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HomeMy WebLinkAbout4 - Recommendation on proposed Water Rate Structure CITY OF BOULDER WATER RESOURCE ADVISORY BOARD AGENDA ITEM MEETING DATE: July 19, 2004 TITLE: Board Recommendation on Water Rate Structure Alternative REQUESTING DEPARTMENT: Ned Williams, Director of Public Works for Utilities Joanna Crean, Public Works Administrator Carol Linn, Utilities Financial Manager BOARD ACTION REQUESTED: Board Discussion and Final Recommendation on Water Rate Structure Alternative FISCAL IMPACT: Refer to Attachment A. Staff will attend the July 19, 2004 Water Resources Advisory Board (WRAB) meeting to present the two rate structure alternatives that are being considered: the “shaped” (formerly known as “more complex”) rate structure alternative and the “fixed” (formerly known as the “simple”) rate structure alternative. Staff will also present their recommendation regarding an appropriate rate structure for each customer class of service. WRAB will then select a rate structure alternative to recommended to City Council. At the Aug. 3, 2004 City Council meeting, it is anticipated that Council will decide on a water rate structure. The purpose of this memo is to provide information on the rate structure alternatives as well as the rationale for the staff recommendation. In addition, in order to provide some further information regarding cost of a billing system and implementation time frame, staff has distributed a questionnaire to possible vendors (24 vendors) asking for feedback by the end of June. Staff has compiled the results of the questionnaire and a summary is provided as Attachment A . BACKGROUND: In December 2002, as part of the City Council’s discussion on the city’s Drought Plan, Council directed staff to proceed with an evaluation of alternative water rate structures for the city. This included an evaluation of utility billing systems that could accommodate a new rate structure and allow the city greater flexibility in making water rate or billing changes. Staff and WRAB presented the rate structure analysis, with all of the alternatives, to City Council at a study session on Feb. 24, 2004. At the study session, Council asked staff to return with two water rate structure alternatives, including estimates of implementation and ownership costs for each alternative: Simple approach that does not require a new billing system. 1 More complex solution with consensus that contains the best features of the WRAB and staff recommendation presented at the study session. Staff has met with WRAB on a number of occasions to discuss the best features of the original WRAB and staff recommendation as presented at the study session. At the June 21, 2004 WRAB meeting, the board and staff reached consensus on the “more complex” alternative. This rate structure alternative is based on customer specific water budgets that are shaped monthly using historical weather and evapotranspiration(ET). This alternative is called “shaped” water budget rate 1 structure and can not be accommodated with the current utility billing system. The “simple” alternative was developed by staff and is a “fixed” water budget that is not shaped by historical weather or ET. This alternative is called “fixed” water budget rate structure. This alternative can be implemented with the current billing system after modifications are made. However, staff is pursuing the replacement of the current 20-year old utility billing system due to various hardware and software issues including its lack of flexibility. Therefore, staff plans to move forward with the purchase and implementation of a new billing system regardless of which rate structure is selected by Council. For comparative purposes, the status quo approach was reviewed. This is the current rate structure that uses the average winter consumption (AWC) to determine the block size for each customer. STAFF RECOMMENDATION: During the drought of 2002 members of the public and City Council voiced concerns about the current rate structure and the use of AWC(considered “indoor” water use) to determine block 2 2 (considered “outdoor” water use). Another concern was that some customers may waste water in the winter to increase their AWC and their block 2 size for summer watering. To address these concerns both alternatives that were considered are rate structures that do not use the AWC concept. The Attachment B details of each alternative by customer class are provided in . The main differences between the “fixed” and the “shaped” alternative include the following: Property Lot Size for Single-Family Residential Customers – Use of a standard property lot size to determine the outdoor allocation (block 3) for the “fixed” alternative versus the use of customer specific lot size to determine the outdoor allocation (block 3) for the “shaped” alternative. Monthly Shaping of Outdoor Allocation for Single-Family, Multi-Family and Irrigation Customers – No monthly shaping for the “fixed” alternative versus monthly shaping for the “shaped” alternative. Percentage of Average Monthly Use (AMU) for Commercial/Industrial Customers – “Fixed” alternative starts with 90 percent of AMU versus “shaped” alternative starts with 80 percent of AMU. These differences are discussed in more detail below. For more detail on the rate structures and the Attachment CAttachment advantages and disadvantages please see for the “fixed” alternative and 1 Evapotranspiration means the loss of water from the soil both by evaporation and by transpiration. 2 Currently, the breakpoints for the blocks of water consumption are determined using the customer’s AWC. Since the AWC is based on the average consumption as reflected on a customer’s December through March bills, it is often thought of as reflecting indoor water use. Therefore, the concern is that block 2, which is often considered the amount of water that customer’s use for their outdoor watering needs, is connected to indoor use (i.e., AWC). 2 D for the “shaped” alternative. Property Lot Size for Outdoor Allocation (Block 3) for Single-Family Residential Rate Structure – In the “fixed” alternative, the single-family residential rate structure is a simplified water budget rate structure. For the outdoor allocation (i.e., block 3), staff recommends an equal amount of water be provided to all lots based on meeting outdoor watering needs for a lot size of 12,000 square feet (approximately 80 percent of the single-family residential customers have a property lot size of 12,000 square feet or less). This recommendation is an improvement from what is currently in place because it establishes an outdoor water allocation that is disconnected from the winter usage (i.e., AWC). Based on what staff has heard from the public (phone calls, e-mails, survey responses, public meeting), staff feels that using a “fixed” threshold amount of water addresses concerns about equity and simplicity. It will be equitable because every single-family residential customer will receive the same amount of water at the same price. It will also be easier to understand how water bills are determined from a customer perspective because the threshold will be fixed and it will not vary from month to month or customer to customer. In contrast to the “fixed” alternative for the single-family residential rate structure, the “shaped” alternative provides for a more individualized approach because customer specific property lot size is used in calculating the outdoor allocation (i.e., block 3). Each customer has a different block 3 (“outdoor”) allocation based on their property lot size multiplied times an application rate. As the lot size increases the water allocation per square foot decreases in an effort 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. A larger lot would still receive more water at the same unit price as a small lot owner. 3 The principle question is whether a large lot should receive more water at the same unit price as a smaller lot, or whether all lots should receive an equal amount of water at the same price. Also, it is important to note that using property lot size is more individualized than using a fixed lot size, it does not necessarily mean that it is more equitable or fair. Meaning, using a property lot size to determine an outdoor allocation does not mean that properties of the same size need or use the same amount of outdoor water. For instance, one 5,000 square foot property may have greater outdoor watering needs (due to a garden, turf and trees) versus another 5,000 square foot property with a limited amount of turf. By the same token, a “fixed” amount of water may result in smaller lots being allocated more water than is needed. Monthly Shaping of Outdoor Water Allocation – The “fixed” alternative does not shape the outdoor allocation by historical weather or ET for single-family, multi-family, or irrigation customers. Shaping the outdoor allocation, as provided in the “shaped” alternative, would mean that each customer’s “outdoor” budget would vary each month to reflect changing irrigation requirements throughout the year by using historical weather and ET. For instance, using the single-family residential “shaped” alternative, a customer may have a block 3 (outdoor allocation) of 7,000 gallons in April and an allocation of 18,000 gallons in May. It has been argued that a tailored water budget 3 For example, using the “shaped” alternative for the single-family customer in a particular month, a 20,000 s.f. lot would be able to use 34,000 gallons of water at $3.00/thousand gallons while a 9,000 s.f. lot would be able to use only 19,000 gallons of water at $3.00/thousand gallons. 3 like the “shaped” alternative provides more valuable information to customers about their water use in relation to their actual needs. While that may be accurate, a frequent request from the public (via phone calls and survey responses) was that the city implement a simple and easy to understand billing method and that the city provide predictable water bills to the public. In reviewing the potential impacts to customers, staff is concerned that the “shaped” rate structure alternative would be confusing to a large number of the city’s customers because the outdoor allocation would change each month. This would most likely result in additional time spent explaining and answering customer questions which would require additional staff resources. In addition, the added complexity of shaping the outdoor allocation each month will require more data administration and maintenance which may increase the cost of implementing the rate structure. While the cost to implement the “shaped” alternative is not expected to be substantially more than the “fixed” alternative, the additional ongoing operating costs may mean an increase in customer’s water bills by approximately $.50 to a $1.00 per month. Percentage of Average Monthly Use (AMU) for Commercial/Industrial Customers – Both the “fixed” and the “shaped” alternative use the average monthly use (AMU) which is defined as previous year’s use divided by 12 months, to calculate the block thresholds. The current rate structure is based on an average use allocation determined over a four-month interval each winter (i.e., AWC). The business community has voiced concerns about using the AWC because it may have no direct relevance to the truly “average” needs of a business throughout the year. For instance, hotels, restaurants, and breweries experience their highest consumer demand during the summer months and require much more water than during the winter. Consequently, using an average annual monthly use is an improvement. The “fixed” alternative uses 90 percent of AMU while the “shaped” alternative uses 80 percent of AMU to determine the block 1 threshold. The “shaped” alternative uses 80 percent in an effort to more strongly encourage conservation. One of the concerns with this approach was the impact of using less or conserving water on the amount or quantity of water that would be billed at the block 1 rate. This has also been referred to as the “ratcheting-down” impact on water bills. Staff looked at three different businesses and reviewed the impact of conservation on both the block sizes and the customer’s annual bill over several years. When the businesses consumed less water their block sizes were “ratcheted” down accordingly but in every situation it resulted in a lower annual water bill prior to their conservation efforts. The Chamber raised Attachment E additional concerns as outlined in and proposed that block 1 include 100 percent of the customer’s AMU. In an effort to respond to business customer input while still encouraging conservation, the “fixed” alternative for the commercial/industrial rate structure sets block 1 based on 90 percent of