Can a Water Rate Structure Can a Water Rate Structure Really Promote Conservation?Really Promote Conservation?

October 21-22, 2004Jeffrey Clunie

U.S. Conference of MayorsU.S. Conference of MayorsUrban Water CouncilUrban Water Council

Conservation-oriented rates are rates that provide an incentive price signal to wisely use water

Why adopt conservation rates? To promote efficient use of a limited resource To recognize that future sources of water are

more expensive than past sources of water Conservation rates are increasingly

prevalent across the country

BackgroundBackground

Water rate structuresWater rate structures

DecliningBlock

UniformBlock

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

1 3 5 7 9 11 13 15 17 19 21 23 25 27 29

Usage (thousand gallons per month)

Rat

e ($

/kga

l)

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

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Usage (thousand gallons per month)

Rat

e ($

/kga

l)

Water rate structuresWater rate structures

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

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Usage (thousand gallons per month)

Rat

e ($

/kga

l)

$0.00

$0.50

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Usage (thou. gal. /mth.)

Rat

e ($

/thou

. gal

.)Summer Rate

Winter Rate

Nationwide survey of water utilitiesNationwide survey of water utilities

Source: Adapted from the 2002 RFC Water and Wastewater Rate Survey;148 systems surveyed

38% have conservation-oriented rates

Prior water rate structures in HawaiPrior water rate structures in Hawai''ii

CountyRate Structure in 2001

Hawai'i County Department of Water Supply

Inverted (3 blocks)

Kaua'i County Department of Water

Uniform (1 block)

Changes in water rate structuresChanges in water rate structures

CountyRate Structure in 2001

Rate Structure 2003

Hawai'i DWS Inverted (3 blocks)

Inverted (4 blocks)

Kaua'i DOW Uniform (1 block)

Inverted (3 blocks)

Water usage analysisWater usage analysis

Examined monthly Kaua'i DOW and Hawai'i DWS consumption data before and after 2001 rate change

Focused on single-family residences (if possible)

Normalized for precipitation (as rainfall affects water consumption)

Completed statistical analysis of monthly water usage over a 4-year period

KauaKaua''i DOW Case Studyi DOW Case Study

Summary of 2001 rate changesSummary of 2001 rate changes

Change from uniform block to inverted block rate structure

Average 32 percent rate increase Rate blocks vary by meter size

5/8 inch meters: 10,000 gallons per month in lower cost first block

Larger meters: higher water allowance in the lower cost first block

KauaKaua''i DOW rate structurei DOW rate structure

July 1997 July 2001Service Charge, $/month

5/8-inch meter $6.00 $9.00

Consumption Charge, $/thousand gallons0 to 10,000 gallons $1.78 $2.1010,001 to 20,000 gallons $1.78 $2.40> 20,001 gallons $1.78 $3.40

Consumption amounts are over a one-month period

KauaKaua''i DOW inverted block i DOW inverted block rate structure (5/8-inch meter)rate structure (5/8-inch meter)

$0.00

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00

0 5 10 15 20 25 30 35 40 45 50Monthly Usage (kgal)

Vo

lum

e C

ha

rge

($

/kg

al)

Pre 2001 Rates Post 2001 Rates

KauaKaua''i DOW monthly bills i DOW monthly bills (5/8-inch meter)(5/8-inch meter)

$0

$25

$50

$75

$100

$125

$150

$175

$200

$225

$250

$275

$300

0 5 10 15 20 25 30 35 40 45 50 55 60 65 70Monthly Usage (kgal)

Mo

nth

ly B

ill ($

) Pre 2001 Rates Post 2001 Rates

Impact of water rate changes at Impact of water rate changes at KauaKaua''i DOWi DOW

* Normal rainfall is 43.0 inches per year (Lihu‘e)

Single-family Residential Water Usage, kgal/ month

-5.4%

11.4

12.0

Actual

-3.7%

11.3

11.7

Weather Normalized

Change

36.6Avg 2002 – 2003

33.3Avg 2000 – 2001

Average* Rainfall (in)

Single-family Residential Water Usage, kgal/ month

-5.4%

11.4

12.0

Actual

-3.7%

11.3

11.7

Weather Normalized

Change

36.6Avg 2002 – 2003

33.3Avg 2000 – 2001

Average* Rainfall (in)

HawaiHawai''i DWS Case Studyi DWS Case Study

Summary of the 2001 rate changesSummary of the 2001 rate changes

Changed from 3-block to 4-block inverted rate structure

Average 29 percent rate increase Made rate blocks “steeper” Rate blocks vary by meter size

5/8 inch meters: 5,000 gallons per month in the lower cost first block

Larger meters: higher water allowance in the lower cost first block

HawaiHawai''i DWS rate structurei DWS rate structure

July 1997 April 2001Service Charge, $/month

5/8-inch meter $8.00 5/8-inch meter $10.00

Consumption Charge, $/thousand gallons0 to 5,000 gallons $1.65 0 to 5,000 $1.785,001 to 19,000 gallons $2.00 5,001 to 15,000 $2.43> 19,001 gallons $2.81 15,001 to 40,000 $3.48

> 40,001 gallons $4.29

Consumption amounts are over a one-month period

HawaiHawai''i DWS inverted block i DWS inverted block rate structure (5/8-inch meter)rate structure (5/8-inch meter)

$0.00

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00

0 5 10 15 20 25 30 35 40 45 50Monthly Usage (kgal)

Vo

lum

e C

ha

rge

($

/kg

al)

Pre 2001 Rates Post 2001 Rates

HawaiHawai''i DWS monthly bills i DWS monthly bills (5/8-inch meter)(5/8-inch meter)

$0

$25

$50

$75

$100

$125

$150

$175

$200

$225

$250

$275

$300

0 5 10 15 20 25 30 35 40 45 50 55 60 65 70Monthly Usage (kgal)

Mo

nth

ly B

ill ($

) Pre 2001 Rates Post 2001 Rates

HawaiHawai''i DWS impact of water rate i DWS impact of water rate changeschanges

1 Primarily single-family residences 2 Normal rainfall is 49.3 inches per year (Lanihau)

Water Use (customers billed

bimonthly1), kgal/ month

+3.5%

17.8

17.2

Actual

+3.7%

17.7

17.1

Weather Normalized

Change

41.2Avg 2002 – 2003

35.6Avg 2000 – 2001

Average2

Rainfall (in)

Water Use (customers billed

bimonthly1), kgal/ month

+3.5%

17.8

17.2

Actual

+3.7%

17.7

17.1

Weather Normalized

Change

41.2Avg 2002 – 2003

35.6Avg 2000 – 2001

Average2

Rainfall (in)

Findings and ConclusionsFindings and Conclusions

Findings and conclusionsFindings and conclusions

Kaua'i DOW: water usage appearsto have been affected by large rate increase implemented with additionof an inverted block rate structure

Converting to an inverted block rate structure from a uniform block rate structure helped to reduce water use

Findings and conclusionsFindings and conclusions

Hawai'i DWS: a large rate increase implemented with increasing steepness of inverted block rate structure did not lead to significantly lower water use

Reasons are not known, but could be: Increasing steepness of rate blocks

impacted relatively few customers Customers with long-standing inverted

block rates may have already changed their water use patterns

Findings and conclusionsFindings and conclusions

Inverted block rate structures may not always be sending a strong conservation price signal: Unit cost of water for most water users is

typically decreasing Unit cost of water often increases only for

water usage that is much higher than average

Result: Most customers do not see a large bill impact from the inverted block rate structure

Questions?Questions?