Paul D. Jones II, P.E.
General Manager, Eastern Municipal Water District
Presented February 20, 2014
Urban Water Institute www.emwd.org 1

• What is a Budget-based Rate
Structure?
• What are its Unique Features?
•
How does they work? o Indoor Allocations o Outdoor Allocations o Pricing Signals
• Benefits and effectiveness of
Budget-based Rate Structures
• Defensibility of Rate Structure
• Summary www.emwd.org 2

• Commonly Used Names: o “Allocation-based Rate Structure” o “Water Budget Rate Structure” o “Conservation-based Rate Structure” o “Sustainable Rate Structure”
Same Basic Rate Structure
• Creates an “Allocation” or “Water Budget” for each customer account based upon reasonable needs and efficient use.
• Uses Economic Incentives: Water is priced to customer lower for use within allocation – much higher for use over allocation
• Are there other types of rate structures that encourage conservation?? Yes , but Allocation-based structures have several unique benefits that facilitate high levels of water use efficiency.
www.emwd.org 3

• Individualized: based on land use specific uses (indoor needs) and landscape needs (weather adjusted).
• Encourages Efficient Use Pattern: within allocation through a sharply tiered pricing system o Rewards efficiency o Communicates cost of water over-use
• Uses Fair Premise: those who overuse pay more, those who use only what they need, pay much less www.emwd.org 4

• Identifies Over-use customers: water bill functions as a “report card” – focus staff resources
• Provides Appropriate Nexus:
Revenue from over-use tiers reinvested in water use efficiency programs and higher cost supplies
Identifies excessive and wasteful water use
Provides target for efficiency www.emwd.org 5

Allocation = Indoor Needs + Outdoor Needs (seasonal) + Variances
EMWD may also apply an Indoor and/or Outdoor Drought Factor
• Provides individualized allocations for a diverse customer base: o 80% of retail demand is residential o Old and new development o Variation in family size and irrigation area www.emwd.org 6

Indoor Water Allocation =
(Household Size x Consumption per
Person) x Indoor Drought Factor +
Indoor Variances
• Indoor Use Allocations based upon: o 3 persons per household for single family residential o 60 gallons per person per day o 2 persons per household for multifamily residential o No indoor allocation for landscape customers o Variances available for additional occupants and special circumstances www.emwd.org 7

Outdoor Water Allocation =
[(ET x Conservation Factor x Irrigable
Area) + Outdoor variance] x Outdoor
Drought Factor
•
Outdoor Use Allocations Based on: o Evapotranspiration data collected for separate zones o Irrigated area:
 Estimated using parcel information, infrared aerial photography and field measurements
Measured in the field o Adjustment (Conservation) Factor Applied for landscaping type:

1.0 for accounts installed before 9/08
 0.8 for accounts installed 9/08 to 1/10
 0.7 for accounts installed after 1/10
ET Zones www.emwd.org 8

• Tier 1: Indoor Use $1.62/unit * o Budget = Number of Persons x 60 Gallons Per Day
Within
“Allocation”
• Tier 2: Outdoor Use $2.96/unit o Budget = Landscaped Area and Evapotranspiration
• Tier 3: Excessive $5.31/unit o Up to 50% use in excess of Indoor and
Outdoor budgets
“ Overallocation”
Usage
• Tier 4: Wasteful $9.71/unit
—
Over 50% in excess of Indoor and Outdoor budgets
* One billing unit equals 100 cubic feet www.emwd.org 9

• Residential Programs o Free Residential Survey o Turf Buy-back Program o Freesprinklernozzles.com
o Smart Controller Direct Install Program o High Efficiency Clothes Washer Direct
Install Program o Financial Incentives:
 Smart Controllers
 High Efficiency Nozzles
 High Efficiency Clothes Washers
• Commercial, Institutional, Industrial and Landscape o Turf Buy-back o Freesprinklernozzles.com
o Financial Incentives
 High Efficiency Nozzles
 Weather Based Irrigation Controllers
 Ultra Low and Zero Water Urinals
 Connectionless Food Steamers
 Air-Cooled Ice Machines
 Cooling Tower Controllers
 Dry-Vacuum Pumps www.emwd.org 10

Statewide Average: 198 GPCD
Baseline Average: 212 GPCD
2020 Compliance Target is 184 GPCD
25% reduction
155 GPCD www.emwd.org 11

• Residential Accounts o 30 gal/capita/day reduction o 16,085 af/yr savings
38,604 Mwh
5,724 tons/yr
C02e GHG
• Landscape Accounts o 0.8 af/acre/year reduction o 3,557 af/yr savings
8,536 Mwh
1,266 tons/yr
C02e GHG
Total Annual Water Cost Savings - $10,990,000
Total Annual Energy Cost Savings - $2,671,000
Note: Assumes MWD system Power rate of $136/af, Tier 1 untreated rate of $560/af (2012) www.emwd.org 12

• Ongoing Study (first results reported in 2013):
“Average prices rose less than 4% under water budgeting, but would have had to rise 34% under flat rate pricing to achieve the same demand effect.”
• Controlling for the effects of inflation, the recent economic downturn and other water use efficiency programs, EMWD’s
Budget-based rate structure resulted in at least a 15% reduction in water use.
www.emwd.org 13

• A clear nexus between costs associated with levels of usage ( and over-usage ) and the rates charged for those usage categories is essential .
o Specific, detailed cost attribution by Tier(s) is most defensible. o Pricing differential between tiers should not be arbitrarily set to simply send a “pricing signal”
(ex. Tier 2 is twice the rate of Tier 1).
o Fixed expenses are best allocated to fixed
(meter) charges and the base volumetric tier(s) which all customers consume.
• Still provides substantial flexibility to agencies in rate design.
$ $
$ a g u s e
$ $ T2
T2
$ T1
T1
Costs Revenue www.emwd.org 14

• Irvine Ranch Water District pioneered the allocation-based rate structure in
1991 o Motivated by the drought in late
1980s
• Direct nexus between use and cost o Allocates costs funded by penalty tiers to the sales associated with the different levels of wasteful use
• Split between fixed and volumetric costs insulates IRWD from potential negative financial impacts of reduced water sales.
• Lower demands = Less highest cost water supply purchased
Tier
Low Volume
Base
Inefficient
Excessive
Wasteful
Cost Basis
Pumped Water
Melded Cost of
Budgeted Supplies
Imported Water
Tier 1 + 33% of
Programs/
Inefficient Usage
Imported Water
Tier 2 + 33% of
Programs/
Excessive Usage
Imported Water
Penalty Rate + 33% of Programs/
Wasteful Usage www.emwd.org 15

• Budget-based Rate Structures: o Encourage efficient use and is fair to customers o Communicate the value of water o Identify wasteful use of water – two way communication o Allows reinvestment in water use efficiency programs
• Can be designed to be legally defensible and still very effective.
• Such rate structures will be important in addressing the drought and demand management.
www.emwd.org 16

EASTERN MUNICIPAL WATER DISTRICT
Contact Information
Paul Jones
EMWD, General Manager
(951) 928-3777 jonesp@emwd.org
www.emwd.org