AMU. Conclusion – All of the rate structure alternatives focus on using water efficiently (e.g., as a customer uses more water they pay more) and meeting the city’s conservation goals. Each of the rate structures is legally defensible and is intended to bring in the same level of revenue needed to sustain the utility. With a new billing system, both the “fixed” and the “shaped” alternatives provide flexibility and are responsive to changing conservation needs under drought conditions. However, while the rate structure is important, in a drought it cannot be relied upon solely as the only tool to achieve the necessary water savings. In severe droughts, such as a Stage III and IV, the watering restrictions and enforcement encourage an immediate response by the community which is essential 4 in changing behavior during an emergency situation. Therefore, watering restrictions and enforcement personnel will be required to ensure the city has adequate water for fire protection and basic health needs, regardless of the rate structure that is adopted. The principle questions that Council should consider during the decision-making process about which rate structure to implement include the following: Should a large lot receive more water at the same unit price as a smaller lot in order to adequately irrigate turf and water trees and shrubs or should all lots receive an equal amount of water at the same price? How does the city provide for equity when watering needs may be drastically different from customer to customer? Should the city rely on the rate structure to be the primary vehicle for delivering the conservation message? What is the impact to customers? Do customers find the rate structure alternative easy to understand? Does the rate structure impact the customers’ behavior and influence their water usage? Both the “fixed” and the “shaped” alternatives are realistic viable options that can be implemented with a new billing system. Staff believes that the “fixed” water budget alternative meets the city’s rate design objectives and is responsive to the feedback from the public. Simplicity and clarity in the rate structure and utility bill is critical to customer understanding, acceptance and compliance. This is why staff recommends that Council implement the “fixed” alternative. Although staff does not recommend the current rate structure it should be noted that the calculation of the AWC will continue to be used for wastewater billing. In addition, implementing the “fixed” alternative would allow the city time to analyze and review how more property-specific (individualized) water budgets work before implementing them for the city’s largest customer class (approximately 20,000 single- family residential customers). The city would also be able to learn more from the communities that use property-specific water budgets. NEXT STEPS: It is anticipated that WRAB will make a final recommendation to Council on the water rate structure alternative at WRAB’s July 19 meeting. The WRAB recommendation along with the staff recommendation will be presented to the City Council. It is anticipated that City Council will make a decision about the water rate structure alternative at the Aug. 3, 2004 meeting. Once City Council has selected a rate structure, staff will move forward to implement the rate structure by purchasing and implementing a new billing system. Similar to the city’s normal procedures for purchasing new technological systems, staff will complete the request for information process, review demonstrations of the product, and select a billing system vendor. During this time staff will also analyze the option of building a new system or purchasing a packaged system. Once a billing system is selected, staff will be involved in “cleaning” the billing data, gathering any new data, testing the system and finally implementing the new billing system. It is anticipated that a new billing system and consequently, a new rate structure could be implemented by the first quarter of 2006. However, the exact timeframe will not be known until staff has selected a vendor and developed detailed work scope requirements and schedule. In addition to implementing a new billing system, staff will complete a cost of service study to 5 determine the prices for the selected rate structure. Also included as part of the cost of service study will be an evaluation of usage patterns within customer classes as it relates to implementing the rate structure. This may mean that the selected rate structure may require some modifications to the exact break points (for each block). This would be done in an effort to remain revenue neutral and not collect any additional revenue beyond what is needed from each customer class of service. It is expected that the cost of service study would be initiated when the billing system vendor is selected. ATTACHMENTS: Attachment A: Summary of the Results of Billing System Vendor Questionnaire Attachment B: Summary of the Rate Structure Alternatives by Customer Class Attachment C: Detailed Analysis of “Fixed” Water Budget Rate Structure Alternative Attachment D: Detailed Analysis of “Shaped” Water Budget Rate Structure Alternative Attachment E: Chamber memo on Commercial/Industrial Rate Structure 6 ATTACHMENT A: SUMMARY OF RESPONSES TO BILLING SYSTEM VENDOR QUESTIONNAIRE Of the 24 vendors that received the questionnaire, 17 responded (only 12 responded with adequate cost information). All of the vendors that responded said that their software could bill (some with and some without modifications) using both the “fixed” and the “shaped” water budget rate structure alternative. None of the vendors indicated that implementing either rate structure would require significant additional time and therefore impact the schedule. The responses to the questionnaire were encouraging in that the time and cost of implementing a new billing system do not seem to be greatly impacted by either the “fixed” or “shaped” rate structure alternative. However, it should be noted that the internal or staff impact would be different depending on the rate structure alternative that is selected. Summary of Vendor Responses to Questionnaire Responses to the question: Can your software perform billings using the “fixed” rate structure alternative? # Of Responses % of Responses Yes, without any modifications or enhancements 10 59% Yes, with some enhancements 7 41% No, the software does not provide for this 0 0% functionality Responses to the question: Can your software perform billings using the “shaped” rate structure alternative? # Of Responses % of Responses Yes, without any modifications or enhancements 3 18% Yes, with some enhancements 14 82% No, the software does not provide for this 0 0% functionality Cost of New Billing System Only 12 vendors provided adequate cost information. The analysis below is based on those responses plus staff’s analysis of internal costs and resources. Of the vendors who stated that some enhancements or modifications were required (and who provided sufficient cost information), the impact of the enhancements on the overall project cost: % of Total Project Cost Average cost of enhancements for “fixed” rate structure 3% alternative Average cost of enhancements for “shaped” rate structure 5% alternative 1 Cost Range – Based on Estimates $250,000 to Based on 12 vendor responses, the cost of a new billing system ranges from $1,100,000 . The base cost of a billing system includes software license fees, implementation services, and hardware/infrastructure requirements. The cost of modifications includes the one- time cost to make the enhancement to the system. Internal costs includes staff time during implementation (including salary and benefits), data collection and data cleansing, public information campaign, appeals process, and the cost of service study. The ongoing administration and maintenance costs include internal technical, customer service, and analytical support. The system annual support and maintenance costs are also included however; it is unknown how the cost of modifications factor into these costs. Cost Range for “Fixed” Rate Structure Costs Low Range High Range Base Cost of Billing System $250,000 $1,100,000 Cost of Modifications $0 $41,250 Internal Costs for Implementation $800,000 $1,200,000 Ongoing Administration & Maintenance* $65,000 $130,000 TOTAL $1,115,000 $2,471,250 *This includes an additional .5 to 1.0 FTE. Cost Range for “Shaped” Rate Structure Costs Low Range High Range Base Cost of Billing System $250,000 $1,100,000 Cost of Modifications$0 $82,500 Internal Costs for Implementation $900,000 $1,350,000 Ongoing Administration & Maintenance** $105,000 $210,000 TOTAL $1,255,000 $2,742,500 **This includes an additional 1.0 to 2.0 FTE. Average Cost – Based on Estimates Costs “Fixed” Rate “Shaped”Status Quo StructureRate Structure Base Cost of Billing System $500,000 $500,000 $500,000 Cost of Modifications $20,000 $40,000 Not Known* Internal Costs for Implementation $1,000,000 $1,125,000 $650,000 Ongoing Administration & Maintenance $97,500 $157,500 $75,000 TOTAL $1,617,500 $1,822,500 $1,225,000 *The vendor questionnaire did not include a question about implementing our existing rate structure. However, the consultant (Langham) hired to evaluate our current billing system said that the city should not expect any significant modifications to implement the current rate structure with a new billing system. 2 ATTACHMENT B: DETAILS OF THE RATE STRUCTURE ALTERNATIVES ALTERNATIVE A: “SHAPED” WATER BUDGET RATE STRUCTURE ALTERNATIVE Single-Family Residential Rate Structure – This is a water budget rate structure based on customer specific property lot size. The first two blocks are fixed for indoor use at the first 3,000 gallons and the next 4,000 gallons. The third block is the variable, “outdoor” block size using specific lot size and is shaped monthly based on historical weather and evapotranspiration (ET) requirements. The fourth block is for all consumption greater than the first three blocks. Block 1 – First 3,000 gallons Block 2 – Next 4,000 gallons [1] Block 3 – Varies by month – Uses lot size Block 4 – Use greater than Blocks 1, 2, and 3 [1] Each month will have a set outdoor goal based on customer specific lot size and an outdoor application rate of 8.66 gallons per square foot of lot size (15 gal/sq. ft. of irrigable area). The monthly irrigation requirements or block size are shaped monthly based on historical weather and ET. For example, using 9,000 square foot rd property lot, the 3 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. Multi-Family Residential Rate Structure – This is a water budget rate structure with the first block fixed at the first 2,000 gallons per living unit and the second block fixed at the next 3,000 gallons per living unit for indoor water use. The third block (“outdoor” use) varies based on the customer specific irrigable area. The third block is shaped monthly based on historical weather and ET. The fourth block is for all consumption greater than the first three blocks. Block 1 – First 2,000 gallons per living unit Block 2 – Next 3,000 gallons per living unit [1] Block 3 – Varies monthly – Irrigable Area Block 4 – Use greater than Blocks 1, 2, and 3 [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 or block size will be shaped monthly by historical weather and ET. Commercial/Industrial (C/I) Rate Structure – This is a four block increasing rate structure based on each specific customer’s average monthly use. Average monthly use (AMU) is defined as annual use divided by 12 months. The AMU is calculated based on the previous year’s data. The first block is set at 80 percent of the customer’s AMU. The second block is set at 81 to 100 percent of the AMU. The third block is set at 101 to 200 percent of the customer’s AMU, and the final block is for all consumption greater than block 3. Block 1 – Up to 80% of AMU Block 2 – 81%-100% of AMU Block 3 – 101%-200% of AMU Block 4 – Use above block 3 Please note that WRAB felt that the above recommendation was good for the short term but that in five years the city may want to implement a “best in class” approach. In the meantime, WRAB recommends collecting the appropriate data to create a “best in class” approach in the future. Metered Irrigation Rate Structure – This is a water budget rate structure that uses the customer’s irrigable area to establish the outdoor goal. The block sizes are shaped monthly based on historical ET and weather. [1] Block 1 – 80% of customer irrigable area (outdoor goal) Block 2 – 81% to 100% of outdoor goal Block 3 – Over 100% of outdoor goal [1] The outdoor goal is 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 based on historical weather and ET and shaped monthly. ALTERNATIVE B: “FIXED” WATER BUDGET RATE