Kenebrew, Jerice
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Tim Brick •
Tuesday, January 23, 2024 12:00 PM
Kenebrew, Jerice
MSC #4 - Water Rate Design
MSC Statement.pdf
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Please include this statement in the record for today's meeting and distribute it to members of the Municipal Services Committee
Gratefully,
Tim Brick
1 Timothy F. Brick
To: Members of the Pasadena Municipal Services Committee Date: January 23, 2024
Re: Item 4: WATER COST-OF-SERVICE ANALYSIS AND RATE DESIGN UPDATE Introduction
In my long experience in the water field, I have often focused on pricing or rates and the impact they have on promoting conservation, efficiency of use and equity.
Utility Advisory Commission, 1979-1993
Metropolitan Water District, 1985-2012, Chairman 2006-2010 Alliance for Water Efficiency, Founding Director, 2007- 2017 I urge Pasadena to take a more careful look at the potential of Budget Based Rates for water use to promote wise water use, conservation, and equity.
California Guidelines - Making Conservation a California Way of Life Rates are the mechanism to collect revenues in a fair and just way, but they also a signal to consumers that conservation and efficiency is rewarded.
In 2018 California adopted a program of proposed water-use efficiency regulations, dubbed "Making Conservation a California Way of Life," that require water suppliers throughout the state to adopt water- use budgets and meet locally tailored conservation goals. That's on the institutional level. Budget based rates apply those principles to the retail level.
"Budget based rates, or Allocation-based water pricing, is an innovative type of increasing block rate price structure in which the block sizes vary according to the characteristics of the consumer. Under an allocation- based rate structure, the block sizes are based on household-specific characteristics (e.g., number of residents, irrigated area, unusual circumstances such as medical need), environmental conditions (e.g., evapotranspiration), and a judgment by the water utility regarding what constitutes "efficient" use given those characteristics and conditions.
Allocation-based rates also address equity concerns by providing each household—regardless of size—with a block of low-priced water that should satisfy the most essential uses, such as drinking, cooking and cleaning, while charging higher prices for presumably less essential uses such as landscaping. The highest prices are paid only by those households that exceed their designated water budgets, with already efficient households remaining largely unaffected by the higher rates."*
Using pricing as a tool to:
Reflect the burden that users place on utility services Send a signal to customers about the value of water
Reflect equity to all water users
Promote conservation to moderate the need to expand utility facilities and buy more expensive water
What are the principles that should guide rate-making
Financial stability
Afford ability, also referred to as equity or fairness
Marginal cost of supply
Elasticity - a measure of how sensitive the quantity demanded is to price. Basic consumer use is generally inelastic, while larger use is more elastic or responsive to price.
What's Wrong with the Traditional Pasadena Rate Structure It is unfair to small users by loading fixed charges into the inelastic lower tier It doesn't send the proper conservation signal particularly to large or less-efficient users There are basically three types of charges in the water bill:
o Fixed charge
o Commodity charge
o Capital charge
PWP's traditional rates have collected too much of the bill in the fixed charges; more than 40%; (Santa Monica 15%;)
The fixed charges are not price responsive; that is, loading them into the first tier does promote conservation because they are not elastic. Packing too much of the bill into the fixed charges dampens the conservation signal because the first tier by definition is inelastic.
The traditional rate structure groups customers into a few large groups that do that do not reflect individual characteristics or elasticity of demand.
Do the New Recommendations in the Agenda Report Improve PWP Rates? They only give a cursory review to Budget-based Rates
Expanding the first tier to include more usage is anti-conservation They bury the conservation signal that rates should provide They don't reward efficiency of use by larger users
Budget-based Rates are More Efficient and Equitable
Budget-based rates tailor the bill to individual customers and provide incentives to customers to support utility goals, particularly efficiency and conservation (demand management). They send a powerful signal to users that they can reduce their bill by conserving and improving their efficiency of use.
The Budget-based rate structure produces a water budget that is customized to each user. Thus, it ia fairer and more efficient in shaping customer usage and conservation response.
The formula includes such factors as
1) number of people in the household;
2) size of the lot;
3) amount of irrigated space
4) efficiency of use.
The budget-based approach takes advantage of new technology to promote wiser usage. In the beginning budget-based rates require some administrative work to develop the customized approach, but numerous local water utilities in Southern California have proven that the careful analysis is not onerous and is worthwhile
Rate-making is so important to PWP. Please take the time to review the principles and to involve the community in the discussion about Pasadena's water future. *Allocation-Based Water Pricing Promotes Conservation While Keeping User Costs Low," UC Davis Gianinni Foundation, 2014