1. Can a Water Rate Structure Really Promote Conservation? October 21-22, 2004 Jeffrey Clunie U.S. Conference of Mayors Urban Water Council

2. Conservation-oriented rates are rates that provide an incentive price signal to wisely use water Why adopt conservation rates? To promote efficient use of a limited resource To recognize that future sources of water are more expensive than past sources of water Conservation rates are increasingly prevalent across the country Background

3. Water rate structures Declining Block Uniform Block

4. Water rate structures

5. Nationwide survey of water utilities Source: Adapted from the 2002 RFC Water and Wastewater Rate Survey; 148 systems surveyed 38% have conservation- oriented rates

6. Prior water rate structures in Hawai ' i County Rate Structure in 2001 Hawai ' i County Department of Water Supply Inverted (3 blocks) Kaua ' i County Department of Water Uniform (1 block)

7. Changes in water rate structures County Rate Structure in 2001 Rate Structure 2003 Hawai ' i DWSInverted (3 blocks) Inverted (4 blocks) Kaua ' i DOWUniform (1 block) Inverted (3 blocks)

8. Water usage analysis Examined monthly Kaua'i DOW and Hawai'i DWS consumption data before and after 2001 rate change Focused on single-family residences (if possible) Normalized for precipitation (as rainfall affects water consumption) Completed statistical analysis of monthly water usage over a 4-year period

9. Kaua ' i DOW Case Study

10. Summary of 2001 rate changes Change from uniform block to inverted block rate structure Average 32 percent rate increase Rate blocks vary by meter size 5/8 inch meters: 10,000 gallons per month in lower cost first block Larger meters: higher water allowance in the lower cost first block

11. Kaua ' i DOW rate structure

12. Kaua ' i DOW inverted block rate structure (5/8-inch meter)

13. Kaua ' i DOW monthly bills (5/8-inch meter)

14. Impact of water rate changes at Kaua ' i DOW * Normal rainfall is 43.0 inches per year (Lihue)

15. Hawai ' i DWS Case Study

16. Summary of the 2001 rate changes Changed from 3-block to 4-block inverted rate structure Average 29 percent rate increase Made rate blocks steeper Rate blocks vary by meter size 5/8 inch meters: 5,000 gallons per month in the lower cost first block Larger meters: higher water allowance in the lower cost first block

17. Hawai ' i DWS rate structure

18. Hawai ' i DWS inverted block rate structure (5/8-inch meter)

19. Hawai ' i DWS monthly bills (5/8-inch meter)

20. Hawai ' i DWS impact of water rate changes 1 Primarily single-family residences 2 Normal rainfall is 49.3 inches per year (Lanihau)

21. Findings and Conclusions

22. Findings and conclusions Kaua'i DOW: water usage appears to have been affected by large rate increase implemented with addition of an inverted block rate structure Converting to an inverted block rate structure from a uniform block rate structure helped to reduce water use

23. Findings and conclusions Hawai'i DWS: a large rate increase implemented with increasing steepness of inverted block rate structure did not lead to significantly lower water use Reasons are not known, but could be: Increasing steepness of rate blocks impacted relatively few customers Customers with long-standing inverted block rates may have already changed their water use patterns

24. Findings and conclusions Inverted block rate structures may not always be sending a strong conservation price signal: Unit cost of water for most water users is typically decreasing Unit cost of water often increases only for water usage that is much higher than average Result: Most customers do not see a large bill impact from the inverted block rate structure

25. Findings and conclusions There are many factors that affect water consumption levels Rate structure is one factor Other factors are important: precipitation, family size, conservation ethic, etc.

26. Questions?