STRUCTURE ALTERNATIVE Single-Family Residential Rate Structure – This is a simplified water budget rate structure based on a “typical” property lot size. The first two blocks are fixed for indoor use at the first 3,000 gallons and the next 4,000 gallons. Approximately 85% of the single-family customers have an average indoor use of 7,000 gallons or less. The third block was set to account for outdoor watering to meet the needs of approximately 80% of the single-family residential customers and the fourth block for all use above the first three blocks. Block 1 – First 3,000 gallons Block 2 – Next 4,000 gallons Block 3 –Next 20,000 gallons Block 4 – Excess of Blocks 1, 2, and 3 (over 27,000 gallons) Multi-Family Residential Rate Structure – This is a simplified water budget rate structure based on customer specific irrigable area. The first block is fixed at the first 2,000 gallons per living unit and the second block is fixed at the next 3,000 gallons per living unit. The third block varies based on the customer specific irrigable area (80 percent of outdoor goal). The fourth block is for 81 to 100 percent of the outdoor goal and the fifth block is for all consumption greater than the four blocks. Block 1 – First 2,000 gallons per living unit Block 2 – Next 3,000 gallons per living unit [1] Block 3 – 80% of Irrigable Area Allowance (outdoor goal) Block 4 – 81-100% of Irrigable Area Allowance Block 5 – Use greater than Blocks 1, 2, 3, and 4 [1] Outdoor goal based on the irrigable area as determined by the city and an irrigation application rate of 15 gallons per square foot. Commercial/Industrial Rate Structure – This is an increasing three block rate structure based on each specific customer’s average monthly use. Average monthly use (AMU) is defined as annual use divided by 12 months. The AMU is calculated based on the previous year’s data. The first block is set at 90 percent of the customer’s AMU. The second block is set at 91 to 150 percent of the AMU. The third block is for all consumption greater than blocks one and two. Block 1 – Up to 90% of AMU Block 2 – 91%-150% of AMU Block 3 – Use above 150% of AMU Metered Irrigation Rate Structure – This is a water budget rate structure that uses the customer’s irrigable area to establish the outdoor goal. [1] Block 1 – 80% of customer irrigable area (outdoor goal) Block 2 – 81% to 100% of outdoor goal Block 3 – Over 100% of outdoor goal [1] The outdoor goal is based on the irrigable area as determined by the city and an irrigation application rate of 15 gallons per square foot. ALTERNATIVE C: STATUS QUO (CURRENT) RATE STRUCTURE ALTERNATIVE Single-Family Residential Rate Structure – This is an increasing block rate structure. As the amount of water use increases and moves into the next rate block, the cost per thousand gallons of water increases. The breakpoints for the rate blocks are determined using each customer’s average winter consumption (AWC). Also calculated is the customer class average (CCA), which is the average winter use for customers with the same size meter within a customer classification. [1] Block 1 – 0-100% of the average winter consumption (AWC) and capped at a maximum of 8,000 gallons Block 2 – 101-350% of Block 1 Block 3 – All excess use over Blocks 1 and 2 [1] The AWC is the average consumption as reflected on a customer’s December through March bills. This is often referred to as “indoor” water use. If a residential account’s AWC is lower than the citywide average for that type of account (the CCA), the citywide average will be used to determine block thresholds and water quantity charges. If a customer’s AWC is greater than 8,000 then 8,000 is used in determining the block thresholds. Multi-Family Residential Rate Structure – This is an increasing block rate structure. The breakpoints for the rate blocks are determined using each customer’s AWC. [1] Block 1 – 0-100% of the AWC Block 2 – 101-350% of Block 1 Block 3 – All excess use over Blocks 1 and 2 [1] If an account has a 5/8 or ¾ inch meter and the account’s AWC is lower than the citywide average for that type of account (the CCA), the citywide average will be used to determine block thresholds and water quantity charges. If an account has larger than a ¾ inch meter, then only the account’s AWC is used to determine block thresholds and water quantity charges. Commercial/Industrial Rate Structure – This is an increasing block rate structure. The breakpoints for the rate blocks are determined using each customer’s AWC. Block 1 – 0-100% of the AWC Block 2 – 101%-350% of Block 1 Block 3 – All excess use over Blocks 1 and 2 Metered Irrigation Rate Structure – This is an increasing block rate structure. The breakpoints for the rate blocks are determined using the customer class average for each meter size. [1] Block 1 – 0-100% of the customer class average (CCA) by meter size Block 2 – All excess use over Block 1 [1] Block 1 for irrigation customers is billed at the block 2 rate that is used for the other customer classes of service. Economic and Engineering Services 10900 NE 4 Street, Suite 1110 Bellevue, WA 98004 th P.O. Box 1989 Bellevue, WA 98009 Phone: 425.452.8100 Fax: 425.454.4189 Memo To: Ned Williams, Joanna Crean, Carol Linn, City of Boulder From: Shawn Koorn, EES Date July 9, 2004 Subject: Detailed Analysis of “Fixed” Water Budget Rate Structure Alternative Introduction EES has been working with the city in developing a conservation based rate structure for each of its customer classes of service. This memo will discuss the analysis performed for the “fixed” water budget rate structure alternative. This analysis is presented in a similar manner as the previously developed rate structures. Rate Structures A rate structure was developed for each of the city’s classes of service (single-family, multi-family, commercial/large user, and metered irrigation). The following sections will review each rate structure by customer class in detail. Single-Family Residential Rate Structure The rate structure for the single-family class of service is an increasing block rate with four (4) consumption blocks. Block 1 is set at 3,000 gallons, block 2 is the next 4,000 gallons, block 3 is the next 20,000 gallons, and block 4 is all consumption greater than 27,000 gallons. Provided below is a summary of the rate design. Ned Williams, Joanna Crean, Carol Linn, City of Boulder MEMORANDUM FOR July 9, 2004 Page 2 S-FRRS–IBRSWF INGLEAMILYESIDENTIAL ATETRUCTURE NCREASINGLOCK ATETRUCTURE ITHOUR (4)CB.B1,F3,000,IFFIUB2 ONSUMPTIONLOCKSLOCK THE IRST GALSSIXEDORNDOORSE AND LOCK IFFN4,000GIU,B3IFOUIS SIXED OR THE EXT ALLONS OF NDOORSELOCK SORUTDOORSE AND SET N20,000G.B4CO27,000. AT THE EXT ALLONSLOCK IS ALL ONSUMPTIONVER GALLONS 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 3,000 gallons $1.75/1,000 gallons Block 2 - Next 4,000 gallons $2.25/1,000 gallons Block 3 – Next 20,000 gallons $3.30/1,000 gallons Block 4 – Greater than 27,000 gallons $6.80/1,000 gallons As can be seen, this is an inverted block rate structure with four (4) consumption blocks. It was determined that the first two (2) blocks would be based on a fixed level of consumption roughly equal to the average indoor use for the single-family customers. The city calculated that the average single- family indoor use was 5,000 gallons. However, it was determined that if the first two blocks were set at the average use it could have a negative effect on those customers with greater than average use (i.e., larger families). Therefore, the first block provides an indoor conservation incentive and rewards those with lower than average use, while the second block allows for additional indoor usage at a slightly higher rate. The third block was set to account for outdoor watering needs, while the fourth and final block is for all consumption Overview of the Single-Family Block Sizes greater than the first three blocks (i.e. inefficient use). For this analysis, it 30,000 has been assumed that the block sizes 25,000 are fixed and non-appealable. The 20,000 graph provides the size and shaping 15,000 of the blocks for the single-family 10,000 rate option. 5,000 0 As with the previously developed rate structures, the price associated with st Block 1Block 2Block 3Tail Block the 1 block of consumption represents “base” costs or the costs incurred under average demand conditions. The 2nd block price takes into account a portion of the costs associated with the extra-capacity required to serve customers under the assumed class peaking rd characteristics (peaking factor). The prices developed for the 3 block reflect the full costs associated with the extra-capacity required for “typical” outdoor watering needs. Finally, the tail block is set at Ned Williams, Joanna Crean, Carol Linn, City of Boulder MEMORANDUM FOR July 9, 2004 Page 3 the city’s marginal cost. This rate structure is designed to collect the Single-Family Residential Rate Structure same overall level of revenue as is Average Annual Bill currently collected from the single- $800.00 family class of service. $600.00 The bill comparison developed for Present $400.00 Proposed this particular rate structure indicates $200.00 that most customers will see a slight $0.00 increase in their annual bill. AWC = 3AWC = 5AWC = 8 However, this is mostly due to the increase in the rate of the first block PresentProposedDifference% Change which represents the base cost of AWC = 3$196.44$206.49$10.055.1% water for the city. It appears from AWC = 5$397.74$397.59($0.15)0.0% AWC = 8$701.34$759.84$58.508.3%the analysis that the average Note: Assumes an Average Customer has an AWC of 5 customer, based upon the assumed annual usage characteristics, will not Single-Family Rate Structure be impacted by the proposed rates. Consumption By Block Again, these three customers reflect 50% assumed usage patterns over the 39% 40% course of a year and impacts will 26%26% 30% vary depending on the specific customer’s usage. 20% 9% In looking at the impacts during 10% various times of the year, based on 0% typical consumption patterns, the Block 1Block 2Block 3Block 4 winter period will see minimal changes in the bills. The impacts seen in the winter period will be due to the adjustment to the base cost of water for the City. The critical time period will be the “shoulder” periods (May, September, October), or the peak summer months, when customers may be irrigating more than needed that the large impacts may be seen on their bill. Finally, in reviewing the consumption that occurs within each of the blocks under this rate structure, approximately 52% of the consumption will be billed in the first two blocks of the rate structure, and another 39% in the third block. Provided below is a discussion of the perceived strengths, weaknesses and any administrative consideration in the implementation of this rate design. PSS-FRRS – There are four (4) ERCEIVEDTRENGTHS OF INGLEAMILYESIDENTIAL ATETRUCTURE perceived strengths associated with this rate structure. These strengths are as follows: Indoor Conservation Incentive Outdoor Watering Allotment Ease of Customer Understanding Ease of Administration Ned Williams, Joanna Crean, Carol Linn, City of Boulder MEMORANDUM FOR July 9, 2004 Page 4 By providing two (2) blocks for indoor water use, it provides the opportunity for the single-family customers to reduce their indoor use and receive a benefit from those savings. At this time, one of the city’s goals is to not only have outdoor water conservation, but to also encourage indoor water conservation. The next strength of this rate structure is that it is designed to provide sufficient water for outdoor watering needs. The third block is designed around the efficient level of watering needs during the irrigation season for a typical customer. Another strength of this rate structure is that from a customer’s perspective, this structure is not as complex as a water budget as the block sizes are fixed from month to month. Finally, from an administrative perspective, this rate structure is also not as complex to implement as some of the previously developed rate structures. PWS-FRRS – There are three ERCEIVED EAKNESSES OF INGLEAMILYESIDENTIAL ATETRUCTURE (3) perceived major weaknesses associated with this rate structure. These weaknesses are as follows: Does not Promote Efficient Use During the Winter Period Does not Reflect Individual Outdoor Needs Outdoor Allocation is Not Shaped During the winter period the customers are allotted the same amount of water as during the summer irrigation period without a price signal that this level of water use is inefficient. Previous rate structures limited the amount of consumption during the winter time period to promote conservation year-round. The second perceived weakness of this rate structure is that it does not provide an allocation