Attachment 1
Report 2005CAEP01
Water Conservation Plan
Background Information
EPCOR Water Services Inc. encourages and supports water conservation among residential,
multi-residential and commercial customers through existing programs, public education and
awareness campaigns, and ongoing collaboration with industry. A significant decline in total per
capita water usage within the City of Edmonton over the last several years can be attributed to
the influence of these initiatives. Water conservation continues to be an integral part of EPCOR
Water’s corporate strategy and is consistent with our commitment to act in an environmentally
responsible manner.
The most current biennial industry water and wastewater rate survey published by the Raftelis
Financial Consulting Group, identified that major cities in Canada and the United States tend to
use a declining or uniform rate structure for non-residential customers. Although some cities in
the United States have implemented pricing as a strategy to encourage conservation, this strategy
is typically used in areas facing immediate or future water shortages. Edmonton has never had to
face supply concerns brought on by drought. Further, the volume of water withdrawn from the
North Saskatchewan River has not resulted in supply issues to downstream water users.
The existing declining water rate structure for EPCOR multi-residential and commercial
customers is consistent with the objectives of the EPCOR Rates Bylaw (all customer charges will
be based upon cost of service) and industry practice in Canada and reflects the costs of servicing
this customer group. Further, it supports and encourages companies to do business in Edmonton.
These customers tend to support water efficiency initiatives and best practices, as opportunities
to reduce costs and be more efficient in their operations.
In considering a shift to inclining water rates, large volume multi-residential and commercial
customers in Edmonton would be the most adversely affected by increased water costs. Large
volume customers generally represent a small percentage of total commercial and multiresidential customers but represent the majority of water consumption. This shift in water rates
in Edmonton would tend to discourage economic activity and expansion rather than encourage
conservation. Additional resources and effort would be needed to communicate the nature and
rationale of such a change through a comprehensive public consultation process with large
volume commercial and multi-residential customers. Large volume customers in Edmonton
may not perceive a need to shift the pricing for water conservation given that there are currently
no water supply concerns and these customers are likely utilizing or pursuing water efficiency
initiatives in their business operations. In addition, large volume multi-residential and
commercial customers with relatively constant consumption patterns (lower peak demands but
high total usage) will view any deviation from existing declining rates to result in inequities to
the costs of servicing this customer group.
EPCOR Water Conservation Trends
From 1989 to 1995, a major conservation program was initiated by EPCOR to focus on reducing
peak water demand during the summer and to encourage commercial efficiency retrofits. During
this period total per capita water usage, which includes all residential and commercial water
usage within the city of Edmonton, declined significantly from 440 litres per capita per day
(l/c/d) to 373 l/c/d. Since 1995, water conservation initiatives have focused on odd/even lawn
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watering, retrofitting with efficient appliances, customer behaviour changes and ongoing
collaboration with industry.
The influence of water conservation initiatives is most prevalent in the residential customer base
with its relatively homogenous consumption patterns compared to the commercial customer base
with more diverse consumption patterns depending on the industry. In 2003, Edmonton reported
one of the lowest water usage rates for residential customers with an average of 243 l/c/d
compared to the average in Calgary of 296 l/c/d. Commercial water use levels have remained
fairly stable over the last several years, as large volume commercial users tend to seek
opportunities to reduce costs through use of water efficient products, development of process
technologies to encourage water re-use, and promoting efficient maintenance practices.
Existing EPCOR Strategies to Encourage Water Conservation
EPCOR supports and encourages water conservation for multi-residential and commercial
customers through various initiatives including:
1) EPCOR’s EnVestTM Program is a comprehensive energy and water efficiency program,
designed for industrial and commercial customers. For a fee, EPCOR can provide initial
assessments, detailed audits, project management, and financing to assist customers with
reducing energy and water costs.
2) Public education and awareness campaigns to promote water conservation. EPCOR issues
information on water efficiency through brochures, its web site, newspaper advertisements
and utility bills.
3) EPCOR collaborates on water efficiency activities through industry affiliations such as
Canadian Water Works Association (CWWA) and the American Water Works Association
(AWWA). In addition, a Public Advisory Committee chaired by EPCOR provides
representatives from major commercial customers with a forum to discuss and share
information on water efficiency best practices.
4) EPCOR collaborates with industry to encourage and support water efficiency initiatives in
business operations. For example, a Commercial Water Efficiency Guide issued by EPCOR
provides information to customers on water efficiency initiatives such as efficient
maintenance practices in facilities, benefits of water efficiency plumbing fixtures and
appliances, sub-metering and water use audits. Large volume water users tend to actively
seek opportunities to reduce costs and increase profits by being more efficient in their
operations as normal business practice.
Industry Practices
Most major Canadian cities use voluntary initiatives such as public education and awareness
campaigns and collaborate with industry to promote and encourage water conservation. EPCOR
surveyed several major Canadian cities and identified that cities tend to use a declining or
uniform water rate structure for non-residential customers. None of the cities surveyed use an
inclining water rate structure.
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Non-Residential*
Rate Structure
Declining
Uniform
Jurisdiction
Edmonton, Calgary, Winnipeg, Toronto
Regina, Vancouver, Victoria, Ottawa
* All cities with the exception of Edmonton use one non-residential customer class to refer to
customers that are not residential customers. Edmonton separates the non-residential into a
multi-residential and commercial customer class.
