1. Getting the Price Right: Seven Not-So-Easy Steps to Water Pricing Happiness Jeff Hughes jhughes@sog.unc.edu Environmental Finance Center University of North Carolina at Chapel Hill 919 843-4956 www.efc.unc.edu

2. 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

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

4. 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 2004 2005

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

9. 2. Modify as Needed

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

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

13. 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.

14. $0 $10 $20 $30 $40 $50 $60 0123456789101112 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

16. Pricing Irrigation

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

19. 4.0 4.5 5.0 5.5 6.0 6.5 7.0 7.5 8.0 8.5 9.0 1980198219841986198819901992199419961998200020022004 Billed Water (MGD) Water Sales (1980-2004) Lower than projected demands have resulted in cumulative net revenue reduction of about $7.3 million over last 3 years.

20. Source: www.owasa.orgwww.owasa.org $26.85 per 1,000 $64.72 per 1,000

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

23. 7. Protecting Hardship Customers

24. For More Information: Jeff Hughes Environmental Finance Center School of Government University of North Carolina at Chapel Hill 919 843-4956 jhughes@sog.unc.edu www.efc.unc.edu

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

26. 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

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

28. Source: FY05-06 Rate Schedules; Census 2000. N = 252 systems

29. Number of Water Accounts Number of Rate Structures Median Charge Percent of Utilities Median Charge Percent of Utilities < 50074$ 11.0022%$ 12.0077% 500 – 99949$ 11.5020%$ 11.0080% 1,000 - 2,99988$ 8.3018%$ 12.0082% 3,000 - 7,49964$ 7.1725%$ 10.5073% 7,500 -14,99925$ 5.1940%$ 14.4160% 15,000+32$ 4.6275%$ 9.0025% Fixed Base Charges for Water Service Fixed Charge Does Not Include any Consumption Fixed Charge Includes Some Consumption Source: FY05-06 Rate Schedules