Conservation Pricing & the California Urban Water Conservation Council City of Santa Cruz Briefing, March 3, 2015

1. The Council 2. Conservation Pricing and Best Management Practice (BMP) 1.4 Overview 2

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

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

Council Mission  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 5

Organizational Framework  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 6

Foundation: the MOU  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 7

Council Brand: BMPs  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 8

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”

General, BMP 1.4 Conservation Pricing August 12,

Conservation Pricing: the Premise  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. 11

Conservation Pricing: the Challenge  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 12

Conservation Pricing & the Council  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) 13

Brief Background  2008 commitment included Council obligation to review after five years.  Dissatisfaction with 2008 commitment, by both G1 & G2, although for different reasons, led to shared interests of both groups in revising the commitment.  Revision process began in 2013, continues to date. 14

Proposed Option 3: The Matrix  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. 15

The Matrix: Overview 16 Section Retail Water Rate Structure Customer % UniformTwo Tiers/ Seasonal Three or More Tiers/Allocation SFR 135 MFR 135 CII 135 Dedicated Irrigation 135 Section Proportionality Test Score >2.1 Points

17 Section Retail Conservation Pricing Enhancements 3.1 BillingPoints 3.1.1Billing frequencyUtility provides monthly billing for one or more customer classes Bill format Water bill (whether paper or electronic) displays water use in gallons or gallons per day (gpd) for at least all single-family residential customers Metering Dedicated irrigation meters At least 50% of irrigated landscapes greater than or equal to 1 acre in size are supplied by dedicated irrigation meters Submetering Utility requires individual meters or submeters (in lieu of master-metered accounts) as a condition of service on new MF and/or CII accounts meeting equivalent service conditions (e.g. < four stories in height) AMR/AMI Utility has access to AMR/AMI administrative tools to track use and prioritize conservation messaging Utility uses an AMR/AMI system to provide customers with alerts for possible high use, leaks, and/or consumption approaching the next tier Utility uses an AMR/AMI to provide customers with regular access (e.g., web or smart phone) to near real-time water use data Communications 3.3.1Advance notification Utility provides notification to customer about water use anomalies, e.g., possible high use or leaks, in advance of sending a bill (excluding AMI) Website tools Utility provides customer access to account information, billing histories, water use, allocations, or direct links to conservation services via a web portal (excluding AMI) Use histories Utility provides information on water use trends to the customer via water bill or other printed means Benchmarking Utility provides information to customers that compare their water use to a standard or benchmark (excluding AMI) Utility provides reports to customers that compare their water use to others (excluding AMI) Innovations 3.4.1Rate structure 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) Fees & credits 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) Drought/shortage response Utility has adopted a surcharge or other pricing mechanism to support drought and supply shortage reductions Revenue streamsWater rates provide at least 90% of the revenue for the water system.1

Things You Might Like About the Matrix  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 BMP. 18

Thank You ! 19

Matrix: Section 2 (Proportionality Test) 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. Average use; 2. Peak period use; or 3. Fixed comparison (15 hcf to 30 hcf). Draft Water Conserving Rates Matrix Section 2 - Level of Pricing Signal (Simplified Version for Demonstration) 1.5 to to to to to 2.0Points Proportionality Test Single Family Residential 4 points8 points12 points16 points 20 points (+3 pt. bonus >2) 20

Sample Proportionality Test  Meter charge: $34.35 per month  Average use: 20 hcf  0.75 x average use: 15 hcf  1.5 x average use: 30 hcf Water Rate Structure Blocks (HCF) Rate ($/HCF) Tier Tier Tier 3> Pricing signal = $138.71/$81.56 =