© 2016 Water Research Foundation. ALL RIGHTS RESERVED. © 2016 Water Research Foundation. ALL RIGHTS RESERVED. No part of this presentation may be copied, reproduced, or otherwise utilized without permission.

Research Symposium

Moving Toward a More Resilient Business Model: Alternative rates and other strategies

May 17, 2016

© 2016 Water Research Foundation. ALL RIGHTS RESERVED. © 2016 Water Research Foundation. ALL RIGHTS RESERVED.

Moving Toward a More Resilient Business Model: Alternative rates and other strategies

Jeff Hughes, Director Environmental Finance Center at UNC

jhughes@unc.edu www.efc.sog.unc.edu

© 2016 Water Research Foundation. ALL RIGHTS RESERVED. © 2016 Water Research Foundation. ALL RIGHTS RESERVED.

Topics

•  Project information •  Pricing oriented strategies • Other strategies

ProjectTitle(s)

•  WaterResearchFounda7onProject#4366•  DefiningaResilientBusinessModelforU7li7es

•  AssessingFinancialTrendsandDevelopingStrategiesandPrac7cestoAddressChallenges

•  IfitisBroke,MaybeyouShouldFixit…

Team:EnvironmentalFinanceCenteratUNC

JeffHughesPrincipalInves7gator

StaceyIsaacBerahzerOutreachCoordinator

MaryWya5TigerProjectManager

ShadiEskafTechnicalLead

SarahRoysterTechnicalSupport

Team:RaUelisFinancialConsultants

PeifferBrandtCo-PrincipalInves7gator

AlexisWarmathU7lityLiaison

DougBeanProjectAdvisorandLiaison

CatherineNoyesTechnicalSupport

RockyCraleyTechnicalSupport

ProjectAdvisoryCommiWee

•  NickDugan,USEnvironmentalProtec7onAgency

•  AmberHalloran,formerlyLouisvilleWaterCompany

•  ScoWHaskins,CH2MHill•  MyronOlstein,IndependentConsultant•  JonathanCuppeW,WaterResearchFounda7onProjectManager

WaterResearchFounda0onProject#4366EPCOR

NEOMSDAquaAmerica

Loveland

Denver

Aus7n

WaterResearchFoundaHonProject#4366–UHlityPartners

OneU7lity’sExperience

!

IndustryRevenueRollerCoaster

Thechallengeofdrivingrevenueincreasesthroughrateincreases:

HHrateversusrevenuesincreases(2004to2010)

DataanalysisbytheEnvironmentalFinanceCenterattheUniversityofNorthCarolina.Datasources:2010and2004RFC/AWWAWaterandWastewaterRatesSurveyDatafor82U7li7es

1to1Line

RethinkingRateModels,Projec7ons,andCashflowPlans

•  Moreconserva7ve•  Ratemodelswithless(orno)dependenceonrevenuesfromhighvolumeorhighblocksales

•  “Excess”revenuestransferredtoreservefundsorusedforincreasedpayasyougocashcapitalfunding

CharloWe-MecklenburgU7li7esWaterandSewerRevenuesFixedversusvariable

Datasources:MickeyHicks,CFO,CharloWe-MecklenburgU7li7es

WaterPricing2.0?

•  Inspira7on:electricitypeakcharge•  Acustomer’sbasechargeforfiscalyearsetbasedontheirthree-year

rollingaveragepeakComparisonofBJWSAcurrentresiden7alratetoa“revenueneutral”PeakSet

Basemodel

CanAnnualRevenuebeMorePredictableWithoutLosingPriceSignal?

OnePossibleOpHon:Peak-setBaseRates

CurrentBJWSAresidenHalratestructure

PeakSetbaseresidenHalratestructure

%fixedannualrevenue 18% 57%

Baserate $6.00/meter–water+$6.00/meter-irriga7on

$1.85/kgalappliedto3-yearrollingaverageofpeakmonthofdemand

Variablerate $3.46/kgalofpreviousmonth’suse

$0.52/kgalofpreviousmonth’suse

$-

$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)

WaterCha

rge

FiscalYear2011(kgalconsumed)

CurrentRate($647.744)

AR1($621.548)

Peak-setBase:ExampleofCustomerImpact(BeaufortJasperWaterandSewerAuthoritySimula7on)

ComparisonofmonthlychargesforwaterundercurrentrateandaPeak-setBasemodel

FY10PeakDemand24,100gallons

FeedbackfromExpertPanel

•  8:“Thismodelisintriguing.Ilikethatitrelatestocustomerclassifica7on.Ithinkitshouldtargetthelargestcustomersfirst.Idoworryaboutcustomersunderstandingthemixedsignals.”(Beecher)

•  8:“Thismodelprovidesasteadystreamofrevenuefortheu7lity,whichmakesitveryaWrac7vetome.Ilikethatithelpscustomersmanagetheirpeakdemand.”(ScoW)

•  7:“Ilikethatthebaserateissetbasedonuse,ratherthanneed–butwhathappensifpeoplereallyconserve?”(Walker)

1 2 3 4 5

3%

27%

18%

12%

39%

Onascaleof1-5,howwellwouldthePeaksetBaseModelworkforyouru7lityortheu7li7esyouworkwith?

1.  Verywell2.  PreWywell3.  Maybeso,maybe

not4.  Notwell5.  Dreadfully

PolltakenbyEFCofapproximately30uFlitystaffofficialsat2012AWWA’sACEinDallas

MaWWilliams,WaterAdvisoryCommiWeeMembertotheCity

ofDavis(CA)WaterDivision

WaterWiseDividendModel

53.25

Skep7cismAmongtheJudges

CustomerSelectRateModel

Monthlywaterallotment

Costforwaterundercurrentratestructure

CustomerSelectPlanCost OverageCharge

2,000gallons $8.93-$13.13 $8.13 $6.83/kgal

6,000gallons $15.23-$30.38 $18.70 $6.83/kgal

10,000gallons $35.43-$54.18 $32.52 $6.83/kgal

24,000gallons $64.75-$146.68 $81.30 $6.83/kgal

unlimited >$154.18 $162.60 NA

•  Individualcustomerschooseplansthatbestworkswiththeirconsump7onandpayanoveragefeeifthehouseholdusesmorethantheplan

CustomerSelectRateplanssimulatedforClaytonCountyWaterAuthority(GA)

InterestedinProject•  WaterResearchFounda7onWebsite

•  ProjectBlogefc.web.unc.edu

© 2016 Water Research Foundation. ALL RIGHTS RESERVED. © 2016 Water Research Foundation. ALL RIGHTS RESERVED.

Thank You Comments or questions, please contact: Jeff Hughes jhughes@unc.edu For more information visit: www.efc.sog.unc.edu www.waterrf.org