Residential Water Demand: Lessons From Aurora, Colorado

Christopher Goemans

Together with: Douglas S. Kenney, Roberta Klein, Jessica Lowery and Kevin Reidy

Partnership with Aurora, Colorado Highlighted Areas of the Study

◦ Water Smart Readers◦ Outdoor Water Restrictions

Methodology Results Conclusions

Overview

“…one way or another, we know that drought will return. The longer we go without drought, the

more likely we will be ill-prepared when drought makes its inevitable next visit to Colorado. Are we

ready?”

A History of Drought in Colorado: Lessons Learned and What Lies Ahead

McKee et al., Feb 2000

Households face a fixed service cost (FC) plus a uniform per unit charge (P1); all prices are shown per thousand gallons (TH Gal)

In addition to FC, households face an increasing block rate structure for all units consumed. Block widths are standardized across allhouseholds

In addition to FC, households face an increasing block rate structure for all units consumed. Block widths are specific to each household, based on average daily indoor consumption (ADIC) and an irrigation allowance (IA). Households receive a varying percentage of theirADIC and IA in each block depending on drought conditions.

Single Rate

Inc. Block Rate

Inc. Block Rate basedon Water Budgets

* Block widths in diagrams not to scale** Rate structure type reflects the rate structure utilized during summer months

Source: City of Aurora: Water Management Plan (2002-2004) and ratesall.txt provided by the City of Aurora Utilities Department.

5/1/02 7/6/02 10/1/02 1/1/03

FC = 2.69P1=1.91

FC = 2.87P1=2.04

5/3/03

FC = 3.30P1=2.34

FC = 2.87P1=2.04

12/31/041/1/04 5/1/04

TH Gal

3.03

6.25

9.20

$

FC = 3.79

TH Gal

2.68

5.90

8.85

$

FC =3.30 FC = 3.79

TH Gal

3.34

5.01

6.68

$

TH Gal

2.04

4.08

6.12

$

FC = 2.87

Households face a fixed service cost (FC) plus a uniform per unit charge (P1); all prices are shown per thousand gallons (TH Gal)

In addition to FC, households face an increasing block rate structure for all units consumed. Block widths are standardized across allhouseholds

In addition to FC, households face an increasing block rate structure for all units consumed. Block widths are specific to each household, based on average daily indoor consumption (ADIC) and an irrigation allowance (IA). Households receive a varying percentage of theirADIC and IA in each block depending on drought conditions.

Single Rate

Inc. Block Rate

Inc. Block Rate basedon Water Budgets

* Block widths in diagrams not to scale** Rate structure type reflects the rate structure utilized during summer months

Households face a fixed service cost (FC) plus a uniform per unit charge (P1); all prices are shown per thousand gallons (TH Gal)

In addition to FC, households face an increasing block rate structure for all units consumed. Block widths are standardized across allhouseholds

In addition to FC, households face an increasing block rate structure for all units consumed. Block widths are specific to each household, based on average daily indoor consumption (ADIC) and an irrigation allowance (IA). Households receive a varying percentage of theirADIC and IA in each block depending on drought conditions.

Single Rate

Inc. Block Rate

Inc. Block Rate basedon Water Budgets

* Block widths in diagrams not to scale** Rate structure type reflects the rate structure utilized during summer months

Households face a fixed service cost (FC) plus a uniform per unit charge (P1); all prices are shown per thousand gallons (TH Gal)

In addition to FC, households face an increasing block rate structure for all units consumed. Block widths are standardized across allhouseholds

In addition to FC, households face an increasing block rate structure for all units consumed. Block widths are specific to each household, based on average daily indoor consumption (ADIC) and an irrigation allowance (IA). Households receive a varying percentage of theirADIC and IA in each block depending on drought conditions.

Single Rate

Inc. Block Rate

Inc. Block Rate basedon Water Budgets

* Block widths in diagrams not to scale** Rate structure type reflects the rate structure utilized during summer months

Source: City of Aurora: Water Management Plan (2002-2004) and ratesall.txt provided by the City of Aurora Utilities Department.

5/1/02 7/6/02 10/1/02 1/1/03

FC = 2.69P1=1.91

FC = 2.87P1=2.04

5/3/03

FC = 3.30P1=2.34

FC = 2.87P1=2.04

12/31/041/1/04 5/1/04

TH Gal

3.03

6.25

9.20

$

FC = 3.79

TH Gal

3.03

6.25

9.20

$

FC = 3.79

TH Gal

2.68

5.90

8.85

$

FC =3.30

TH Gal

2.68

5.90

8.85

$

FC =3.302.68

5.90

8.85

$

FC =3.30 FC = 3.79

TH Gal

3.34

5.01

6.68

$

FC = 3.79

TH Gal

3.34

5.01

6.68

$

TH Gal

2.04

4.08

6.12

$

FC = 2.87

TH Gal

2.04

4.08

6.12

$

FC = 2.87

Rapidly Growing Suburb of Denver◦ Aurora Water provides service to approx 300,000

Residents◦ 70-80% of Deliveries to Residential Customers

Response to Drought of 2002 Major price and rate structure changes Imposed mandatory restrictions Variety of indoor/outdoor rebate programs

