the calculation of the revenue
stability in the drought period did not assume a drought surcharge.
Development and Evaluation of the Rate Structures 6-27
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
CS-FRRS5C’
OMPATIBILITY OF INGLEAMILY ESIDENTIAL ATETRUCTURE TO THE ITYS
ESBS
– This particular rate design is currently not compatible
XISTING OFTWARE ILLING YSTEM
with the city’s existing billing software.
7MRKPI*EQMP]6IWMHIRXMEP6EXI7XVYGXYVIz
The final rate structure reviewed for the single-family residential class of service is a modified
nd
version of the city’s current rate structure. Under this rate structure, the 2 block was modified
to better reflect the outdoor water requirements and uses an approach similar to that used for rate
ndnd
structure 1 to establish the 2 block size. The 2 block is based upon an assumed lot size of
9,000 square feet, but the water is not shaped by months. Provided below is a summary of the
rate design.
S-FRRS6–ECRS
INGLEAMILY ESIDENTIAL ATETRUCTURE XISTING ITY ATE TRUCTURE
MTRCCG.
ODIFIEDOEFLECT URRENT ITY OALS
Fixed Monthly Service Charges -
3/4” Meter $8.12/Month
1” 13.88/Month
1-1/4” 21.28/Month
1-1/2” 30.30/Month
2” 53.32/Month
Consumption Charges -
Block 1 - AWC, capped at 8,000 gallons $1.75/1,000 gallons
Block 2 - Next 16,000 gallons $3.05/1,000 gallons
Block 3 - All Excess Usage $6.80/1,000 gallons
As discussed above, this particular
rate structure is based upon the
Overview of the Block Sizes
city’s existing rate structure. In
Single-Family - Option 6
nd
this case, the 2 block is capped
30,000
at 16,000 gallons per month. This
25,000
rate structure does not shape the
Tail Block
20,000
block size for ET. The size of the
15,000Block 2
nd
2 block is based upon the
10,000
Block 1
average summer irrigation
5,000
requirements for a 9,000 square
0
foot lot size. The city’s existing
nd
rate structure sizes the 2 block in
Note: Block 1 based uon AWC = 8000 allons
p,g
relation to the consumption within
nd
the first block. Therefore, this rate structure has “disconnected” the 2 block from the
st
customer’s 1 block consumption or AWC. For purposes of this study, it is assumed that this
particular rate structure is not appealable.
Development and Evaluation of the Rate Structures 6-28
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
The pricing for this rate are based
upon the pricing principles
Single-Family Residential Rate Structure 6
discussed earlier. The first block is
Average Annual Bill
set at the base costs. The second
$800.00
block is designed to collect the
$600.00
extra-capacity costs. Finally, the
Present
$400.00
tail block has been set at the
Proposed
$200.00
estimated marginal cost of the city.
$0.00
The prices are designed to produce
AWC 3AWC 5AWC 8
the level of target revenues for this
particular class of service.
PresentProposedDifference% Change
AWC 3$196.44$195.44($1.00)-0.5%
AWC 5$397.74$360.29($37.45)-9.4%
The bill impacts from this rate
AWC 8$701.34$727.09$25.753.7%
structure are similar to the other
Note: Assumes an Average Customer has an AWC of 5
single-family rate structures that
Single-Family Rate Structure 6
have been reviewed. The below
Consumption By Block
average, and average use
60%
customers should see a decrease in
48%
50%
their annual bill. In contrast, the
40%
40%
above average customer should see
30%
a slight increase in their annual
12%
bill. The reason why the lower use
20%
customers would see a slight
10%
nd
decrease is the 2 block price is set
0%
nd
slightly lower than the current 2
Block 1Block 2Block 3
block price. The price for the tail
block is slightly higher than the current rate structure. The consumption that occurs within each
block under this rate structure is similar to the other rate structures. A majority of the
stnd
consumption occurs within the 1 and 2 block of the rate structure.
PSS-FRRS6
– There are
ERCEIVED TRENGTHS OF INGLEAMILY ESIDENTIAL ATETRUCTURE
three perceived major strengths associated with this rate structure. These strengths are as
follows:
Similar to Existing Rate Structure
Compatible to the Existing Billing System Software
Block 2 Has Some Relationship to Outdoor Water Needs in the Summer
The strengths of this rate structure are different than the other rate structures reviewed for this
class of service. Given that it is a variation of the existing rate structure, it is presumed that
customers should easily recognize and understand the approach being used. At the same time,
this rate structure is compatible with the city’s existing software. Finally, the modification made
nd
to this rate structure was to establish the 2 block size based upon outdoor summer watering
requirements for a lot size of 9,000 square feet with 5,200 square feet of irrigable area. The
nd
city’s existing rate structure does not use this approach to establish the 2 block, but rather, uses
nd
a relationship of the first block consumption or AWC to establish the 2 block. This change
eliminates the ability of a customer to increase their block 2 size by increasing their AWC.
Development and Evaluation of the Rate Structures 6-29
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
PWS-FRRS6
– There are
ERCEIVED EAKNESSES OF INGLEAMILY ESIDENTIAL ATE TRUCTURE
two perceived weakness associated with this rate structure. These weaknesses are as follows:
Lack of Incentives for Indoor Conservation
No individualization of Block 2
nd
The modification of the 2 block improved the relationship to outdoor watering in the summer
period, but the rate structure does not provide strong incentives for indoor conservation,
nd
particularly in the winter period. In addition, the 2 block of this rate structure is not
individualized and does not take into account the customer’s specific irrigation requirements.
ACS-FRRS6
–
DMINISTRATIVE ONSIDERATIONS OF INGLEAMILY ESIDENTIAL ATE TRUCTURE
For this rate structure, it is assumed that it is non-appealable. In addition, administratively, this
rate structure appears to be the simplest to implement and administer. Many of the
administrative issues noted above for the other rate structures are not an issue with this rate
structure. Therefore, the implementation costs and the on-going costs associated with this rate
are minimal, or not much different than the existing rate structure.
RSS-FRRS6–
In reviewing this
EVENUE TABILITY OF INGLEAMILYESIDENTIAL ATE TRUCTURE
rate structure, the potential revenue volatility of a wet year or drought year was examined.
Within this study, the city has stated a goal of annual swings in planned revenue should be no
greater than 5% and 10%. For this particular rate design, during a wet year the annual swing
in revenue may be approximately 6.16%, while in a drought year, the annual revenue swing
may be 19.47%. As with the other rate structures, the calculation of the revenue stability in
the drought period did not use a drought surcharge.
CS-FRRS6C’
OMPATIBILITY OF INGLEAMILY ESIDENTIAL ATETRUCTURE TO THE ITYS
ESBS
– This particular rate design is compatible with the
XISTING OFTWAREILLING YSTEM
city’s existing billing software but would require some reprogramming efforts.
This concludes the review of the single-family residential rate structures. The focus will now
shift to the multi-family rate structures.
6.8 Review of the Multi-Family Residential Rate Structures
The next class of service reviewed was the multi-family residential rate structures. For this
particular class of service, three rate structures were recommended for review and analysis by the
WRAB. Provided below is a detailed review of each of the rate structures, a discussion of the
perceived strengths and weaknesses of each rate structure, along with any administrative
issues/costs associated with the rate design.
1YPXM*EQMP]6IWMHIRXMEP6EXI7XVYGXYVIz
The first multi-family residential rate structure reviewed is a seasonally differentiated rate
structure. Provided below is an overview of the structure.
Development and Evaluation of the Rate Structures 6-30
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
M-FRRS1–SDR
ULTIAMILY ESIDENTIAL ATETRUCTURE EASONALLY IFFERENTIATED ATE
S2-BWR3-BSR.
TRUCTURE WITH A LOCKINTER ATE AND A LOCK UMMER ATE
Fixed Monthly Service Charges -
3/4” Meter $8.12/Month
1” 13.88/Month
1-1/4” 21.28/Month
1-1/2” 30.30/Month
2” 53.32/Month
3” 119.02/Month
4” 211.00/Month
6” 473.93/Month
8” 841.99/Month
Consumption Charges -
Winter Period (Oct. – April) -
Block 1 First 4,000 gallons per unit $1.75/1,000 gallons
Block 2 All Excess Usage $2.35/1,000 gallons
Summer Period (May – Sept.) -
Block 1 First 4,000 gallons per unit $1.75/1,000 gallons
Block 2 101% to 150% of Block 1 $2.65/1,000 gallons
Block 3 All Excess Usage $4.70/1,000 gallons
As can be seen from above, this is a
Overview of the Winter Block Sizes -
seasonal rate structure. In
Per Unit Multi-Family - Option 1
analyzing the multi-family rate
structure, it was discovered that this
6,000
option needed a third block in the
5,000
summer period since some multi-
4,000
Tail Block
family accounts have a need for
3,000
Block 1
st
outdoor watering. The 1 block is
2,000
based upon an assumed indoor use.
1,000
0
The block size is based upon the
number of living units in the
particular multi-family complex.
Each living unit is provided with
Overview of the Summer Block Sizes -
4,000 gallons per month to
Per Unit Multi-Family - Option 1
st
establish the size of the 1 block
size. During the summer irrigation
8,000
season block 2 is based on all
7,000
6,000
consumption up to 150% of block
Tail Block
5,000
1, while in the winter block 2 is the
4,000Block 2
3,000
Block 1
tail block and considered to be
2,000
excessive indoor use or outdoor
1,000
0
irrigation requirements. During the
summer irrigation month’s,
Development and Evaluation of the Rate Structures 6-31
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
nd
consumption over and above the 2 block is attributed to excessive indoor XVH or outdoor
watering.
st
The price associated with the 1 block of consumption represents “base” costs or the costs
incurred under average demand conditions. Base costs are assumed to be the same for both the
winter and summer seasons. The second block price reflects the costs associated with the extra-
capacity required to serve customers. Extra-capacity is the difference between peak demand and
average demand (base) conditions. The third block price was set equal to the calculated flat rate
for irrigation (see page 6-50) as the consumption in this block is assumed to be for those multi-
family accounts which do not have a separate irrigation meter. As with the single-family
seasonal rate structure, the price differential between seasons for the second block is created by
collecting a greater proportion of the extra-capacity costs in the summer period than the winter
period.
The bill comparison for this rate
option indicates that on an annual
Multi-Family Residential Rate Structure 1
basis, customers may see an
Average Annual Bill
increase in their annual bill if, on
$10,000.00
average, indoor use is greater than
$8,000.00
4,000 gallons per unit. The graph
$6,000.00
Present
at left shows the annual bill
$4,000.00
Proposed
impacts for three different multi-
$2,000.00
family customers with living units
$0.00
of 2, 10 and 50 units.
2 Units (AWC = 8)10 Units (AWC = 57)50 Units (AWC =235)
The impact to customers in the
PresentProposedDifference% Change
2 Units (AWC = 8)$358.14$366.39$8.252.3%
seasonal periods is dependent
10 Units (AWC = 57)$1,442.19$1,720.79$278.6019.3%
upon whether the customer has
50 Units (AWC =235)$7,694.04$8,583.69$889.6511.6%
metered irrigation. If the
customer has metered irrigation,
Multi-Family Rate Structure 1
the rate structure should have little
Consumption By Block
100%
impact. For those customers that
82%
irrigate their common areas under
80%
56%
this rate schedule, if there is
60%
Block 1
excessive use, the potential
30%
Block 2
40%
18%
14%impacts may be very limited. This
Block 3
20%
is the result of a three-block rate
0%
structure.
WinterSummer
PSM-FRRS1
– There are four
ERCEIVED TRENGTHS OF ULTIAMILY ESIDENTIAL ATETRUCTURE
perceived major strengths associated with this rate structure. These strengths are as follows:
Establishes Reasonable Block Sizes
Price Differential for Seasonality
Compatible to the Existing Billing System Software
Ease of Customer Understanding
Development and Evaluation of the Rate Structures 6-32
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
The strengths of this rate structure are based upon its simple design. The first block size is based
upon a reasonable relationship to the single-family residential block size. This provides a level
of continuity to the city’s philosophy in establishing the first block size. At the same time, the
rate structure has used seasonal pricing to reflect the cost differences associated with winter and
summer water use. The rate structure would also be compatible with the city’s existing software.
However, this may not be a significant advantage if the city determines that it wants to move to
other rate structures for the other customer classes of service that would require upgrades to the
city’s billing software. Finally, this rate structure is very simple to understand from a customer
perspective.
PWM-FRRS1
– There are
ERCEIVED EAKNESSES OF ULTIAMILY ESIDENTIAL ATE TRUCTURE
two perceived weaknesses associated with this rate structure. These weaknesses are as follows:
nd
2 Block Size Does Not Relate Well to System Water Supply Characteristics
No Penalty Rate For Excessive irrigation Consumption
The first perceived weakness of this rate structure is the lack of shaping the third block to follow
ET and the city’s water supply characteristics for irrigation purposes. The second weakness is
that there is no penalty rate for those customers who use excessive water for irrigation purposes.
Under other rate structures this excessive use is priced at the marginal cost, while under this
structure it is set at a lower price.
ACM-FRRS1
–
DMINISTRATIVE ONSIDERATIONS OF ULTIAMILYESIDENTIAL ATETRUCTURE
This rate structure will require the city to determine and verify the number of living units for
each multi-family customer. While the city has this information within an existing database, it
must be verified to assure that the proper number of living units is assigned to each account.
Given that there are approximately 4,600 multi-family accounts, the cost per account to reconcile
the database may be in the range of $1.00 - $3.00 per account, or a total cost of $4,600 to
$13,800. Once the database and number of living units has been verified, there would be little or
no on-going cost associated with this class of service. As new multi-family units are built and
become new customers, the city would need to add this information to the billing records. This
process would not have a significant on-going cost associated with it. Finally, as with the other
rate structures, this particular rate structure will require proration between seasonal periods.
RSM-FRRS1–
In reviewing this
EVENUE TABILITY OF ULTIAMILY ESIDENTIAL ATETRUCTURE
rate structure, the potential revenue volatility of a wet year or drought year was examined.
Within this study, the city has stated a goal of annual swings in planned revenue should be no
greater than 5% and 10%. For this particular rate design, during a wet year the annual swing
in revenue may be approximately 9.61%, while in a drought year, the annual revenue swing
may be 56.59%. The revenue variability for the drought period is calculated without drought
surcharges.
CM-FRRS1C’
OMPATIBILITY OF ULTIAMILY ESIDENTIAL ATETRUCTURE TO THE ITYS
ESBS
– This particular rate design is currently compatible
XISTING OFTWARE ILLING YSTEM
with the city’s existing billing software but would require some reprogramming efforts.
Development and Evaluation of the Rate Structures 6-33
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
1YPXM*EQMP]6IWMHIRXMEP6EXI7XVYGXYVIz
The second multi-family residential rate structure reviewed is a water budget rate structure with
six blocks. Provided below is an overview of the structure.
M-FRRS2–WBWS(6)
ULTIAMILY ESIDENTIAL ATETRUCTURE ATERUDGET ITH IX
CB.B12AFPUT,B3I
ONSUMPTION LOCKSLOCKS AND RE IXED ERNIT HRESHOLDSLOCK S
BOTCSIA,SBB
ASEDNHEUSTOMER PECIFIC RRIGABLE REA AND UCCEEDING LOCKS ASED
URTOG.
PONELATIONSHIP OUTDOOR OAL
Fixed Monthly Service Charges -
3/4” Meter $8.12/Month
1” 13.88/Month
1-1/4” 21.28/Month
1-1/2” 30.30/Month
2” 53.32/Month
3” 119.02/Month
4” 211.00/Month
6” 473.93/Month
8” 841.99/Month
Consumption Charges -
Block 1 - First 4,000 gallons per Living Unit $1.75/1,000 gallons
Block 2 - Next 2,000 gallons per Living Unit $2.60/1,000 gallons
[1]
Block 3 - Varies By Month – Irrigable Area $3.35/1,000 gallons
Block 4 - 101% to 125% of Outdoor Goal $3.90/1,000 gallons
Block 5 - 125% to 150% of Outdoor Goal $4.15/1,000 gallons
Block 6 - Over 150% of Outdoor Goal $6.80/1,000 gallons
[1]
Each month will have a set outdoor goal based on the irrigable area as determined by the city and
an irrigation application rate of 15 gallons per square foot. The monthly irrigation requirements
will be shaped by historical weather and ET.
