Getting the Price Right: Seven Not-So-Easy Steps to Water Pricing Happiness Jeff Hughes Environmental Finance Center University of North Carolina at Chapel Hill

Seven Not-So-Easy Steps 1.Compare with caution 2.Modify as needed 3.Know your customers 4.Structure for success 5.Drought proof your rates 6.Communicate with your bill 7.Protect hardship customers without breaking your bank

The Magic of Rates and Prices Communication with your customers Influence behavior Financial well being

1.Compare with Caution $563 $753 $298 $282 $524 $1,032 $497 $582 $414 $643 $669 $843 $0 $200 $400 $600 $800 $1,000 $1,200 Asheville Big Falls 2004 Big Falls 2005 Chapel Hill Concord Durham Fayetteville Greensboro Raleigh Sanford Wilmington Winston-Salem

Careful Comparisons Type of source water Watershed Size (accounts, capacity) Age Operating ratio Management ….

2. Modify as Needed

3. Know Your Customers How does their use fluctuate? Demographics Big users vs. small users Irrigators vs. hose draggers

4. Structure for Success Customer classes Pick the right base charge option Commodity charge

Rate Structures and Pricing Signals Across North Carolina Source: 2007 NCLM/SOG Rate Survey, Price is $/1,000 for Customer using 14,000 gal./mo.

$0 $10 $20 $30 $40 $50 $ Monthly Consumption (in 1,000 gallons) Monthly-Equivalent Water Billing Median of 358 Water Systems, FY04-05 Utility A Utility B Utility C A C B Rate Structures Matter

Pricing Irrigation

5. Drought Proofing Your Rates Conservative water usage projections Sur charges

Billed Water (MGD) Water Sales ( ) Lower than projected demands have resulted in cumulative net revenue reduction of about $7.3 million over last 3 years.

Source: $26.85 per 1,000 $64.72 per 1,000

6. Expand Communication Value of Bills Rates Clear service distinction Historical usage Comparative statistics

7. Protecting Hardship Customers

For More Information: Jeff Hughes Environmental Finance Center School of Government University of North Carolina at Chapel Hill

A Utility’s Pricing World – Rate Setting Priorities Source: EFC & NCLM 2005 Rate Practices Survey (277 Utilities)

Water Rate Block Structures Source: FY05-06 Rate Schedules Uniform 69% Decreasing Block 13% Other 2% Increasing Block 16% Over Full Consumption Range Applicable up to 15,000 gpm

Price Signals As Consumption Declines from 10,000 to 6,000 GPM (40% Reduction)

Source: FY05-06 Rate Schedules; Census N = 252 systems

Number of Water Accounts Number of Rate Structures Median Charge Percent of Utilities Median Charge Percent of Utilities < 50074$ %$ % 500 – 99949$ %$ % 1, ,99988$ %$ % 3, ,49964$ %$ % 7, ,99925$ %$ % 15,000+32$ %$ % Fixed Base Charges for Water Service Fixed Charge Does Not Include any Consumption Fixed Charge Includes Some Consumption Source: FY05-06 Rate Schedules