of water to the customer that reflects their individual outdoor water needs. In this case, the outdoor allocations are based on the needs of a “typical” customer (9,000 square foot lot), and then allowed for some additional water usage. However, a few of the previous rate structures allocated water based on individual customers needs (using customer specific lot size). The final perceived weakness of this rate design is that the outdoor goal is not shaped on a monthly basis. Some water budget rate structures adjust the monthly allocation of water based on irrigable area and weather patterns. Under this rate structure the outdoor goal is set at the same level for the entire year. ACS-FRRS – For DMINISTRATIVE ONSIDERATIONS OF INGLEAMILY ESIDENTIAL ATETRUCTURE 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 typical or average customer, and are fixed and may not be appealed to change the block size. This rate structure has no other significant administrative concerns and appears to be one of the simpler rate structures reviewed. In summary, it appears that there would be no significant implementation costs associated with this rate structure. At the same time, there does not appear to be any significant on-going costs associated with this particular rate structure. RSS-FRRS– In reviewing this rate EVENUE TABILITY OF INGLEAMILY ESIDENTIAL ATE TRUCTURE structure, the potential revenue volatility of a wet year or drought year was examined. Within the previously developed rate structure evaluation 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 7.62%, while in a drought year, the annual revenue swing may be 20.08%. It should be noted that the calculation of the revenue swing assumes no drought surcharges within the drought period. It is assumed that any drought period may require the implementation of drought surcharges. Ned Williams, Joanna Crean, Carol Linn, City of Boulder MEMORANDUM FOR July 9, 2004 Page 5 CS-FRRS’E OMPATIBILITY OF INGLEAMILYESIDENTIAL ATE TRUCTURE TO THE CITYSXISTING SBS – This particular rate design is compatible with the city’s existing OFTWAREILLING YSTEM billing software but would require some reprogramming efforts. Multi-Family Rate Structure The multi-family residential rate structure reviewed is a water budget rate structure with four blocks. Similar to the single-family rate structure the first two (2) blocks would be based on the customer’s typical indoor use of 5,000 gallons. Under this rate structure the first block is fixed at the first 2,000 gallons per living unit, while the second block is fixed at the next 3,000 gallons per living unit. The third block is set at 80% of the outdoor goal and is based on customer specific irrigable area. The fourth block is set for all consumption between 81% and 100% of the outdoor goal. The fifth block is then for all consumption greater than block 4, and is considered to be inefficient use. Provided below is an overview of the structure. M-FRRS–WBWF(5)C ULTIAMILYESIDENTIAL ATETRUCTURE ATER UDGETITHIVEONSUMPTION B.B12AFPUT,B34BOT LOCKSLOCKS AND RE IXEDER NITHRESHOLDSLOCK AND ARE ASED NHE CSIA,B5U4. USTOMERPECIFICRRIGABLE REA AND LOCK IS ALL SAGE OVER BLOCK 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 2,000 gallons per Living Unit $1.75/1,000 gallons Block 2 - Next 3,000 gallons per Living Unit $2.15/1,000 gallons [1] Block 3 – 80% of Outdoor Goal $3.35/1,000 gallons Block 4 – 81% - 100% of Outdoor Goal $4.10/1,000 gallons Block 5 - Use greater than Outdoor Goal $6.80/1,000 gallons [1] Each account 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 set for the entire year and will not change during the year. This rate structure is very similar to the previously developed multi-family rate structures. The first two blocks are set at a fixed level in relationship to average indoor consumption. Each unit of the multi-family complex receives the allocation for the first two blocks. In this way there is an incentive to reduce indoor water consumption, but allows for some additional use. However, for the multi- Ned Williams, Joanna Crean, Carol Linn, City of Boulder MEMORANDUM FOR July 9, 2004 Page 6 family class of service, the third and fourth bocks are based on customer specific irrigable area. The third block is set at 80% of the outdoor goal to promote efficient outdoor water use. The forth block is intended for the additional outdoor needs at a slightly higher rate. The pricing of the blocks is very Overview of the Multi-Family Block Sizes similar to that used for the single- family rate structure developed 50,000 previously. As with the single-family 40,000 Tail Block block pricing, the rates were set based Block 4 upon the base cost of water and the 30,000 Block 3 extra-capacity costs placed on the 20,000 Block 2 system. Block 1 10,000 In reviewing the impacts to 0 customers, the impacts will vary based upon two factors. The first Note:Based upon 5 units and 7,000 sq. ft. irrigable area 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 separately metered irrigation, the customer should remain in the lower blocks of the rate structure and not see large impacts. It appears that the annual impacts for Multi-Family Residential Rate Structure the multi-family customers under this Average Annual Bill rate structure are slightly different $10,000.00 than the impacts seen in the single- $8,000.00 Present family class of service. That is, $6,000.00 Proposed $4,000.00 under these assumptions, there may $2,000.00 be significant impacts in the annual $0.00 bill. However, the bill comparisons 2 Unit (AWC = 8)10 Unit (AWC = 57)50 Units (AWC = 235) developed in the graph assume 7,000 PresentProposedDifference% Change square feet of irrigable area. As 2 Unit (AWC = 8)$358.14$368.59$10.452.9% 10 Unit (AWC = 57)$1,442.19$1,778.49$336.3023.3% noted above, the impacts may vary 50 Units (AWC = 235)$7,694.04$10,586.39$2,892.3537.6% based upon the amount of irrigable area and the customers may have Multi-Family Rate Structure more irrigable area than that utilized Consumption By Block in these examples. Finally, it appears 50% that the vast majority of the 39% 38% 40% consumption will occur within the 30% first two blocks of consumption 13% 20% (77%). It should be noted that some 8% 1% outdoor irrigation consumption may 10% be captured in the second block, 0% depending upon the average indoor Block 1Block 2Block 3Block 4Block 5 use of the customer. However, at this time it is unclear as to the amount of consumption related to irrigation. Ned Williams, Joanna Crean, Carol Linn, City of Boulder MEMORANDUM FOR July 9, 2004 Page 7 PSM-FRRS – There are four (4) ERCEIVEDTRENGTHS OF ULTIAMILYESIDENTIAL ATE TRUCTURE perceived major strengths associated with this rate structure. These strengths are as follows: Indoor Conservation Blocks Outdoor Watering Allocation Incentive for Outdoor Conservation Ease of Customer Understanding As with the single-family residential rate structure, a strength of this rate structure is that it not only has an outdoor goal, but also includes an indoor goal for indoor conservation purposes. The second perceived strength of this rate structure is in the establishment of a block of consumption based upon the actual irrigation requirements of the individual customer. In this case, the customer’s irrigable area is the basis for establishing the block size. The third block size is then based on 80% of this allocation and the fourth block size is based on the remaining 20% of the outdoor allocation. In addition, this rate structure is simpler to understand from a customer’s perspective than the more complex water budgets which have changing allocations on a monthly basis. PWM-FRRS – There are three (3) ERCEIVED EAKNESSES OF ULTIAMILY ESIDENTIAL ATETRUCTURE 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 Outdoor Allocation is Not Shaped Given the varying configurations of each multi-family property, this rate structure has used the rdth customer-specific irrigation area to establish the 3 and 4 blocks. This will require the city to calculate the irrigable area for each property. 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 rd rate structure. In 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 unclear whether rdth the 3 and 4 blocks are needed. The final perceived weakness of this rate design is that the outdoor goal is not shaped on a monthly basis. Some water budget rate structures adjust the monthly allocation of water based on irrigable area and weather patterns. Under this rate structure the outdoor goal is set at the same level for the entire year, which will mean a higher outdoor goal in the winter than is necessarily needed. ACM-FRRS – This DMINISTRATIVE ONSIDERATIONS OF ULTIAMILY ESIDENTIAL ATETRUCTURE particular rate structure has two administrative issues associated with it. First is the issue of the determination of the customer specific irrigation area. It should be noted that the city’s GIS is not linked to the account information. Billing for stormwater (inside city only) is based upon lot size and Ned Williams, Joanna Crean, Carol Linn, City of Boulder MEMORANDUM FOR July 9, 2004 Page 8 impervious area. From this information, a rough approximation of irrigable area could be determined. Customers located outside the city will need their irrigable areas measured. 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 customer to report any significant changes in irrigable area. The other administrative issue is that in order to implement this rate structure, the city would need to verify the number of living units for each account. In summary, it appears that there would be some significant implementation issues associated with this rate structure, but there would be minimal annual on-going costs. RSM-FRRS– In reviewing this rate EVENUE TABILITY OF ULTIAMILYESIDENTIAL ATE TRUCTURE structure, the potential revenue volatility of a wet year or drought year was examined. As stated previously, the city has set a goal that 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 -3.69%, while in a drought year, the annual revenue swing may be 40.94%. The revenue variability for the drought period is calculated without drought surcharges. CM-FRRS’E OMPATIBILITY OF ULTIAMILY ESIDENTIAL ATETRUCTURE TO THE CITYSXISTING SBS – This particular rate design is currently not compatible with the city’s OFTWAREILLING YSTEM existing billing software. Commercial/Large User Rate Structure The commercial/large user rate structure is a three (3) block rate structure based on each specific customer’s average annual monthly use. Average annual monthly use is defined as annual use divided by 12 months. This rate structure was developed based on the concept that there are still gains to be made in commercial conservation. The first block is set at 90% of the customer’s annual average monthly use. The second block is set at 91% - 150% of the average annual monthly use, and the final block is for all consumption greater than 150% of the customer’s average annual use. Provided below is the detail of this rate design. Ned Williams, Joanna Crean, Carol Linn, City of Boulder MEMORANDUM FOR July 9, 2004 Page 9 C/LURS–T(3)BRSB OMMERCIALARGESERATETRUCTURE HREE LOCK ATE TRUCTURE ASED ON C’AAMU(AMU).B190%AMU,B2 USTOMERSVERAGENNUALONTHLYSELOCK IS UP TO OF LOCK 91%-150%AMU,B3B2,150%AMU. IS OF LOCK IS ALL CONSUMPTION OVER LOCK OR OF THE 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% Average Annual Monthly Use $1.75/1,000 gallons Block 2 – 91%-150% Average Annual Monthly Use $3.30/1,000 gallons Block 3 - All Usage Over Block 2 $6.80/1,000 gallons [1] Average annual monthly use is to be determined for each individual customer based on the previous year’s data. The commercial/large user rate design is a three block, inclined rate structure. In comparison to the single-family residential class of service, the usage patterns of this class of service do not vary significantly from season to season. For purposes of this study, it has been Overview of the Commercial/Large assumed that no portions of this rate UserBlock Sizes (AMU=5,000 gallons) structure are appealable by the customer. The calculation of their 10,000 average monthly use is calculated for Ave. Mth 7,500 all commercial/large user customers Tail Block at the same time, using the same 5,000 Block 2 criteria (i.e. time periods). Block 1 2,500 In determining the price for each of 0 the blocks, an approach similar to that used for the other classes of service was utilized. The first block reflected the “base” costs associated with serving this particular class of service. The second block was based upon the extra-capacity costs required to serve these customers, as the second block is set at a level up to 150% of the customer’s average consumption. The third block is set at the marginal cost for those customers with usage greater than 150% of the customer’s average use. City staff has also indicated during the course of this study that working directly with Ned Williams, Joanna Crean, Carol Linn, City of Boulder MEMORANDUM FOR July 9, 2004 Page 10 customers on commercial conservation audits and measures is another effective method to achieve water efficient practices with these customers. In viewing the bill comparisons, it can be seen that the annual bill Commercial/Large User Rate Structure Average Annual Bill impacts to customers could vary $12,000.00 greatly depending on the customer’s $10,000.00 usage patterns. If a customer has $8,000.00 Present fairly constant use, the impacts $6,000.00 Proposed $4,000.00 should be minimal. However, if a $2,000.00 customer’s usage varies greatly from $0.00 Brew PubHotelRestaurant month to month, there may be significant impacts as a portion of PresentProposedDifference% Change the bill will be at the marginal cost. Brew Pub$3,668.85$3,938.24$269.397.3% Hotel$9,737.04$9,930.94$193.892.0% For the development of the bill Restaurant$3,207.39$2,812.35($395.04)-12.3% comparisons, three commercial customers were selected and their Commercial/Large User Rate Structure annual bills calculated under present Consumption By Block and proposed rates. Again, specific 100.0% 78.7% impacts by type of business may 75.0% vary based upon consumption characteristics. 