When reviewing the consumption
Overview of the Block Sizes - Per Unit
data for the multi-family proposed
Multi-Family - Option 2
rate structure 2, it was noted that a
significant level of consumption
70,000
Tail Block
would fall into the tail block under
60,000
Block 5
50,000
the proposed blocks as presented in
Block 4
40,000
Section 5. As a result, the rate
30,000
Block 3
structure was modified to add a new
20,000
Block 2
second block for excessive indoor
10,000
Block 1
0
consumption and the third block
represents the outdoor irrigation
requirements. The level of
Note: Based upon 5 units and 5,000 sq. ft. irrigable area
consumption in the first two blocks, under the newly proposed structure, now is more closely
related to the historical level of consumption that the city has assumed to be indoor usage.
Development and Evaluation of the Rate Structures 6-34
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
The pricing of the blocks is very similar to that used for the other rate structures developed.
rd
Most importantly, the price of the 3 block, or the irrigation block, is set at a level that is
comparable to the metered irrigation price in the irrigation rate structures 2 and 3. Therefore, a
customer will not benefit from keeping their irrigation use on this account and may want to
consider a separate metered irrigation account for their property.
In reviewing the impacts to customers, the impacts will vary based upon two factors. The first
factor is the number of living units. The second and more important factor is the amount of
irrigable area and whether the customer has separately metered irrigation. If the customer has
separate metered irrigation the customer should remain in the lower blocks of the rate structure
and not see large impacts.
It appears that the annual bills for
the multi-family customers under
Multi-Family Residential Rate Structure 2
this rate structure should be fairly
Average Annual Bill
comparable to the existing rate
$10,000.00
structure. The bill comparisons
$8,000.00
developed in the graph to the left
Present
$6,000.00
Proposed
assume 7,000 square feet of
$4,000.00
irrigable area. As noted above, the
$2,000.00
impacts may vary based upon the
$0.00
amount of irrigable area. Finally,
2 Units (AWC = 8)10 Units AWC = 57)50 Units (AWC = 235)
it appears that the vast majority of
PresentProposedDifference% Change
the consumption will occur within
2 Units (AWC = 8)$358.14$351.74($6.40)-1.8%
the first two blocks of
10 Units AWC = 57)$1,442.19$1,640.54$198.3513.8%
consumption (83%). It should be
50 Units (AWC = 235)$7,694.04$8,543.64$849.6011.0%
noted that some outdoor irrigation
consumption may be captured in
the second block, depending upon
Multi-Family Rate Structure 2
Consumption By Block the average indoor use of the
80%
customer. However, at this time it
69%
is unclear as to the amount of
60%
consumption related to irrigation.
40%
PS
14%10%
ERCEIVED TRENGTHS OF
20%
M-FR
6%
ULTIAMILY ESIDENTIAL
1%
1%
RS2
– There are
ATETRUCTURE
0%
two perceived major strengths
Block 1Block 2Block 3Block 4Block 5Block 6
associated with this rate structure.
These strengths are as follows:
Outdoor Watering Allocation
Shaping of the Water Allocation
As with the single-family residential rate structure, the strength of the water budget rate structure
is in the establishment of a block of consumption based upon the irrigation requirements of the
Development and Evaluation of the Rate Structures 6-35
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
customer. In this case, the customer’s irrigable area is the basis for establishing the block size.
This allocation of water is then shaped to reflect the historical ET.
PWM-FRRS2
– There are
ERCEIVED EAKNESSES OF ULTIAMILY ESIDENTIAL ATE TRUCTURE
three perceived major weaknesses associated with this rate structure. These weaknesses are as
follows:
Measurements Needed to Use Customer Specific Irrigable Area
Master Metered vs. Individually Metered Customers
Complexity Based Upon the Number of Blocks
In some of the other water budgets reviewed for the single-family residential class of service,
standard lot sizes were used as a means to establish the outdoor watering requirements. While
that approach is desirable from an administrative standpoint, it does not work well for multi-
family customers, given the varying configurations of each property. Therefore, this rate
rd
structure has used the customer-specific irrigation area to establish the 3 block. This will
require the city to determine (i.e. measure) each property to determine the irrigable area. This
will obviously require time and effort on the city’s part, but also will be open to challenge by the
property owners. The other issue that makes this rate structure challenging is that some
properties have a master meter, while others may have individually metered customers or units.
Administratively, the master metered situation works very well for this rate structure. In
rd
contrast, for individually metered customers, determining the 3 block size may be more
challenging. In that situation, the individually metered customer does not control outdoor
watering, yet has a block established for outdoor watering. In addition, it is unclear how the
block would be established for an individually metered multi-family customer (e.g. total irrigable
area ÷ total units). If a multi-family customer (account) has separate metered irrigation, it is
rd
unclear whether the 3 block even makes sense. The final perceived weakness of this rate
structure is the number of blocks. This is the only proposed rate structure that has six blocks for
pricing purposes. From the consumption data sorted by block sizes, it is clear that six blocks are
not required for this particular class of service.
ACM-FRRS2
–
DMINISTRATIVE ONSIDERATIONS OF ULTIAMILYESIDENTIAL ATETRUCTURE
This particular rate structure has two major administrative issues associated with it. First is the
issue of the determination of the customer specific irrigation area. There are two approaches that
can be used to make this determination. Billing for stormwater (inside city only) is based upon
lot size and impervious area. From this information, a rough approximation of irrigable area
could be determined. It should be noted that the city’s GIS is not linked to the account
information for non-residential customers, because there may not be a one to one relationship
between parcel and service location. The other alternative is for the city to physically measure
the irrigable area of each property. There are approximately 4,500 inside city multi-family
accounts. Assuming a cost range of $2 to $5 per account, the cost associated with determining
irrigable for each individual account/property may be in the range of $9,000 to $22,500. In
addition to the inside city customers there are also approximately 100 outside city accounts. To
physically measure or determine the irrigable areas for these properties, it may cost $25.00 -
$50.00 per account. This would translate into $2,500 to $5,000. Once the irrigable area is
determined, the city would need to add information for new customers. For existing customers,
it would be difficult to determine changes in irrigable area, and most likely, it would be up to the
Development and Evaluation of the Rate Structures 6-36
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
customer to report any significant changes in irrigable area. Similar to rate structure 1, in order
to implement rate structure 2, the city would need to verify the number of living units for each
account. Based on the total number of accounts this cost has been estimated to be between $1.00
- $3.00 per account, or a total cost of $4,600 to $13,800. In addition to the implementation costs,
there is the potential for appeals. The appeals would primarily be centered around the irrigable
area. Given that a small portion of these customers have metered irrigation, it is difficult to
determine the number of anticipated appeals the city would receive. It was determined that there
was the possibility of 2,500 customers that may appeal. This was calculated by subtracting the
2,100 single units, which typically have minimal irrigable requirements, from the total of 4,600
multi-family customers. Assuming that 5% of those customers may potentially appeal, there
could be 125 accounts that appeal. Ninety percent of those may be resolved at a cost to the city
in the range of $50.00 - $100.00 per account. This would translate to a range of costs $5,600 -
$11,200. Should a more formal appeal process be required for the remaining 13 customers, the
cost to resolve may be in the range of $100 - $250 per appeal. This would have a cost in the
range of $1,300 to $3,250. The other significant administrative issue associated with this rate
structure is the issue of proration. As with the other water budget rate structures, the city may
need to prorate the customer bill each month to reflect the timing of the billing and the quantity
of water provided in each of the blocks over the billing period. In summary, it appears there are
some significant implementation costs associated with this rate structure, but there would be
minimal annual on-going costs. At the same time, the administrative issue of proration would
need to be addressed within the billing system.
RSM-FRRS2–
In reviewing this
EVENUE TABILITY OF ULTIAMILY ESIDENTIAL ATETRUCTURE
rate structure, the potential revenue volatility of a wet year or drought year was examined.
Within this study, the city has stated a goal of annual swings in planned revenue should be no
greater than 5% and 10%. For this particular rate design, during a wet year the annual swing
in revenue may be approximately -3.35%, while in a drought year, the annual revenue swing may
be37.16%. The revenue variability for the drought period is calculated without drought
surcharges.
CM-FRRS2C’
OMPATIBILITY OF ULTIAMILY ESIDENTIAL ATETRUCTURE TO THE ITYS
ESBS
– This particular rate design is currently not compatible
XISTING OFTWARE ILLING YSTEM
with the city’s existing billing software.
1YPXM*EQMP]6IWMHIRXMEP6EXI7XVYGXYVIz
The third and final multi-family residential rate structure reviewed is a variation of the previous
rate structure. This particular rate structure uses a 5-block rate structure, and the tail block is set
at a lower level than the previous multi-family rate structure. Provided below is an overview of
the rate structure.
Development and Evaluation of the Rate Structures 6-37
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
M-FRRS3–WBWF(5)
ULTIAMILY ESIDENTIAL ATETRUCTURE ATERUDGET ITH IVE
CB.B12AFPUT,B3I
ONSUMPTION LOCKSLOCKS AND RE IXED ERNIT HRESHOLDSLOCK S
BOTCSIA,SBB
ASEDNHEUSTOMER PECIFIC RRIGABLE REA AND UCCEEDING LOCKS ASED
URTOG.
PONELATIONSHIP OUTDOOR OAL
Fixed Monthly Service Charges -
3/4” Meter $8.12/Month
1” 13.88/Month
1-1/4” 21.28/Month
1-1/2” 30.30/Month
2” 53.32/Month
3” 119.02/Month
4” 211.00/Month
6” 473.93/Month
8” 841.99/Month
Consumption Charges -
Block 1 - First 4,000 gallons per unit $1.75/1,000 gallons
Block 2 - Next 2,000 gallons per unit $2.60/1,000 gallons
[1]
Block 3 - Varies By Month – Irrigable Area $3.35/1,000 gallons
Block 4 - 101% to 125% of Outdoor Goal $3.90/1,000 gallons
Block 5 - Over 125% of Outdoor Goal $6.80/1,000 gallons
[1]
Each month will have a set outdoor goal based on the irrigable area as determined by the city and
an irrigation application rate of 15 gallons per square foot. The monthly irrigation requirements
will be shaped by historical weather and ET.
This particular rate structure is very
similar to the previous rate structure.
As with the previous rate structure,
nd
a new 2 block has been added, and
the outdoor irrigation block has
rd
been moved to the 3 block within
th
the rate structure. The 4 block size
of this rate structure is set at 125%
of the outdoor goal (block 3).
The pricing used for this rate
structure is very similar to the
previous rate structure. The main
difference being that this rate structure has five blocks, as opposed to the previous rate
structure’s six blocks.
Development and Evaluation of the Rate Structures 6-38
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
In viewing the customer bill impacts
from this rate design, the impacts
Multi-Family Residential Rate Structure 3
are very similar to the previous rate
Average Annual Bill
design. As noted previously, the
$10,000.00
impacts are a function of the
$8,000.00
number of living units, irrigable
Present
$6,000.00
Proposed
area for the customer, and whether
$4,000.00
the customer has metered irrigation.
$2,000.00
The bill comparison shown in the
$0.00
graph to the left utilizes an irrigable
2 Unit (AWC = 8)10 Unit (AWC = 57)50 Units (AWC = 235)
area of 7,000 square feet for various
PresentProposedDifference% Change
living unit configurations.
2 Unit (AWC = 8)$358.14$351.74($6.40)-1.8%
10 Unit (AWC = 57)$1,442.19$1,651.14$208.9514.5%
50 Units (AWC = 235)$7,694.04$8,641.69$947.6512.3%
The consumption by block size is
very similar to the previous multi-
family rate structure. The vast ma-
Multi-Family Rate Structure 3
jority of the consumption appears
Consumption By Block
within the first two blocks (83%),
80%
69%
with minimal consumption occur-
ring in blocks 3 and 4. Finally, the
60%
tail block does have a comparable
40%
amount of consumption in it as it
14%
10%
does in the previous rate structure.
20%
6%
1%
0%
Block 1Block 2Block 3Block 4Block 5
PSM-FRRS3
– There are two
ERCEIVED TRENGTHS OF ULTIAMILY ESIDENTIAL ATETRUCTURE
perceived major strengths associated with this rate structure. These strengths are as follows:
Outdoor Watering Allocation
Shaping of the Water Allocation
As with the previous multi-family residential rate structure, the strength of this rate structure is
the establishment of a block of consumption based upon the irrigation requirements of the
customer, and the shaping of that water to reflect historical ET.
PWM-FRRS3
– There are
ERCEIVED EAKNESSES OF ULTIAMILY ESIDENTIAL ATE TRUCTURE
three perceived major weaknesses associated with this rate structure. These weaknesses are as
follows:
Measurements Needed for Customer Specific Irrigable Area
Master Metered vs. Individually Metered Customers
Small Block Size for the 4th Block
The perceived weaknesses for this rate structure are very similar to the comments provided for
multi-family rate structure 2. One additional item, and the major difference in this rate structure,
is the setting of the tail block at over 125% of the outdoor water goal. As noted in the discussion
Development and Evaluation of the Rate Structures 6-39
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
of the single-family residential rate structures using this level of goal, there is some concern that
it is set too low, and pushes customers into the higher cost block for relatively small changes in
overall consumption patterns, particularly in the winter and shoulder months.
ACM-FRRS3
–
DMINISTRATIVE ONSIDERATIONS OF ULTIAMILYESIDENTIAL ATETRUCTURE
The administrative considerations for this rate structure are the same as those detailed in multi-
family rate structure 2. That is, the city will need to determine the customer specific irrigation
area, and the number of living units for each multi-family account. In total it has been estimated
that these issues may have a cost to the city in the range of $23,000 to $55,750. As with the
previous rate structure, it was noted that there is not a link between the city’s GIS information,
the number of living units per multi-residential account or the pervious area. In addition, this
rate structure must also deal with the issue of proration, which is no different than any of the
other water budget rate structures reviewed up to this point. In summary, it appears that there
would be some significant implementation costs associated with this rate structure, but there
would be minimal annual on-going costs. At the same time, the administrative issue of proration
would need to be addressed within the billing system.
RSM-FRRS3–
In reviewing this
EVENUE TABILITY OF ULTIAMILY ESIDENTIAL ATETRUCTURE
rate structure, the potential revenue volatility of a wet year or drought year was examined.
Within this study, the city has stated a goal of annual swings in planned revenue should be no
greater than 5% and 10%. For this particular rate design, during a wet year the annual swing
in revenue may be approximately -3.38%, while in a drought year, the annual revenue swing may
be -37.46%. The revenue variability for the drought period is calculated without drought
surcharges.
CM-FRRS3C’
OMPATIBILITY OF ULTIAMILY ESIDENTIAL ATETRUCTURE TO THE ITYS
ESBS
– This particular rate design is currently not compatible
XISTING OFTWARE ILLING YSTEM
with the city’s existing billing software.
This concludes the review of the multi-family residential rate structures. The focus will now
shift to the commercial/large user rate structures.
6.9 Review of the Commercial/Large User Rate Structures
The next class of service reviewed was the commercial/large user rate structures. For this
particular class of service, three rate structures were recommended for review and analysis by the
WRAB. Provided below is a detailed review of each of the rate structures, a discussion of the
perceived strengths and weaknesses of each rate structure, along with any administrative
issues/costs associated with the rate design.
