A Report on Water Rates and Consumption

for
The Palazzo at Park Center Condominium

Background
Cardinal Management Company provided the President with water utility bills for the
property dating back to 2006. While there are some gaps in the records 1 , sufficient information
was provided to study two trends:
• A trend in water consumption on the property
• A trend in water utility rates for the property
Data from the bills were manually input into a spreadsheet. This report provides the findings
form that analysis.

Rate Calculation
Virginia American Water provides the City of Alexandria with a tariff that sets the base
rates for service. The components of the charges are as follows:
• Minimum charge – this charge is the cost of connecting and metering service. It is based
on the size and number of the connections. For the Palazzo at Park Center, there are nine
2” connections – two per residential building and one for the clubhouse.
• Water charge – this is the charge for the water itself. It is charged per 1,000 gallons. The
first 2,000 gallons are free.
• Purchased Water Adjustment – this is a charge that American Water passes through for
water purchased from the Fairfax County Water Authority (FCWA). It is based on how
much water the utility expects to buy from FCWA and sell back to customers. In general,
the rate fluctuates at least twice annually – once in December for a forecast and once in
June for a true-up of actuals.
• Wastewater charge – this is the charge for treating wastewater from the property. It is
composed of a bill rate, which is the cost of billing wastewater treatment through
American Water and a use charge that is charged per 1,000 gallons. It is set by the
Alexandria Sanitation Authority.
• Sewer charge – this is the charge for maintaining the sewer lines for the City of
Alexandria. It is use charge per 1,000 gallons. It is also set by the Alexandria Sanitation
Authority
• Utility tax – this is the City of Alexandria’s utility tax, which is set at 15% of the bill
(minimum charge + water charge + purchased water adjustment).

For purposes of this report, we will focus on the consumption-based charges.

1
Bills are missing from October, November, and December 2008. In addition, bills are missing from May 2010, but
consumption is provided in the Management Report. Therefore, rate information is incomplete for this month.
Analysis of Rates
In general, the charges by Virginia American Water have not significantly changed over
the last four years. Virginia American Water did file a new tariff in 2008 and phased in an
increase to water rates beginning in 2009, and rates have increased from about $2.25/thousand
gallons to nearly $3.25/thousand gallons. Until the new tariff went into effect, the primary driver
of increases to water rates was the Purchased Water Adjustment (PWA). Once the new tariff was
filed, both the PWA and the cost of water have been increasing. Figure 1 shows this trend.
Virginia American Water Rate Components

3.5000

3.2500

3.0000

2.7500

2.5000
Cost per thousand gallons

2.2500

2.0000

1.7500

1.5000

1.2500

1.0000

0.7500

0.5000

0.2500

-
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Month

Water Rate PWA Rate

Figure 1 - Virginia American Water Rate Components

As has been discussed previously Virginia American Water intends to pursue a 16%
increase in the water use rate and has filed a proposed increase with the City of Alexandria 2 .
That increase in the base water rate will probably be phased, and the City has successfully to
keep the water utility’s rate increases slightly more reasonable than their proposals. It would not,
however, be unreasonable to expect that Virginia American Water will be granted an 8%
increase.

Alexandria Sanitation Authority has significantly increased rates over the time period in
question. While the sewer service rate has remained constant at $1.00/thousand gallons, the
wastewater treatment costs have gone up from $4.06/thousand gallons to $6.36/thousand gallons.
Figure 2 shows this trend.

2
City of Alexandria dockets has the memorandum available online at
http://dockets.alexandriava.gov/fy10/052510rm/di17.pdf.
 Alexandria Sanitation Authority Rate Components

$8.00
$7.50

$7.00
$6.50
$6.00

$5.50

Cost per thousand gallons

$5.00
$4.50

$4.00
$3.50
$3.00
$2.50
$2.00
$1.50
$1.00
$0.50
$0.00

Ju 0
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Month

Sewer Svc Rate Sanitation Rate

Figure 2 - Alexandria Sanitation Authority Rate Components

Beginning in 2010, the Alexandria Sanitation Authority expects to begin new charge
schedules. These will be fixed fees. Our property will be charged the Commercial Bay Protection
Charge. It is charged on a per-meter basis and will impact us as follows:
Effective Quarterly Charge for a 2” meter Monthly Impact for nine 2” meters
10/1/2010 $201.20 $603.60
10/1/2011 $402.40 $1207.20
10/1/2012 $603.59 $1810.77
Table 1 - Commercial Bay Protection Charges

Using this information, we can project the property’s water bill into the future. We
assume that the 8% increase will go into effect in 2012 3 and that the purchased water adjustment
will continue to increase at a rate of about 12% per year 4 . We posit two scenarios: that
consumption will increase at a rate of 5% 5 or that consumption will remain at 2010 levels. A
rough model of costs results in the following projections for the property’s water bill. The
accuracy of this model is estimated at +/- 5%.
Year Modeled Cost Modeled Cost
(with consumption increase) (without consumption increase)
2006 $109,400 $109,400
2007 $133,600 $133,600
2008 $142,100 $142,100
2009 $158,800 $158,800
2010 $177,100 $177,100
2011 $195,700 $187,200
2012 $217,900 $200,000
2013 $240,600 $212,100
Table 2 - Cost Projections (Modeled)