50.0% 16.8% The final item of interest is the 25.0% anticipated amount of consumption 4.5% that will be billed within each block 0.0% of consumption. As can be seen in Block 1Block 2Block 3 the graph, a majority (79%) of the consumption will be billed in the first block, with the majority of the remaining consumption in the second block. PSC/LURS – There are three (3) ERCEIVED TRENGTHS OF OMMERCIALARGE SERATE TRUCTURE perceived major strengths associated with this rate structure. These strengths are as follows: Conservation Incentive Ease of Customer Understanding Penalty Block One of the strengths of this rate structure is that it sets the first block at a level which is lower than the customer’s average use. The setting of the first block level at 90% of the customer’s average annual use was done in order to provide a conservation signal to these customers and to provide a “reward” with lower rates to those who conserve. This rate structure will also be simple to understand from a customer perspective, yet it is sophisticated in its design that it imparts the proper price signals to customers. Finally, this rate structure has added a penalty block for those customer’s with usage over 150% of the customer’s average monthly use. PWC/LURS – There are two (2) ERCEIVED EAKNESSES OF OMMERCIALARGE SERATE TRUCTURE perceived major weaknesses associated with this rate structure. These weaknesses are as follows: Ned Williams, Joanna Crean, Carol Linn, City of Boulder MEMORANDUM FOR July 9, 2004 Page 11 Potential Lack of Incentives for Efficient Use No Shaping of the Outdoor Block For this rate structure, the first block of consumption is developed based upon the customer’s historical consumption. Even though the block is set at 90% of the average use, it still could be perceived that this approach does not encourage efficient use from these customers because of its use of historical consumption to establish the block sizes, or alternatively, by its failure to establish an “efficient use” block size for the particular type of commercial customer (e.g. grocery store, restaurant, etc.). The other perceived weakness is that this rate structure has not shaped the block sizes. Shaping is primarily an outdoor irrigation issue, and even though approximately one-half of the customers within this class of service have separately metered irrigation a portion of the consumption for this class is for outdoor watering needs. ACC/LURS – Given the DMINISTRATIVE ONSIDERATIONS OF OMMERCIALARGE SERATETRUCTURE 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. RSC/LURS– In reviewing this rate EVENUE TABILITY OF OMMERCIALARGESERATE TRUCTURE structure, the potential revenue volatility of a wet year or drought year was examined. In the previous water rate structure evaluation 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 11.76%, while in a drought year, the annual revenue swing may be 33.92%. The revenue variability for the drought period is calculated without drought surcharges. CC/LURS’E OMPATIBILITY OF OMMERCIALARGESERATETRUCTURE TO THE CITYSXISTING SBS – This particular rate design is currently compatible with the city’s OFTWAREILLING YSTEM existing billing software, but would require some reprogramming effort. Metered Irrigation Rate Structure Similar to the third block of the multi-family rate structure, the proposed metered irrigation rate structure is based on the customer’s irrigable area. However, the blocks are set for the entire year and will not change from month to month. In order to promote conservation, the first block will be based on 80% of the outdoor goal. The second block would be for all consumption greater than 80% and up to the customer’s outdoor goal. The final block would then be for all consumption greater than the customer’s outdoor goal. Provided below is the detail of this rate design. Ned Williams, Joanna Crean, Carol Linn, City of Boulder MEMORANDUM FOR July 9, 2004 Page 12 MIRS–WT(3)CB. ETERED RRIGATIONATETRUCTURE ATER BUDGET WITH HREE ONSUMPTIONLOCKS B180%OGBUCSIA,B LOCK IS OF THE UTDOOROAL ASEDPONUSTOMERPECIFIC RRIGABLEREALOCK 281%-100%OG,B3CGB2. IS OF THE UTDOOR OALLOCK IS ALL ONSUMPTIONREATER THAN 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 – 80% customer Specific Irrigable Area $2.60/1,000 gallons Block 2 - 81% to 100% of Outdoor Goal $3.85/1,000 gallons Block 3 - Over 100% of Outdoor goal $6.80/1,000 gallons [1] The outdoor goal is based on the irrigable area as determined by the city and an irrigation application rate of 15 gallons per square foot. The monthly irrigation allotments will be set for the entire year and will not change during the year. This rate structure option is an inverted three block rate structure that uses the customer’s irrigable area to determine the block sizes. Given that this rate structure uses the irrigable area for establishing the block sizes, it is assumed that this rate structure is appealable. As the metered irrigation customer’s Overview of the Metered Irrigation Block Sizes usage is primarily during the peak season, when establishing the block 25,000 prices, the first block contains the full 20,000 base costs, and the extra-capacity Tail Block 15,000 costs at an increased peaking factor. Block 2 10,000 Block 1 Similar to the shaped water budget 5,000 rate structures, the price for the first 0 block includes extra-capacity costs as the consumption for this class of service is for outdoor needs and is Note:Based on 7,000 sq. ft. of irrigable area used primarily during the system peak. The second block is 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. One of the key issues when developing this rate structure was the lack of available data for these customers. Specifically, the city did not have the irrigable area for each of the customers in this class of service. However, the city did provide a few of the accounts that were linked with sufficient Ned Williams, Joanna Crean, Carol Linn, City of Boulder MEMORANDUM FOR July 9, 2004 Page 13 information to determine the irrigable area that were used in the development of the bill comparisons. When developing the bill comparison, three customer’s, with three different irrigable areas, with three different meter sizes and consumption characteristics have Irrigation Rate Structure been shown. It appears that under Average Annual Bill this rate structure, the customer’s $7,000.00 $6,000.00 outdoor watering patterns will play a $5,000.00 Present $4,000.00 large role in the impacts for this Proposed $3,000.00 $2,000.00 customer class. Under this rate $1,000.00 $0.00 structure if a customer consumes less 4,800 Sq. Ft.9,500 Sq. Ft.100,000 Sq. Ft. water than what has been allotted for Irrigable AreaIrrigable AreaIrrigable Area their irrigable area they will see a PresentProposedDifference% Change reduction in their bill. However, for 4,800 Sq. Ft. Irrigable Area$1,391.04$1,486.99$95.956.9% those customers that consume more 9,500 Sq. Ft. Irrigable Area$3,285.24$3,904.64$619.4018.9% 100,000 Sq. Ft. Irrigable Area$6,473.04$4,527.44($1,945.60)-30.1% water than the allotment, the impacts may be larger than those seen in other customers. This appears to be the case in the bill comparisons above, the larger customer is not consuming the full allotment of water while the two smaller customers are using significantly more water than their allotment. As shown in the graph, it appears that the majority (60%) of the usage will be in the third consumption block. One of the possible reasons for this amount of consumption in the last block is due to the lack of customer/property specific irrigable areas. However, when reviewing the provided irrigable area for this class of service, it appears that some of the customer’s consumption is significantly greater than what would be allotted them under this rate structure and therefore would be in the third block. PSMIRS – There are three (3) ERCEIVEDTRENGTHS OF ETERED RRIGATIONATETRUCTURE perceived major strengths associated with this rate structure. These strengths are as follows: Outdoor Watering Allocation Incentive for Outdoor Conservation 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. However, this rate structure takes it one step further and reduces the allotment of water in the first block by 20% to promote conservation efforts. Under this rate structure the second block is then for all water usage from 80% of the allotment to the outdoor goal, while the previous rate structures Ned Williams, Joanna Crean, Carol Linn, City of Boulder MEMORANDUM FOR July 9, 2004 Page 14 provided the full allotment in the outdoor block. Finally, this rate structure contains a penalty component for “excess” use or all usage over the customer’s outdoor goal. PWMIRS – There are three (3) ERCEIVEDEAKNESSES OF ETEREDRRIGATION ATE TRUCTURE perceived major weakness associated with this rate structure. These weaknesses are as follows: Measurement Needed to Use customer Specific Irrigable Area Customer’s Perception of Inequities Lack of Shaping for the Water Allocation 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 and some customers may perceive that this approach is inequitable as lot size determines the allotment of water for each customer. Finally, the allocation of the water is not shaped for historical ET as it is with other water budget rate structures developed previously. ACMIURS – This DMINISTRATIVE ONSIDERATIONS OF ETEREDRRIGATIONSERATETRUCTURE particular rate structure has one (1) major administrative issue associated with it. This issue would be the determination of the customer specific irrigation area. The city does not currently have information on individual property irrigable areas for this class of service. 