In reviewing the customer classes of service it was noted that the city may segregate their
customers, for rate setting purposes, between commercial and large user customers. The
objective being that cost differences may exist in serving a commercial customer versus a large
user. These cost differences may be a result of differences in usage patterns (i.e. primarily peak
use characteristics) and facility requirements. In reviewing the city’s most recent cost of service
study, the cost allocation did not provide sufficient detail to determine the cost differences
Development and Evaluation of the Rate Structures 6-40
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
associated with serving these two types of customers. Given that, it is recommended that at the
time of the city’s next cost of service study, this costing issue be reviewed to determine whether
two separate classes of service, commercial and large user, is prudent and justified. Therefore,
for purposes of this study, the commercial and large user customers are combined for purposes of
establishing and reviewing the rate structures.
'SQQIVGMEP0EVKI9WIV6EXI7XVYGXYVIz
The first rate structure reviewed is a seasonally differentiated structure. Provided below is the
detail of this rate design.
C/LURS1–SDR
OMMERCIALARGE SERATE TRUCTURE EASONALLY IFFERENTIATED ATE
SWA2-BWRAA2-BSR.
TRUCTURE ITHLOCK INTER ATENDLOCK UMMER ATE
Fixed Monthly Service Charges -
3/4” Meter $8.12/Month
1” 13.88/Month
1-1/4” 21.28/Month
1-1/2” 30.30/Month
2” 53.32/Month
3” 119.02/Month
4” 211.00/Month
6” 473.93/Month
8” 841.99/Month
Consumption Charges -
Winter Period (Oct. – April) -
[1]
Block 1 - Average Monthly Use $1.75/1,000 gallons
Block 2 - All Usage Over Block 1 $3.00/1,000 gallons
Summer Period (May – Sept.) -
[1]
Block 1 - Average Monthly Use $1.75/1,000 gallons
Block 2 - All Usage Over Block 1 $3.30/1,000 gallons
[1]
Average monthly use is to be determined for each individual customer based upon a three-year
average, reviewed and established periodically. The same block 1 size is used for both winter and
summer time periods.
Development and Evaluation of the Rate Structures 6-41
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
The commercial/large user rate
Overview of the Block Sizes
design is a seasonal rate structure,
Commercial/Large User - Option 1
designed to reflect the higher cost
associated with meeting peak use
requirements for this particular
class of service. In comparison to
Ave. Mth
the single-family residential class of
Tail Block
Block 1
service, the usage patterns of this
class of service do not vary
significantly from season to season.
For purposes of this study, it has
Note: 1st Block based upon customer specific average monthly use
been assumed that no portions of
this rate structure are appealable by the customer. The calculation of their average monthly use
is calculated for all commercial/large user customers at the same time, using the same criteria
(i.e. time periods).
In determining the price for each of
the blocks, an approach similar to
Commercial/Large User Rate Structure 1
that used for the other classes of
Average Annual Bill
service was utilized. The first
$12,000.00
$10,000.00
block reflected the “base” costs
$8,000.00
Present
associated with serving this
$6,000.00
Proposed
particular class of service. The
$4,000.00
$2,000.00
second block was based upon the
$0.00
extra-capacity costs required to
Brew PubHotelRestaurant
serve these customers. The
seasonal differential was a function
PresentProposedDifference% Change
Brew Pub$3,668.85$3,740.95$72.102.0%
of a greater share of the extra-
Hotel$9,737.04$9,843.39$106.351.1%
capacity costs (peaks) occurring in
Restaurant$3,207.39$2,975.69($231.70)-7.2%
the summer period. For this
particular rate structure, there is not a penalty tail block set at the marginal cost. It is our
understanding that over 50% of the commercial/large users have metered irrigation, which partly
accounts for the relatively flat patterns of use seen by this class of service. However, if desired,
the city can add a third consumption block which could then be set at the marginal cost for those
customers with excess outdoor usage. It is assumed that the second block would then be set at a
level to provide reasonable outdoor watering for those customers without a separate irrigation
account. City staff has also indicated during the course of this study that working directly with
customers on commercial conservation audits and measures is an effective and preferable way to
achieve water efficient practices with these customers.
Development and Evaluation of the Rate Structures 6-42
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
In viewing the bill comparisons, it
can be seen that the annual bill
Commercial/Large User Rate Structure 1
impacts to customers will be
Consumption By Block
100%
fairly comparable to the city’s
88%
77%
existing rates. The seasonal
75%
component of this rate structure
Block 1
50%
may impact customers differently,
Block 2
particularly if their business is
23%
12%
25%
more seasonally related. Those
with businesses that tend to be
0%
WinterSummer
busiest in the winter period may
see slight decreases in their bills, and those businesses that are busiest in the summer period may
see a slight increase in their annual bills. For the development of the bill comparisons three
commercial customers were selected and their annual bills calculated under present and proposed
rates. Specific impacts by type of business may vary based upon consumption characteristics.
The final item of interest is the anticipated amount of consumption that will be billed within each
block of consumption. As can be seen in the graph, the summer period will bill a greater amount
of consumption in the second block than the winter period. While there is some difference
between the winter and summer consumption patterns, there does not appear to be huge swings
in consumption between those time periods.
PSC/LURS1
– There are three
ERCEIVED TRENGTHS OF OMMERCIALARGE SER ATETRUCTURE
perceived major strengths associated with this rate structure. These strengths are as follows:
Price Differential for Seasonality
Compatible to the Existing Billing System Software
Ease of Customer Understanding
The strengths of this rate structure are similar to the other seasonal rate structures that have been
reviewed in this study. The seasonal price structure should provide some incentive for efficient
use by the customer during the peak use period. At the same time, this rate structure should be
compatible with the city’s existing billing software with some reprogramming effort. Finally, this
rate structure is simple to understand from a customer perspective, yet it is sophisticated in its
design that it imparts the proper price signals to customers.
PWC/LURS1
– There are
ERCEIVED EAKNESSES OF OMMERCIALARGESERATETRUCTURE
three perceived major weaknesses associated with this rate structure. These weaknesses are as
follows:
Potential Lack of Incentives for Efficient Use
Lack of an “Excessive Use” Block for Indoor Use
nd
2 Block Size Does Not Relate Well to System Water Supply Characteristics
For this rate structure, the first block of consumption is developed based upon the customer’s
historical consumption. It could be perceived that this approach does not encourage efficient use
from these customers because of its use of historical consumption to establish the first block, or
alternatively, by its failure to establish an “efficient use” block size for the particular type of
Development and Evaluation of the Rate Structures 6-43
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
commercial customer (e.g. grocery store, restaurant, etc.). The second perceived weakness of
this rate structure is its lack of a third block to penalize customers for “excessive use” whether it
is related to indoor or outdoor use. Finally, this rate structure has not shaped the block sizes.
Shaping is primarily an outdoor irrigation issue. However, as has been noted previously,
approximately one-half of the customers within this class of service have metered irrigation.
ACC/LURS1
–
DMINISTRATIVE ONSIDERATIONS OF OMMERCIALARGESER ATE TRUCTURE
Given the design of this rate structure, it is assumed that the block sizes are non-appealable.
Therefore, administratively, this rate structure does not have any significant administrative issues
associated with it. The only administrative issue that would need to be addressed is the method
that would be used to develop the average monthly use figures for billing. The city would need
to determine the procedures or methodology to determine these monthly averages, and the billing
system should have the capability to automatically calculate and update this information. It is
presumed that these averages would be calculated and updated on a periodic basis. It is not
anticipated that there would be a significant upfront cost associated with determining these
averages, nor would there be any significant on-going administrative costs. In addition, this rate
structure must also deal with the issue of proration, which is no different than any of the other
seasonal rate structures that have been reviewed. In summary, it appears that there would not be
any significant implementation or on-going administrative costs associated with this rate
structure.
RSC/LURS1–
In reviewing this
EVENUE TABILITY OF OMMERCIALARGE SER ATE TRUCTURE
rate structure, the potential revenue volatility of a wet year or drought year was examined.
Within this study, the city has stated a goal of annual swings in planned revenue should be no
greater than 5% and 10%. For this particular rate design, during a wet year the annual swing
in revenue may be approximately 16.50%, while in a drought year, the annual revenue swing
may be 42.49%. The revenue variability for the drought period is calculated without drought
surcharges.
CC/LURS1C’E
OMPATIBILITY OF OMMERCIALARGE SERATE TRUCTURE TO THE ITYSXISTING
SBS
– This particular rate design is currently compatible with the city’s
OFTWARE ILLING YSTEM
existing billing software but would require some reprogramming effort.
'SQQIVGMEP0EVKI9WIV6EXI7XVYGXYVIz
The second commercial/large user rate structure reviewed is very similar to the previous rate
structure. The key difference being the approach used to establish the first block size. Under
this rate structure, the first block size is set at 90% of the customer’s historical average monthly
use. Provided below is the detail of this rate design.
Development and Evaluation of the Rate Structures 6-44
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
C/URS2–SDR
OMMERCIALLARGE SERATETRUCTURE EASONALLY IFFERENTIATED ATE
SWA2-BWRAA2-BSR.
TRUCTURE ITHLOCK INTER ATENDLOCK UMMER ATE
Fixed Monthly Service Charges -
3/4” Meter $8.12/Month
1” 13.88/Month
1-1/4” 21.28/Month
1-1/2” 30.30/Month
2” 53.32/Month
3” 119.02/Month
4” 211.00/Month
6” 473.93/Month
8” 841.99/Month
Consumption Charges -
Winter Period (Oct. – April) -
[1]
Block 1 - 90% Average Monthly Use $1.75/1,000 gallons
Block 2 - All Usage Over Block 1 $3.00/1,000 gallons
Summer Period (May – Sept.) -
[1]
Block 1 - 90% Average Monthly Use $1.75/1,000 gallons
Block 2 - All Usage Over Block 1 $3.30/1,000 gallons
[1]
Average monthly use is to be determined for each individual customer based upon a three-year
average, reviewed and established periodically. The same block 1 size is used for both winter and
summer time periods. The use of 90% represents the city’s perception of this class to improve
water efficiency.
The second commercial/large user
Overview of the Block Sizes
rate structure is a variation of the
Commercial/Large User - Option 2
first commercial/large user rate
structure presented. As with the
previous rate structure, it is
assumed that this rate structure is
Ave. Mth
non-appealable. Under this
Tail Block
option, the customer’s first block
Block 1
is set at 90% of their average
monthly use. The objective of
setting the first block at 90% of
their average use is to provide an
Note: 1st Block based uon 90% of customer secific averae monthl use
ppgy
incentive to customers to improve
their efficiency. As with the previous rate structure, this is a seasonal rate design, with a two
block structure in the winter and summer period. The pricing of this rate structure used the same
approach as the previous rate structure. As with the commercial/large user rate structure 1, the
city may want to review the possibility of adding a third consumption block to this rate structure
for those customers with large irrigation requirements.
Development and Evaluation of the Rate Structures 6-45
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
In viewing the bill comparisons,
they appear to be very similar to
the previous option. However,
Commercial/Large User Rate Structure 2
Average Annual Bill
upon closer review it should be
$12,000.00
noted that the bills under this
$10,000.00
option will be higher for all
$8,000.00
Present
customers given that the first block
$6,000.00
Proposed
$4,000.00
is set at 90% of the average
$2,000.00
monthly use. Therefore, the 10%
$0.00
difference between their first block
Brew PubHotelRestaurant
and their average monthly use will
nd
PresentProposedDifference% Change
be priced at the higher 2 block
Brew Pub$3,668.85$3,902.78$233.936.4%
price, which is the component that
Hotel$9,737.04$10,193.62$456.574.7%
Restaurant$3,207.39$3,050.09($157.30)-4.9%
creates the higher bills under this
option. The calculated bills in the
bill comparison graph use the same
Commercial/Large User Rate Structure 2
customers and assumptions as the
Consumption By Block
previous bill comparison.
100%
84%
71%
75%
The consumption that occurs in
each block is similar to the
Block 1
50%
29%
previous rate option. Under this
Block 2
16%
25%
option, more consumption will be
billed within the second block, and
0%
the largest billing will be in the
WinterSummer
summer period.
PSC/LURS2
– There are four
ERCEIVED TRENGTHS OF OMMERCIALARGE SER ATETRUCTURE
perceived major strengths associated with this rate structure. These strengths are as follows:
Use of 90% of Average Monthly Use
Price Differential for Seasonality
Compatible to the Existing Billing System Software
Ease of Customer Understanding
The strengths of this rate structure are very similar to the previous commercial/large user rate
structure reviewed. The major difference between this rate structure and the previous rate
structure is the method used to establish the first block of consumption. One of the potential
perceived weaknesses of the previous rate structure was that it may not provide sufficient
incentive for customers to become more efficient in their use. Under this rate structure, the first
block is set at 90% of their historical monthly average, thereby moving a portion of their
consumption to the higher cost second block. Combined with the seasonal pricing features of
this rate structure, it should help to encourage efficient use. Under this approach, as a customer
improves their efficiency, they will still have 10% of their average monthly use billed at the
nd
higher cost 2 block price, regardless of the improvements made. The other perceived strengths
of this rate structure are the same as the previous commercial/large user rate structure. That is,
the rate structure contains seasonal pricing to better reflect the value of the water in the peak use
Development and Evaluation of the Rate Structures 6-46
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
periods. At the same time, this rate structure should be compatible with the city’s existing billing
software, and finally, this rate structure should be relatively easy for customers to understand, yet
not so overly simplistic that it does not communicate the goals of efficiency.
PWC/LURS2
– There are two
ERCEIVED EAKNESSES OF OMMERCIALARGESER ATETRUCTURE
perceived major weaknesses associated with this rate structure. These weaknesses are as
follows:
Lack of an “Excessive Use” Block
nd
2 Block Size Does Not Relate Well to System Water Supply Characteristics
Similar to the previous commercial/large user rate structure, this rate structure does not contain a
third block to penalize “inefficient” use, whether it be indoor or outdoor use. However, it should
be noted that the use of the 90% factor for the first block size was intended to help mitigate the
lack of an excessive use block. Finally, as with the previous rate option, this rate structure has
not created an outdoor block of water and shaped it for irrigation requirements. As noted
previously, approximately one-half of the customers within this class of service have separate
metered irrigation.
ACC/LURS2
–
DMINISTRATIVE ONSIDERATIONS OF OMMERCIALARGESER ATE TRUCTURE
This rate structure is assumed to be non-appealable. Therefore, the administrative issues
associated with this rate structure are identical to the previous commercial/large user rate
structure. In the previous commercial/large user rate structure discussion, it was noted that the
city would need to establish the method to calculate and determine, for billing purposes, the
average monthly use for each individual customer. In this particular rate structure, it will require
the same level of effort, and the monthly average is simply set at 90% of the average amount. It
is again presumed that these averages would be calculated and updated on a periodic basis, and
that there would not be any significant upfront costs associated with determining these averages,
nor would there be any significant on-going administrative costs. Finally, as with the other rate
structures, the issue of proration must be addressed within the billing system for the seasonal
change in price. In summary, it appears that there would not be any significant implementation
or on-going administrative costs associated with this rate structure.
RSC/LURS2–
In reviewing this
EVENUE TABILITY OF OMMERCIALARGE SER ATE TRUCTURE
rate structure, the potential revenue volatility of a wet year or drought year was examined.
Within this study, the city has stated a goal of annual swings in planned revenue should be no
greater than 5% and 10%. For this particular rate design, during a wet year the annual swing
in revenue may be approximately 16.53%, while in a drought year, the annual revenue swing
may be 42.77%. The revenue variability for the drought period is calculated without drought
surcharges.
CC/LURS2C’E
OMPATIBILITY OF OMMERCIALARGE SERATE TRUCTURE TO THE ITYSXISTING
SBS
– This particular rate design is currently compatible with the city’s
OFTWARE ILLING YSTEM
existing billing software but would require some reprogramming efforts.
Development and Evaluation of the Rate Structures 6-47
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
'SQQIVGMEP0EVKI9WIV6EXI7XVYGXYVIz
The final commercial/large user rate structure uses a different approach to establish the first
block size. Under this approach, the block size varies based upon the customer’s meter size. For
each meter size, the average monthly usage is determined, and that is used as the first block size.
