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Water Pricing

Water Pricing. Molly Waters Utah Division of Water Resources March 10, 2004. The Nature of Water Rates. What is the purpose of water rates? Generate revenue Allocate costs Provide incentives. The Nature of Water Rates. Characteristics of water pricing High Fixed Costs

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Water Pricing

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  1. Water Pricing Molly Waters Utah Division of Water Resources March 10, 2004

  2. The Nature of Water Rates • What is the purpose of water rates? • Generate revenue • Allocate costs • Provide incentives

  3. The Nature of Water Rates • Characteristics of water pricing • High Fixed Costs • Institutional Nature • Environmental Concerns

  4. Why Change Rates? • Stabilize revenues • Incent water conservation

  5. “Acceptable” Water Rates • Public Perception • Revenue Stability • Allocation Equity

  6. Let’s Get Real "Theoretical niceties are fine for academics, but it is the pragmatic requirements of daily existence that shapes choice in the real world.“ --Breslaw, 1988

  7. 1 – Evaluate the Environment • Operational • Economics • Customers (political)

  8. 2 – Form an Advisory Committee • Provides a cross section of the public to help form a water pricing policy that is more likely to be acceptable to the general public.

  9. 2 – Form an Advisory Committee • Who’s on one of these?? • People with water experience • Community leaders • USU Extension agents • Activists • City/District Staff Support

  10. 3 – Identify Your Options • What pricing structure is right for your organization, your economics, and your customers? • Seasonal • Increasing • Target Billing

  11. “Lifelines” • Usually represents a basic amount of water needed for sanitation • UNFAIR to little old ladies on fixed incomes

  12. Seasonal Rate Rate Increases during high demand season when costs are higher

  13. SEASONAL RATE

  14. SEASONAL RATE • Sends a MESSAGE to the customer • Education opportunity • Requires frequent billing

  15. Increasing Block Rate Rate increases with each succeeding Block of Usage

  16. Increasing Block Rate

  17. Increasing Block Rate • Why charge large water users more? • Price elasticity • More discretionary use • Achieve goals quickly • They can afford it • Large landscapes

  18. Target Billing Rate Increases after allocation or “target” is exceeded

  19. Target Billing

  20. Target Billing • Most “fair” • Most “complicated”

  21. Cost Comparison Increasing Target Use Seasonal Block Billing Flat 62 $108.00 $156.00 $106.00 $77.00 Kgal 39 $73.00 $87.00 $54.00 $54.00 Kgal Diff. $35.00 $69.00 $52.00 $23.00

  22. Economic Development Rates • Select customers only • MUST be careful • Must have a positive c:b. • Can be and probably should be temporary

  23. Legality Financial Stability Equity Impact on Customers Simplicity Ease of Implementation Conservation Meets Objectives 4 – Develop Evaluation Criteria

  24. 4 – Develop Evaluation Criteria • Legality • Excess revenues • CHECK THE LAW

  25. 4 – Develop Evaluation Criteria • Financial Stability • Goal: Keep the lights on

  26. 4 – Develop Evaluation Criteria • Financial Stability • Customer Charges • Privilege • Demand Charges • Take or pay contracts • Volume Charges • Treatment & pumping Base Rate Overages

  27. 4 – Develop Evaluation Criteria • Equity • Large landscapes • Large families

  28. 4 – Develop Evaluation Criteria • Impact on Customers • All classes • Fixed incomes • Low-incomes • Welfare programs?

  29. 4 – Develop Evaluation Criteria • Simplicity • Can you explain it?

  30. Improving Communication With Customers

  31. 4 – Develop Evaluation Criteria • Ease of Implementation • Staff • Billing software

  32. 4 – Develop Evaluation Criteria • Conservation • Encourage conservation • Stabilize revenue • MUST be addressed beforehand • Difficult to assess

  33. 4 – Develop Evaluation Criteria • Conservation • CAN IT BE DONE?? • Must be based on actual costs • Timing must be right

  34. 4 – Develop Evaluation Criteria • Meets Objectives • Organizational culture • Community

  35. 5 – Evaluate and Select a Rate • Rank on a scale of 1 – 10 based on your committee’s predetermined criteria (step 4).

  36. The Apparent Conflict • Why don’t we always achieve the results we set out for? • Inherent flaws in the structure • Timing • Political pressure

  37. 5 Steps to New Rates • 1 – Evaluate the Environment • 2 – Form an Advisory Committee • 3 – Identify Your Options • 4 – Develop Evaluation Criteria • 5 – Evaluate and Select a Rate

  38. THANK YOU! Molly Waters Utah Division of Water Resources Mollywaters@utah.gov (801) 538-7254

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