Kenebrew, Jerice
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Ken Kules
Tuesday, February 13, 2024 10:19 AM
Kenebrew, Jerice
Williams, Felicia; Hampton, Tyron; Justin Jones; Lyon, Jason Re: MSC 1-23-2024 Agenda Item 4
Ken Kules' comments (revised) w attachments.pdf
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Out of an abundance of caution, I am re-submitting my comments from the January 23, 2023 meeting for consideration regarding Item 1 on today's MSC agenda. Note that the comments have not changed with the exception of date and title changes and correcting two references to "SB 21811 that should have read "Prop 218." On Tue, Jan 23, 2024 at 7:24 AM Ken Kules
See attached comments.
1 wrote:
February 13, 2024
Ken Kules' comments on 2-13-2024 MSC Agenda Item 1
"Water Cost-of-Service Analysis and Rate Design Update" I urge the Municipal Services Committee to endorse implementation of Budget-Based Pricing (BBP) in the final rate design.
PREAMBLE. Previous major water rate proceedings included stakeholder workshops that provided insight to the details surrounding rate development proposals. That has not occurred in this rate proceeding and the materials presented in the Agenda Report are not sufficiently detailed to permit a full understanding of the analyses. As a result, my comments tend to be high-level with few specifics.
EQUITY. Slide 4 lists 4 objectives that have driven the water rates analysis, none of which include customer equity.1 This is a major failure as equity is largely a justification for developing more-granular approaches that tend to add complexity to the rate structure and should be considered as co-equalto revenue stability as a priority in setting water rates. By example, Prop 218 - the state law that guides water rate development - requires that the fee may not exceed "Proportional Cost" of providing the service to "the Parcel." It is this requirement that makes Budget-Based Pricing a rate strategy for compliance with Prop 218 as it addresses the individual characteristics of each property instead of grouping parcels together on using approximate similarities. It would also greatly influence that analysis of options in slide 4.
Take-for example-the proposal in the Agenda Report under the Tiered Rate Structure by Customer Class and Meter Size (slide 3) to use the same tier 1, 2 and 3 allocations for all single family residences.
This approach appears to provide 14 billing units (BUs) per month in the first tier for small and large properties.2 For the smaller meters, that would include 8 BUs for all single family homes leaving 4 BUs per month of the least expensive water for irrigation. That amount will likely satisfy most - or perhaps all - of the irrigation demands for smaller homes/properties that do not have drought tolerant landscaping but would be woefully inadequate for larger properties that have the most efficient landscapes and that would be inequitable.
The Tiered Rate Structure by Customer Class and Meter Size for multi-family and commercial properties in the July 25, 2023 Agenda Report (see attached) proposes use of meter size as the "grouping" characteristics for similar parcels. Since meter size for those classes of use are generally dictated by fire suppression requirements, meter size does not properly group them for consumptive use. For example, restaurants, schools and retail stores may have the same meter size but have very different "thresholds of reasonable consumptive use." In other rate structures, the first tier allocation is based on reasonable use for "the Parcel" categories of use (e.g., laundry, restaurant, church). Likewise, a 10-unit apartment building might have the same meter size as a 15 unit apartment building but the reasonable indoor use for the smaller building would be about 2/3 that of the larger building. Use of number of units in a multi- 1 See slide 5 from the July 25, 2023 presentation (copy attached) 21 note that slide 17 in the July 25, 2023 Agenda Report used different SFR tier "boundaries" than the current AR (see attached)
1 February 13, 2024
family building multiplied by average occupancies would be a better metric for addressing "the Parcel" requirements of Prop 218.
ADVANCED METERING INFRASTRUCTURE (AMI) DELAY. Slide 5 indicates that AMI implementation would delay BBP implementation by 3 years. All that AMI will do is facilitate real-time meter reading and it will not impede implantation of BBP if adopted.