Provided below is the detail of this rate design.
C/URS3–N-SRSW
OMMERCIALLARGE SERATETRUCTURE ONEASONAL ATETRUCTURE ITH
TFBBMSAU
HEIRST LOCK ASED UPON THE ETER IZE AND THE VERAGE SE OF THE
CCHTSMS.
OMMERCIAL USTOMERS AVING HATAME ETER IZE
Fixed Monthly Service Charges -
st
Meter Size1 Block Size Mthly Service Charge
3/4” Meter 11,000 $8.12/Month
1” 33,000 13.88/Month
1-1/4” 96,000 21.28/Month
1-1/2” 77,000 30.30/Month
2” 146,000 53.32/Month
3” 249,000 119.02/Month
4” 817,000 211.00/Month
6” 2,569,000 473.93/Month
8” 2,486,000 841.99/Month
Consumption Charges -
[1]
Monthly Allowance by Meter Size $1.75/1,000 gallons
All Usage Over Block 1 $3.00/1,000 gallons
[1]
First block size is determined based upon the meter size of the customer and the average use of
commercial customers with the same meter size.
As noted above, this rate structure is unique
Overview of the Block Sizes
in comparison to the other two commercial
Commercial/Large User - Option 3
rate structures presented. The size of the
first block varies based upon the meter size
of the customer. For each meter size, the
Ave. Mth
average monthly use is determined for all
Tail Block
the commercial/large user customers with
Block 1
that same meter size. Given the average
monthly use for each meter size, the first
block of the rate structure is established.
Note: 1st Block based upon meter size and ave. cust. use for that specific meter size
How often the average (first block) sizes are
recalculated is an administrative matter. The pricing of this rate structure used the same
approach as the previous rate structures. As with the previous commercial/large user rate
structures presented, the city may want to review the possibility of adding a third consumption
block to this rate structure for those customers with “excessive” use or large irrigation
requirements.
Development and Evaluation of the Rate Structures 6-48
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
In viewing the bill comparisons,
there appears to be the potential for
Commercial/Large User Rate Structure 3
large customer impacts from this
Average Annual Bill
rate structure. It should be noted
$16,000.00
that the bill comparisons for the
$14,000.00
$12,000.00
commercial/large user selected
Present
$10,000.00
$8,000.00
Proposed
three random commercial
$6,000.00
$4,000.00
customers, and the impacts for
$2,000.00
$0.00
specific customers may vary
Brew PubHotelRestaurant
widely. The large impacts are a
result of the change in the rate
PresentProposedDifference% Change
structure. Under the present rates,
Brew Pub$3,668.85$5,367.60$1,698.7546.3%
Hotel$9,737.04$14,949.84$5,212.8053.5%
a customer is billed for usage up to
Restaurant$3,207.39$3,585.84$378.4511.8%
their individual AWC amount at
the first block price. Under this
Commercial/Large User Rate Structure 3
rate structure, the average amount
Consumption By Block by Meter Size
of usage for all customers within
75%
66%66%
the same meter size would
60%
59%
52%56%57%
53%53%
54%
47%
determine the breakpoint for the
44%
49%47%46%44%
50%
41%
40%
first and second block prices.
34%
35%
Block 1
Block 2
Therefore, by definition, for certain
25%
customers with above “average”
usage, more of their usage will be
0%
billed at the higher second block
5/8"3/4"1"1-1/4"1-1/2"2"3"4"6"8"
MeterMeterMeterMeterMeterMeterMeterMeterMeterMeter
price. Those customers with
“below” average consumption should see below average impacts, and conversely, those
customers with above average usage will see above average impacts from this change in
structure and determination of the first block size. While the above impacts may be considered
appropriate and acceptable to the city, for purposes of encouraging efficient use for this class of
service, caution should be taken in assuming that any consumption over and above average use is
“inefficient” use.
PSC/LURS3
– There are three
ERCEIVED TRENGTHS OF OMMERCIALARGE SER ATETRUCTURE
perceived major strengths associated with this rate structure. These strengths are as follows:
Encourage Efficient Use
Compatible to the Existing Billing System Software
Ease of Customer Understanding
The strengths of this rate structure are fairly similar to the previous commercial/large user rate
structures reviewed. This rate structure has attempted to provide a stronger approach to
encouraging efficient use for commercial customers. At the same time, this rate structure
should be compatible with the city’s existing billing software, and finally, this rate structure
should be relatively easy for customers to understand. It is a bit more complex than the prior rate
structures, but it is not so overly complex such that customers would not understand the
approach.
Development and Evaluation of the Rate Structures 6-49
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
PWC/LURS3
– There are
ERCEIVED EAKNESSES OF OMMERCIALARGESERATETRUCTURE
three perceived major weaknesses associated with this rate structure. These weaknesses are as
follows:
Lack of an “Excessive Use” Block
nd
2 Block Size Does Not Relate Well to System Water Supply Characteristics
May Have Large Rate/Financial Impacts to Customers
Similar to the previous commercial/large user rate structure, this rate structure does not contain a
third block to penalize “inefficient” use, whether it be indoor or outdoor use. However, the rate
is structured with the intent of encouraging efficient use, by using the meter size averages. The
major problem is that “above average” use does not necessarily imply “inefficient” use. It may
simply imply a customer that has a larger than average restaurant, a larger than average office
building, or a more water intensive business (e.g. laundromat, etc.). These customers, as
demonstrated in the bill comparisons may see fairly large rate/financial impacts from this rate
structure. Finally, as with the previous rate option, this rate structure has not created an outdoor
block of water and shaped it for irrigation requirements. As noted previously, the majority of
customers within this class of service have separate metered irrigation.
ACC/LURS3
–
DMINISTRATIVE ONSIDERATIONS OF OMMERCIALARGESER ATE TRUCTURE
This rate structure is assumed to be non-appealable. Therefore, the administrative issues
associated with this rate structure are identical to the previous commercial/large user rate
structure. In the previous commercial/large user rate structure discussions, it was noted that the
city would need to establish the method to calculate and determine, for billing purposes, the
average monthly use for each individual customer. In this particular case, the city would need to
determine the method to be used to consistently determine the average use for each meter size. It
is again presumed that these averages would be calculated and updated on a periodic basis, and
that there would not be any significant upfront costs associated with determining these averages,
nor would there be any significant on-going administrative costs. In summary, it appears that
there would not be any significant implementation or on-going administrative costs associated
with this rate structure.
RSC/LURS3–
In reviewing this
EVENUE TABILITY OF OMMERCIALARGE SER ATE TRUCTURE
rate structure, the potential revenue volatility of a wet year or drought year was examined.
Within this study, the city has stated a goal of annual swings in planned revenue should be no
greater than 5% and 10%. For this particular rate design, during a wet year the annual swing
in revenue may be approximately 12.05%, while in a drought year, the annual revenue swing
may be 34.76%. The revenue variability for the drought period is calculated without drought
surcharges.
CC/LURS3C’E
OMPATIBILITY OF OMMERCIALARGE SERATE TRUCTURE TO THE ITYSXISTING
SBS
– This particular rate design is currently compatible with the city’s
OFTWARE ILLING YSTEM
existing billing software assuming some reprogramming efforts. For each meter size, the block
size will need to be determined and entered into the system.
This concludes the review of the commercial/large user rate structures. The focus will now shift
to the metered irrigation rate structures.
Development and Evaluation of the Rate Structures 6-50
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
6.10 Review of the Metered Irrigation Rate Structures
The final class of service reviewed was the metered irrigation rate structures. For this particular
class of service, three rate structures were recommended for review and analysis by the WRAB.
Provided below is a detailed review of each of the rate structures, along with a discussion of the
perceived strengths and weaknesses of each rate structure, along with any administrative
issues/costs associated with the rate design.
1IXIVIH-VVMKEXMSR6EXI7XVYGXYVIz
The first rate structure reviewed is a uniform rate structure. Provided below is the detail of this
rate design.
MIRS1–UR.
ETERED RRIGATION ATETRUCTURE NIFORM ATE
Fixed Monthly Service Charges -
3/4” Meter $8.12/Month
1” 13.88/Month
1-1/4” 21.28/Month
1-1/2” 30.30/Month
2” 53.32/Month
3” 119.02/Month
4” 211.00/Month
6” 473.93/Month
8” 841.99/Month
Consumption Charges -
All Metered Consumption $4.70/1,000 gallons
For this particular rate structure,
all consumption is priced at the
Irrigation Rate Structure 1
same rate, and there is no
Average Annual Bill
distinction between base or extra-
$8,000.00
capacity costs in the development
$6,000.00
Present
of the prices. Rather, the
$4,000.00
Proposed
consumption charges have been
$2,000.00
set at a level to meet the target
$0.00
revenue requirements for this
4,800 Sq. Ft.9,500 Sq. Ft.100,000 Sq. Ft.
Irrigable AreaIrrigable AreaIrrigable Area
class of service.
In assessing the impact to
PresentProposedDifference% Change
4,800 Sq. Ft. Irrigable Area$1,391.04$1,277.14($113.90)-8.2%
customers from this rate
9,500 Sq. Ft. Irrigable Area$3,285.24$3,246.44($38.80)-1.2%
structure, various sized irrigable
100,000 Sq. Ft. Irrigable Area$6,473.04$7,161.54$688.5010.6%
areas were reviewed. It would
appear that small irrigable areas would potentially receive a slight reduction in their annual bills,
and larger irrigable areas may see a slight increase in their annual bill. The specific impacts to a
customer is a function of their irrigation practices and usage levels.
Development and Evaluation of the Rate Structures 6-51
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
PSMIRS1
– There are two
ERCEIVED TRENGTHS OF ETERED RRIGATION ATE TRUCTURE
perceived strengths associated with this rate structure. These strengths are as follows:
Compatible to the Existing Billing System Software
Ease of Administration/Customer Understanding
The strength of this rate structure is its simplicity. In particular, this rate structure would be
compatible with the city’s existing billing system software and it would be very easy for
customers to understand and the city to administer.
PWMIRS1
– There are two
ERCEIVED EAKNESSES OF ETERED RRIGATION ATE TRUCTURE
perceived weaknesses associated with this rate structure. These weaknesses are as follows:
Uniform Rate Structure
Lack of an “Excessive Use” Block
While some may view customer understanding and administrative ease as a strength for a
uniform rate structure, it can also be viewed as a weakness from a price signal and resource
perspective. A uniform rate structure may not provide incentives for efficient use or
conservation. This might suggest the need for an “excessive use” or tail block. However, the
price established for this rate option is at a level which should encourage some efficient use and
conservation.
ACMIRS1
– This rate
DMINISTRATIVE ONSIDERATIONS OF ETERED RRIGATION ATE TRUCTURE
structure is very simple from an administrative perspective and there does not appear to be any
administrative issues associated with it, nor any major implementation costs or on-going costs
associated with it.
RSMIRS1–
In reviewing this rate
EVENUE TABILITY OF ETERED RRIGATION ATE TRUCTURE
structure, the potential revenue volatility of a wet year or drought year was examined. Within
this study, the city has stated a goal of annual swings in planned revenue should be no greater
than5% and 10%. For this particular rate design, during a wet year the annual swing in
revenue may be approximately 13.97%, while in a drought year, the annual revenue swing may
be56.45%.
CMIRS1C’E
OMPATIBILITY OF ETERED RRIGATION ATETRUCTURE TO THE ITYSXISTING
SBS
– This particular rate design is compatible with the city’s existing
OFTWARE ILLING YSTEM
billing software but would require some reprogramming efforts.
Development and Evaluation of the Rate Structures 6-52
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
1IXIVIH-VVMKEXMSR6EXI7XVYGXYVIz
The next metered irrigation rate structure reviewed is a water budget rate structure. Provided
below is the detail of this rate design.
MIRS2–WT(3)C
ETERED RRIGATION ATETRUCTURE ATER BUDGET WITH HREEONSUMPTION
B.B1BUCSIA,S
LOCKSLOCK IS ASEDPON USTOMER PECIFIC RRIGABLE REAUCCEEDING
BBURTOG.
LOCKS ARE ASED PON ELATIONSHIP OUTDOOROAL
Fixed Monthly Service Charges -
3/4” Meter $8.12/Month
1” 13.88/Month
1-1/4” 21.28/Month
1-1/2” 30.30/Month
2” 53.32/Month
3” 119.02/Month
4” 211.00/Month
6” 473.93/Month
8” 841.99/Month
Consumption Charges -
[1]
Block 1 - Customer Specific Irrigable Area $3.00/1,000 gallons
Block 2 - 101% to 150% of Outdoor Goal $3.50/1,000 gallons
Block 3 - Over 150% of Outdoor Goal $6.80/1,000 gallons
[1]
Each month will have a set outdoor goal based on the irrigable area as determined by the city and
an irrigation application rate of 15 gallons per square foot. The monthly irrigation requirements
will be shaped by historical weather and ET.
This rate structure option is a water
budget rate structure that uses the
Overview of the Block Shapes
customer’s irrigable area to establish
Metered Irrigation - Option 2
the first block size. The block is
shaped by historical ET, and there is
25,000
a fixed allowance in the winter
20,000
period for watering of shrubs and
Tail Block
15,000
trees based on an assumed level of
Block 2
10,000
watering requirements.
Block 1
5,000
Given that this rate structure uses the
0
st
irrigable area for establishing the 1
block size, it is assumed that this rate
structure is appealable.
In establishing the prices for this rate structure, the first block contains both the base and extra-
capacity costs. The succeeding blocks are based upon placing higher than average demand
(peaking factors) upon the system. The tail block has been set at the estimated marginal cost of
the city.
Development and Evaluation of the Rate Structures 6-53
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
In developing this particular rate
structure and the associated bill
Irrigation Rate Structure 2
Average Annual Bill
comparisons, the most difficult part
$7,000.00
was the lack of readily accessible
$6,000.00
$5,000.00
irrigable data. Therefore, for
Present
$4,000.00
Proposed
$3,000.00 purposes of this study, the total
$2,000.00
irrigable area needed to be
$1,000.00
$0.00
estimated. In terms of the bill
4,800 Sq. Ft.9,500 Sq. Ft.100,000 Sq. Ft.
comparison, three different
Irrigable AreaIrrigable AreaIrrigable Area
irrigable areas have been shown. It
PresentProposedDifference% Change
appears that under this rate
4,800 Sq. Ft. Irrigable Area$1,391.04$1,404.24$13.200.9%
structure, the largest irrigable areas
9,500 Sq. Ft. Irrigable Area$3,285.24$3,706.44$421.2012.8%
100,000 Sq. Ft. Irrigable Area$6,473.04$4,829.34($1,643.70)-25.4%
will receive the largest reduction in
bills (benefit). This is because, the
Irrigation Rate Structure 2
existing rate structure bases the
Consumption By Block (assumes 20,000 sq. ft. area)
irrigation customer’s first and
75%
second block size on the average
55%
AWC of all customers with that
50%
particular meter size. Currently it
35%
appears that large irrigation
25%
customers have a significant
10%
portion of their consumption in the
current tail block ($6.60/1,000
0%
gallons). By comparison, this
Block 1Block 2Block 3
approach provides the estimated
irrigation requirements to the customer at $3.00/1,000 gallons, with an additional 50% over and
above that at $3.50/1,000 gallons.
It appears that even with this rate structure a large amount of consumption will still be consumed
in the third block. This amount of consumption is estimated given the lack of customer/property
specific irrigable areas.
PSMIRS2
– There are three
ERCEIVED TRENGTHS OF ETERED RRIGATION ATE TRUCTURE
perceived major strengths associated with this rate structure. These strengths are as follows:
Outdoor Watering Allocation
Shaping of the Water Allocation
Penalty for “Excess” Use
As with the other water budget rate structures, the strength of this rate structure centers around
the development of the first block of water that is based upon the irrigable area of the customer.
At the same time, this allocation of water is shaped to reflect the changing irrigation
requirements by month (i.e. historical ET). Finally, this rate structure contains a penalty
component for “excess” use.