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. Is summary, it appears that there would be some significant implementation issues associated with this rate structure, but there would be minimal annual on-going costs. RSMIRS– In reviewing this rate structure, EVENUE TABILITY OF ETERED RRIGATIONATETRUCTURE the potential revenue volatility of a wet year or drought year was examined. The city has previously set a goal stating that 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 18.74%, while in a drought year, the annual revenue swing may be 76.57%. CMIRSC’E OMPATIBILITY OF ETERED RRIGATION ATETRUCTURE TO THE ITYSXISTING SBS – This particular rate design is currently not compatible with the city’s OFTWAREILLING YSTEM existing billing software. Economic and Engineering Services 10900 NE 4 Street, Suite 1110 Bellevue, WA 98004 th P.O. Box 1989 Bellevue, WA 98009 Phone: 425.452.8100 Fax: 425.454.4189 Memo To: Ned Williams, Joanna Crean, Carol Linn, City of Boulder From: Shawn Koorn, EES Date July 9, 2004 Subject: Detailed Analysis of “Shaped” Water Budget Rate Structure Alternative Introduction EES has been working with the city of Boulder on developing conservation-based rates for its water customers. This memo will discuss the analysis performed for the “shaped” water budget rate structure alternative. This analysis is presented in a similar manner as the previously developed rate structures. Rate Structures A rate structure was developed for each of the city’s classes of service (single-family, multi-family, commercial/large user, and metered irrigation).The following sections will review each rate structure by customer class in detail. Single-Family Residential Rate Structure The rate structure for the single-family class of service is a water budget with four (4) blocks. Block 1 is set at 3,000 gallons, and block 2 is set at 4,000 gallons. Block 3, the outdoor water requirement, is based upon individual customer lot sizes and is shaped monthly based upon historical weather and evapotranspiration (ETo). The fourth and final block is for all consumption over block 3. Provided below is a summary of the rate design. Ned Williams, Joanna Crean, Carol Linn, City of Boulder MEMORANDUM FOR July 9, 2004 Page 2 S-FRRS–WBWF(4)CB. INGLEAMILYESIDENTIAL ATE TRUCTURE ATER UDGETITHOURONSUMPTION LOCKS B1IFFF3,000GIUB2IFFN LOCKSIXEDOR THE IRST ALLONS OF NDOORSE AND LOCKSIXED OR THE EXT 4,000GIU.B3IBUTIROE ALLONS OF NDOOR SELOCK SASEDPON HERRIGATION EQUIREMENTS FACH SLS,AB4IAUOB3. CUSTOMERS PECIFIC OTIZENDLOCKSLLSAGEVER 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 3,000 gallons $1.75/1,000 gallons Block 2 - Next 4,000 gallons $1.90/1,000 gallons [1] Block 3 –Varies – Actual Lot Size $3.15/1,000 gallons Block 4 - Use greater than Outdoor Goal $6.80/1,000 gallons [1] Each month will have a set outdoor goal based on an actual lot size and an outdoor application rate of 8.66 gallons per square foot of total lot size (15 gal/sq. ft. of irrigable area). The monthly irrigation requirements are based on historical weather and ET and will be shaped on a monthly basis. As can be seen, this is a water budget rate structure with the first two (2) blocks fixed for indoor use. rd The third (3) block is the variable block size and is based on historical ET and shaped on a monthly basis. The fourth and final block is for all consumption greater than block three (3). Similar to the residential fixed water Overview of the Single-Family Block Sizes budget rate structure, it was (9,000 sq. ft. Lot) determined that the first two (2) 30,000 blocks would be based on a fixed 25,000 level of consumption roughly equal 20,000 to the average indoor use for the 15,000 single-family customers. The first 10,000 block then provides an indoor 5,000 conservation incentive and rewards 0 those with lower than average use, while the second block allows for Block 1Block 2Block 3Tail Block additional indoor usage at a slightly higher rate. In this way those customers with greater than average use (i.e., larger families) will not be penalized for greater levels of indoor usage. This particular rate structure is attempting to provide an rd allocation of water based on the actual square footage of the customer’s lot. As noted earlier, the 3 block assumes an application rate of 8.66 gallons per square foot of total lot size. In addition, the rd shaping of the 3 block on a monthly basis reflects the differing irrigation requirements throughout the Ned Williams, Joanna Crean, Carol Linn, City of Boulder MEMORANDUM FOR July 9, 2004 Page 3 year as they relate to ET. The above graph provides the size and shaping of the blocks for a single- family customer assuming a 9,000 square foot lot. st As with the previously developed rate structures, the price associated with the 1 block of nd consumption represents “base” costs or the costs incurred under average demand conditions. The 2 block price takes into account a portion of the costs associated with the extra-capacity required to serve customers under the assumed class peaking characteristics (peaking factor). The prices rd developed for the 3 block reflect the full costs associated with the extra-capacity required for outdoor watering needs. 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 is currently collected from the single-family class of service. The bill comparison developed for this particular rate structure indicates Single-Family Residential Rate Structure that those customers with below Average Annual Bill average consumption may see a slight increase in their annual bill, $1,000.00 $800.00 while those with average $600.00 Present consumption may see a decrease. Proposed $400.00 Finally, those customers with above $200.00 average consumption should see an $0.00 increase in their annual bill. AWC = 3AWC = 5AWC = 8 In looking at the impacts during various times of the year, the winter PresentProposedDifference% Change AWC = 3$196.44$199.69$3.251.7% period will see minimal changes in AWC = 5$397.74$378.14($19.60)-4.9% the bills as the price of the first block AWC = 8$701.34$809.29$107.9515.4% of water has been increased to reflect Note: Assumes an Average Customer has an AWC of 5 the base costs of the city. However, it is the “shoulder” periods (May, Single-Family Rate Structure Consumption By Block September, October), or the peak 40% summer months, when customers 36% may be irrigating more than needed 26% 26% 30% that the large impacts may be seen on their bill. Finally, in reviewing 20% the consumption that occurs within 12% each of the blocks under this rate 10% structure, the majority (88%) of the 0% consumption will be billed in the Block 1Block 2Block 3Block 4 first three blocks 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-FRRS – There are four (4) ERCEIVEDTRENGTHS OF INGLEAMILYESIDENTIAL ATETRUCTURE perceived major strengths associated with this rate structure. These strengths are as follows: Ned Williams, Joanna Crean, Carol Linn, City of Boulder MEMORANDUM FOR July 9, 2004 Page 4 Indoor Conservation Incentive Outdoor Watering Allocation Use of Actual Lot Size Shaping of the Water Allocation By providing two (2) blocks for indoor water use, it provides the opportunity to the single-family customers to reduce their indoor use and receive a benefit from those savings. As discussed in the rate structure evaluation study, one of the city’s goals is not only to have outdoor conservation but to also encourage indoor water conservation. This conservation incentive is also included in the third consumption block or outdoor consumption block by providing an outdoor allotment of water for irrigation needs. The next strength of this rate structure is that is provides an allowance for outdoor watering needs based on the customer’s actual needs. In this case, the outdoor irrigation requirements rd are based upon the customer’s actual lot size. In addition, the 3 block allocation of water is then shaped on a monthly basis to reflect the historical ET and weather. PWS-FRRS – There are three ERCEIVED EAKNESSES OF INGLEAMILYESIDENTIAL ATETRUCTURE (3) perceived major weaknesses associated with this rate structure. These weaknesses are as follows: Potential for Customer Appeals Perception of Inequities Complexity/Customer Understanding At this time one of the major weaknesses of this rate structure may be that each customer can appeal their individual lot size. While this most likely will not happen unless there is some error in the information used by the city to calculate the water budget there is the possibility of a significant number of appeals on the size of the lots. The second weakness of this rate structure is that it may be perceived as being unfair as different customers are allowed different watering requirements and this may not be fully understood by all customers. The final perceived weakness of this rate design is simply the complexity. In particular, the changing block sizes have the potential of being confusing to customers, particularly if customers are attempting to stay within their “budget.” ACS-FRRS – There DMINISTRATIVE ONSIDERATIONS OF INGLEAMILYESIDENTIAL ATETRUCTURE are two (2) main administrative concerns related to this rate structure. The first concern of this rate structure is the possibility of appeals. Given that the block sizes are based on the size of the individual lots, as recorded in city and county records, a customer may appeal the block sizes based on actual lot size versus the recorded lot size. The other 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). Given the changes in the block sizes from month to month, and the timing of the billing of customers, the bills will need to be handled on a monthly basis. 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. While proration is simply an algorithm within the billing program, the program must be able to handle 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. However, there may be some minimal on-going costs associated with this particular rate structure due to the third block size being based on actual lot size and allowing for an appeals process. Ned Williams, Joanna Crean, Carol Linn, City of Boulder MEMORANDUM FOR July 9, 2004 Page 5 RSS-FRRS– In reviewing this rate EVENUE TABILITY OF INGLEAMILY ESIDENTIAL ATE TRUCTURE structure, the potential revenue volatility of a wet year or drought year was examined. In the previously developed rate structure evaluation study, the city 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 6.31%, while in a drought year, the annual revenue swing may be 20.17%. It should be noted that the calculation of the revenue swing assumes no drought surcharges within the drought period. It is assumed that any drought period would require the implementation of drought surcharges. CS-FRRS’E OMPATIBILITY OF INGLEAMILYESIDENTIAL ATE TRUCTURE TO THE CITYSXISTING SBS – This particular rate design is currently not compatible with the city’s OFTWAREILLING YSTEM existing billing software. Multi-Family Rate Structure The multi-family residential rate structure reviewed is a water budget rate structure with four blocks. Similar to the single-family rate structure the first two (2) blocks would be based on the customer’s typical indoor use of 5,000 gallons. Under this rate structure the first block is fixed at the first 2,000 gallons per unit, while the second block is fixed at the next 3,000 gallons per unit. In this way, each individual apartment was provided with sufficient usage for indoor purposes. The third block is based on customer specific irrigable area and is shaped monthly based on historical weather and ETo. The fourth block is for all consumption greater than block three. Provided below is an overview of the structure. Ned Williams, Joanna Crean, Carol Linn, City of Boulder MEMORANDUM FOR July 9, 2004 Page 6 M-FRRS–WBWF(4)CB. ULTIAMILY ESIDENTIAL ATE TRUCTURE ATER UDGETITHOURONSUMPTION LOCKS B12AFPUT,B3IBOTCS LOCKS AND REIXED ERNITHRESHOLDSLOCKSASEDNHEUSTOMERPECIFIC IA,B4U3. RRIGABLE REA AND LOCK IS ALL SAGE OVER BLOCK 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 2,000 gallons per Living Unit $1.75/1,000 gallons Block 2 - Next 3,000 gallons per Living Unit $1.85/1,000 gallons [1] Block 3 - Varies– Irrigable Area $2.85/1,000 gallons Block 4 - Use greater than 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 on a monthly basis. This rate structure is very similar to the single-family rate structure. The two first blocks are set at a fixed level in relationship to average indoor consumption. Each unit of the multi-family complex receives the allocation for the first two blocks. In this way there is a conservation incentive to reduce water consumption, but allows for some additional use. One change from the single-family rate structure is that for the multi-family class of service, the third block is based on customer specific irrigable area. While this is different than the total lot size used for the Overview of the Multi-Family Block Sizes single-family, it was determined that irrigable area would better represent 60,000 the outdoor water needs of the multi- 50,000 Tail Block family customers since there is no 40,000 Block 3 clear relationship between the size of 30,000 Block 2 20,000 the multi-family complex and the Block 1 10,000 irrigable area. However, the same 0 methodology was used when determining the application rate for both the single-family and multi- Note:Based upon 5 units and 7,000 sq. ft. irrigable area family customers. Ned Williams, Joanna Crean, Carol Linn, City of Boulder MEMORANDUM FOR July 9, 2004 Page 7 The pricing of the blocks is very similar to that used for the rate structures previously developed. As with the single-family block pricing, the rates were set based upon the base cost of water and the extra-capacity costs placed on the system. In reviewing the impacts to customers, the impacts will vary Multi-Family Residential Rate Structure based upon two factors. The first Average Annual Bill factor is the number of living units. $10,000.00 The second and more important $8,000.00 Present factor is the amount of irrigable area $6,000.00 Proposed $4,000.00 and whether the customer has $2,000.00 separately metered irrigation. If the $0.00 customer has separate metered 2 Unit (AWC = 8)10 Unit (AWC = 57)50 Units (AWC = 235) irrigation the customer should PresentProposedDifference% Change remain in the lower blocks of the rate 2 Unit (AWC = 8)$358.14$341.89($16.25)-4.5% 10 Unit (AWC = 57)$1,442.19$1,807.84$365.6525.4% structure and not see large impacts. 