DATAAVAILABILITY/GRUNULARITY FOR BBP. Slide 5 also cites "incomplete residential and commercial irrigable parcel information" and "limited weather information" as impediments to BBP. These are only as burdensome as the rate designer wants to make them. Making reasonable assumptions in both categories using available data would likely be more reliable than the estimates involved in calculation of the tier allocations under the Tiered Rate Structure by Customer Class and Meter Size proposal.
HIGH WATER PRODUCTION SAVINGS WERE ACHIEVED UNDER ALL TYPES OF WATER RATE STRUCTURES. Slide 6 relies on an evaluation of water savings from 2013 to 2016 during the most significant drought in California history to show that BBP was not more effective in achieving those reductions that other rate structures. What is striking about this graphic is that the savings for those agencies that had fixed rates were actually equal to or better at achieving conservation than the average of other agencies with different rate structures when it is commonly agreed that fixed water rates do not provide any water conservation incentive. The takeaway from this graphic is that the high visibility that was raised in the state due to the extraordinary drought circumstance accounted for the reductions. The graph on slide 7 shows s the variability and "backsliding" that occurs in PWP's service area and BBP will help to attenuate that variability and "make conservation a way of life." BPP ENDORSEMENTS. As a reminder, Raftelis prepared a memo for the City of Palo Alto in 2019 that includes a thorough analysis of BBP and described the following advantages:3
1. Promotes a culture of efficiency: Water budget rate structures are an effective method of signaling to customers that efficiency is a key value within a given service area. When water budget-based rates are well designed, they should result in effective price signaling to customers to reduce wasteful or inefficient water use. Coupled with separate conservation measures and targeted messaging to stakeholders, a water budget rate structure can drive home the point to customers that both water efficiency and conservation are essential to the well-being of the service area. This is particularly relevant in regions particularly vulnerable to water supply insecurity. This may be the primary reason water budget rate structures were pioneered by agencies in regions of Southern California particularly sensitive to water supply shortage.
2. Pricing/accuracy: Water budget rate structures provide for lower priced water for essential indoor water usage needs by charging customers at the lowest Tier 1 rate for indoor domestic water usage. This aligns well with the current interpretation of the "beneficial use" doctrine in California, which states that indoor domestic needs are of the highest water use priority. Water budget-based rates can result in decreased water bills for low water usage residential customers, compared to 3 The full memo is attached.
2 February 13, 2024
what those same customers would be charged under uniform commodity rates. Furthermore, water budget-based rates can provide another equitable rate design option, because they account for different amounts of water required to efficiently meet the water needs of each household. Thus, a water budget rate structure, if based on accurate customer data and characteristics, offers another way to add accuracy and precision into the rate structure.
3. Effective drought management response: As stated earlier, water budget rate structures are perhaps most appropriate in areas that are aggressively trying to reduce water demand due to water supply shortages or lack of reliability. In fact, Irvine Ranch Water District in Orange County implemented one of the first water budget rate structures in the nation in direct response to drought conditions in the late 1980s and early 1990s in Southern California. The District was particularly motivated to take aggressive action because its wholesaler, Metropolitan Water District of Southern California, was forced by drought conditions to implement penalties for agencies that exceeded their allotment. An independent evaluation found that Irvine Ranch Water District's water budget rate structure implementation led to a 37% decline in water applied for landscape irrigation, demonstrating the potential for well-designed water budget-based rates to significantly reduce inefficient and wasteful water use.
The MSC must reject the Raftelis assertion at the July 25, 2023 meeting that water use efficiency and water conservation are somehow different: water use efficiency is a component of water conservation.
The California State Water Resources Board has identified examples of BPP as a Best Management Practice for water conservation."
