Rate Study Community Advisory Group Study Area Overview · Department of Environmental Services Utilities Fund. 27. Fund Overview. FY 2020 Key Initiatives • Utility Billing System

Rate Structure Alternatives and Financial Overview

Study Area OverviewStaff Name, Department (DEPT ACRONYM)

Water and Wastewater UtilityRate Study Community Advisory Group

Meeting #2: November 14, 2019

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Agenda

• Welcome and Opening Remarks• Core Values and Rate Structure

Alternatives• Utilities Financial Overview• Wrap-up and Next Steps

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Welcome and Opening Remarks

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Core Values and Rate Structure Alternatives

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Rate Setting Process

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Step 1: Identify Core Values

• First step in the rate setting process

• Guides study and rate design

• Some core values conflict with one another

Equity Across Customer Categories

Rate Stability & Minimize Impacts

Simple to Understand &

Implement

Affordability

Conservation

Economic Development

Revenue Stability

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Step 1: Identify Core Values

Core Values for Rate Setting DescriptionThe rate structure should…

Affordability

…be designed such that essential usage is available to residential customers at an affordable price. Customer Assistance Programs (CAP), often funded through partnerships and charitable contributions, may be considered if they adhere to state legal requirements.

Conservation… incentivize water conservation. Conservation-oriented rates reward customers who save water through changes in appliances and/or behavior.

Rate Stability & Minimization of Customer Impacts

…be strategically implemented to reduce dramatic rate increases over time or across among customer categories. Structures that promote rate stability rely on smaller programmatic increases, where possible.

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Step 1: Identify Core ValuesCore Values for Rate Setting Description

The rate structure should…

Revenue Stability …provides more steady and predictable revenues due to a higher reliance on fixed charges.

Simple to Understand and Implement

…be easy for customers to understand. In addition, the rate structure should be able to be implemented without significant costs to the utility.

Equity Across Customer Categories

…each category of customers pays their fair share of the cost of service.

Economic Development …promote economic development.

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Rate Setting Process

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Fixed vs. Variable Charges

Primary Charge TypesFixed Charges

• Don’t change with customer usage

• Customer related costs• May include portion of capital

costs

TypesBase Charge (by Meter),

Minimum Charge, Other Fixed Charges (e.g. Repair and

Replacement, Environmental)

Variable Charges• Vary with amount of water

used• Utility costs that vary with

customer usage patterns• All other fixed costs

TypesUniform

Tiered (Inclining or Declining)Seasonal

Water Budget (Individualized)

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Fixed Charges vs. Variable Charges (continued)

Advantages vs. Disadvantages

Fixed Charges• Advantages

• Contributes to revenue stability

• May reflect customer related and other fixed costs (e.g. debt service)

• Disadvantages• Limits customer control of

bill / conservation incentives

Variable Charges• Advantages

• Recover volume-related costs based on usage

• Address policy objectives including conservation and affordability

• Disadvantages• Administrative costs

associated with metering consumption / advance rate designs

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Fixed Charges

• Fixed charges above customer costs are prevalent.• Revenue stability and recovery often cited as basis for

“high” fixed charges.

Water Sewer

Median Fixed Charge $ 12.19 $ 12.25

% of Total Bill 33% 26%

Source: 2019 AWWA/Raftelis National Water & Wastewater Rate Survey (Based on 1,000 Cf Bill)

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One Size Does Not Fit All

• Rate designs vary by utility and by region

• Rate levels vary by utility• Generally a function of the utility’s

costs and the customers demands

• Rates reflect diverse and competing objectives

Evaluating Alternative Rate Structures

Source: 2019 AWWA/Raftelis National Water & Wastewater Rate Survey

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Variable Charge Alternatives

Conservation

• Increasing Block• Seasonal• Individualized

Traditional

• Declining• Uniform

MORE LESSC O N S E R V A T I O N - E F F I C I E N C Y

BUDGET/INDIVIDUALIZED

INCLINING BLOCK SEASONAL UNIFORM

DECLINING BLOCK

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Alternative Rate Designs (continued)

Example: Usage: All units of consumptionRate: $2.74 per 1,000 gallons

Uniform Rate

Rate per 1,000 gallons

Definition: Single rate for all units of consumption, for all customers and customer classes; each unit of product is valued and priced the same.

$3.00

$2.74

$2.50

$2.00

10 100 1,000 10,000 Usage (in 1,000 gallons)

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Alternative Rate Designs (continued)

Uniform RatesMajor Advantages

• Are generally easy to implement, administer, and update

• Are understandable and accepted by most customers

Major Disadvantages

• Does not fully allocate system costs associated with peak/seasonal demand to usage which creates the peaks.

• May only marginally achieve conservation objectives

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Alternative Rate Designs (continued)

Example: Usage Rate (per 1,000 gallons)First 10,000 gallons $2.60Next 15,000 gallons $2.85Over 25,000 gallons $3.50

Uniform Rate

Rate per 1,000 gallons

10 100 1,000 10,000

$3.00

$2.74

$2.50

$2.25

$3.25

$3.50

Block 1(Essential Use)

Block 2

Block 3

Inclining Block Rate

Usage (in 1,000

gallons)

EXAMPLE ONLY

Definition: Unit rate increases with consumption.

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Alternative Rate Designs (continued)

Inclining Block RatesMajor Advantages

• Can be highly conservation oriented

• Are generally understandable by customers

Major Disadvantages• May result in revenue

instability• Pose challenges in

developing appropriate block cutoffs and unit rates

• May have substantial impact on high volume customers

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Alternative Rate Designs (continued)

Seasonal Rate

Definition: Higher unit rate(s) for consumption during a peak period than at other times during the year.