50 Units (AWC = 235)$7,694.04$10,094.99$2,400.9531.2% It appears that the annual impacts for the multi-family customers under Multi-Family Rate Structure this rate structure are slightly Consumption By Block different than the impacts seen in the 50% 38% 39% single-family class of service. That 40% is, the low water users will see a 30% slight decrease in their bills, while 15% 20% the average and large users will see 8% 10% an increase in their annual bill. The bill comparisons developed in the 0% graph to the left assumes 7,000 Block 1Block 2Block 3Block 4 square feet of irrigable area. As noted above, the impacts may vary based upon the amount of irrigable area. For these bill comparisons, it appears that the average and large user would be over watering based on an irrigable area of 7,000 square feet. Finally, it appears that the vast majority of the consumption will occur within the first two blocks of consumption (77%). It should be noted that some outdoor irrigation consumption may be captured in the second block, depending upon the average indoor use of the customer. However, at this time it is unclear as to the amount of consumption related to irrigation. PSM-FRRS – There are three (3) ERCEIVEDTRENGTHS OF ULTIAMILYESIDENTIAL ATE TRUCTURE perceived major strengths associated with this rate structure. These strengths are as follows: Indoor Conservation Blocks Outdoor Watering Allocation Monthly Shaping of the Water Allocation As with the single-family residential rate structure, a strength of this rate structure is that it not only has an outdoor goal, but also includes an indoor goal for indoor conservation purposes. The second strength of this rate structure is in the establishment of an outdoor block of consumption based upon Ned Williams, Joanna Crean, Carol Linn, City of Boulder MEMORANDUM FOR July 9, 2004 Page 8 the irrigation requirements of the customer. In this case, the customer’s irrigable area is the basis for establishing the block size. This allocation of water is then shaped monthly during the year to reflect the historical ET and weather. PWM-FRRS – There are three (3) ERCEIVED EAKNESSES OF ULTIAMILY ESIDENTIAL ATETRUCTURE 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/Customer Understanding rd This rate structure has used the customer-specific irrigable 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 contrast, for individually metered rd 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 rd metered irrigation, it is unclear whether the 3 block even makes sense. The final perceived weakness of this rate design is simply the complexity. In particular, the monthly changing of the block sizes has the potential of being confusing to customers, particularly if customers are attempting to stay within their monthly “budget.” ACM-FRRS – This DMINISTRATIVE ONSIDERATIONS OF ULTIAMILY ESIDENTIAL ATETRUCTURE particular rate structure has two major administrative issues associated with it. First is the issue of the determination of the customer specific irrigable area. There are two approaches that can be used to make this determination. The first approach would be to base the irrigable area on the billing data for the city’s stormwater utility (inside city only). This data would provide a rough approximation of lot size and impervious area and the irrigable area could be calculated from that data. However, it should be noted that the city’s GIS is not linked to the account information for non-residential customers, as there may not be a one to one relationship between parcel and service location. The second approach would be for the city to physically measure the irrigable area of each property. 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 customer to report any significant changes in irrigable area. In addition to the irrigable area, in order to implement this rate structure, the city would need to verify the number of living units for each account. The other significant administrative issue associated with this rate structure is the issue of proration. As with the single-family water budget rate structure, 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 issues associated with this rate structure, but there would be minimal annual on-going costs. Ned Williams, Joanna Crean, Carol Linn, City of Boulder MEMORANDUM FOR July 9, 2004 Page 9 RSM-FRRS– In reviewing this rate EVENUE TABILITY OF ULTIAMILYESIDENTIAL ATE TRUCTURE structure, the potential revenue volatility of a wet year or drought year was examined. Within the rate structure evaluation 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 -3.54%, while in a drought year, the annual revenue swing may be 39.27%. The revenue variability for the drought period is calculated without drought surcharges. CM-FRRS’E OMPATIBILITY OF ULTIAMILY ESIDENTIAL ATETRUCTURE TO THE CITYSXISTING SBS – This particular rate design is currently not compatible with the city’s OFTWAREILLING YSTEM existing billing software. Commercial/Large User Rate Structure The commercial/large user rate structure is a four (4) block rate structure based on each specific customer’s average annual monthly use. Average annual monthly use is defined as annual use divided by 12 months. This rate structure was developed based on the concept that there are still gains to be made in commercial conservation. The first block is set at 80% of the customer’s annual average monthly use. The second block is set at 81% - 100% of the average annual monthly use. The third block is set at 101% - 200% of the customer’s annual average monthly use, and the final block is for all consumption greater than block 3. Provided below is the detail of this rate design. Ned Williams, Joanna Crean, Carol Linn, City of Boulder MEMORANDUM FOR July 9, 2004 Page 10 C/LURS–F(4)BRSB OMMERCIALARGE SER ATE TRUCTURE OURLOCKATETRUCTURE ASED ON C’AAMU(AMU)B180%AMU,B281%- USTOMERSVERAGE NNUAL ONTHLYSELOCK IS UP TO OF LOCK IS 100%AMU,B3101%-200%AMU,B4B3 OF LOCK IS OF AND LOCK IS ALL CONSUMPTION OVER 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 – 80% Average Annual Monthly Use $1.75/1,000 gallons Block 2 – 81%-100% Average Annual Monthly Use $2.15/1,000 gallons Block 3 - 101%-200% Average Annual Monthly Use $3.05/1,000 gallons Block 4 - All Usage Over Block 3 $6.08/1,000 gallons [1] Average annual monthly use is to be determined for each individual customer based upon a three-year average, reviewed and established periodically. The commercial/large user rate design is a four block inclined rate structure. In comparison to the single-family residential class of service, the usage patterns of this class of service do not vary significantly from season to season. For purposes of this study, it has Overview of the Commercial/Large been assumed that no portions of this user Block Sizes (AMU=2,500 gallons) rate structure are appealable by the customer. The calculation of their average monthly use is calculated for 5,000 Ave. Mth all commercial/large user customers 4,000 Tail Block at the same time, using the same 3,000 Block 3 criteria (i.e. time periods). 2,000Block 2 Block 1 1,000 In determining the price for each of 0 the blocks, an approach similar to that used for the other classes of service was utilized. The first block reflected the “base” costs associated with serving this particular class of service. The second block was based upon a portion of the extra-capacity costs required to serve these customers, as the second Ned Williams, Joanna Crean, Carol Linn, City of Boulder MEMORANDUM FOR July 9, 2004 Page 11 block is set equal to average consumption. The third block rate was a function of a greater share of the extra-capacity costs (peaks) as this was consumption greater than average use. The fourth block is set at the marginal cost for those customers with excess usage, which is usage greater than two times the customer’s average use. 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. In viewing the bill comparisons, it can be seen that the annual bill impacts to customers will be fairly comparable to the city’s existing rates. For the commercial customers, their bill will be dependant on the variation by month compared to their average consumption. For the development of the bill comparisons three commercial customers were selected and their annual bills Brew Pub$3,668.85$3,830.91$162.064.4% calculated under present and Hotel$9,737.04$10,001.25$264.212.7% Restaurant$3,207.39$2,964.05($243.34)-7.6% 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, a majority (72%) of the consumption will be billed in the first block, with the remaining consumption split between the final two blocks and a small percentage included in the final block. PSC/LURS – There are four ERCEIVEDTRENGTHS OF OMMERCIALARGE SERATETRUCTURE perceived major strengths associated with this rate structure. These strengths are as follows: Reduced First Block Compatible to the Existing Billing System Software Ease of Customer Understanding Penalty Block One of the strengths of this rate structure is that it sets the first block at a level which is lower than the customer’s average use. This decreasing of the first block level was done in order to provide a conservation signal to these customers and to provide a “reward” with lower rates to those who conserve. In addition, this rate structure should be compatible with the city’s existing billing software with some reprogramming effort. This rate structure will also be simple to understand from a Ned Williams, Joanna Crean, Carol Linn, City of Boulder MEMORANDUM FOR July 9, 2004 Page 12 customer perspective, yet it is sophisticated in its design that it imparts the proper price signals to customers. Finally, this rate structure has added a penalty block for those customer’s with excessive use. For this rate structure it is set at 200% of the customer’s average annual use. This level of consumption is significant as this type of customer typically uses water in a relatively consistent manner. PWC/LURS – There are two ERCEIVEDEAKNESSES OF OMMERCIALARGE SERATETRUCTURE perceived major weaknesses associated with this rate structure. These weaknesses are as follows: Potential Lack of Incentives for Efficient 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. Even though the block is set at 80% of the average use, it still could be perceived that this approach does not encourage efficient use from these customers because of its use of historical consumption to establish the block sizes, or alternatively, by its failure to establish an “efficient use” block size for the particular type of commercial customer (e.g. grocery store, restaurant, etc.). Finally, this rate structure has not shaped the block sizes. Shaping is primarily an outdoor irrigation issue. Approximately one-half of the customers within this class of service have separately metered irrigation. ACC/LURS – Given the DMINISTRATIVE ONSIDERATIONS OF OMMERCIALARGE SERATETRUCTURE 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 annual monthly use figures for billing. The city would need to determine the procedures or methodology to determine these annual 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. In summary, it appears that there would not be any significant implementation or on-going administrative costs associated with this rate structure. RSC/LURS– In reviewing this rate EVENUE TABILITY OF OMMERCIALARGESERATETRUCTURE 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% and10%. For this particular rate design, during a wet year the annual swing in revenue may be approximately 10.92%, while in a drought year, the annual revenue swing may be 31.50%. The revenue variability for the drought period is calculated without drought surcharges. CC/LURS’E OMPATIBILITY OF OMMERCIALARGESERATETRUCTURE TO THE CITYSXISTING SBS – This particular rate design is currently compatible with the city’s OFTWAREILLING YSTEM existing billing software but would require some reprogramming effort. Ned Williams, Joanna Crean, Carol Linn, City of Boulder MEMORANDUM FOR July 9, 2004 Page 13 Metered Irrigation Rate Structure Similar to the third block of the multi-family class of service, the proposed metered irrigation rate structure is also a water budget rate structure based on each customer’s specific irrigable area. However, in order to promote conservation, the first block would be based on 80% of the monthly allocation of water. The second block would be for all consumption greater than 80% and up to the outdoor goal. The final block would then be for all consumption greater than the outdoor goal. In addition, the consumption blocks will be shaped monthly based on historical weather and ETo. Provided below is the detail of this rate design. MIRS–WT(3)CB. ETERED RRIGATION ATE TRUCTUREATER BUDGET WITH HREE ONSUMPTION LOCKS B180%OGBUCSIA,B2 