4 See https://www.waterboards.ca.ROV/drought/pricinR/. Excerpts from that web site are attached. 3 Step i: Pricing Objectives
AffordabilrtyRate structure that promotes a low bill for low/essential water use • Implies low tier 1 rate and low fixed charges
ConservationRate structure that incentivizes conservation through price signaling (higher bill for higher use)
Revenue Stability
Rate structure that favors stable revenues independent of water use • Recover more costs through a fixed charge that does not vary with water use
Simplicity
(Admi n isb'ative
Ease & Customer
Understanding)
Rate structure that is easy-to-understand, easy to explain, and simple * Minimize customer calls
Minimize staff time to bill customers
• Implementation - rate structure that can feasibly be implemented with existing billing system and staff resources
Step 2: Financial Plan
Revenue Requirement -Amount of money required to support utility operations:
• Operational Expenses
• Purchased water, treatment, personnel, and debt sen/ice • Capital Improvements
u Mainline replacements, reservoir improvements
(Sunset Reservoir Complex), and other infrastructure
improvements
• Reserves
• Repayment of Debt
16 Tiered Rates By Custoiner Class and By
Meter Size
Pros
• Avoids complaint that only
SFR is tiered
• Sends a consen/ation signal
Cons
• More complex
• Tiered rate litigation
complaint:
> No daily or hourly use data
(AMI)
Class
Single-Family
Multi-family
Small meters
5/8" to1-
Medium meters
1 V{ to 4'
Large meters
6-to 10-
Commercial
Small meters
5/8-to1-
Medium meters
1 %• to 4
Large meters
6" to 10'
Tier 1
0-17
0-20
0-77
0-550
0-22
0-135
Tier 2 I Tiers
18-32 >33
21-29 >30
7B-130 >131
551-600 - ;>601:!;|^g
..,:a
23-52
136-325
•>53 "
> 325
"-i)sa
0-2,250 ;'t,^i, 2,261^,500 fi@i; >6,50i ;|^wm-E'SSf^'^:-wg'^S^«^S^S, 17 Budget-based Tiered Rates
Pros
• Provides a water budget for irrigation
Cons
• Does not send a conservation signal - Water allocation based on irrigation "needs"
•Distorts water use decisions - For larger lots, delays point at which use enters Tier 2
• Does not incentivize low/no water use landscapes
• Lot size is usually correlated with the ability to pay • Complex to administer - Increased staff to
gather customer data and continuous data
updates
• Penalizes low/no water use landscape
customers because their water budget is lower
• Lowers the rate for discretionary use and
increases the rate for indoor water use
Tier 1 + Tier 2 isr-Tierl
Total Water Budget I—Tier 2
Tier3
Indoor water use = 55 gpcd * 30 * 4 persons/home = 8 hcf irrigable area x Evapotranspiration x ETAF
101-150% of water budget; Tier 4= >150% water budget
Example: El Toro Water District (4 people per home)
Irrigable Landscape
I Area (Sq. Ft.) 5 1020
HCF
3040
1,000_
181.
_3,ogg___
5,000
7,000
$84.57|
$84,571
$84.57|
$84.57|
$99.03]$164J9|
1137,47)
$13p_83|
$9£I.Q3[
$99;03[
$g9,03|$130.B3| $162.63|
.J.248.._2?J
_$213,57J
$.1a2,55i_.$262;3J5l.-i345_85|
$22M8| $312,98|
50 $33179L$415^gj
^$297XIO|^$380^7J
22 .„. <»>;;,..^ >•;•'. ^i.-KL-i,^.; - ^AA^S-tl
Attachment X
"% RAFTELIS
0 F^ECEiVED
2021 JUN-7 AM 10; t»5
C.TV Ct.-.^K
C!Ty^F^..-:l;^A
To: Lisa Bilir, Resource Planner
From: Sudhir Pardiwala/Hannah Phan
Date: May 20, 2019
Re: Water Budget Rate Structure Evaluation
The City of Palo Alto (City) engaged Raftelis Financial Consultants, Inc. (Raftelis) to prepare a short memorandum evaluating water budget rate structures. The goal of the memorandum is to provide a high-level overview of water budget rate structures that will assist City staff in assessing the feasibility of developing and implementing a water budget rate structure for the City.
