CONSERVATION PRICING THE CALIFORNIA URBAN WATER CONSERVATION COUNCIL

CONSERVATION PRICING & THE CALIFORNIA URBAN WATER CONSERVATION COUNCIL City of Santa Cruz Briefing, March 3, 2015

2 Overview 1. The Council 2. Conservation Pricing and Best Management Practice (BMP) 1. 4

3 1. The Council Vision, Mission, Framework, Brand, Assessment

Council Vision 4 A water-efficient California that is characterized by reliable and sustainable water resources, healthy ecosystems, and economically strong communities.

Council Mission 5 A membership organization Dedicated to Maximizing Urban Water Conservation throughout California By: Supporting Innovative technologies and practices Encouraging effective public policies Advancing research, education & training Building on collaborative approaches & partnerships

Organizational Framework 6 Group 1: water service providers 19 Wholesale 230 Retail Group 2: environmental advocates 21 signatories ~10 active Group 3: everyone else Engineering consultants, manufacturers, trade associations, other organizations

Foundation: the MOU 7 Memorandum of Understanding Originally Signed in 1991 Commits water service providers to voluntarily: Develop, Implement & Report on Best Management Practices City of Santa Cruz: Signed the MOU in July 2001 Has been implementing & reporting

Council Brand: BMPs 8 Best Management Practices (BMPs) Two Foundational Utility Operations, Education Conservation Pricing is 1 of 4 Utility Operations BMPs Three Programmatic Retail, Commercial, Landscape Voluntary Reports of Implementation Three Reporting options Traditional, Flex Track, GPCD

Assessment & Future Council’s Work More Important than Ever Mature Organization Vision, Mission & Broad Strokes of Strategic Plan Still Relevant Committed Leadership Unique Forum Positive Reputation Some Leverage Time to Revisit the “Brand”

10 Conservation Pricing General, BMP 1. 4 August 12, 2014

Conservation Pricing: the Premise 11 As price of water goes up, people use less. Duh! Studies show a range of responses to price increases Depending upon the study, a Doubling of Price can lead to anywhere between a 20% and a 60% reduction Most recent study (Piper) So Cal, 2014 Showed a drop of 28% for price doubling. Showed a drop of 12% for adding a tier to price structure.

Conservation Pricing: the Challenge 12 As Ratepayers use Less Water, Utility Revenues Decline Water Utilities characterized by Large Fixed Costs Proposition 218 Limits Price of Water to Cost Challenge: how to ensure revenue stability while still sending an effective conservation pricing signal

Conservation Pricing & the Council 13 Volumetric water conservation pricing has been a BMP since the beginning (BMP 11). Since 2008, the commitment has been based on a ratio of Volumetric to Fixed charges, computed one of two ways. Option 1: 70/30 Option 2: Agency specific calculation using Canadian formula or Council-developed simplified model (ALAEA)

Brief Background 14 2008 commitment included Council obligation to review after five years. Dissatisfaction with 2008 commitment, by both G 1 & G 2, although for different reasons, led to shared interests of both groups in revising the commitment. Revision process began in 2013, continues to date.

Proposed Option 3: The Matrix 15 Is a 3 -element suite of best management practices. Allows water utilities to measure the strength of their commitment to send conservation pricing signals while structuring their water rates to achieve revenue stability.

The Matrix: Overview 16 Section 1. 0 - Retail Water Rate Structure Uniform Two Tiers/ Three or More Seasonal Tiers/Allocation Customer % SFR MFR CII Dedicated Irrigation 1 1 1 3 3 3 5 5 5 1 3 5 Section 2. 0 - Proportionality Test Score 1. 1 -1. 19 1. 2 -1. 29 Points 2 4 1. 3 -1. 39 1. 4 -1. 49 1. 5 -1. 59 1. 6 -1. 69 1. 7 -1. 79 1. 8 -1. 89 1. 90 -1. 99 2. 0 -2. 09 6 8 10 12 14 16 18 20 >2. 1 23