LOCK IS OF THE UTDOOROALASED PON USTOMERPECIFIC RRIGABLE REALOCK IS 81%-100%OG,B3CGB2 OF THE UTDOOROALLOCK IS ALL ONSUMPTIONREATER THAN 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 – 80% Customer Specific Irrigable Area $2.35/1,000 gallons Block 2 - 81% to 100% of Outdoor Goal $3.65/1,000 gallons Block 3 - Over 100% of Outdoor Goal $6.80/1,000 gallons [1] The outdoor goal is 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 based on historical weather and ET and shaped on a monthly basis. This rate structure option is a water Overview of the Metered Irrigation Block Sizes budget rate structure that uses the customer’s irrigable area to establish 30,000 the first block size. The block sizes 25,000 are shaped monthly based on 20,000 Tail Block historical ET and weather. In 15,000 Block 2 addition, this rate structure has 10,000 Block 1 5,000 provided consumption during the 0 winter time period for tree and shrub watering needs. Given that this rate structure uses the irrigable area for Note:Based on 7,000 sq. ft. of irrigable area st establishing the 1 block size, it is Ned Williams, Joanna Crean, Carol Linn, City of Boulder MEMORANDUM FOR July 9, 2004 Page 14 assumed that this rate structure is appealable. Similar to the previously established irrigation block prices, the first block contains the full base costs, and a portion of the extra-capacity costs. The second block is based upon placing greater demands (peaking factors) on the system. In previous rate structures developed, the first and second blocks typically did not include any extra-capacity costs. However, since the consumption for this class of service is strictly for outdoor needs and is used during the system peak it was determined that some level of the capacity costs be included in the first two blocks. The tail block was then set at the marginal cost. In developing this particular rate Irrigation Rate Structure structure and the associated bill Average Annual Bill comparisons, the most difficult part $7,000.00 was the lack of readily accessible $6,000.00 $5,000.00 Present irrigable area data. Therefore, for $4,000.00 Proposed $3,000.00 purposes of this study, the total $2,000.00 $1,000.00 irrigable area needed to be estimated. $0.00 4,800 Sq. Ft.9,500 Sq. Ft.100,000 Sq. Ft. In terms of the bill comparison, three Irrigable AreaIrrigable AreaIrrigable Area different irrigable areas, with three different meters sizes and PresentProposedDifference% Change 4,800 Sq. Ft. Irrigable Area$1,391.04$1,472.19$81.155.8% consumption characteristics have 9,500 Sq. Ft. Irrigable Area$3,285.24$3,883.84$598.6018.2% been shown. It appears that under 100,000 Sq. Ft. Irrigable Area$6,473.04$4,455.39($2,017.65)-31.2% this rate structure, the largest irrigable areas will receive the largest reduction in bills (benefit). One of the reasons for this is that this larger customer, under the proposed rate structure, is not using the total allotment of water being provided to them based on its irrigable area, while the smaller irrigable area customers are using more than the allocated water based on their irrigable area. As shown in the above graph, it appears that even with this rate structure a large amount of consumption will still be consumed in the third block. One of the possible reasons for this amount of consumption in the tail block is that the consumption is estimated given the lack of customer/property specific irrigable areas. PSMIRS – There are three (3) ERCEIVEDTRENGTHS OF ETERED RRIGATIONATETRUCTURE 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 Ned Williams, Joanna Crean, Carol Linn, City of Boulder MEMORANDUM FOR July 9, 2004 Page 15 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. However, this rate structure takes it one step further and reduces the allotment of water in the first block by 20% to promote conservation efforts. Under this rate structure the second block is then for all water usage from 80% of the allotment to the outdoor goal, while the previous rate structures provided the full allotment in the outdoor block. At the same time, this allocation of water is shaped monthly to reflect the changing irrigation requirements (i.e. historical ET). Finally, this rate structure contains a penalty component for “excess” use. PWMIRS – There are three (3) ERCEIVEDEAKNESSES OF ETEREDRRIGATION 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 Complexity/Customer Understanding 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 120,000 gallons of water at the low cost first block price. In contrast, the customer with 100,000 square feet of irrigable area receives 1,200,000 gallons of water also at the low cost block. The final perceived weakness of this rate design is simply the complexity. In particular, the changing of the block sizes has the potential of being confusing to customers, particularly if customers are attempting to stay within their “budget.” ACMIRS – This particular DMINISTRATIVE ONSIDERATIONS OF ETERRRIGATION ATETRUCTURE rate structure has two major administrative issue associated with it. First is the issue of the determination of the customer specific irrigation area. The city does not currently have information on individual property irrigable areas for this class of service. 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. However, if the customer was going through the city redevelopment process than the irrigable area data would be available. The other significant administrative issue associated with this rate structure is the issue of proration. As with the previously developed water budgets, the city may need to prorate the customer bills each month to reflect the timing of the billing and the quantity of water provided in each of the blocks during 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. RSMIRS– In reviewing this rate structure, EVENUE TABILITY OF ETERED RRIGATIONATETRUCTURE the potential revenue volatility of a wet year or drought year was examined. Within the rate structure Ned Williams, Joanna Crean, Carol Linn, City of Boulder MEMORANDUM FOR July 9, 2004 Page 16 evaluation 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 19.01%, while in a drought year, the annual revenue swing may be 76.33%. As with the previous rate structures, these drought revenue estimates do not include any drought surcharges. CMIRS’ES OMPATIBILITY OF ETERED RRIGATIONATE TRUCTURE TO THE CITYSXISTING OFTWARE BS – This particular rate design is currently not compatible with the city’s existing ILLING YSTEM billing software. To: Boulder City Council From: Boulder Chamber Of Commerce Board of Directors Date: July 2, 2004 Topic: Proposed Changes to the City of Boulder’s Water Rate Structure for Commercial and Industrial customers. Our perception of the issue As the Boulder City Council considers potential changes to the way water rates are structured for commercial and industrial users, the Boulder Chamber of Commerce has analyzed the ways in which businesses could be affected under the scenarios recommended by the City’s staff and the Water Resources Advisory Board. It is our view that the best option is to maintain the current rate structure for commercial and industrial users based on its simplicity and ease of administration. We strongly urge the City Council to avoid the potential complications of a change to this system. Instead of changing the current rate structure, incentives should be provided to those businesses that demonstrate reduced water use by investing in efficient equipment and/or implementing efficient water use techniques. That being said, the Chamber supports the City’s goals of increased water efficiency and overall water conservation. If the City Council determines that a new water rate structure is absolutely necessary and beneficial, we encourage the City Council to focus on recommendations that can most practically and equitably serve Boulder’s business community. When looking at the way water rates are (and could be) structured, it is inevitable that any system can be perceived as favorable to one business and unfavorable to another. In this sense, speaking as one voice for all of Boulder’s businesses is as much of a challenge to the Chamber as it is for the Council to speak for all residents. However, the business community does share many common concerns. All of Boulder’s businesses have a vested interest in avoiding excessive water expenses, and most business owners feel a sincere desire to behave in an environmentally sensitive way. Many of our members live in Boulder and share the same philosophy of stewardship as their neighbors who do not own businesses. Water serves the needs of Boulder’s residents While the Council is correct to be concerned with wasteful water use, water should also be recognized as one of the city’s economic tools. The availability of water is one of many attributes making Boulder attractive to both residents and businesses. The Chamber wants to emphasize that businesses, on their own, do not generate a demand for water. This demand ultimately comes from consumers who wish to purchase services and products, which impacts the water needs of Boulder’s businesses. In this sense, the water needs of Boulder’s businesses are a function of consumer demand and behavior. Based on such demands, some businesses rely on significant amounts of water to operate. Manufacturers, hotels, printing shops and restaurants may need varying amounts of water based on seasonal and/or unpredictable consumer demand. Businesses of all kinds may see a significant increase in water needs following an expansion, investments in production equipment or an increase in their number of employees. Ultimately, demands for the goods and services of Boulder’s businesses leads to increased sales taxes, which fund numerous community programs from open space acquisition to street maintenance. The rate structure challenge The current water rate structure is based on an average use allocation determined over a four-month interval each winter. The challenge posed by such a rate structure is that this four-month window may have no direct relevance to the truly “average” needs of a business throughout the year. Many industries such as hotels, restaurants and breweries experience their highest consumer demand during the summer months and require much more water than during the winter. Manufacturers experiencing downtime in the winter while retooling their equipment may see large increases in their water needs once they are back in production. In these cases, increased water use comes as a result of addressing the needs of consumers, and businesses should not be viewed- or charged - as inappropriately exceeding their “average”. The Chamber recognizes the challenge facing the Council in considering various styles of rate structures. If the Council determines a change is warranted, the Chamber urges the City to implement a system that eliminates the inequities of the seasonal-based calculation of “average” water use. Our recommendation We believe any such change should establish commercial/industrial Block 1 allocations based on an average monthly use (AMU) that is defined as the previous calendar year’s total use divided by 12 months. We would also suggest allowing businesses to set their AMU based on the previous two- or three-year periods to allow for unusual or exceptional fluctuations in their water use over an extended period. Such a structure would also need to be integrated with a system and policy that allows for exceptions on a case-by-case basis. An exception policy should address special cases such as substantial increases in water use following construction, expansion, or extended production “downtime”. Other exceptions may involve unusually high demand for products or services. More importantly, the Chamber does not support the recommendation by City staff and WRAB regarding an annual 20% reduction to Block 1 allocations. We understand the motive to encourage efficiency, however, such a blanket approach is inappropriate for many reasons, including: The decrease is arbitrarily imposed with no connection to specific equipment or techniques to achieve such efficiency Annual “ratcheting-down” presumes increased efficiency can always be achieved and works as a disincentive to invest in efficient equipment or techniques Such a structure can penalize a business experiencing growth or increased demand/customer traffic With a simple rate structure based on historical use and a system to manage special cases, we believe the Council can most fairly allocate the proper water resources to Boulder’s businesses and ensure the availability of goods and services Boulder’s residents and visitors expect. Don Fitzgerald, President Boulder Chamber of Commerce Board of Directors Susan Graf, President Boulder Chamber of Commerce