Overview of Water Budget-Based Rates
Public water service providers generally assess both fixed charges (typically based on each customers' water meter size) and commodity charges (based on the volume of water delivered to each customer). Fixed charges are generally designed to recover all or a portion of the water agency's fixed costs of providing water service, and therefore are not assessed per unit of water delivered to each customer. Please note that this memorandum does not include any further discussion affixed charges, as water budget-based rates pertain to commodity charges only, Before water budget-based rates were first implemented by water service providers in Southern California in the early 1990s, other existing water rate structures were already commonly used to promote water conservation and
discourage wasteful use of scarce
water resources. The most common
example of this kind of conservation-
minded rate structure is the inclining
tiered rate structure, in which the
commodity charge rate increases as
the level of water usage per billing
period increases. The figure to the
right provides an example of a four-
tier inclining tiered rate structure. In
this example, a customer would pay
$1 per unit for the first 10 units of
water delivered (referred to as Tier 1 water), $1.75 per unit for the 1 1th through 20th units of water delivered (Tier 2), $2.50 per unit for the 21st through 30th units of water delivered (Tier 3), and $5 per unit for each unit above 30 units (Tier 4), Such a rate structure provides lower priced water for essential indoor water uses while discouraging wasteful use above a given threshold.
Inclining Tiered Rate
I
445 S. Figucroa Street, Suite 2270
Los Angeles, CA 90071
www.raftelis.com06/07/2021
Item 11
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CITY OF PALO ALTO; WATER BUDGET RATE STRUCTURE EVALUATION Although the example above includes four tiers, it is common for agencies to have fewer tiers.
Note that the City currently has in place a two-tier inclining tiered rate structure for residential water customers.
Water budget-based rates are structured similarly to inclining tiered rates. The fundamental difference however between inclining tiered rates and water budget-based rates is that the latter includes individualized tier definitions based on each customer's unique characteristics. Water budget rates send a signal to
customers to use water more
efficiently, whereas the inclining rate
structures send conservation signals
to larger water users. In the figure on
the previous page, the tier definition
(i.e. 0-10 units for Tier 1) is the same
for every customer under the example
for inclining tiered rates. The figure to
the right shows a sample water
budget rate structure, in which each
customer has unique tier definitions.
For example, Tier 1 for Customer 1
goes up to 10 units while Tier 1 for Customer 2 goes up to 13 units. The factors commonly used by agencies to determine each customer's tier definitions will be discussed in greater detail below but may include household size and landscape area for example. Customer 1's smaller tier allotments could be due to a smaller household size or smaller landscape area relative to Customer 2.
Water Budget Tiered Rate
Customor 1
Cuttomtf 2
&
Each individualized tier definition is commonly referred to as a customer's "water budget." The American Water Works Association Journal defines a water budget as "the quantity of water required for an efficient level of water use by that customer1." This emphasis on efficiency provides the conceptual basis behind water budget rate structures. Inclining tiered rate structures are primarily structured to incentivize conservation. Conservation focuses on minimizing the total use of water. Efficiency on the other hand focuses on using the minimum required amount of water to satisfy a certain use. By determining efficient levels of usage on an individualized basis, water budget rate structures aim to reduce wasteful use of water and establish metrics to equitably allocate limited water supplies to customers.
Determination of Water Budgets
The methodology for determining
individualized water budgets for each
customer varies significantly in
complexity among agencies that
have implemented water budget
rates structures. The total water
budget for residential customers is
generally divided up into an indoor
water budget and an outdoor water
budget. As domestic indoor water
needs are typically considered as the
highest priority use of water, the
r
Rates
Outdoor
Water
Budget
Excessive
Use
(Percentage
of total
water
budget)
Indoor Water
Budget
Tier 1Tier ZTier 3
Quantity
I
American Water Works Association Journal, May 2008, Volume 100, Number 5.
