CITY OF RALEIGH

Preliminary Recommendations
Conservation Rate Structure

City Council Presentation

February 3, 2009
 Implementation of
Conservation Rates
• Initial Issues to Consider
– Who uses the water?
– How is the water being used?
– Where are the greatest opportunities for conservation?
– What mechanisms are available to achieve
conservation?
• Pricing
• Education and Awareness
• Start by evaluating customer usage patterns

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 System-Wide FY 2008
Consumption
1.7%
0.9%
0.5% 4.9% 2.0%
4.6%

85.3%

Raleigh Garner Rolesville Wendell Wake Forest Zebulon Knightdale

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 FY 2008 Calculated
Water User Charge Revenue
3.2%

2.1% 4.3%
6.4%
0.8%
8.3%

75.0%

Raleigh Garner Rolesville Wendell Wake Forest Zebulon Knightdale

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 Merged Utilities
Monthly Bill Comparison
Residential Customer: 5/8’’ Meter, 6 ccf
Monthly Bill Comparison (6ccf)
$70.00

$60.00

$50.00

$40.00

$30.00

$20.00

$10.00

$0.00
Raleigh Garner Wake Forest Knightdale Wendell Rolesville Zebulon
Current
Water Sewer

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 Raleigh / Garner
FY 2008 Consumption
5.8%
19.7%
0.7%
3.3%

1.1%

6.5%
62.9%

Commercial City Owned Industrial Intermunicipal Institutional Residential Irrigation

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 Key Observations
• Raleigh / Garner represents 90% of total system
usage
• Biggest opportunity for conservation measures is
Raleigh / Garner Residential class
– 63% of consumption
– 65% of consumption including irrigation
• Merged Utilities will continue to have similar price
differential to recover merger costs
– 10.1% consumption
– 16.7% revenues

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 Rate Study Objectives
• Modify Rate Structure to Encourage Conservation
– Tiered conservation rate structure components
• Number of Tiers
• Tier cutoffs
• Pricing differentials applied to each tier
– Address tradeoffs in revenue sufficiency / stability
• Sustainability
– Address Funding Targets for Other Needs
• Conservation Incentives Program
• Develop Cost of Service Linkages for Rates
– Water v. Sewer
– Base v. Volume
– Pricing Among Tiers

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Current & Proposed Rate
Current Rate Structure
Structure
Proposed Rate Structure

Bimonthly Service Monthly Service

Charge Charge
Charges Vary By Meter Size
Charges Vary By Meter Size

PLUS
PLUS
Uniform or
3 – Tiered
2 – Tiered
Residential
Non-Residential
Uniform Volume Charge
Volume Charge
Volume Charge

All irrigation usage (residential &

non-residential) will be charged at
Tier 3 residential rate

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 Residential Water Rate
Structure
• The recommended water rate structure will have the
following three tiers:
Min (ccf) Max (ccf) % Usage
Tier 1 0 4 60%
Tier 2 4 10 31%
Tier 3 10 + 9%
• Why choose 3 Tiers:
– Provides the flexibility to adjust and enhance conservation opportunities
– Low-volume users are protected
– Provides adequate pricing incentives to use less water
Note: All irrigation usage will be billed at Tier 3 rates, which is not
reflected in the percentage above
Note: 1 ccf = 748 gal 4 ccf ≈ 3,000 gal 10 ccf ≈ 7,500 gal Average Usage ≈ 6 ccf/month

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 Revenue Neutral Rate
Scenario
Current FY 2009 Uniform Rates Equivalent FY 2009 Tiered Rates

Residential
Residential
Tier 1: 0 – 4 ccf $ 1.57 per ccf (-20%)
$ 1.96 per ccf Tier 2: 4 – 10 ccf $ 2.74 per ccf (+40%)
Tier 3: 10 + ccf $ 3.92 per ccf (+100%)

Non-Residential Non-Residential
$ 1.96 per ccf $ 1.96 per ccf

• Tiered rates set so that the average user (6 ccf / month) will have an average cost
equal to the average rate of $1.96 per ccf. Example only – does not represent
actual rate recommendations.

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Non-Residential Water Rate
Structure
• Initial Recommendation: Maintain uniform
volumetric rate structure
– Set to the average unit rate of the system ($1.96)
– Price falls between the Tier 1 and Tier 2 residential rate
– Provides more equitable cost recovery
• Optional Non-Residential 2-Tier Rate Structure
– 2nd Tier set to target largest water users
• Moderate price differential to fund other conservation initiatives &
programs
– Modeling capability is in place
– Can be implemented as part of future adjustments to the
rate structure

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 Sewer Rate Structure
Current Rate Structure Proposed Rate Structure

Bimonthly Service Monthly Service

Charge Charge

PLUS PLUS

Uniform Uniform
Volume Charge Volume Charge

– There is no cost justification for a tiered rate for wastewater service

– Focus will be on revenue sufficiency
– Reinforces water conservation rates – lower usage = lower cost
– Does not address rates for reuse water

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Proposed Rate Structure
• The cost of water increases as usage increases
– Targets elective usage to reinforce conservation
• Limited demand impact depends on price elasticity
– A 10% increase in cost leads to a 1.5% to 3.0% decrease in
usage
• Allocation of total usage to rate tiers:
Raleigh / Garner FY 2008 Total Usage
Non-Residential 31.3 %
Residential: Tier 1 37.5 %
Tier 2 19.9 %
Tier 3 11.4 %

Total 100 %

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 Regional Comparison of
Water Costs
for Residential Customers
6 ccf Monthly 15 ccf Monthly
$68.15
$70.00 $70.00

$60.00 $60.00

$50.00
$46.21 $47.88
$50.00
$33.29 $37.98
$40.00 $40.00
$26.24
$30.00 $30.00
$15.65 $15.65 $15.96 $17.79
$20.00 $20.00

$10.00 $10.00

$- $-
Raleigh Raleigh Durham Cary OWASA Raleigh Durham Raleigh Cary OWASA
Tiered Tiered

Base Charge Volume Charge Base Charge Volume Charge

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 Next Steps
• Integrate Council input and finalize conservation rate
structure
– Need final Council approval of rate structure by early March
• Develop updated utility financial forecast
– Integrate final rate structure into the Model
– Integrate 10-year capital investment plan
– Develop recommended 5-year plan of rate adjustments
• Develop specific rate recommendations for FY 2010
– Presentation to Council in March
• Rate structure implemented with new ERP system at
the end of Nov. 2009

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Questions and
Discussion

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