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Getting the Price Right: Seven Not-So-Easy Steps to Water Pricing Happiness

Getting the Price Right: Seven Not-So-Easy Steps to Water Pricing Happiness. Jeff Hughes jhughes@sog.unc.edu Environmental Finance Center University of North Carolina at Chapel Hill 919 843-4956 www.efc.unc.edu. Seven Not-So-Easy Steps. Compare with caution Modify as needed

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Getting the Price Right: Seven Not-So-Easy Steps to Water Pricing Happiness

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  1. Getting the Price Right:Seven Not-So-Easy Steps to Water Pricing Happiness Jeff Hughes jhughes@sog.unc.edu Environmental Finance Center University of North Carolina at Chapel Hill 919 843-4956 www.efc.unc.edu

  2. Seven Not-So-Easy Steps • Compare with caution • Modify as needed • Know your customers • Structure for success • Drought proof your rates • Communicate with your bill • Protect hardship customers without breaking your bank

  3. The Magic of Rates and Prices • Communication with your customers • Influence behavior • Financial well being

  4. Compare with Caution $1,200 2005 $1,032 $1,000 2004 $843 $753 $800 $669 $643 $582 $563 $600 $524 $497 $414 $400 $298 $282 $200 $0 Big Falls 2004 Big Falls 2005 Raleigh Sanford Durham Concord Asheville Chapel Hill Fayetteville Greensboro Wilmington Winston-Salem

  5. Careful Comparisons • Type of source water • Watershed • Size (accounts, capacity) • Age • Operating ratio • Management • …. • ….

  6. 2. Modify as Needed

  7. 3. Know Your Customers • How does their use fluctuate? • Demographics • Big users vs. small users • Irrigators vs. hose draggers

  8. 4. Structure for Success • Customer classes • Pick the right base charge option • Commodity charge

  9. Rate Structures and Pricing Signals Across North Carolina Source: 2007 NCLM/SOG Rate Survey, Price is $/1,000 for Customer using 14,000 gal./mo.

  10. Rate Structures Matter $60 $50 $40 $30 $20 $10 $0 Monthly-Equivalent Water Billing Median of 358 Water Systems, FY04-05 Utility A C Utility B B A Utility C 0 1 2 3 4 5 6 7 8 9 10 11 12 Monthly Consumption (in 1,000 gallons)

  11. Pricing Irrigation

  12. 5. Drought Proofing Your Rates • Conservative water usage projections • Sur charges

  13. Water Sales (1980-2004) Lower than projected demands have resulted in cumulative net revenue reduction of about $7.3 million over last 3 years. 9.0 8.5 8.0 7.5 7.0 Billed Water (MGD) 6.5 6.0 5.5 5.0 4.5 4.0 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004

  14. $26.85 per 1,000 $64.72 per 1,000 Source: www.owasa.org

  15. 6. Expand Communication Value of Bills • Rates • Clear service distinction • Historical usage • Comparative statistics

  16. 7. Protecting Hardship Customers

  17. For More Information: Jeff Hughes Environmental Finance Center School of Government University of North Carolina at Chapel Hill 919 843-4956 jhughes@sog.unc.edu www.efc.unc.edu

  18. A Utility’s Pricing World – Rate Setting Priorities Source: EFC & NCLM 2005 Rate Practices Survey (277 Utilities)

  19. Over Full Consumption Range Applicable up to 15,000 gpm Increasing Block Other 16% 2% Decreasing Block 13% Uniform 69% Source: FY05-06 Rate Schedules Water Rate Block Structures

  20. Price Signals As Consumption Declines from 10,000 to 6,000 GPM (40% Reduction)

  21. N = 252 systems Source:FY05-06 Rate Schedules; Census 2000.

  22. Fixed Base Charges for Water Service Fixed Charge Does Not Include any Consumption Fixed Charge Includes Some Consumption Source: FY05-06 Rate Schedules

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