60.'i52(»
^aia6?te»&d&dit)t»icfcK&t*ftA*f^'.r,wi(fr»>« . Wfs^.&ieO^, CITY OF PALO ALTO: WATER BUDGET RATE STRUCTURE EVALUATION3 indoor water budget usually provides the basis for a customer's Tier 1 allotment under most water budget rate structures. Tier 2 allotments are often based on a customer's outdoor water budget, which represents an efficient amount of water use for landscaping and irrigation. Tiers 3 and higher generally represent inefficient and/or excessive use in excess of a customer's total budget. The figure above represents an example of how an agency might define its residential tiers. Please note however that number of tiers and tier definitions vary among different agencies' water budget rate structures.
An indoor water budget is commonly determined based on average winter water use and/or household size. Average winter water use is commonly used in climates where little or no outdoor usage is needed during winter months. Household size takes into account the size of the household and the estimated water use per household member. An outdoor water budget is typically determined by the irrigable landscape area of each customers' parcel, weather data, and an adjustment factor that takes into account the water requirements of a particular parcel's landscape/crop type. Agencies commonly define empirical formulas to be used to calculate the indoor and outdoor water budgets for each customer. While some agencies have water budget rate structures in place only for residential customers or only for dedicated landscape irrigation accounts, others may have water budget-based rates for multiple customer classes. If so, a unique water budget calculation methodology will be used for each customer class to determine each class' appropriate level of "efficient use." Water budgets for commercial customers are usually designed based on the historical water use and/or based on needs evaluated for each customer.
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Policy Considerations
Water budget-based rates were pioneered in the early 1990s in Southern California by Capistrano Valley, Irvine Ranch Water District, and Otay Water District to address the need to incentivize efficient water use under uncertain water supply conditions. Since then, water budget rate structures have been implemented by at least 25 water providers across the United States2.
While still most prevalent in California, water budget rate structures have been adopted by utilities in other states including Utah, Nevada, Colorado, North Carolina, and Florida. Water budget-based rates have also been implemented across a variety of agencies in terms of agency size and technological resources.
While water efficiency is the guiding principle that generally motivates agencies to adopt water budget rate structures, a variety of policy considerations must be evaluated in order to assess whether water budget-based rates are appropriate for a specific water provider. A list of the primary advantages and disadvantages of water budget rate structures are outlined below. An important step in evaluating the appropriateness of water budget-based rates is for City staff to consider which factors listed below are particularly pertinent to Palo Alto.
Advantages
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s:
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1. Promotes a culture of efficiency: Water budget rate structures are an effective method of signaling to customers that efficiency is a key value within a given service area. When water budget-based rates are well designed, they should result in effective price signaling to customers to reduce wasteful or inefficient water use. Coupled with separate conservation measures and targeted messaging to stakeholders, a water budget rate structure can drive home the point to customers that both water efficiency and conservation are essential to the well-being of the service area. This is particularly AWWA Research Foundation. Water Budgets and Rate Structures: Innovative Management Tools. 2008. f-
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CITY OF PALO ALTO. WATER BUDGET RATE STRUCTURE EVALUATION4 relevant in regions particularly vulnerable to water supply insecurity. This may be the primary reason water budget rate structures were pioneered by agencies in regions of Southern California particularly sensitive to water supply shortage.
2. Pricing/accuracy: Water budget rate structures provide for lower priced water for essential indoor water usage needs by charging customers at the lowest Tier 1 rate for indoor domestic water usage. This aligns well with the current interpretation of the "beneficial use" doctrine in California, which states that indoor domestic needs are of the highest water use priority. Water budget-based rates can result in decreased water bills for low water usage residential customers, compared to what those same customers would be charged under uniform commodity rates3. Furthermore, water budget-based rates can provide another equitable rate design option, because they account for different amounts of water required to efficiently meet the water needs of each household. Thus, a water budget rate structure, if based on accurate customer data and characteristics, offers another way to add accuracy and precision into the rate structure.