3
The 2008 tariff was phased in during 2009 and took full effect in 2010.
4
PWA has increased at an average rate of 11.7% per year from 2006-2010.
5
Consumption has increased at an average rate of 5% per year from 2006-2010.
Analysis of Consumption
To perform an analysis of consumption, it is important to understand Virginia American
Water’s billing cycles. Each billing cycle has a variable number of days. Since residents use
water every day, this tends to cause some fluctuation when comparing usage on a month-to-
month basis. In addition, it is important to recall that the property’s occupancy fluctuates over
time. For instance, in 2006, people were still moving in as Crescent Heights closed out their
conversion and ended the Declarant period. Furthermore, the housing market crisis has caused
significant move-in/move-out activity. With foreclosures, units remain vacant for a long period
of time and rentals find it difficult to maintain occupancy. The foreclosures have caused many of
our units to switch from investor units to owner units, and permanent occupancy will necessarily
have an impact on water consumption. To smooth and correct for these trends, we have plotted
actual bill data along with a 12-month rolling average.
4560 (Building 1) Use 4550 (Building 2) Use

250 475

450
225
425

200
400

175 375
000 gallons

000 gallons
350
150
325

125 300

275
100

250
75
225

50 200
6

Ju 6

No 6

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M 0

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No 0

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No 6

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M 0

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No 0
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10

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Month Month

4560 Use 12 per. Mov. Avg. (4560 Use) 4550 Use 12 per. Mov. Avg. (4550 Use)

4561 (Building 3) Use 4551 (Building 4) Use

350 625
600
325 575
550
300 525
500
275 475
450
250
425
000 gallons

000 gallons

400
225
375
350
200
325

175 300
275

150 250
225
125 200
175
100 150
6

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Month Month

4561 Use 12 per. Mov. Avg. (4561 Use) 4551 Use 12 per. Mov. Avg. (4551 Use)

Figure 3 - Water Consumption Trends by Building

The data show that there is very little seasonality in the residents’ water consumption. In
fact, things are pretty steady. To further understand consumption by building, it’s important to
understand not only the number of units, but the number of bedrooms in those units. This will
provide a closer approximation of the number of occupants in each building. We can then
estimate trends in consumption on that basis:
• Building 1 has 56 units; 84 bedrooms (1.5 persons per unit)
• Building 2 has 116 units; 152 bedrooms (1.3 persons per unit)
• Building 3 has 72 units; 104 bedrooms (1.4 persons per unit)
• Building 4 has 148 units; 208 bedrooms (1.4 persons per unit)
 We will study the average monthly use by building by year and then divide that by the
number of bedrooms in that building, giving us a proxy for per-person rates of consumption.
Year 4560 (Bldg 1) 4550 (Bldg 2) 4561 (Bldg 3) 4551 (Bldg 4)
2006 172.5 265.1 158.4 394.8
2007 141.3 304.1 207.5 422.1
2008 151.3 347.3 200.6 426.8
2009 155.5 345.6 209.5 435.0
2010 167.3 389.0 197.1 465.8
Table 3 - Average Monthly Consumption (000 gallons) by Building by Year

For ease of understanding, the numbers in this table are rounded.

Year 4560 (Bldg 1) 4550 (Bldg 2) 4561 (Bldg 3) 4551 (Bldg 4)
2006 2,050 1,740 1,520 1,900
2007 1,680 2,000 2,000 2,030
2008 1,800 2,290 1,930 2,050
2009 1,850 2,270 2,010 2,090
2010 1,990 2,560 1,900 2,240
Table 4 - Average Monthly Consumption (gallons) by Bedroom by Building by Year

As can be seen from this table, the average consumption per person is roughly 2,000
gallons per month, or about 66 gallons per day, which is roughly normal 6 . Using that estimate, it
seems that residential consumption has been pretty steady across most of the property, with the
exception of Building 2 and a recent spike in Building 4.

