business model resiliency - university of north carolina ... · tiger project manager shadi eskaf...
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� Moving Beyond Dollars Per Gallons Sold” (#38983) Defining a Resilient Business Model
for Water Utilities Water Research Foundation #4366
ACE 2013 DENVER Wednesday; 3:30 – 5:00PM
Jeff Hughes, Environmental Finance Center at UNC
http://efc.sog.unc.edu
Project Title(s)
• Water Research Foundation Project #4366
• Defining a Resilient Business Model for Utilities
• Assessing Financial Trends and Developing Strategies and Practices to Address Challenges
• If it is Broke, Maybe you Should Fix it…
Team: Environmental Finance Center at UNC
Jeff Hughes Principal Investigator
Stacey Isaac Berahzer Outreach Coordinator
Mary Wyatt Tiger Project Manager
Shadi Eskaf Technical Lead
Sarah Royster Technical Support
Team: Raftelis Financial Consultants
Peiffer Brandt Co-Principal Investigator
Alexis Warmath Utility Liaison
Doug Bean Project Advisor and Liaison
Catherine Noyes Technical Support
Rocky Craley Technical Support
Project Advisory Committee
• Nick Dugan, US Environmental Protection Agency
• Amber Halloran, Louisville Water Company
• Scott Haskins, CH2M Hill
• Myron Olstein, Independent Consultant
Water Research Foundation Project #4366 EPCOR
NEOMSD
Aqua America
Loveland
Denver
Austin
Water Research Foundation Project #4366 – Utility Partners
Interested in Project
• Report coming fall 2013
• Water Research Foundation Website
• Project Blog efc.web.unc.edu
One Utility’s Experience
And Another’s
Newport News Waterworks’ Drop in Demand
Fixed vs. Variable Revenues and Expenses
Revenue Impact of Reduced Volumetric Sales (10,000 gallons to 5,000 gallons per month)
$0.00
$2.00
$4.00
$6.00
$8.00
$10.00
$12.00
$14.00
$16.00
$18.00
0 5,000 10,000 15,000 20,000
Ave
rage
Per
ice
per
1 k
gal f
or
a 5
kga
l per
Mo
nth
Wat
er B
ill
Average Household Water Use (Gallons per Month)
Correlation between 2012 Average Monthly Household Water Use and Average Price/1,000 Gallons for a 5,000 GPM Water Bill (661 TX Municipalities)
Data Source: Analysis by UNC Environmental Finance Center using Data from Texas Municipal League
The challenge of driving revenue increases through rate increases:
HH rate versus revenues increases (2004 to 2010)
Data analysis by the Environmental Finance Center at the University of North Carolina. Data sources: 2010 and 2004 RFC/AWWA Water and Wastewater Rates Survey Data for 82 Utilities
1 to 1 Line
Change what you sell…
• Capacity – Readiness to Serve
• Pricing and selling fire protection
Charlotte-Mecklenburg Utilities Water and Sewer Revenues Fixed versus variable
Data sources: Mickey Hicks, CFO, Charlotte-Mecklenburg Utilities
Fire Protection Pricing (e.g. EPCOR – Edmonton)
• Fire Hydrant Service fee charged to the City of Edmonton; the City of Edmonton’s Fire Rescue Service Budget
Change How You Sell It
Skepticism Among the Judges
• Inspiration: electricity peak charge
• A customer’s base charge for fiscal year set based on their three-year rolling average peak
Comparison of BJWSA current residential rate to a “revenue neutral” PeakSet Base model
Can Annual Revenue be More Predictable Without Losing Price Signal?
One Possible Option: Peak-set Base Rates
Current BJWSA residential rate structure
PeakSet base residential rate structure
% fixed annual revenue 18% 57%
Base rate $6.00/meter – water + $6.00/meter - irrigation
$1.85/kgal applied to 3-year rolling average of
peak month of demand Variable rate $3.46/kgal of previous
month’s use $0.52/kgal of previous
month’s use
Matt Williams, Water Advisory Committee Member to the City
of Davis (CA) Water Division
$-
$20.00
$40.00
$60.00
$80.00
$100.00
$120.00
July(25)
Aug(21.1)
Sept(14.4)
Oct(9.9)
Nov(7.2)
Dec(7.3)
Jan(8.4)
Feb(6.5)
Mar(6.6)
Apr(11.4)
May(18.7)
June(29.9)
Wat
er C
har
ge
Fiscal Year 2011 (kgal consumed)
Current Rate ($647.744)
AR1 ($621.548)
Peak-set Base: Example of Customer Impact (Beaufort Jasper Water and Sewer Authority Simulation)
Comparison of monthly charges for water under current rate and a Peak-set Base model
FY10 Peak Demand 24,100 gallons
Beaufort-Jasper Water and Sewer Authority By Account – Residential – High Fixed
Feedback from Expert Panel
• 8: “This model is intriguing. I like that it relates to customer classification. I think it should target the largest customers first. I do worry about customers understanding the mixed signals.” (Beecher)
• 8: “This model provides a steady stream of revenue for the utility, which makes it very attractive to me. I like that it helps customers manage their peak demand.” (Scott)
• 7: “I like that the base rate is set based on use, rather than need – but what happens if people really conserve?” (Walker)
1 2 3 4 5
3%
27%
18%
12%
39%
On a scale of 1 -5, how well would the Peakset Base Model work for your utility or the utilities you work with?
1. Very well
2. Pretty well
3. Maybe so, maybe not
4. Not well
5. Dreadfully
Poll taken by EFC of approximately 30 utility staff officials at 2012 AWWA’s ACE in Dallas
CustomerSelect Rate Model
Monthly water
allotment
Cost for water under
current rate structure
CustomerSelect
Plan Cost Overage Charge
2,000 gallons $8.93-$13.13 $8.13 $6.83/kgal
6,000 gallons $15.23-$30.38 $18.70 $6.83/kgal
10,000 gallons $35.43-$54.18 $32.52 $6.83/kgal
24,000 gallons $64.75-$146.68 $81.30 $6.83/kgal
unlimited >$154.18 $162.60 NA
• Individual customers choose plans that best works with their consumption and pay an overage fee if the household uses more than the plan
CustomerSelect Rate plans simulated for Clayton County Water Authority (GA)
QUESTIONS??? COMMENTS!!!