◦ Total annual deliveries decreased by 8% in 2002 and 26% in 2003

◦ Vast majority of cutbacks came from the residential sector

Overview of Partnership Objectives◦ Analyze residential water demand to determine “what

happened”◦ What information can we use to better prepare for next-

time?◦ Billing and rebate participation records

Aurora, Colorado

Impact of Water Smart Readers on Demand◦ Provide Households with real time water-use

information◦ Cost $30 (after $25 rebate)

Impact of Restrictions on Demand and the Effectiveness of Price◦ Impact of restrictions depends on “type” of

household◦ Restrictions change how we respond to price

Highlighted Areas of the Study

Low Outdoor Demand High Outdoor Demand

Pri

ce

Quantity

Effect of Outdoor-use Restrictions on Demand:High v. Low Water Users

P*

Constraint onOutdoor Use

P**

0

5

10

15

20

25

30

35

40

January

February

March

AprilM

ayJune

JulyAugust

September

October

November

December

Th

ou

san

ds

of

Gal

lon

s

High Pre-Drought Mid Pre-Drought Low Pre-Drought

High Drought Mid Drought Low Drought

Effect of Outdoor Water Restrictions on Demand and Price Responsiveness

Residential Water Demand Model

0 1 , 1 2

3 4 5 , 6 ,

, 7 , 8 , 9 10

11 12 1

i t i,t -1 t

t i t i t

i t i t i t t t

t t i

ln aveprice ln aveprice * restrict

restrict blockrate ln blprddays outdoorreb

ln w indoorreb wsr Irrigation Holiday

avemaxt totprecip ln hhinc

2 2

3 4 5 6

i i

i i i i it

it i it

medage pph

houseowned newhome oldhome numbedrooms

1. What about the simultaneous choice of price and quantity?

2. Aren’t you missing a few things? Lot size, swimming pools…

1 2 *Price Elasticity restrict

2 3% * i,t -1Dueto Restrictions ln aveprice

Overview of ResultsDependent Variable: ln(consum)

-0.595 0.29645(156.57)*** (133.19)***

0.226 0.07216(34.54)*** (39.66)***

-0.308 0.02379(57.9)*** (341.39)***

-0.050 -0.03604(31.22)*** (67.07)***

0.611 -1.18024(114.8)*** (63.31)***

0.006(0.69)

-0.099(15.54)***

0.161(9.38)***

Number of Observations 679,134Number of Households 10,143Overall R-squared .40Absolute value of z statistics in parentheses;* significant at 10%; ** significant at 5%; *** significant at 1%

avemaxt

totprecip

constant

Factors Under Utility Control

irrigation

holiday

Factors Not Under Utility Control

All Households

outdoorrebate

indoorrebate

wsr

ln(cpilagap)*restrict

restrict

blockrate

ln(blprddays)

ln(cpilagap)

Price ElasticityPrice Elasticity

During Restrictions% Change in Demand Due to

Restrictions Only*All -0.60 -0.37 -13.44%Low Users -0.34 -0.46 -5.92%Middle Users -0.57 -0.39 -13.15%High Users -0.75 -0.24 -17.41%

“High” Users More Responsive to Price than “Low” Users

Price Changes Made When Restrictions are in Place Primarily Target “Low” users◦ Why does P.E. for Low Water Users Increase when

Restrictions are in Place? “High” Users Respond Most to Restrictions

Results- Interaction of Price and Restrictions by Type of User

1 1 2 2 3* i,t -1ln aveprice

Does Owning a WSR Really Increase Water-use?◦ Instrumenting for WSR using “second”

advertisements Why Would Owning a WSR Impact Water-

use?◦ Better understanding of the cost of particular

activities◦ “Quantity Uncertainty”

Results- WSR

Quantity Uncertainty

Price

Quantity

p

D

*q

AB

pq pq

Price

Quantity

p

D

*q

AB

pq pq

Normalized Distance to Closest Block With and W/out WSR during Water Budget Periods (All Households)

13

57

90

24

68

10

Pe

rce

nt

of

Ob

se

rva

tio

ns

-.95 -.85 -.75 -.65 -.55 -.45 -.35 -.25 -.15 -.05 .05 .15 .25 .35 .45-1 -.9 -.8 -.7 -.6 -.5 -.4 -.3 -.2 -.1 0 .1 .2 .3 .4 .5Normalized Distance to Closest Block

WSR No WSR

Chris GoemansPost Doctoral Research AssociateCooperative Institute for Research in Environmental

SciencesUniversity of Colorado

chris.goemans@colorado.edu(303) 492-2328

Questions? Comments? Suggestions?

Of the 67 Municipalities Surveyed:◦ Fewer than half had done some form of drought

planning◦ Only 22% reported having a drought response

plan

“Few communities have done any serious drought planning”Planning for DroughtColorado Water Conservation Board, May, 2000

Variation of Annual Natural FlowSouth Platte River at South Platte

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

1916 1922 1928 1934 1940 1946 1952 1958 1964 1970 1976 1982 1988 1994 2000

Acr

e-fe

et

2002: 23% of average

Source: Kerry Kuykendoll (2003)

Assume that where

Fixed Effects

it it i it

it i it

y x z

, 0

, 0

corr x

corr z

i iiiy x z

i iit it itiy y x x