Lastly, we study clubhouse consumption. We expect to see strong seasonality in the

pattern of consumption because of the pool.
4556 (Clubhouse) Use

200

180

160

140

120
000 gallons

100

80

60

40

20

0
6

0
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Month

Club Use

Figure 4 - Clubhouse Consumption

6
Source: American Water Works Association Research Foundation (AWWARF) Study, 1999. Available online at
http://www.aquacraft.com/Publications/resident.htm. An alternative study by the US Geological Survey (USGS)
quotes a range of 80-100 gallons per day. Available online at: http://ga.water.usgs.gov/edu/qahome.html#HDR3.
Conclusions
With this information, two conclusions can be drawn. First, the cost of water has been
increasing. Before 2009, this was mostly due to increases by the Alexandria Sanitation
Authority. Since 2009, the rate increases are driven by both the Alexandria Sanitation Authority
and Virginia American Water. Even if consumption patterns never change, we can expect our
rates to increase. Since 2006, our rates have increase 33%, as shown in the table below.
Year Water PWA Sewer Wastewater % Change
from 2006
2006 $1.3757 $0.8670 $1.0000 $4.5725 -
2007 $1.3757 $1.0317 $1.0000 $5.4600 14.1%
2008 $1.3757 $1.1443 $1.0000 $5.8200 20.2%
2009 $1.6352 $1.2416 $1.0000 $6.1413 28.9%
2010 $1.6430 $1.3497 $1.0000 $6.3600 33.2%
Table 5 - Average Rate for Water Consumption by Component by Year

While the increases are getting smaller, there is no getting around the fact that these are a
significant driver our increased water bill. Furthermore, there are fixed fees coming that aren’t
even tied to consumption.

That said, there is also no denying the residents are consuming more water. It is,
however, not true that the reason we are consuming more water is because everyone is using
more. And, while the clubhouse and pool account for a portion of our consumption, they are not
drivers of our increased consumption. It is possible to see the trend by comparing the water
consumption of a building against the number of bedrooms in that building.
Year Building 1 Building 2 Building 3 Building 4
% of Bedrooms 15.3% 27.7% 19.0% 38.0%
2006 % 17.4% 26.8% 16.0% 39.8%
2007 % 13.1% 28.3% 19.3% 39.3%
2008 % 13.4% 30.8% 17.8% 37.9%
2009 % 13.6% 30.2% 18.3% 38.0%
2010 % 13.7% 31.9% 16.2% 38.2%
Table 6 – Percentage of Bedrooms vs Percentage of Water Consumption

Since we cannot control rates, we must look at what would need to happen to
consumption in light of the rate changes. If consumption never changed from the 2006 baseline,
and we allowed rates to fluctuate, we would see our water bill increase by about 32% or over
$35,000. To offset that, we’d have to reduce consumption by 26% form the 2006 baseline – to
about 1,500 gallons per person per month. Of course, consumption has increased in 2010. So, if
we compare 2010 consumption to what we’d need to consume to get back to 2006 levels, that
means we’d have to consume 40% less water than we’re currently consuming. In fact, we have to
reduce consumption more than our rates are increasing in order to keep things normal. If we
wanted our 2010 bill to be the same as our 2009 bill, we’d have to reduce consumption by 11%
from 2009 levels – and rates only went up by 3.3% 7 .

7
Minimum charges did increase in 2009 and 2010, which is part of what makes it harder to control rising costs with
consumption control measures alone. Combined with the fixed fees proposed by Alexandria Sanitation Authority,
we face a serious problem.
Recommendations
Rate increases are a problem that isn’t going away. With more fixed fees coming
consumption control measures will be the only way to keep our water bill from getting out of
control. However, consumption control measures will not be sufficient to offset the fixed fees
coming out way.

It seems that the primary driver of our increased consumption is Building 2. Consumption
in that building has increased almost 50% since 2006. A targeted study of potential leaks in that
building may be warranted. In addition, we see a spike in Building 4 consumption this year. It’s
not clear whether this is a trend, however. Further review may be necessary before taking action.

In general, it seems that water consumption patterns aren’t significantly changing on the
property. A submetering initiative might control appetite, but the impact would need to be
significant to offset the cost of such a project. Considering that, on average, water use appears to
be about normal, it’s not clear that we would realize a benefit from submetering. Water and
sewer rates will continue to increase regardless of appetite control measures or who ends up
paying the bills.

There is hope, however. If we can reduce the property’s water consumption by 5% a year
beginning in 2011, we can control the cost growth that is projected in future years.
Year Modeled Cost Modeled Cost Modeled Cost
(with consumption increase) (without consumption increase – a (without 5% annual decrease in
zero-growth model) consumption beginning in 2011)
2006 $109,400 $109,400 $109,400
2007 $133,600 $133,600 $133,600
2008 $142,100 $142,100 $142,100
2009 $158,800 $158,800 $158,800
2010 $177,100 $177,100 $177,100
2011 $195,700 $187,200 $178,800
2012 $217,900 $200,000 $182,900
2013 $240,600 $212,100 $186,300
Table 7 - Cost Projections (Modeled)
 Modeled Cost Scenarios

$300,000

$250,000

$200,000
Water Bill

$150,000

$100,000

$50,000

$0
2006 2007 2008 2009 2010 2011 2012 2013
Year

Modeled Cost (with consumption increase) Modeled Cost (without consumption increase)
Modeled Cost (with 5% consumption decrease annually)

Figure 5 - Modeled Cost Scenarios

Respectfully submitted,

Daniel Morgan
President
Palazzo at Park Center Condominium Unit Owners Association