Development and Evaluation of the Rate Structures 6-54
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
PWMIRS2
– There are two
ERCEIVED EAKNESSES OF ETERED RRIGATION ATE TRUCTURE
perceived major weaknesses associated with this rate structure. These weaknesses are as
follows:
Measurement Needed of Customer Specific Irrigable Area
Possible Customer Perception of Significant Inequities
By using customer specific irrigable area, the city will need to determine the area to be used for
billing purposes, and convert that amount of irrigable area to a volume of water for use in the
first block of the rate structure. How the irrigable area is determined is an administrative issue,
but it would potentially open the city up to appeals and requests for variances. At the same time,
the volume of water provided to the customer at the low cost first block is a function of irrigable
area. Some customers may perceive that this approach is inequitable. That is, a customer that
has 10,000 square feet of irrigable area receives 150,000 gallons of water at the low cost first
block price. In contrast, the customer with 100,000 square feet of irrigable area receives
1,500,000 gallons of water at the low cost block.
ACMIRS2
– This
DMINISTRATIVE ONSIDERATIONS OF ETER RRIGATION ATETRUCTURE
particular rate structure has two major administrative issue associated with it. First is the issue of
the determination of the customer specific irrigation area. There are approximately 1,200
metered irrigation accounts. The city does not currently have information on individual property
irrigable areas for this class of service. Using the assumption of $25 - $50 per account to
determine the irrigable area, the cost associated with determining irrigable area for each
individual account/property may be in the range of $30,000 to $60,000. Assuming that 5% of
the accounts may appeal, this would translate to approximately 60 appeals. Of this amount, 55
could be resolved at a cost of $50.00 -$100.00 per account or a total cost of $2,750 - $5,500. For
the remaining 5 customers, a more formal appeal process may be required. Assuming a formal
appeal cost of $100 - $250 per appeal, this may translate into a cost of $500 - $1,250. Once the
irrigable area is determined, the city would need to add/update information for new customers.
For existing customers, it would be difficult to determine changes in irrigable area, and most
likely, it would be up to the customer to report any significant changes in irrigable area. The
other significant administrative issue associated with this rate structure is the issue of proration.
As with the other water budget rate structures, the city may need to prorate the customer bill each
month to reflect the timing of the billing and the quantity of water provided in each of the blocks
over the billing period. In summary, it appears that there would be some significant
implementation costs associated with this rate structure, but there would be minimal annual on-
going costs. At the same time, the administrative issue of proration would need to be addressed
within the billing system.
RSMIRS2–
In reviewing this rate
EVENUE TABILITY OF ETERED RRIGATION ATE TRUCTURE
structure, the potential revenue volatility of a wet year or drought year was examined. Within
this study, the city has stated a goal of annual swings in planned revenue should be no greater
than5% and 10%. For this particular rate design, during a wet year the annual swing in
revenue may be approximately 17.59%, while in a drought year, the annual revenue swing may
be74.93%.
Development and Evaluation of the Rate Structures 6-55
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
CMIRS2C’E
OMPATIBILITY OF ETERED RRIGATION ATETRUCTURE TO THE ITYSXISTING
SBS
– This particular rate design is currently not compatible with the
OFTWARE ILLING YSTEM
city’s existing billing software.
1IXIVIH-VVMKEXMSR6EXI7XVYGXYVIz
The final metered irrigation rate structure reviewed is an inverted block rate structure. Provided
below is the detail of this rate design.
MIRS3–IBRT(3)
ETERED RRIGATION ATE TRUCTURE NVERTED LOCK ATE WITH HREE
CB.B1BU90%C’A
ONSUMPTION LOCKSLOCK IS ASED PON OF THE USTOMERSVERAGE
SC(ASC),SBBUR
UMMER ONSUMPTION UCCEEDING LOCKS ARE ASEDPONELATIONSHIP TO
B1.
LOCK
Fixed Monthly Service Charges -
3/4” Meter $8.12/Month
1” 13.88/Month
1-1/4” 21.28/Month
1-1/2” 30.30/Month
2” 53.32/Month
3” 119.02/Month
4” 211.00/Month
6” 473.93/Month
8” 841.99/Month
Consumption Charges -
[1]
Block 1 - 90% of Customer’s ASC $3.30/1,000 gallons
Block 2 - 101% to 150% of Block 1 $4.00/1,000 gallons
Block 3 - Over 150% of Block 1 $6.80/1,000 gallons
[1]
Average summer consumption is to be determined for each individual customer based upon a
three-year average, reviewed and established periodically. The use of 90% represents the city’s
perception of this class to improve water efficiency.
This rate design is an inverted block
Overview of the Block Sizes
rate structure with three
Metered Irrigation - Option 3
consumption blocks. In this case,
the first block is based upon a
calculation of 90% of the average
Ave. Summer
summer use of the customer. The
Tail Block
second block and tail block are
Block 2
similar to the prior water budget
Block 1
rate structure in that it is based
st
upon the relationship to the 1
block or goal.
Note: 1st Block based upon 90% of customer average summer use
Development and Evaluation of the Rate Structures 6-56
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
The pricing for this particular rate
structure is very similar to that
Irrigation Rate Structure 3
Average Annual Bill
used for the previous metered
$7,000.00
irrigation rate structure. That is,
$6,000.00
the first block assumes both base
$5,000.00
Present
$4,000.00
and extra-capacity use under
Proposed
$3,000.00
$2,000.00
average conditions. The second
$1,000.00
$0.00
block assumes a customer that
4,800 Sq. Ft.9,500 Sq. Ft.100,000 Sq. Ft.
places a higher than normal peak
Irrigable AreaIrrigable AreaIrrigable Area
use on the system, is allocated a
PresentProposedDifference% Change
greater share of the capacity costs.
4,800 Sq. Ft. Irrigable Area$1,391.04$979.64($411.40)-29.6%
Finally, the tail block is set at the
9,500 Sq. Ft. Irrigable Area$3,285.24$2,401.54($883.70)-26.9%
100,000 Sq. Ft. Irrigable Area$6,473.04$5,175.64($1,297.40)-20.0%
marginal cost rate.
Customers under this rate design would likely see some reductions in their annual bill. This is
primarily a function of the existing rate structure that places a large amount of consumption in
the tail block by using the AWC to establish the initial block size.
Under this particular rate structure,
Irrigation Rate Structure 3
there is still a significant amount of
Consumption By Block
60%
consumption that is anticipated to
52%
occur in the tail block of this rate
50%
37%
structure. However, by using 90%
40%
of average summer use to establish
30%
the first block size, a significant
20%
12%
portion of the consumption has
10%
been moved to the first block price.
0%
Block 1Block 2Block 3
PSMIRS3
– There are two
ERCEIVED TRENGTHS OF ETERED RRIGATION ATE TRUCTURE
perceived major strengths associated with this rate structure. These strengths are as follows:
Use of 90% of Average Monthly Summer Use; Avoidance of Measuring Customer Specific
Irrigable Area
Penalties for “Excess” Use
This particular rate structure uses a different approach to establish the first block size. While the
previous rate structure used customer specific irrigable area measurements, this approach uses a
historical consumption approach and sets the block equal to 90% of the calculated average.
While this may not provide the strongest relationship between irrigable area and the allocated
volume of water, it does avoid the need to determine or measure each customer’s individual
irrigable area. At the same time, this rate structure does contain penalties for “excess” use.
PWMIRS3
– There are two
ERCEIVED EAKNESSES OF ETERED RRIGATION ATE TRUCTURE
perceived major weakness associated with this rate structure. These weaknesses are as follows:
Development and Evaluation of the Rate Structures 6-57
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
First Block Size Lacks a Direct Relationship to Irrigable Area
Lack of Shaping for the Water Allocation
While the approach used to establish the first block for this rate structure is a strength from an
administrative standpoint, from a conservation and efficient use perspective, it may be perceived
as not having a direct relationship to the irrigable area, and may simply reward past excessive
use practices by the customer. At the same time, the allocation of the water is not shaped for
historical ET.
ACMIURS3
– It
DMINISTRATIVE ONSIDERATIONS OF ETEREDRRIGATION SERATETRUCTURE
is assumed that this rate structure is non-appealable. Therefore, the administrative issues
associated with this rate structure appear minimal. The administrative issues associated with this
rate structure require the city to determine the first block size based upon historical consumptive
use. For the other rate structures that used this approach (commercial/large users), it was
presumed that no significant implementation or on-going costs would be associated with this
issue.
RSMIRS3–
In reviewing this rate
EVENUE TABILITY OF ETERED RRIGATION ATE TRUCTURE
structure, the potential revenue volatility of a wet year or drought year was examined. Within
this study, the city has stated a goal of annual swings in planned revenue should be no greater
than5% and 10%. For this particular rate design, during a wet year the annual swing in
revenue may be approximately 15.86%, while in a drought year, the annual revenue swing may
be60.07%.
CMIRS3C’E
OMPATIBILITY OF ETERED RRIGATION ATETRUCTURE TO THE ITYSXISTING
SBS
– This particular rate design is assumed to be compatible with the
OFTWARE ILLING YSTEM
city’s existing billing software but would require some reprogramming effort.
This concludes the review of the metered irrigation rate structures.
6.11 Summary Matrices of Proposed Rate Options
To better understand and compare the various proposed rate structures for each class of service,
summary matrices have been prepared by customer class of service. Presented below is the
summary of the rate structure matrix for each customer class of service.
Development and Evaluation of the Rate Structures 6-58
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Development and Evaluation of the Rate Structures 6-59
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
Summary Matrix of the Multi-Family Residential Rate Options
MULTI-FAMILY RESIDENTIAL
Rate Structure CharacteristicsOption 1Option 2Option 3
SeasonalWater Budget - IrrigableWater Budget - Irrigable
Type of Structure
AreaArea
2-Winter; 3-Summer65
No. of Consumption Blocks
4,000/living unit4,000/living unit4,000/living unit
Size of the 1st Block (gallons)
Summer period; 3rd Block,3rd Block; Based upon3rd Block; Based upon
Key Assumption for Outdoor Use
Use over 6,000 gal./livingcustomer specific irrigablecustomer specific irrigable
unit. Winter period; Allarea w/ application rate ofarea w/ application rate of
excess use over the 15 gallons/S.F of 15 gallons/S.F of
first blockirrigable areairrigable area
NoYesYes
Outdoor Block Shaped for ET?
Estimated Annual Bill Impacts
$344.09$351.74$351.74
M.F. - 2 Unit - AWC = 8 ($358.14)
$1,508.49$1,640.54$1,651.14
M.F. - 10 Unit - AWC = 57 ($1,442.19)
$1,705.69$1,705.69$1,705.69
M.F. - 50 Unit - AWC = 101 ($1,684.74)
Establishes reasonableOutdoor watering alloc.Outdoor watering alloc.
Perceived Strengths
block sizesShaping of water alloc.Shaping of water alloc.
Price diff. for seasonality
Compatible to city's existing
billing system software
Ease of customer
understanding
Structure does notMeasurements needed to Measurements needed to
Perceived Weaknesses
relate well to system use customer specific use customer specific
water supply irrigable area irrigable area
Master metered vs.Master metered vs.
characteristics
individually metered individually metered
customers customers
Complexity based uponSmall block size for the
number of blocks 4th block
Administrative Considerations
Appealable?NoYesYes
Estimated Implementation CostsSee detail belowSee detail belowSee detail below
(Non-billing software related)
- Determine # of living units$4,600 - $13,800$4,600 - $13,800$4,600 - $13,800
- Initial lot size determinationsN/A$11,500 - $27,500$11,500 - $27,500
- Customer appeals - Est. # and $N/A112 - $5,600 - $11,200112 - $5,600 - $11,200
13 - $1,300 - $3,25013 - $1,300 - $3,250
- Indoor appeals/If Applicable - Est. # and $N/A115-175 - $1,150 - $4,375115-175 - $1,150 - $4,375
Est. On-Going Admin. Costslowminimalminimal
(Non-billing software related)
Need for Proration of Bills?Yes - at change of seasonsYes - monthlyYes - monthly
Revenue Stability
Wet Year --9.6%-3.4%-3.4%
Dry Year --56.6%-37.2%-37.5%
Compatible w/ City's Existing
YesNoNo
Billing Software?
Reprogramming EffortsUp to $150,000
Development and Evaluation of the Rate Structures 6-60
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
Summary Matrix of the Commercial Rate Options
COMMERCIAL/LARGE USER
Rate Structure CharacteristicsOption 1Option 2Option 3
SeasonalSeasonalNon-Seasonal
Type of Structure
2-Winter; 2-Summer2-Winter; 2-Summer2
No. of Consumption Blocks
Cust. Specific-100% Ave. Mth.Cust. Specific - 90% Ave. Mth.Specific by Meter Size - 100% Ave. Mth.
Size of the 1st Block (gallons)
No specific block targetingNo specific block targetingNo specific block targeting
Key Assumption for Outdoor Use
outdoor use. Any outdooroutdoor use. Any outdooroutdoor use. Any outdoor
use is likely billed at the use is likely billed at the use is likely billed at the
2nd block price2nd block price2nd block price
N/AN/AN/A
Outdoor Block Shaped for ET?
$3,740.95$3,902.78$5,367.60
Comm/L.U. - Brewpub ($3,668.85)
$9,843.39$10,193.62$14,949.84
Comm/L.U. - Hotel ($9,737.04)
$2,975.69$3,050.09$3,585.84
Comm/L.U. - Restaurant ($3,207.39)
Price diff. for seasonalitUse of 90% of average Encourage efficient use
Perceived Strengthsy
Compatible to city's existingCompatible to city's existing
monthly use
Price diff. for seasonalit
billing system softwarey billing system software
Ease of customeCompatible to city's existingEase of custome
rr
understanding billing system software understanding
Ease of custome
r
understanding
Potential lack of incentivesLack of an "excessive use"Lack of an "excessive use"
Perceived Weaknesses
for efficient use block for indoor use block for indoor use
Lack of an "excessive use"2nd block does not relate2nd block does not relate
block for indoor use well to system water well to system water
2nd block does not relate
supply characteristics supply characteristics
May have large rate/financial
well to system water
supply characteristics impacts to customers
Administrative Considerations
Appealable?NoNoNo
Estimated Implementation CostsVery lowVery lowVery low
(Non-billing software related)
- Determine # of living unitsN/AN/AN/A
- Initial lot size determinationsN/AN/AN/A
- Customer appeals - Est. # and $N/AN/AN/A
- Indoor appeals/If Applicable - Est. # and $
Est. On-Going Admin. Costsvery lowvery lowvery low
(Non-billing software related)
Need for Proration of Bills?Yes - at change of seasonsYes - at change of seasonsNo
Revenue Stability
Wet Year --16.5%-16.5%-12.1%
Dry Year --42.5%-42.8%-34.8%
Compatible w/ City's Existing
Billing Software?YesYesYes
Up to $150,000Up to $150,000Up to $150,000
Reprogramming Efforts
Development and Evaluation of the Rate Structures 6-61
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
Summary Matrix of the Irrigation Rate Options
METERED IRRIGATION
Rate Structure CharacteristicsOption 1Option 2Option 3
UniformWater Budget - IrrigableWater Budget - 90%
Type of Structure
Areaof Ave. Mthly Summer Use
133
No. of Consumption Blocks
N/ACust. Specific Irrig. Area90% Ave. Mthly Summer Use
Size of the 1st Block (gallons)
N/A1st block is based upon1st block is based upon
Key Assumption for Establishing
customer specific irrigable90% of customer's
Outdoor Watering Requirements
area w/ application rate ofaverage (monthly) summer
15 gallons/S.F of consumption (ASC)
irrigable area
NoYesNo
Outdoor Block Shaped for ET?