3. Effective drought management response: As stated earlier, water budget rate structures are perhaps most appropriate in areas that are aggressively trying to reduce water demand dueto water supply shortages or lack of reliability, In fact, Irvine Ranch Water District in Orange County implemented one of the first water budget rate structures in the nation in direct response to drought conditions in the late 1980s and early 1990s in Southern California. The District was particularly motivated to take aggressive action because its wholesaler, Metropolitan Water District of Southern California, was forced by drought conditions to implement penalties for agencies that exceeded their allotment. An independent evaluation found that Irvine Ranch Water District's water budget rate structure implementation led to a 37% decline in water applied for landscape irrigation, demonstrating the potential for well-designed water budget-based rates to significantly reduce inefficient and wasteful water use .
Disadyantaaes
1. Ease of understanding: Water budget rate structures are inherently more complex than other common rate structures utilized by water utilities. There may therefore be some challenges in helping customers understand their water bills after the initial implementation of water budget-based rates. This is particularly true for agencies transitioning from a uniform commodity rate to water budget-based commodity rates.
Although the City does currently have two-tiered commodity rates for residential customers, water budget rate structures usually include four or five tiers. A change over to water budget-based rates would therefore require effective communication with customers before implementation and enhanced temporary customer service support afterwards.
2. Customer data requirements: Although dependent on the specifics of each water budget rate structure, substantial increases in customer data are generally required to implement and administer water budget-based rates. This data typically includes customer lot size data to determine landscape area and climatic data such as evapotranspiration. The level of detail does vary considerably by water budget rate structure. For example, Irvine Ranch Water District uses real-time evapotranspiration 3 This assumes the different rate structures are designed to collect the same amount of revenue. Because the City uses a tiered rate structure, residential customers already have a first tier allowance of 6 ccfper month, which is designed to cover essential indoor use. Thus, these custoirers are unlikely to see savings unless they have a large household or some other factors that makes their current first tier allowance of 6 ccfper month inadequate.
AWWA Research Foundation. Water Budgets and Rate Structures: Innovative Management Tools. 2008. 6C55209
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i^-.^-^^m.^Wf^SSs^'Ww^^'.l^rJU»te!(WN»*i^!tMI**«Aite»A«'i*^^<i<»**<i'i»^^^ CITY OF PALO ALTO: WATER BUDGET RATE STRUCTURE EVALUATION data while the City of San Clemente simply uses seasonal averages. This variability in level of detail applies to landscape area as well. White lack of data availability is rarely an issue, obtaining and compiling necessary landscape data during initial implementation, as well as maintaining and updating the initial data so that the water budget rate structure can remain equitable and useful, can require significant staff effort.
Many agencies use the California Irrigation Management Information System (CIMIS) network of weather data to determine efficient outdoor budgets.
3. Cost of implementation/administration: The cost of implementation relates to the gathering of appropriate data, billing system purchase or upgrade (if the current system is not capable of handling water budget rate structures), and public outreach efforts.
Administrative costs include labor costs resulting from additional staffing requirements for customer service after implementation to address questions and variances, as well as changes in customer characteristics, to water budgets resulting from various legitimate reasons such as medical needs, needs of targe animals, pools, etc. Water budget rate structure implementation costs can vary significantly by agency based on the complexities of the selected rate structure, making comparison between agencies difficult. Examples of actual agency costs relating to the adoption of rate structures are provided at the end of this memorandum.
Based on the advantages and disadvantages of water budget rate structures outlined above, some general rules can be derived to determine under what circumstances water budget rates may be most appropriate and beneficial:
•Water budget-based rates have historically been most useful to agencies with significant outdoor landscaping usage that are trying to send a strong efficiency and conservation message to customers.
Agencies with multiple water supply sources, including more expensive and less reliable imported water supplies, are more likely to benefit financially from reductions in water demand resulting from water budget rate structures.
Water budgets can offer increased use and demand accuracy for service areas with larger variability in customer lot size and weather patterns.
Water budget rate structures are most likely to generate support from customers in service areas with a strong existing water conservation ethic.
