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HomeMy WebLinkAboutUtilities 2013-05-06 Item 2C - Discussion - Water Utility Rate Workshop UpdateTo: City of Tukwila Jim Haggerton, Mayor INFORMATIONAL MEMORANDUM Mayor Haggerton Utilities Committee From: Bob Giberson, Public Works Director /86 By: Gail Labanara, Public Works Analyst Date: May 3, 2013 Subject: Water Utility Rate Workshop Update ISSUE Analysis of the Water Fund's rate structure and whether changes are needed. BACKGROUND The Water Supply Forum, of which Cascade Water Alliance is a member, held a regional workshop, Rate Policy Development in Changing Times, on April 8, 2013. The workshop covered declining water demands, revenue stability and rates. During the workshop individual groups met to prioritize competing policy objectives related to affordability, conservation, administration, and other factors. Once priorities were listed, specific rate structures were then discussed that would facilitate the chosen rate structure. The Puget Sound region's water supply is plentiful, however our concern now is that with conservation and the recession, the demand for water has decreased dramatically. As reported in the 2009 Regional Outlook for utilities in the three - county region of King, Pierce and Snohomish, there has been a 25% decrease in water use per household from 1990 to 2005 for both single and multi - family residential customers. Commercial and industrial water users have also significantly reduced their use. Fortunately smaller declines are expected in the future, but with any decrease in water consumption, the impact is reduced revenue to our water utility and capital infrastructure projects. ANALYSIS The Forum's workshop looked at the alignment of costs and revenue. Overall, our revenue is 75% variable with our summer water rates and only 25% fixed with our base meter fees, while expenditures are 90% fixed for operations and maintenance and 10% variable for capital projects. For rate stability we will need to have our revenue at a more fixed component as water consumption continues to remain flat. During the Committee meeting, we will recreate the exercise from the Workshop to rate our priorities for the water utility in Revenue Stability, Conservation & Efficiency, Affordability, and Rate Understandability (please see attached sheets for definitions and priority listing practice sheet). This will help determine our objectives for Tukwila and if we should make changes to our existing rate structures which would assist us in better reaching our goals for fund reserves and capital projects. RECOMMENDATION Information only. Attachments: Water Supply Forum Regional Workshop Overview of Rate Structure Objectives W:\PW Eng\OTHER \Gail Labanara \Water 8 Sewer Documents\Info Memo Water Utility Rate Workshop 05 -03- 13.docx 7 Water Supply Forum Regional Workshop April 8, 2013 Overview of Rate Structure Objectives Definition Context Goal(s) • Control and predict revenue, regardless of external factors • Encourage efficient water use • Provide affordable water to "lifeline" users • Keep structure simple to administer and explain to customers ■ Recent water sales have remained below expectations ■ Extended revenue shortfalls can deplete utility reserves and require other actions • Reduce revenue volatility /variability Water use efficiency rule requires implementation of measures to achieve water savings! goals Price signals can encourage efficient water use / reduce idle capacity • Reduce overall and peak demands nsider utility rate impacts on senior / low- income / disabled customers • Rate structure features may provide alternative to policy -based discounts • Keep costs low for basic "lifeline" water use • Rate structures reflect a set of policy objectives • Objectives are best achieved when the structure is understood by policymakers, staff, and customers ■ Improved predictability of, revenue for planning • Enhanced alignment of revenues with fixed costs Possibility of reducing reserve requirements • Recover costs from users based on demand • Reduced variable costs Improved equity in cost recovery from customers Possibly delay costly capacity investments • Relief to low -end users • Potential synergy with conservation /efficiency objectives • Guide behavior through logical pricing signals • Keep rate structure simple to administer and explain • Potentially reduced administrative costs • Improved customer relations • Limited incentive to use water efficiently • Diminished equity in cost recovery from customers • Increased revenue volatility /variability • Diminished alignment of revenues with fixed costs • Possibility of needing higher reserve levels • Increased revenue volatility /variability • Policy -based objectives may reduce equity • Limited ability to target desired customer base • May limit ability to achieve other objectives CO How Can We Impact Achievement of the Objectives? Revenue Stability Conservation & Efficiency IncreDecreaSirtR Vottome Charges asing Fixed Charges / 0 .000■0.0,0 '''''''''' Decseasirsg Fixed Charges / increasing Volume Charges Affordability Understandability • ,111 rf/ 010 6',./w/1,10fibityi) //% How Would You Weigh These Objectives? • Pair-wise Comparison: — Compare two objectives at a time — Assign subjective weighting "points" to each objective — Evaluate relative priority of objectives • Our Version: — For each comparison, assign 1-5 points to each objective 2 1 a I More Less Equally ortant v,1Iu,Af 9 Sample Pairwise Comparison 2 Revenue Stability vs. Conservation & Efficiency 4 Revenue Stability vs. Affordability 2 4 Revenue Stability vs. Understandability 2 3 Conservation & Efficiency vs. Affordability 3 Conservation & Efficiency vs. Understandability 2 Affordability Objective Total Score Revenue Stability & 2+4+4 =10 Reliability Conservation & Efficiency 4 +3 +4 =11 Affordability 2 +3 +3 =8 Understandability 2 +2 +3 =7 Ranking 2 1 3 Now: Split Into Groups & Do The Comparison 10 Revenue Stability Water Supply Forum Regional Workshop - April 8, 2013 Prioritization of Rate Structure Objectives !9' tre tlol S I For each comparison, please allocate 6 points across both objectives being compared by assigning a score of 1 -5 points to each objective. 1 2 Much Less Less Important Important 3 Equally Important 4 More Important 5 Much More Important Comparison of Objectives Revenue Stability Revenue Stabilit Conservation & Efficiency Affordability Understandability Ranking of Objectives Understandability Affordability Understandability Page 1 11 Conservation & Efficiency vs. Affordability Conservation & Efficiency vs. Understandability Ranking of Objectives Understandability Affordability Understandability Page 1 11