Water Pricing, Customer Usage: It’s Complicated….. October 26, 2017 February 7, 2018

How you pay for it matters Supporting the fair, effective, and financially sustainable delivery of environmental programs through: Applied Research Teaching and Outreach Program Design and Evaluation Where we work: How you pay for it matters

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Study Background Interest in understanding the relationship between usage, pricing, and other factors across the state. Interest in understanding behavior of individual customers during the mandatory curtailment period

Thank you… Utilities and their conservation and billing professionals State Water Resources Control Board California American Water Urban Water Institute ..

Research Project Director EFC Research Team Project Manager Jeff Hughes Research Project Director Shadi Eskaf Research Assistant Jack Watts Research Assistant Kyrsten French Research Assistant AR El-Khattabi Research Assistant Caitlin Seyfried

Some Research Questions What pricing signals were customers exposed to during the drought? What role did pricing have in overall state success in meeting curtailment requirements? What is the relationship between different types of pricing signals and usage compared to other factors that influence usage? Can utilities with uniform rate structures meet ambitious curtailment targets? (Do utilities need budget based rates/increasing block rates to meet targets?)

Elevator-Pitch Take-Aways and Findings Rate structures can only get you so far. The type of rate structure influences pricing signals but utilities can craft aggressive pricing signals with almost any type of rate structure. Price was not the primary tool for many utilities. There is no compelling statewide evidence that pricing was the dominant factor that led to meeting curtailment targets. Pricing does matter. There is evidence that price and pricing signals influence basic usage (per capita, sales per account etc.) Adapt to local conditions. Sales distribution and local conditions vary and will require different tools and approaches.

Study Methodology Develop and analyze an integrated statewide database of pricing, usage, and other factors known to influence usage. Collect and analyze customer level sales behavior for specific utilities. Challenges/Limitations: Precision of data, data availability, diversity of experiences, study time/resources.

Six Rate Structures Uniform Variation (Yes it’s an Oxymoron….) Alameda Ana

Two Utilities’ Sales Distribution

The strength of the price incentive to encourage residential water conservation varied greatly in 2015 6% of 345 water systems more than doubled the residential water bill for residential customers that doubled their water use from 6 ccf to 12 ccf

Residential Water Rate Structure Design in 2016 High water production savings were achieved under all types of rate structures There was no statistically significant correlation between any rate structure design and the cumulative savings achieved between June 2015 and May 2016 Residential Water Rate Structure Design in 2016

What did Drive Savings?

Water systems that started with a higher level of per-capita water use were able to achieve greater savings than water systems with more efficient customers Statistically significant at the 0.1% level Analysis by the Environmental Finance Center at the University of North Carolina, Chapel Hill. Sources: CA Water Control Board's May 2016 Supplier Conservation Compliance (June 21, 2016) and June 2014 - June 2017 Urban Water Supplier Report Dataset (August 1, 2017). Savings and residential GPCD were calculated by the Water Control Board using water systems' self-reported water production data.

Water systems that issued more warnings during the mandatory conservation period were able to achieve greater cumulative savings during that period Statistically significant at the 0.1% level Analysis by the Environmental Finance Center at the University of North Carolina, Chapel Hill. Sources: CA Water Control Board's May 2016 Supplier Conservation Compliance (June 21, 2016) and June 2014 - June 2017 Urban Water Supplier Report Dataset (August 1, 2017). Savings were calculated by the Water Control Board using water systems' self-reported water production data. Number of warnings issues were self-reported monthly by water systems.

Pricing Impact on Basic Usage Versus Driving Curtailments

Some anecdotal evidence that very “loud” pricing signals could be effective especially combined with other tools

Water systems that charged higher bills for 10 ccf of water use had lower average residential water use in 2016 Statistically significant at the 1% level Analysis by the Environmental Finance Center at the University of North Carolina, Chapel Hill. Sources: CA Water Control Board's June 2014 - June 2017 Urban Water Supplier Report Dataset (August 1, 2017), California American Water Company's survey of California water rate structures. Residential GPCD was calculated by the Water Control Board using water systems' self-reported water production data.

Average residential water use in June 2016 was, on average, higher in communities that had higher temperatures during that month than in other communities Statistically significant at the 0.1% level Analysis by the Environmental Finance Center at the University of North Carolina, Chapel Hill. Sources: CA Water Control Board's June 2014 - June 2017 Urban Water Supplier Report Dataset (August 1, 2017), NOAA PRISM. Residential GPCD was calculated by the Water Control Board using water systems' self-reported water production data.

Higher volumetric water rates were strongly associated with lower residential per-capita water use in 2015 Statistically significant at the 0.1% level Analysis by the Environmental Finance Center at the University of North Carolina, Chapel Hill. Sources: CA Water Control Board's June 2014 - June 2017 Urban Water Supplier Report Dataset (August 1, 2017), CA Water Control Board's EAR water rates survey. Residential GPCD was calculated by the Water Control Board using water systems' self-reported water production data, and rates were self-reported by the water systems