Costs of Implementation & Administration
Examples of the start-up data and billing costs associated with implementing water budget- based rates are provided in Table 1 below, taken from the AWWA Research Foundation "Water Budgets and Rate Structures: Innovative Management Tools" publication. As noted previously, there is considerable variability in cost based on agency size, existing billing system infrastructure, types of water budget rate structure implemented, and other characteristics. The costs provided are specific to each agency and may not be representative for the City, depending on the aforementioned factors. For example, Irvine Ranch Water District service area encompasses 181 square miles in Orange County, CA, provides service to a population of about 500,000 people. Irvine Ranch was a pioneer in water budget rate structures - the first iteration was implemented in 1991 by the District's in-house staff with no outside help. The original five-tier rate structure was implemented only for single family customers with a fixed indoor water budget and a default lot size of 1 ,300 square feet, with a variance or appeals process so that customers could change the default values. Since then, there have been numerous improvements to the structure to make it more sophisticated and equitable, WfSWI
^fe^S^^'>aK^>^i^th*.Aitife.*«»fiu»?i.'a«.^W !i#<'t»SHfflUbfUrf,<t CITY OF PALO ALTO: WATER BUDGET RATE STRUCTURE EVALUATION6 Los Angeles Department of Water and Power (DWP), which provides service to a population of 4 million people over 473 square miles, implemented its water budget rate structure in 1995.
However, their structure was significantly different than Irvine Ranch. The two-tier seasonal water budget rate structure is applied to all customers. However, the tier definition is different for each customer class. Single family customers' first tier break is based on five lot sizes, three temperature zones, and a sliding scale for household size.
San Juan Capistrano's service area is approximately 14.4 square miles and is home to a population of about 37,000 people. The City implemented its water budget rate structure in 2006, consisting of a three-tiered rate structure that applies to all residential customers and dedicated irrigation and agricultural accounts. Single family customers were divided into two categories: lots with less than 7,000 square feet, which are all given the same outdoor water allotment, and lots greater than 7,000 square feet, which are given individualized budgets.
For reference, the City's water utility serves a population of approximately 67,082 over 25.85 square mites. The example agencies in Table 1 and 2 are located in Southern California, which according to the State Water Resources Control Board had an average residential water usage of approximately 143 gallons per capita per day (gpcd) between September 2014 through February 2019. In contrast, the average residential water usage in the San Francisco Bay region, where the City is located, is approximately 86 gpcd for the same time period. This data could indicate that the climate and water usage behaviors between Southern California and Northern California are quite different. As the examples show, there is no one "correct" water budget rate structure that can be implemented. Agencies have a choice in how detailed they want to implement water budget rates, based on their goals and objectives. The options range from simplified budgets with default values for certain customer groups to completely individualized budgets for all customers. The more individualized the rate structure, the higher the implementation costs.
Table 1
Start-up Data and Billing System Costs of Water Budget Rate Structure Implementation5 Data/Bitling System Costs
fe
trvine Ranch Water District ! $0
San Juan Capistrano I $6,000
Los Angeles DWP ; $300,000
No additional resources or staff required
$5,000 for new billing forms, $1,000 for database of lot sizes | Direct consulting costs of implementation I
Examples of the additional levels of staffing effort required after the initial implementation of water budget-based rates are shown in Table 2 below.
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AWWA Research Foundation. Water Budgets and Rate Structures: Innovative Management Tools. 2008. Note that figures are nominal dollars and are not adjusted for inflation. 60S520')
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CITY OF PALO ALTO: WATER BUDGET RATE STRUCTURE EVALUATION7 I
Table 2
Additional Staffing Needs for Water Budget Rate Structure Implementation Additional Staffing NeedsNumber of Positions
City of Corona | Two full-time temporary positions for first 6-9 months Western MWD (Murrieta service area) I Four full-time temporary positions for first 6 months El Toro Water District One full-time temporary position for first 9 months s'
City of Corona has a population of approximately 167,000 within 39.55 square miles. Western MWD Mun-ieta service area serves a population of approximately 113,000 within 6.5 square miles. El Toro Water District provides service to a population of approximately 49,000 within 8.5 square miles.I MSSW1
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ATARI
Stale W&lce Resources Conirttl Board
State Water Board Drought Year Water
Actions
Conservation Water Pricing
Conservation pricing is an effective tool to prevent wasteful water use. As a result, it is an important part of the portfolio for local water agencies' efforts to conserve water in the short- and long-term.