Estimate Annual Bill Impacts
4,800 S.F. Irrigable Area ($1,277.14)$1,277.14$1,404.24$979.64
9,500 S.F. Irrigable Area ($3,285.24)$3,246.44$3,706.44$2,401.54
100,000 S.F. Irrigable Area ($6,473.04)$7,161.54$4,829.34$5,175.64
Compatible to city's existingOutdoor watering alloc.Use of 90% ASC; Avoidance
Perceived Strengths
Shaping of water alloc.
billing system software measuring customer
Ease of administrationPenalty for "excess" use specific irrigable area
Ease of customerPenalty for "excess" use
understanding
Uniform rate structureMeasurements needed to First block lacks a direct
Perceived Weaknesses
Lack of an "excessive use"
use customer specific relationship to irrigable
block for indoor use irrigable area area
Possible customer Lack of shaping for water
perception of significant allocation
inequitities in water
allocation
Administrative Considerations
Appealable?NoYesNo
Estimated Implementation CostsVery lowSee detail belowVery low
(Non-billing software related)
- Determine total lot size areaN/AN/AN/A
- Determine irrigable areaN/A$30,000 - $60,000N/A
- Customer appeals - Est. # and $N/A55 - $2,750 - $5,500N/A
5 - $500 - $1,250
Est. On-Going Admin. Costsvery lowminimalvery low
(Non-billing software related)
Need for Proration of Bills?NoYes - monthlyNo
Revenue Stability
Wet Year --14.0%-17.6%-15.9%
Dry Year --56.5%-74.9%-60.1%
Compatible w/ City's Existing
YesNoNo
Billing Software?
Reprogramming EffortsUp to $150,000Up to $150,000
Development and Evaluation of the Rate Structures 6-62
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
6.12 Other Potential Rate Structure Enhancements
In developing the rate structure alternatives for the various customer classes of service, there
were certain features which can be applied to any of the final rate structures developed (e.g.
adjustment for water supply conditions, incentives for exceeding goals, etc.). These features
were not included within the rate designs developed above. In summary form, the five features
that were not included in the rate designs developed above include the following:
Adjustment of blocks and price for water supply availability
Goal based incentives
Adjustment of block sizes for actual ET (weather)
Discounts for city approved irrigation systems
Drought Surcharges
If the city deems any of the above features desirable, the city must first select the final rate
designs and then determine the applicability of the above individual features to the specific rate
design. These features may best be added at a later date, however, if the city issues a request for
proposal (RFP) for new billing software, the software should be reviewed for its ability to
implement the above features. Provided below is a brief overview of these features as a possible
enhancement to the city’s rate structures.
The first enhancement is to adjust the block sizes and price of water based upon supply
availability. The difficult component of this enhancement is not so much the technical portion of
adjusting the block sizes and price, but rather, making the determination on water supply
availability and the recommended adjustments. If Boulder did not have a drought surcharge
mechanism in place, this enhancement could be a very valuable feature. However, the city does
have a schedule for drought surcharges. Therefore, EES concludes that this enhancement would
provide little value to the city, since it would only apply up to and until drought surcharges are to
be applied.
The second enhancement is “goal-based incentives.” “Goal-based incentives” are related to
block 2 usage, and rewards a customer for consuming less then their block 2 allotment in the
peak use period. For example, if a customer has a block 2 size of 10,000 gallons, and uses only
8,000 gallons in the month, they would be given a credit for 2,000 gallons times a fixed incentive
rate. The customer is still charged the standard rate for the 8,000 gallons consumed, but is given
some level of credit (reward) for consuming below their allotted amount. This approach is most
clearly tied to water budget rate structures and provides an incentive for customers to minimize
their use. Our recommendation is that if water budgets are implemented that this feature not be
implemented immediately. Rather, the city should first be assured that the water budgets as
implemented are achieving both the conservation/efficiency and revenue goals established for
that class. After some experience in working with water budgets, the city may consider the
prudence of implementing this rate, and any policy issues that may be associated with it.
The third enhancement is associated with adjustments for weather and ET. One of the challenges
of a water budget rate structure is its complexity. Using historical ET to establish monthly block
sizes creates differing block sizes from month to month. From the customer’s perspective, this is
much more complex than more traditional rate structures. In reviewing water budget rate
Development and Evaluation of the Rate Structures 6-63
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
structures, one of the features that is often discussed is the adjustment of the block sizes to reflect
the actual weather/ET. By adjusting for actual weather/ET, the customer’s block 2 size and
succeeding blocks are adjusted from their original allocation. Therefore, when it is hotter than
typical, the customer is provided a larger block of water to reflect the customer’s increased
irrigation requirements. In developing this study, numerous perspectives concerning the value of
adjusting for actual weather/ET have been encountered. At this point in time, there is no solid
evidence/research that suggests adjusting for actual weather/ET provides a significant benefit to
the customer or the utility. At the same time, there is currently a poor feedback mechanism
between the utility and the customer’s goal, such that adjusting the goal on a monthly basis may
be confusing, particularly when the weather is cooler, and the block size is reduced. In addition,
it would add another level of complexity to the billing system that may need further refinement
over time. Given the above, it would be our recommendation at this time that this feature of the
water budget rate structure not be included initially. With better customer understanding of a
water budget rate structure, and technology improvements to provide better customer feedback,
this may be an issue the city may want to examine again at a later date.
The fourth enhancement is a discount for city approved irrigation systems. The goal of this
enhancement is to encourage customers to purchase or upgrade their irrigation systems with the
latest irrigation system technology (e.g. rain sensors and weather-based controllers). Under this
rate enhancement, the customer would receive either a discounted rate off of the “standard” rate,
or eliminate penalties for any “excess” use. The presumption is that these customers, by using
efficient irrigation systems, should meet or exceed their outdoor goal, and on those few
occasions when they do not, they should not be penalized since they have made a significant
capital investment to attempt to be as efficient as possible. If the city desires to implement this
enhancement, then it should be coordinated with any other irrigation conservation program
incentives (e.g. rebates) to assure that the rate structure approach enhances any other programs.
The final enhancement is a feature that is contained in the city’s current rates; drought
surcharges. While this study has not examined drought surcharges, that does not imply that
drought surcharges should be eliminated. The focus of this particular study was on rate
structures. EES believes that any new rate structures that are adopted by the city should also
consider the use of drought surcharges structured similar to the city’s existing approach.
6.13 Summary
This section of the report has provided a comprehensive review of each of the rate structures.
Each of the rate structures has been developed and evaluated to meet the city’s rate design goals
and objectives (attributes). The next section of the report will discuss the peer review.
Development and Evaluation of the Rate Structures 6-64
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
Section 7
Peer Review of Rate Structures
7.1 Introduction
Another aspect of reviewing and evaluating alternative water rate structures for the city was to
provide a peer review of the rate structures used at other water utilities. In particular, the city
requested a review of other front-range communities’ rate structures. In addition to this peer
review, a more detailed review was undertaken of other utilities that currently have, or are in the
process of implementing, water budget rate structures.
7.2 Review of Other Front Range Communities
When a water utility is setting rates, a common practice is to compare its rates to other
surrounding utilities. Typically, the utilities used for comparative purposes should be similar in
items such as the number of customers, type of customers, relative size of the water system or
other system specific characteristics. The city of Boulder routinely compares its rates to local
surrounding water utilities. During this process of reviewing and evaluating rate structures, the
city chose sixteen (16) other Front Range communities for comparison purposes. These sixteen
(16) communities are provided below in Table 7-1.
Table 7-1
Summary of the Front Range Communities
ArvadaHighlands Ranch
AuroraLafayette
Broomfield Longmont
Colorado Springs Louisville
Denver Water Board Northglenn
ErieThornton
Fort Collins Town of Superior
GreeleyWestminster
Provided below in table 7-2 is a summary of the current rate structures for each of the above
listed water utilities.
Peer Review of Rate Structures 7-1
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
Table 7-2
Summary of the Front Range Communities Rate Structures
Bill Fixed Number of Annual
Utility Frequency Type of Structure ChargesBlocks Bill [2]
Classes of Service [1]
1.Boulder Monthly Inverted Block Rate Residential/Irrigation Meter Size 3 $410.94
Commercial
2.Arvada Bi-Monthly Inverted Block Rate Residential Service Charge $284.20
Per Unit 3
Multi-Units
Comm./Indust.N/A 3
3.Aurora Monthly Inverted Block N/A Meter Size 3 $461.27
4.Broomfield Monthly Uniform Rate Residential Minimum1 $401.88
Comm./Indust.Meter Size
5.ColoradoMonthly Seasonal/Inverted SF Residential Meter Size 1 – Winter $348.88
SpringsBlock Rate Non-Residential3 – Summer
6.Denver Monthly/ Inverted Block Rate Residential Fixed 3 $235.32
Bi-MonthlyMulti-Family 2
SeasonalAll Other N/A
7.Erie Monthly Inverted Block Rate Residential Meter Size 3 $475.78
Uniform Commercial 1
8.Fort Collins Monthly Inverted Block Rate Residential Fixed 5 $407.29
SeasonalCommercial N/A
SeasonalMulti-Family N/A
9.Greeley Monthly Uniform Rate Residential Meter Size 1 $295.80
Commercial
10.HighlandsBi-MonthlyWater Budget Residential Fixed 4 $424.00
RanchMonthlyCommercial
Irrigation
11.Lafayette Monthly Inverted Block Rate Single Family Minimum 4 $316.86
Multi-Family 4
Commercial 4
12.Longmont Monthly Inverted Block Rate Residential Meter Size 3 $344.48
Uniform Multi-Family 1
Declining Block Small Comm. 2
Uniform Large Comm. 1
Uniform Irrigation1
13.Louisville Monthly Inverted Block Rate Residential Minimum 5 $262.50
Commercial 5
14.Northglenn Monthly Inverted Block Rate Residential N/A 2 $434.10
Inverted Block Rate Commercial 2
Uniform Rate Irrigation1
15.Thornton Monthly Inverted Block Rate Residential Meter Size 3$394.56
for all customers.
Multi Family Meter Size 3
Blocks determined by
Commercial Meter Size 3
meter size.
IrrigationMeter Size 3
16.Town of Monthly Inverted Block Rate N/A Fixed 3 $429.45
Superior
17.Westminster Monthly Inverted Block Rate Residential. N/A 3 $372.30
Commercial 2
Multi Unit N/A
IrrigationN/A
Note: [1] If all classes have same rate then this column is not applicable
[2] Annual single family residential bill based on annual consumption of 120,000 gallons
Peer Review of Rate Structures 7-2
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
As shown in Table 7-2, the majority of the Front Range communities have an inverted block rate
structure with, on average, three consumption blocks. In addition, there were some communities
that had either a uniform rate or seasonal rate structure. However, these structures were not the
typical structure seen, or they only applied to specific customer classes of service. These
communities also had several customer classes of service typically including residential,
commercial, multi-family, and irrigation. The only utility with a water budget rate structure of
the surveyed utilities was Highlands Ranch. This particular utility and their specific water
budget rate structure is discussed in more detail below.
7.3Water Budget Rate Structure Review
Water budgets are relatively new water rate structures that have been implemented in the last
several years at a few utilities around the United States. Water budgets typically provide a
customer with a goal for efficient use. These usage goals are set for indoor and outdoor water
usage based on varying factors, such as the number of occupants residing at the dwelling unit,
size of the lot, irrigable area and weather.
For this review, the water budget rate structures for Irvine Ranch Water District, Highlands
Ranch Water District, Otay Water District, and the City of West Jordan were researched in detail
and are discussed below.
7.3.1 Irvine Ranch
Overview of the Utility -
The Irvine Ranch Water District
Irvine Ranch Water District
(District) is located in Southern California between Los
15600 Sand Canyon Avenue
Irvine, CA 92618
Angeles and San Diego, in Orange County. The District
provides water service to the City of Irvine and portions of
Mr. Dave Ferguson
the surrounding communities. The District implemented
(949) 453-5300
this rate structure in the early 90’s during the drought in
order to provide customers with an allotment of water based
on their perceived needs for indoor and outdoor use. Prior to this rate structure the District had a
uniform rate structure, which did not meet the District's goals during the drought period.
Overview of the Rate Structure
– The water budget rate structure only applies to the District’s
residential and irrigation customers, while the commercial customers have a slightly different
rate structure. The rates for the commercial class of service are developed by calculating each
individual commercial customer’s base water allocation based on their historical use. A com-
mercial customer’s rate is then calculated by comparing its current monthly use to its base index
for that month. The first block is set at the base index, the second block is 101% - 110% of the
base index, the third block is 111% - 120% of the base index, and the final block is all usage over
the third block. At this time the District does not differentiate between different types of com-
mercial customers or have sub-
Table 7-3
categories of commercial custom-
Summary of the Commercial Rate Structure
ers. All commercial customers are
Block Rate/ccf% of Base Index
treated as a single class of service.
Conservation Base Rate $0.75 0 – 100%
A summary of the commercial rate
Inefficient 1.50 101 – 110%
is provided in Table 7-3.
Excessive 3.00 111 – 120%
Wasteful 6.00 120% +
Peer Review of Rate Structures 7-3
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
The rate for the residential customers combines an indoor and outdoor usage goal. These goals
are calculated based on an assumed average number of occupants by dwelling unit type, the
square footage of the lot, daily weather, and evapotranspiration information for the customer’s
area. The customer’s outdoor goal is adjusted on a monthly basis depending on the weather over
the last billing period. With this information, customers can adjust their watering patterns based
on the current weather information. A summary of the District's residential rate is provided in
Table 7-4
Table 7-4
Summary of the Residential Rate Structure
Block Rate/ccfIndoor Usage Landscape % of Usage
Low Volume Discount $0.59 0-5 ccf 0 – 40%
Conservation Base Rate 0.75 6-12 41 – 100%
Inefficient 1.50 13-18 101 – 150%
Excessive 3.00 19-24 151 – 200%
Wasteful 6.00 25 + 201% +
The irrigation rates are calculated in the same manner as the residential outdoor goal.It is based
on the irrigable area and daily weather conditions and ET. As with the residential customers, as
the weather conditions change, so do the block sizes for the outdoor goal. Table 7-5 provides a
summary of the potable water irrigation rates.
Technical Rate Design Issues
-
Table 7-5
An integral part in developing a
Summary of the Irrigation Rate Structure
rate structure is establishing rates
Block Rate/ccf% of Base Index
based upon cost of service
Conservation Base Rate $0.75 0 – 100%
principles and information. When
Inefficient 1.50 101 – 110%
the prices were established for the
Excessive 3.00 111 – 120%
District's water budget rate
Wasteful 6.00 120% +
structure, the District did not
perform a comprehensive cost of service study to determine the rates for each block. Rather, the
District calculated its “melded rate” by dividing it’s water supply costs by total consumption.
This provided the pricing for the base rate block of consumption. The pricing for the subsequent
blocks was set at a "punitive" level to reduce excess water use. If available, the excess revenue
received from the “penalty rates” is used to offset the revenue deficiency from the residential low
volume discount rate. From a purely technical rate design perspective, it may be concluded that
the District's rates are not cost-based since they are not based upon cost of service principles, and
they are not designed to collect a specific target revenue requirement.
Implementation Issues
- A key issue for the District when implementing the water budget rate
structure is the billing system requirements. The District developed its own billing system using
proprietary software and its in house computer staff. Another issue facing the District was the
education of its customers. However, due to the drought situation at the time, prior information
on water conservation, and information on the rate structure change, it was the District’s opinion
that once a short education period was over that a majority of its customers understood the rate
structure and its goals and adjusted their water usage accordingly. How much of this change in
consumption was a function of the drought response versus the use of water budgets is unclear to
this day.
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City of Boulder—Volume 1 – Evaluation of Water Rate Structures
Conservation
- At this time, it is the District’s opinion that customers do adjust their usage
based on current weather trends. It is also the District’s opinion that this rate structure has
contributed to the increased conservation efforts of its customers. In general terms, the District
has seen its average usage per acre-foot for the landscape irrigation class of service decrease by
approximately 50% since the implementation of its water budgets. In addition, this rate structure
provides the District with an opportunity to assist those customer’s with assumed excess usage.