Section 3. 0 - Retail Conservation Pricing Enhancements 3. 1 Billing 3. 1. 1 3. 1. 2 Billing frequency Bill format Points 1 Utility provides monthly billing for one or more customer classes. Water bill (whether paper or electronic) displays water use in gallons or gallons per day (gpd) for at least all single-family residential customers. 1 3. 2 Metering Dedicated irrigation At least 50% of irrigated landscapes greater than or equal to 1 acre in size are supplied by 3. 2. 1 meters dedicated irrigation meters Utility requires individual meters or submeters (in lieu of master-metered accounts) as a 3. 2. 2 Submetering condition of service on new MF and/or CII accounts meeting equivalent service conditions (e. g. < four stories in height). Utility has access to AMR/AMI administrative tools to track use and prioritize 3. 2. 3 conservation messaging. Utility uses an AMR/AMI system to provide customers with alerts for possible high use, AMR/AMI 3. 2. 4 leaks, and/or consumption approaching the next tier. Utility uses an AMR/AMI to provide customers with regular access (e. g. , web or smart 3. 2. 5 phone) to near real-time water use data. 3. 3 Communications Utility provides notification to customer about water use anomalies, e. g. , possible high 3. 3. 1 Advance notification use or leaks, in advance of sending a bill (excluding AMI). Utility provides customer access to account information, billing histories, water use, 3. 3. 2 Website tools allocations, or direct links to conservation services via a web portal (excluding AMI). Utility provides information on water use trends to the customer via water bill or other 3. 3. 3 Use histories printed means. 3. 3. 4 Benchmarking 3. 3. 5 1 1 1 1 Utility provides information to customers that compare their water use to a standard or benchmark (excluding AMI). 1 Utility provides reports to customers that compare their water use to others (excluding AMI). 1 3. 4 Innovations 17 1 3. 4. 1 Rate structure 3. 4. 2 Fees & credits 3. 4. 3 Drought/shortage response Utility is implementing an innovative rate structure to promote efficiency, such as budget - or consumption-based charges (excludes allocation and tiered rates) covered in Section 1). Utility's water system capacity or connection fee structure incentivizes the installation of indoor and outdoor water efficient equipment and measures (including recycled water and onsite reuse). Utility has adopted a surcharge or other pricing mechanism to support drought and supply shortage reductions. 3. 4. 4 Revenue streams Water rates provide at least 90% of the revenue for the water system. 1 1

Things You Might Like About the Matrix 18 The calculations are simple and the math is straightforward. It is flexible, with a lot of options for improvement rather than one pass-fail calculation, e. g. , 70/30. It is forward looking, applying to rates and practices that are adopted, rather than revenues received. Agency performance is not subject to external forces, such as drought or the economy. It is more comprehensive in scope and therefore does a better job in capturing the intent of the

19 Thank You !

Matrix: Section 2 (Proportionality Test) 20 Draft Water Conserving Rates Matrix Section 2 - Level of Pricing Signal (Simplified Version for Demonstration) Proportionality Test 1. 5 to 1. 59 1. 6 to 1. 69 1. 7 to 1. 79 1. 8 to 1. 89 1. 90 to 2. 0 Single Family 20 points (+3 4 points 8 points 12 points 16 points Residential pt. bonus >2) The proportionality test compares the total bill (both fixed and variable charges) for a customer with the total bill for another customer using twice as much water. Each agency has three options for calculating the pricing signal: 1. 2. 3. Average use; Peak period use; or Fixed comparison (15 hcf to 30 hcf). Points

Sample Proportionality Test 21 Meter charge: $34. 35 per month Average use: 20 hcf 0. 75 x average use: 15 hcf 1. 5 x average use: 30 hcf Water Rate Structure Tier 1 Tier 2 Tier 3 Blocks (HCF) Rate ($/HCF) 0 -7 7 -44 >44 2. 39 3. 81 4. 88 Pricing signal = $138. 71/$81. 56 = 1. 70