Can a Water Rate Structure Really Promote Conservation?

1. U.S. Conference of MayorsUrban Water Council Can a Water Rate Structure Really Promote Conservation? October 21-22, 2004 Jeffrey Clunie

2. Background • 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

3. $3.00 $2.50 $2.00 Rate ($/kgal) $1.50 $1.00 $0.50 $0.00 1 4 7 10 13 16 19 22 25 28 Usage (thousand gallons per month) $3.00 $2.50 $2.00 Rate ($/kgal) $1.50 $1.00 $0.50 $0.00 1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 Usage (thousand gallons per month) Water rate structures Declining Block Uniform Block

4. Water rate structures

5. Nationwide survey of water utilities 38% have conservation- oriented rates Source: Adapted from the 2002 RFC Water and Wastewater Rate Survey;148 systems surveyed

6. Prior water rate structures in Hawai'i

7. Changes in water rate structures

8. Water 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

9. Kaua'i DOW Case Study

10. Summary 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

11. Kaua'i DOW rate structure

12. Kaua'i DOW inverted block rate structure (5/8-inch meter)

13. Kaua'i DOW monthly bills (5/8-inch meter)

14. Impact of water rate changes at Kaua'i DOW * Normal rainfall is 43.0 inches per year (Lihu‘e)

15. Hawai'i DWS Case Study

16. Summary 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

17. Hawai'i DWS rate structure

18. Hawai'i DWS inverted block rate structure (5/8-inch meter)

19. Hawai'i DWS monthly bills (5/8-inch meter)

20. Hawai'i DWS impact of water rate changes 1 Primarily single-family residences 2 Normal rainfall is 49.3 inches per year (Lanihau)

21. Findings and Conclusions

22. Findings 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

23. Findings 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

24. Findings 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

25. Questions?