For example, if a customer questions its bill, the District will provide some assistance to those
customers with excess water use in determining water saving efforts.
Appeals Process
– There is a process in place for the District’s customers to appeal their water
budget if they feel there is in error in the calculation of their water budget. There are three
components used in the calculation of the rate that may be challenged. The first is for the
number of people living in the dwelling unit. At this time, the District assumes a typical average
occupancy which varies by each type of dwelling unit type (i.e. detached home, attached home,
apartment, etc.). The District's customers can then apply for a variance, and with the proper
information (i.e. drivers license, birth certificate, tax returns, lease agreements, etc.) the inside
water budget may be adjusted. The second variance allowed for adjusting the indoor water
budget is for medical purposes. There may be some instances where a medical condition
requires that the customer increase their indoor budget. Again, the customer can complete a
variance form with the proper information and the indoor budget may be adjusted. The final
variance is for the outdoor water budget. Currently, if the customer’s landscape area is different
than the assumed average landscaped area, the customer can provide information, such as a
sketch or other plans, on their specific landscaped area and the outdoor water budget may be
adjusted. At this time these are the only formal variances allowed under this rate structure.
Since the rate structure has been implemented the District determined that they have reviewed
variances for approximately 20% of its single-family residential customers.
7.3.2 Highlands Ranch
Overview of the Utility -
The Centennial Water and Sanitation District (Highlands Ranch Water
District) is located in Highlands Ranch, a southern suburb of Denver. The District provides
water service to the Highlands Ranch area. Prior to May 2003, the District was considering
updating its current rate structure. At the same time, the Colorado area was experiencing a
severe drought and water budgets appeared to be an equitable method to allocate sufficient water
for its customers needs.
Overview of the Rate Structure
– The water budget rate structure applies to the District’s
residential and irrigation customers. The District’s commercial customers rates are based on
each individual’s average historical use. This historical
Metro Districts of
average use then becomes their budget with subsequent
Highlands Ranch
blocks at 120%, 140%, and over 140% of their budget. At
62 W. Plaza Drive,
this time the District does not sub-categorize the commercial
Highlands Ranch, CO 80129
customers based upon the end-use of the water. However,
Mr. Bruce Lebsack
this is a possibility in the future, but with simple sub-
Director of Finance and Admin.
categories. Table 7-6 provides a summary of the rates that
303-791-0430
apply to all commercial customers.
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City of Boulder—Volume 1 – Evaluation of Water Rate Structures
As with most water budgets, the
Table 7-6
District’s water budget rate
Summary of the Commercial Rate Structure
structure includes both an indoor
and outdoor goal component. The
Usage Rate/1,000 gal.
0 – 100% of Budget $2.00 indoor goal was based on the
101 – 120% of Budget 3.00
average historical consumption for
121 – 140% of Budget 4.50
the residential class of service
Over 140% of Budget 6.75
based on a typical household of 3
persons which is approximately 5,500 gallons per month. In order to calculate the outdoor goal,
the District based the goal on actual lot size (provided by development plans), average
percentage of irrigated area (based on average of 45% of the lot size), irrigation requirements,
and historical weather information. At this time the outdoor goal does not adjust based on
current weather (ET). Rather it is assumed that under typical conditions the outdoor goal will
allow for sufficient watering.
A final point on the District’s residential water budget is that they recently made adjustments to
the calculations used to determine the outdoor goal. Specifically, the ranges of blocks 2 and 3
were increased to allow for more consumption in those blocks and the prices for the final three
blocks were decreased. This was done as the initial rates were set at a higher level due to the
drought situation and to draw attention to the fact that excess water use would be at a penalty
rate. Provided below in Table 7-7 is a summary of the previous and present residential rate
structure. Again, the budget includes the sum of both the indoor and outdoor goals.
Table 7-7
Summary of the Residential Rate Structure
Previous Rates Present Rates
Usage Rate/1,000 gal Usage Rate/1,000 gal
0 – 105% of Budget $2.00 0 – 100% of Budget $2.00
106 – 115% of Budget 4.00 101 – 120% of Budget 3.00
116 – 125% of Budget 8.00 121 – 140% of Budget 4.50
Over 125% of Budget 16.00 Over 140% of Budget 6.75
The irrigation water budget is calculated in a similar manner to the residential water budget.
However, for the irrigation customers there obviously is no indoor goal, only an outdoor goal for
landscape watering purposes. The outdoor goal is based on the landscaped area, historical
weather and irrigation requirements. As with the residential rate, there is no adjustment made for
current weather (ET). It is assumed that the current goals will provide sufficient water for
irrigation purposes. The rates and block sizes for the irrigation customers are the same as those
shown for the residential class of service in Table 7-7.
Technical Rate Design Issues
– The District’s rates were not established or set based upon a
cost of service analysis. Instead the District calculated a base rate based upon the current water
supply costs divided by total consumption. The rates were simply increased by 150% for each
subsequent block. As this was a new rate structure, it was the District’s opinion that it would not
be possible to accurately set the rates in the final blocks since it was not known how much
consumption would fall into these blocks. In addition, the District assumed that the rates would
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City of Boulder—Volume 1 – Evaluation of Water Rate Structures
be adjusted as lot sizes were adjusted and variances were allowed for the indoor consumption.
When setting the size of the blocks, the District reviewed the data on larger irrigable areas and
determined that by increasing the water budget by 20%, it would allow for 80% of all
consumption to fall in the first two blocks. Again, by adjusting the water budget by an additional
40%, the third block would provide for nearly 100% of the Districts consumption. In this way
no customers should have usage in the final block unless they are using excess water, so no
customers should be charged the higher final block rate.
Implementation Issues
– One of the implementation issues the District faced was the capability
of its billing system to handle water budgets for each customer. In order to bill its customers
under the water budget rate structure, the District had some adjustments made to its current
system by computer professionals. Once these adjustments were made, staff entered in the
critical data for the calculation of the outdoor goal. One benefit the District has with its billing
system is if in the future it determines that monthly or daily adjustments be made of actual ET,
the system can handle such an adjustment. The more critical implementation issue was the
education of the customers about the change and how the change in the rate structure could affect
them. The District did not have access to a local newspaper to provide information to its
customers. Instead the District relied on mailers and letters to inform its customers of the
change. Because of this communication issue, if a customer did not understand the water budget
and had excess usage they received a very large bill based on the District's water budget rates.
This accounted for a significant amount of the calls regarding the new rate structure.
Appeals Process
– The District’s customers can appeal their indoor water budget if they feel that
it does not represent their specific needs. The customer may have their indoor goal increased if
they have the appropriate information (i.e. tax forms, driver’s license, etc.) available for the
number of people living in the home. The District will provide an additional 3,000 gallons per
person, bi-monthly, if requested and approved. However, if a customer's indoor water budget is
adjusted then the customers sewer budget is also adjusted for the same level of consumption, as
it is assumed that the indoor water usage is tied directly to wastewater flows. Currently this is
the only formal appeal process available to the District’s customers. However, the District is
planning on reviewing the current method of calculating landscape area and customers may be
provided a temporary variance if they are using excess water for new landscape or major repairs.
7.3.3 Otay Water District
Overview
– Otay Water District is located in the San Diego area of Southern California, and
implemented water budgets as a result of the drought in the early 1990’s. Since that
implementation date, Otay has eliminated their water
budgets and reverted back to more traditional inverted Otay Water District
2554 Sweetwater Springs Blvd.
block (tiered) rate structures. EES contacted the District
91978-2096
Spring Valley, CA
to gain a better understanding of their reasoning for this
change. In discussions with the District, EES could not
locate anyone within the management of the District that
was a part of those discussions and decisions. The District's management team has apparently
had significant turnover in the last several years. However, EES was able to discuss the water
budget rate structure with a staff member in customer service that was employed by the District
at the time the water budget rate structure was implemented. In addition, EES reviewed a
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City of Boulder—Volume 1 – Evaluation of Water Rate Structures
document developed by A&N Technical Services, Inc., which discusses landscape water
36
conservation programs in Southern California in 1997, and included a discussion of Otay.
Overview of the Rate Structure
– In reviewing the A&N Technical Services document it
appears that the driving force behind the water budget rate structure was the landscape irrigation
customers which were asked to cut back their water consumption during the drought. These
customers, other landscaping professionals, and District staff provided the framework for the
water budgets that the District developed. The District decided to base its water budgets on
historical weather, evapotranspiration rates, and irrigation requirements. In addition, customers
that did not consume their entire allotment were allowed to “bank” their water for other months
when they may exceed their goal. Another interesting function of the rate was that the customers
were given a “grace” period if they were over their allotment. These customers could then have
the next month to make up that excess water by consuming less then their goal for the next
month.
Technical Rate Design Issues
– It was the District’s objective to have customers significantly
reduce their consumption during the drought. Therefore, the pricing of the water was important.
It was assumed that the water budgets would provide a sufficient level of consumption to allow
for both indoor and outdoor use. Any use over and above the budget would then be charged at a
higher rate, as with most water budget rate structures. However, when determining the rates the
District implemented significant “penalty prices” for each subsequent block. The second block
was charged 100% of the base rate, the third block was charged 200% of the base rate, the fourth
block was charged 400% of the base rate, and the final block was charged at 800% of the base
rate. It was assumed that any excess revenues over and above the District’s revenue
requirements were to be used to fund conservation programs.
Implementation Issues
– There were two main issues the District faced when implementing the
water budget rate structures. The first was the collection of the irrigable area data for each of the
customers. The District sent out a request that customers provide this information. For those
customers who did not respond, a default water allocation was provided to them. The more
significant issue was the billing system upgrades to allow for water budget billing. In the A&N
Technical document, it states that an extensive reprogramming effort of approximately six staff
months was undertaken to reprogram the District's billing system as this rate structure had
several unique functions such as the banking of water and grace periods for excess use.
City of West Jordan
Overview of the Utility -
The City of West Jordan is located
to the South of Salt Lake City, Utah. The City has been
City of West Jordan
discussing implementing water budgets for the last 2-3 years.
8000 Redwood Road,
Most recently the City developed a proposed rate structure West Jordan, UT 84088
and methodology for its water budget rate structure.
Tom Steele
However, at this time it is important to note that the City has
Assistant City Manager
not implemented the water budget rate structure, but has
801-569-5000
delivered the proposal to the City Council for their approval.
It was the City’s opinion that the implementation of a water
36
Chestnut, Thomas; Pekelny, David, Landscape Water Conservation Programs Evaluation of Water Budget Based
Rate Structures, A&N Technical Services, Inc. 1997.
Peer Review of Rate Structures 7-8
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
budget rate structure would not only promote conservation, but that it provides a fair allotment of
water to each of the City’s individual customers. The following brief discussion will provide
some of the assumptions the City has used in the development of its water budget rate structures.
Overview of the Rate Structure
– At this time the proposed water budget rate structure applies
only to the residential and landscape irrigation customer classes of service. The current
commercial customer’s rate structure depends on if they have a separate irrigation meter for
outside usage. If the customer does have an irrigation meter, they are charged a flat rate for all
their indoor water consumption. If they do not have an irrigation meter, they are then charged a
higher rate for all their water usage. Provided below is a summary of the current rates for the
two types of commercial customers.
Commercial Customer w/ Landscape Meter
All Usage $0.85/1,000 gal
Commercial Customer w/o Landscape Meter
All Usage $1.05/1,000 gal
In addition to the consumption rate, the commercial rate includes a monthly water availability
charge. At this time the City does not differentiate between the commercial customers based on
the end use of the water consumption (e.g. grocery stores, restaurants, etc.).
As with most residential water budget rate structures, the city's proposed structure includes both
an indoor and outdoor goal. The development of the indoor goal included reviewing average
historical usage patterns for the residential customers and then comparing that to an assumed
usage per household occupant. The proposed structure was based on a typical household of 4.
The outdoor goal was based on irrigation needs, average lot size and historical
evapotranspiration (ET) data. It should be noted that the proposed rate does not base each
customer’s outdoor goal on the exact square footage of landscaped area. The City determined
that at this time the best method was to take a sampling of the residential customers to determine
the typical landscaped portion of the lot and apply that percentage to all customers. It was also
determined that there would not be any adjustments for actual weather, which could influence or
change the size of the outdoor goal.
The proposed irrigation rate structure was calculated similar to the residential customers except
there is no indoor component. The landscape irrigation structure is calculated in the same
manner as the outdoor goal for the residential customers. It is based on irrigation requirements,
landscaped area, and historical evapotranspiration data.
In developing the proposed water budget rate structure, it was the City’s intent to start with
broader goals and then as they moved forward they could refine the data and goals to further
represent the actual needs of its customers.
Technical Rate Design Issues
– One of the key issues of this rate structure is the pricing of the
consumption blocks. When setting the proposed prices for the indoor and outdoor goals, the City
started at the current consumption rate for the first block and then adjusted the following blocks
to impose “penalty rates” on those customers with excessive usage. These rates where
incrementally increased as a customer moved through the blocks of the rate structure. It was the
opinion of the City that the revenue received from these “penalty rates” that was over and above
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City of Boulder—Volume 1 – Evaluation of Water Rate Structures
current operating expenses would then be used to fund future conservation programs. These
conservation programs could be for xeriscaping, low-flow products, etc.
Implementation Issues
– One of the bigger challenges facing the City when proposing this rate
structure was the constraints it put on the billing system. The City did utilize it’s current billing
system but did have outside computer professionals update and rewrite programs for the current
system. At this time, with the proposed rate structure, there should not be a need for additional
updates. However, that is why the City chose a “simple” water budget structure that did not take
into account the actual square footage by lot size and monthly or daily adjustments for actual ET.
If they had, they would have had to make additional changes to the billing system. One of the
other issues facing the City staff was the “selling” of the concept to its customers. At this time,
the City is planning on holding future public meetings to gauge public opinion on this type of
water rate structure.
Appeals Process
– At this time the City has not determined a method for an appeals process for
the indoor and outdoor goals. It is assumed that at some point, this process will be in place for
some of the variables in this rate structure.
7.4Summary
This section of the report has provided a comparison of the rate structures from other front-range
communities. In addition, this section has provided a brief summary of water budgets from other
water utilities that have implemented this type of rate structure. The next section of this report
will discuss the conclusions and recommendations from this comprehensive rate structure review
and evaluation.
Peer Review of Rate Structures 7-10
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
Section 8
Rate Structure Conclusions and
Recommendations
8.1 Introduction
This study has provided a comprehensive review of the water rate structures currently under
consideration by the city. As a part of this comprehensive review, the goals and objectives of the
city were reviewed and prioritized. In addition, twenty-two rate structures were considered for
further review and analysis, and in the end, six rate structures were reviewed for single-family
residential customers, three rate structures were reviewed for multi-family, two rate structures
were reviewed for commercial/large user, and finally, three rate structures were reviewed for
metered irrigation.
This section of the report will provide a summary of findings, conclusions, and recommendations
as they relate to the rate structures reviewed.
8.2 Single-Family Residential Rate Structures
Recommendations
Six different rate structures were reviewed for the single-family residential class of service. In
summary form, these six rate structures were as follows:
S-FRRS1
– Seasonally Differentiated Rate
INGLEAMILY ESIDENTIAL ATETRUCTURE
Structure With A 2-Block Winter Rate And A 3-Block Summer Rate.
S-FRRS2
– Water Budget With Four (4)
INGLEAMILY ESIDENTIAL ATETRUCTURE
Consumption Blocks. Block 1 Is Fixed For Indoor Use, Block 2 Is Based Upon The
Irrigation Requirements Of A 9,000 Square Foot Lot Size, Block 3 Uses 150% Of Block 2
To Determine Size, And Block 4 Is All Usage Over Block 3.
S-FRRS3
– Water Budget With Four (4)
INGLEAMILY ESIDENTIAL ATETRUCTURE
Consumption Blocks. Block 1 Is Fixed For Indoor Use, Block 2 Uses Three Different “Bins”
to Determine Irrigation Requirements, Block 3 Uses 125% Of Block 2 To Determine Size,
And Block 4 Is All Usage Over Block 3.