Rate per 1,000 gallons

Non-seasonal Rate

10 100 1,000 10,000

$3.00

$2.75

$2.50

$2.25

$3.25

$3.50

Usage (in 1,000 gallons)

EXAMPLE ONLY

Example:

Specific Rate Approach Non-Seasonal SeasonalAll units of consumption $2.40 $2.90

Usage Rate (per 1,000 gallons)

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Alternative Rate Designs (continued)Seasonal Rates

Major Advantages• Are based upon cost of

service allocation concepts• Are generally

understandable and accepted by customers

Major Disadvantages• May have substantial impact

on high volume customers• May have less predictable

impact on demand, and therefore revenue

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• Hybrid Approach– Rate structure varies by customer class– Any combination of rate structures may be

used– Addresses implementation issues for each

customer class

Alternative Rate Designs (continued)

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Sending an Affordability Message

• Rate structures can be a useful tool in addressing affordability– Can enhance or undermine affordability message.

• Encouraging customers to conserve is the best way to lower their bill

• Affordability-friendly:– Variable charges – Lifeline rates

• Less friendly:– Minimum charges – High fixed charges

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Other Programs & Initiatives

• Rate/Bill Assistance Programs*– Bill discounts– Rate discounts– Crisis assistance

• Water Efficiency Options– Conservation assistance (water audits)– Leak detection / repair– Education

• Other Measures– Financial counseling– Disconnection moratoria

*State-specific legal considerations are highly important.

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Other Considerations (continued)

Residential Sewer Billing Options• 100% water consumption

– Or less than 100% (return factor)

• Average winter consumption (AWC)

• Usage with a cap

Other Considerations• Irrigation meters and separate

rates

Source: 2019 AWWA/Raftelis National Water & Wastewater Rate Survey

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Utilities Financial Overview

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Utilities Fund

Utilities Fund• Enterprise fund = Self-supporting

fund• Fiscal Policy: 3 month reserve

• Water and Wastewater Rate funds all operating & capital needs

• Water purchase & distribution• Wastewater collection & treatment• Customer service & billing

Department of Environmental Services Utilities Fund

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Fund Overview

FY 2020 Key Initiatives• Utility Billing System Replacement

• Current system dates to 1990s• Billing for 38,000 accounts with

175,000 annual bills• “Go live” November 2019

• Water & Sewer Cost of Service and Rate Study

• Financial analysis and forecast• Rate structure and components• Key public engagement initiative

• Customer Service Enhancements• Water Meter replacement planning

• Next generation of technology• Solids Master Plan, Phase 1 projects

underway

New Customer Portal

Current Billing System

Customer Services Office

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Operating Budget

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Utilities Capital Improvement Plan (CIP)

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$499M over 10 years

Utilities Capital Improvement Plan FY 2019 – FY 2028

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FY 2019 (Effective 7/1/2018) FY 2020 (Effective 7/1/2019)Water $4.53/ TG Water $4.70/ TGWastewater $9.09/ TG Wastewater $9.10/ TGCombined $13.62/ TG Combined $13.80/ TG

Average Annual Household Impact (60 TG)

$817 per year

Average Annual Household Impact (60 TG)

$828 per year

TG = Thousand Gallons

Existing Rates

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Water - Provider Frequency Billing UnitConsumption

Charge

Base Rate or Billing

Fee

Capital Infrastructure

Fee Utility Tax

Water - Tiered Usage

Water- Peak User Fee

Sewer- Winter/

Seasonal Rate

Arlington County Arlington County Quarterly TG City of Alexandria

Water: Virginia America Water; Sewer: AlexRenew

Monthly TG

(sewer) Falls Church

Water = Fairfax Water; Sewer = Falls Church (billed by Fairfax Water)

Quarterly TG

(sewer) District of Columbia DC Water Monthly ccf Prince William County

Prince William County Service Authority

Monthly TG Prince Georges and Montgomery Counties (MD)

Washington Suburban Sanitary Commission (WSSC)

Quarterly TG Fairfax County

Water: Fairfax Water; Sewer: Fairfax County

Quarterly TG Fairfax City (Residential)

Water: Fairfax Water; Sewer: Fairfax City (billed by Fairfax Water)

Quarterly TG

(sewer)

(sewer) Loudoun County Loudoun Water Quarterly TG

Residential Bill Rate Structure

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Monthly Water Usage per Residential Account

Consumption Patterns

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Number of Accounts

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Customer Profile - Water

Source: Draper Aden Survey Compilation

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Customer Profile - Wastewater

Source: Draper Aden Survey Compilation

Q & Awater.arlingtonva.us/water-and-wastewater-utility-rate-study/

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RSCAG Meeting Topics and ScheduleMeetings Topics Meeting Dates

Study Introduction and Overview

• RSCAG Charge and Objectives• Arlington’s Water Systems• Rate Study Overview and Goals • Public Engagement Overview and Goals

October 21, 2019

Rate-Setting Process • Core Values and Rate Structure Alternatives• Utilities Financial Overview November 14, 2019

Plant Tour • Wastewater System Overview and Treatment Plant Tour December 7, 2019

Core Values

• Identify and prioritize core values to inform rate structure design

• Additional topics TBD January 14, 2019

Alternative Rate and Fee Structure Proposals

• Alternative Water and Sewer Rate and Fee (e.g., Infrastructure Availability, Miscellaneous) Structures TBD

Recommendation Development and Reporting

• Recommended Rate and Fee Structures• Summary of RSCAG and broader Arlington Community

FeedbackTBD

Thank you!water.arlingtonva.us/water-and-wastewater-utility-rate-study/

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Is My Rate Structure Affordability-Friendly?

Less Friendly

High Minimum Charges

High Fixed Charges

Declining Block Rates

Inclining Block Rates

Uniform Volumetric

Rates

Water Budget Rates

Lifeline Rates

More Friendly