1. Staying Afloat with Water Revenues Balancing the ebb and flow of revenue stability with conservation Mayors Water Council December 3, 2009 Sandra Ralston Todd Cristiano Malcolm Pirnie

2. Water Conservation A Necessity for Sustainable Utilities  1% of world’s water supply suitable for consumption  Water shortages projected for 36 states with next 5 years  Conservation programs can be an effective tool in protecting vital resources and minimizing costs BUT  Conservation-based rates can affect the stability of water revenues

3. Water Utility System The ‘Ebb and Flow’ of Conservation  Rate revenue before conservation  Rate revenue after conservation  Reduced consumption leads to:  Potential revenue instability  Rate increases  “I use less, and my bill goes up!”  Reduced consumption also leads to:  Capacity benefit – Delayed expansion projects  Reduced O&M  ‘Doing more with less’ Available Capacity

4. Volumetric Rate Structure Spectrum CONSERVATION ORIENTATION Flat Rate Declining Block Declining Block Uniform Seasonal Inclining Block Inclining Block Budget/ Individualized Budget/ Individualized Flat Rate Declining Block Uniform Rate Seasonal Inclining Block Budget / Individualized The City of Boulder, CO implemented a 5-tiered water budget structure in 2007 The City of Boulder, CO implemented a 5-tiered water budget structure in 2007 Water Budget Allocation: Domestic (indoor usage) Irrigation (outdoor usage) Water Budget Allocation: Domestic (indoor usage) Irrigation (outdoor usage) Water Budget Basis: Indoor people per household average winter consumption Outdoor Irrigable area (square feet) Evapotranspiration Water Budget Basis: Indoor people per household average winter consumption Outdoor Irrigable area (square feet) Evapotranspiration More Less REVENUE STABILITY More Less More

5. Rate Structures and Pricing Objectives  Rate structures and prices should be designed to: Provide a sufficient revenue stream Easy to understand/transparency Equitable Legally compliant Meet utility-specific policy goals and objectives -Provide stable revenue stream -Sustainability/Conservation goals/Education -Low income/Affordability -Growth pays its own way -Minimize impact to large volume customers Selected pricing policies can have conflicting objectives!

6. Conservation Planning Models Capturing the Moving Parts Delayed Capital Expansion Reduced O&M Additional Source of Supply Rate Increases Reduced Revenues Revenue Instability Inclining Block Structures Budget-Based Rate Structure Pricing Objectives  Dynamic modeling tools “What if” scenario analysis Optimization of variables Real-time analysis with Stakeholders Results summary dashboard Flexible and updatable

7. Addressing Conservation Challenges Consumption 5% Rate Increase ??% 2009 2013 Delayed CIP Rate Increase/ Decrease ??% Customer Bill Impact ??% Rate Structure Change

8. The Conservation – Revenue Stability Balance A successful conservation program promotes: Sustainable water resources for future generations Sustainable financial viability A successful conservation program promotes: Sustainable water resources for future generations Sustainable financial viability Dillon Reservoir 2009 Summit County, Colorado

9. Discussion Sandra Ralston Principal Consultant Charleston, SC sralston@pirnie.com 843-853-7140 Sandra Ralston Principal Consultant Charleston, SC sralston@pirnie.com 843-853-7140 Todd Cristiano Senior Consultant Denver, CO tcristiano@pirnie.com 303-316-6541 Todd Cristiano Senior Consultant Denver, CO tcristiano@pirnie.com 303-316-6541