S-FRRS4
– Water Budget With Five (5)
INGLEAMILY ESIDENTIAL ATETRUCTURE
Consumption Blocks. Block 1 Is Fixed For Indoor Use, Block 2 Is Based Tax Assessed Lot
Size, Block 3 Is 125% Of Block 2, Block 4 Is 150% Of Block 2, And Block 5 Is All Usage
Over Block 4.
Rate Structure Conclusions and Recommendations 8-1
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
S-FRRS5
– Water budget with Four (4)
INGLEAMILY ESIDENTIAL ATETRUCTURE
Consumption Blocks. Block 1 is Fixed For Indoor Use, Block 2 is Based Upon Either a
Customer Provided Irrigable Size, or a Default of 5,200 square Feet of Irrigable Area.
Succeeding Blocks Based Upon Relationship to Block 2.
S-FRRS6
– Existing City Rate Structure Modified
INGLEAMILY ESIDENTIAL ATE TRUCTURE
To Reflect Current City Goals.
In reviewing each of the rate structures, EES has concluded the following:
C–S-FRRS1
– This rate structure
ONCLUSIONS INGLEAMILY ESIDENTIAL ATETRUCTURE
nd
combines seasonal price signals with a summer 2 block size that relates well to a typical
single-family customer irrigation requirements (i.e. lot size). From the customer’s
perspective, this rate structure should be easy to understand, and from the city’s perspective
easy to administer. EES considers this rate structure to be a viable alternative for the city.
C–S-FRRS2
– This rate structure is
ONCLUSIONS INGLEAMILYESIDENTIAL ATE TRUCTURE
nd
in many respects similar to the first rate structure, but does contain some differences. The 2
block of the structure is based upon a standard lot size which is an administrative strength
from the city’s perspective. However, the use of a standard lot size may also be a weakness
since it does not reflect the individual customer irrigation requirements (i.e. lot sizes/irrigable
area). The water allocation is shaped for each month, which better reflects the irrigation
requirements in that particular month, but at the same time, adds a level of complexity to the
rate structure that may be confusing to some customers. EES considers this rate structure to
be a viable alternative for the city.
C–S-FRRS3
– This particular rate
ONCLUSIONS INGLEAMILY ESIDENTIAL ATE TRUCTURE
structure uses “bins” to help eliminate the issue of customers with differing lot sizes and
irrigation requirements. In the end, EES believes that the use of bins, at least as
conceptualized within this study, is not an appropriate approach since it does not gradually
rd
increase water allocation as lot sizes increase in size. In addition, the use of 125% as the 3
block size appeared to be too small. EES would not consider this rate structure to be a viable
alternative for the city, and would eliminate it from further consideration.
C–S-FRRS4
– This particular rate
ONCLUSIONS INGLEAMILY ESIDENTIAL ATE TRUCTURE
nd
structure uses tax assessed lot size to determine irrigable area and water allocation for the 2
block. This rate structure has addressed the concerns raised in the previous rate structure.
nd
That is, the allocation of the 2 block water is proportional to lot size. The major
administrative issue associated with this rate structure is determining and verifying the lot
size for each account. The use of 5 blocks within the rate adds some complexity to the rate
structure, but the major complexity to the structure is the shaping of the water allotment from
month to month. The final issue may be the customer perception of equity as it relates to the
nd
allocation of 2 block water. EES considers this rate structure to be a viable alternative for
the city.
C–S-FRRS5
– The major concern
ONCLUSIONS INGLEAMILY ESIDENTIAL ATE TRUCTURE
raised by this rate structure is simply the concept of the customer provided irrigable area.
Administratively, the city should not place itself in a situation where it would need to
measure irrigable area, as opposed to total lot size. At the same time, this rate structure
Rate Structure Conclusions and Recommendations 8-2
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
creates a situation where there is a perverse incentive for the customer to report a larger
irrigable area than they actually have. Given these concerns, EES would not consider this
rate structure to be a viable alternative for the city, and would eliminate it from further
consideration.
C–S-FRRS6
– This rate structure is
ONCLUSIONS INGLEAMILYESIDENTIAL ATE TRUCTURE
a variation of the city’s existing rate structure. It is a three-block rate structure, using AWC
nd
to establish the first block size. However, in this particular case, the 2 block has been
established and fixed based upon the standard lot size irrigation requirements. One of the
concerns regarding the city’s existing rate structure was that it created a perverse incentive
nd
for customers to artificially increase their AWC, in order to increase their 2 block
allocation. This modified rate structure has eliminated this concern. EES considers this rate
structure to be a viable alternative for the city.
In summary, EES believes that there are four single-family rate structures available to the city
that would meet the city’s overall objectives. In our opinion, rate structure 2, while a viable
water budget alternative, is not as well conceived as water budget rate structure 4. Therefore,
that leaves single-family rate structures 1, 4 and 6 as viable alternatives for the city.
8.3 Multi-Family Residential Rate Structures
Recommendations
Three different rate structures were reviewed for the multi-family residential class of service. In
summary form, these three rate structures were as follows:
M-FRRS1
– Seasonally Differentiated Rate
ULTIAMILY ESIDENTIAL ATETRUCTURE
Structure with a 2-Block Winter Rate and a 3-Block Summer Rate.
M-FRRS2
– Water Budget With Six (6)
ULTIAMILY ESIDENTIAL ATETRUCTURE
Consumption Blocks. Blocks 1 and 2 Are Fixed Per Unit Thresholds, Block 3 Is Based On
The Customer Specific Irrigable Area, and Succeeding Blocks Based Upon Relationship To
Outdoor Goal (Block 3).
M-FRRS3
– Water Budget With Five (5)
ULTIAMILY ESIDENTIAL ATETRUCTURE
Consumption Blocks. Blocks 1 and 2 Are Fixed Per Unit Thresholds, Block 3 Is Based On
The Customer Specific Irrigable Area, and Succeeding Blocks Based Upon Relationship To
Outdoor Goal (Block 3).
In reviewing each of the rate structures, EES has concluded the following :
C–M-FRRS1
– This rate structure has
ONCLUSIONS ULTIAMILYESIDENTIAL ATE TRUCTURE
seasonal price signals, but does not attempt to provide customers with an allocation of water for
rd
outdoor water requirements. While it does have a 3 block for the summer period to capture
outdoor irrigation use and excessive indoor use, it does not contain an excess use penalty for
outdoor use. EES does consider this rate structure to be a viable alternative for the city.
Rate Structure Conclusions and Recommendations 8-3
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
C–M-FRRS2
– This rate structure is a
ONCLUSIONS ULTIAMILYESIDENTIAL ATE TRUCTURE
water budget rate structure and the third block is based upon the customer specific irrigable area.
The use of irrigable area creates a direct relationship between the third block and the customer’s
irrigation requirements. One aspect of this particular rate structure that is somewhat detracting is
the use of six blocks. If desired, this rate structure could be simplified to five blocks (i.e.
combine block 4 and 5 to 100% - 150%). In developing water budgets for the city, EES noted
that the water budget rate structure was more difficult to develop for this class of service than the
single-family residential customers. This is primarily a function of two issues; metered irrigation
customers and individual vs. master metering. As noted previously, some multi-family
customers have metered irrigation and some do not. As a result, developing a block of water for
irrigable use for customers that are metered irrigation customers does not appear to be logical.
At the same time, for those customers that may live in a multi-family complex, but be
individually metered, the issue of how to establish the irrigable block must be resolved. While
these technical issues can be resolved, they do point out that water budgets may “fit” certain
classes of customers and situations better than others. However, EES does consider this rate
structure to be a viable alternative.
C–M-FRRS3
– This rate structure is a
ONCLUSIONS ULTIAMILYESIDENTIAL ATE TRUCTURE
water budget rate structure and is very similar to the prior rate structure. However, this option
has only five block and sets the “excessive” use block at 125% of the outdoor goal. While this
rate structure has addressed one of the concerns raised with the previous option, the use of six
blocks, this rate structure has potentially raised a new issue. The use of 125% as the “excess”
use threshold may be set too low. Our preference would be at 150%, which would then tie to the
excess use threshold for single-family option 4. EES would consider this rate structure to be a
viable alternative.
In summary, EES believes that all three options are viable for the city to utilize. Of the three
options, we believe that option 2, because of the use of six blocks may be the least desirable of
the two water budget alternatives. EES would recommend that the city consider multi-family
residential rate structure options 1 and 3 as viable options for the city.
8.4 Commercial/Large User Rate Structures
Recommendations
Three different rate structures were reviewed for the commercial/large user class of service. In
summary form, these three rate structures were as follows:
C/LURS1
– Seasonally Differentiated Rate Structure
OMMERCIALARGE SERATETRUCTURE
With A 2-Block Winter Rate And A 2-Block Summer Rate. Block 1 set at 100% of Average
Monthly Consumption.
C/URS2
– Seasonally Differentiated Rate Structure
OMMERCIALLARGE SERATETRUCTURE
With A 2-Block Winter Rate And A 2-Block Summer Rate. Block 1 set at 90% of Average
Monthly Consumption.
Rate Structure Conclusions and Recommendations 8-4
City of Boulder—Volume 1 – Evaluation of Water Rate Structures
C/URS3
– Non-Seasonal Rate Structure With Two
OMMERCIALLARGE SERATETRUCTURE
Blocks. The First Block Size Is Based Upon the Customer Meter Size, and the Average
Monthly Use of the Customers With That Same Meter Size.
In reviewing each of the rate structures, EES has concluded the following:
C-C/LURS1
– This rate structure uses a
ONCLUSIONS OMMERCIALARGE SERATETRUCTURE
seasonal pricing approach. In establishing the first block of consumption, an average monthly
use approach is utilized. It can be perceived that this alternative does not send a strong incentive
for indoor or outdoor efficiency. However, approximately 50% of customers within this class of
service have metered irrigation, which mitigates somewhat the importance and need for a block
of water based upon irrigable requirements. For those customers that will have outdoor
irrigation requirements, this consumption will be priced at a level that is slightly higher, on a per
unit basis, than that charged to single-family for their water allotment and consumption up to
125% over their outdoor watering goal. The price for the single-family option 4, for the 100% -
nd
125% block, is $3.25/1,000 gallons. For the commercial/large user customers, the 2 block
summer price is $3.30/1,000 gallons. Therefore, the price being charged for outdoor irrigation
seems fair, relative to single-family. The key issue may be the lack of an “excessive” use rate in
the summer period. The final issue associated with this rate is the concern that this rate structure
may not encourage efficient indoor use. EES concurs that this may be a concern, and the next
alternative for this rate structure has attempted to address this concern. However, EES considers
this rate structure to be a viable alternative.
C-C/LURS2
– This alternative sets the first
ONCLUSIONS OMMERCIALARGE SER ATE TRUCTURE
block at 90% of the customer’s average monthly use. By setting the first block below the
customer’s average monthly use, it should provide some incentive for the customer to improve
their indoor efficiency. The other components of the rate structure are similar to the conclusions
noted above for the previous commercial/large user rate structure. EES considers this rate
structure to be a viable alternative.
C-C/LURS3
– This particular rate
ONCLUSIONS OMMERCIALARGESER ATETRUCTURE
structure uses an approach that is different from the previous two options and the city’s current
approach. Under this rate structure, the first block is established based upon the average use of
all commercial customers with the same meter size. Technically, what this does is place roughly
half the consumption in the first block and the remaining consumption in the succeeding block.
By doing so, a significant number of customers (roughly half of the total) will have more
consumption billed in the higher priced succeeding block. This results in larger rate/financial
impacts to these customers. While the goal of this rate design is to encourage more efficiency
from commercial customers, it may do so in a manner that has unintended consequences. That
is, customers that are already efficient in their use may, by the very nature of their business, use a
higher than average amount of water. This customer would be penalized simply because their
usage was higher than the “groups” average use. Higher than average use does not necessarily
imply inefficient use. Therefore, we believe that care must be taken in viewing this alternative
and its attributes considered carefully. Even with those concerns, this is still a viable rate
structure alternative for the commercial customers.
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In summary, EES believes that all of the commercial/large user rate structures are viable options
for the city to utilize. Of the first two options, EES is of the opinion that the second option,
which uses 90% of the average monthly use to establish the first block size is an improvement
and benefit when compared to the first rate structure. The third option is a viable alternative, but
care must be taken in the implementation process to assure that the rate/financial impacts to
specific customers is not overly large.
8.5 Metered Irrigation Rate Structures Recommendations
Three different rate structures were reviewed for the metered irrigation class of service. In
summary form, these three rate structures were as follows:
MIRS1
– Uniform Rate.
ETERED RRIGATION ATETRUCTURE
MIRS2
– Water budget with Three (3) Consumption
ETERED RRIGATION ATETRUCTURE
Blocks. Block 1 is Based Upon Customer Specific Irrigable Area, Succeeding Blocks are
Based Upon Relationship To Outdoor Goal (Block 1).
MIRS3
– Inverted block rate with Three (3)
ETERED RRIGATION ATETRUCTURE
Consumption Blocks. Block 1 is Based Upon 90% of the Customer’s Average Summer
Consumption (ASC), Succeeding Blocks are Based Upon Relationship To Outdoor Goal
(Block 1).
In reviewing each of the rate structures, EES has concluded the following:
C-MIRS1 –
This rate structure is a uniform
ONCLUSIONS ETERED RRIGATION ATETRUCTURE
rate structure. While it has certain advantages related to the administration of the rate, it may not
meet the city’s objectives for encouraging efficient use. At the same time, this rate structure
does not have a block for “excessive” use. EES would not consider this rate structure to be a
viable alternative at this time based on the cities current goals and objectives.
C-MIRS2 –
The second metered irrigation
ONCLUSIONS ETERED RRIGATION ATETRUCTURE
rate is a water budget rate structure. As such, the first block is based upon the irrigable area of
the customer, and succeeding blocks are established in relation to the first block. This is the only
metered irrigation rate structure that has a shaped approach for ET. This tailoring of the first
block is a distinct and significant advantage for this rate. While it will require the city to
determine/measure the customer’s irrigable area, it does provide a direct relationship between the
water allocated within the first block and the customer’s irrigation needs. EES considers this rate
structure to be a viable alternative.
C-MIRS3 –
The third rate structure uses a
ONCLUSIONS ETERED RRIGATION ATETRUCTURE
different approach to establish the initial block size for each customer. It is based upon 90% of
the customer’s average (monthly) summer consumption (ASC). Compared to the previous
metered irrigation rate structure, this method is not as technically correct a method to establish
the first block size. However, there is an assumed trade-off between measuring irrigable area
and the establishment of this rate. In this “trade-off” may be the perception that this rate
structure does not encourage efficient use. At the same time, the irrigation block is not shaped
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City of Boulder—Volume 1 – Evaluation of Water Rate Structures
for this rate structure. While the sizing of the blocks is important, the other component that must
be considered is the pricing. The pricing should encourage efficient use, regardless of the
method used to establish block sizes. It should be noted that the second block under this rate
structure is $0.50/1,000 greater than the previous rate structure. This price difference may be
sufficient to encourage efficient use. EES considers this rate structure to be a viable alternative.
In summary, the first rate structure appears to be too simple and lacks the incentives for efficient
use that the city seems to be focusing on within this study. Of the remaining two options, the
second rate structure, which used measured irrigable area, seems to be the best choice. Water
budgets are ideal for this type of customer. While the third option is, in our opinion, a viable
option, it is simply a default should the city not decide to implement a water budget rate structure
for this particular class of service.
8.6 Summary
This section of the report has provided a summary of the rate structure options developed for
each class of service. This section of the report is culmination of many months of extensive
policy discussion, data analysis, and meetings with the Water Resources Advisory Board. The
recommendations contained herein represent the professional and technical opinions of EES.
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City of Boulder—Volume 1 – Evaluation of Water Rate Structures