Directive 8 of Governor Jerry Brown's April 1, 2015 Executive Order B-29-15 promotes water conservation pricing mechanisms. This webpage provides background on the directive and issues related to conservation pricing, including compliance with applicable laws. On July 8, 2015, the State Water Board conducted a workshop to receive stakeholder input on the implementation of Directive 8.
Background
Water pricing can reduce demand by providing an economic incentive for consumers to conserve water. Many water suppliers have established rate structures to incentivize water conservation.
Pursuant to the Executive Order, the State Water Board is to direct urban water suppliers to develop rate structures and other pricing mechanisms to maximize water conservation consistent with statewide water use restrictions. The specific form of that direction is left to the discretion of the State Water Board.
The State Water Board is aware that rate-setting is a complex undertaking that involves numerous local determinations. There is no one-size-fits-all approach to rate-setting, let alone setting rates that promote conservation. Conservation water pricing must be carefully tailored to local circumstances to be effective. Further complicating rate-setting, local water agencies must carefully constmct and document their rate structures to comply with constitutional limitations from Proposition 218.
Pursuant to Directive 8, the Water Board is currently engaging with state agencies, water suppliers, and other stakeholders to address the financial, technical, political, and legal challenges associated with changing rates, surcharges, and other fees. As one element of its implementation of Directive 8, the Board will provide information and resources to facilitate the development and enhancement of water rate structures that encourage efficient water use.
The following information and reports provide additional information about the use of water rate structures to promote water conservation and efficient water use.
Efficacy of Conservation Pricing
Stephen St. Marie, Declining Water Deliveries - How Rates and Bills will be Impacted, Policy & Planning Division, California Public Utilities Commission (Sept. 2016) Sheila M. Olmstead and Robert N. Stavins, Comparing price and nonprice approaches to urban water conservation, 45 Water Resources Research W04301, (Apr. 2009) Pacific Institute, An Overview of the "New Normal" and Water Rate Basics (June 2013) Pacific Institute, Pricing Practices in the Electricity Sector to Promote Conservation and Efficiency: Lessons for the Water Sector (Sept. 2013)
Raftelis Financial Consultants, Inc. and American Water Works Association, California- Nevada Section, 2013 Water Rate Survey.
• Manuel P. Teodoro, Measuring Fairness: Assessing the equity of municipal water rates, 97 Journal AWWA 11 1 (Apr. 2005)
Kenneth A. Baerenklau, Kurt A. Schwabe, and Ariel Dinar, Do Increasing Block Rate Water Budgets Reduce Residential Water Demand? A Case Study in Southern California, Water Science and Policy Center University of California, Riverside Working Paper 01- 0913, September 2013
Mechanics of Developing Conservation Pricing
•American Water Works Association (AWWA), Manual Ml Principles of Water Rates, Fees and Charges (2012)
California Urban Water Conservation Council (CUWCC), Best Management Practices M(2015)
California Urban Water Conservation Council (CUWCC), Water Shortage Pricing Primer (2015)
Alliance for Water Efficiency, Financing Sustainable Water (2015) Best Practices/Examples
Irvine Ranch Water District, Residential Water Rates
Irvine Ranch Water District, Irvine Ranch Water District Allocation-Based Conservation Rate Structure Background Paper (2014)
City of Santa Cruz, Water Rate Redesign (2015)
Moulton Niguel Water District, Water Budget Based Rate Structure (2018) Rancho California Water District 2017 Water, Recycled Water, and Wastewater Rate Study Report (June 2017)
https://www.waterboards.ca.gov/drouKht/Dricing/