Rationale for Existing Declining Water Rate Structure
Major commercial and multi-residential customers in Edmonton tend to use large volumes of
water as a primary input to their operations. These customers tend to have more stable
consumption patterns, compared to smaller volume customers, by utilizing large volumes of
water evenly through the day, each day of the year. Large volume customers tend to have
infrastructure requirements that are concentrated in certain areas of Edmonton that allows
EPCOR the ability to make more efficient use of the water system and lower operating costs.
The declining rate structure is designed to best reflect the costs of servicing this customer group
and to make it attractive to do business in Edmonton coupled with ongoing water conservation
initiatives.
The American Water Works Association (AWWA), the authoritative resource for the water
industry, states “Many customers unfamiliar with the rate design process consider the declining
block rate structure to be a quantity discount or “anti-conservation” and favourable to large
volume users of water. In actuality, when properly designed, the declining block rate structure
reflects the manner in which costs are incurred by the utility. It assesses costs associated with the
usage patterns and demand requirements of the various classes of customers served.” In other
words, large volume commercial and multi-residential customers tend to have more continuous
demand patterns with fewer peaks and valleys. In addition, the amount of infrastructure required
to supply these customers is less than that required to provide an equivalent amount of water to
residential customers.
Gradually phasing out the practice of reducing the cost of water as consumption increases would
represent a shift in water rate pricing and would be contrary to messages previously
communicated to the public. In 2001, as part of the public consultation process to incorporate
Performance Based Rates (PBR) for a five year term into the Waterworks Bylaw approved by
City Council, discussions were held with large commercial and multi-residential customers and
interest groups such as Chamber of Commerce and Economic Development Edmonton. As part
of this process, one of the key messages was that increases in water rates would be limited to a
rate less than inflation.
Alternative Pricing Strategies and Other Potential Financial Strategies
This section of the report provides a discussion on alternative pricing strategies and the impacts
of implementing an inclining water rate structure for multi-residential and commercial customers
within the City of Edmonton. In addition, EPCOR has identified other potential financial
strategies for consideration.
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A. Alternative Pricing Strategies
Water rate structures that encourage water conservation include inclining rates, uniform rates or
seasonal rates. Under an inclining rate structure, the unit rate increases with water usage to send
a strong price message to conserve water and is typically used to promote conservation in areas
facing immediate or future water shortages to assist in reducing demand to avoid using more
expensive alternative water sources. Under a uniform rate structure, the customer pays the same
rate for all water usage and may provide for some incentive to conserve water. Under a seasonal
rate structure, a higher unit price is charged in the period of peak demand, such as summer as a
means to encourage reduced demand. Many large commercial and multi-residential water
customers tend to have stable consumption patterns and are generally not affected by seasonal
water usage.
Other Considerations in Implementing Alternative Pricing Strategies in Edmonton
1) Water rates in Edmonton are based on a full cost of service basis where prices are set to
recover EPCOR Water’s revenue requirement. If rates are increased for certain customers,
then rates will have to be reduced for other customers to ensure that there is no over recovery
of costs to provide water. Therefore, the implementation of an inclining rate structure or
other pricing structure would still need to recover EPCOR Water’s revenue requirement. Any
changes to the pricing structure would simply result in the reallocation of amounts required
to be charged for the three customer classes (residential, multi-residential, commercial) or
within the consumption blocks for each customer class.
2) Implementing an inclining rate structure may encourage large volume commercial water
users in Edmonton to move or establish their business operations in the surrounding
communities, as EPCOR water rates charged to commercial customers could be higher than
the wholesale bulk rate charged to the Regional Water Customers Group comprised of
surrounding communities including St. Albert, Leduc, Strathcona County and Parkland
County
3) Water rate increases to multi-residential customers will likely be passed onto tenants as
opposed to encouraging owner’s to invest in water conservation products such as water
efficient plumbing fixtures and appliances.
4) Large volume multi-residential and commercial customers would view a change to an
inclining or uniform rate structure as inequitable. These customers would claim that the
existing declining rate structure supports the lower costs associated with providing water
service for customers with relatively constant consumption patterns (low peak demands but
high total usage) in more concentrated areas that require less infrastructure compared to
residential customers. An inclining rate structure for residential customers supports the
additional costs associated with increasing plant production capacity to meet peak demand
consumption patterns and to recover the costs to provide more widespread infrastructure.
Impacts of Implementing an Inclining Water Rate Structure
Changing from the current declining rate structure to an inclining rate structure for commercial
customers could result in a shift to lower water rates for customers utilizing less than 1,000 m3
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per month. At the same time, there would be an increase in water rates for those customers with
water usage over 1,000 m3 per month. At EPCOR, the large volume commercial and multiresidential water users generally represent a small percentage of total customers but utilize the
majority of total water consumption. By employing an iterative process and holding total
revenue and volumes constant for the relevant customer class, the impact for large volume
commercial and multi-residential customers could range from 28% to 48%. At the same time,
small volume customers would benefit from lower water rates within a similar range and this
could adversely impact our existing conservation initiatives.
With over 14,000 commercial customers, approximately 400 commercial customers (3%) utilize
more than 1,000 m3 per month of water and account for 63% of total commercial consumption.
Approximately 79% of customers utilize less than 100 m3 per month of water and account for
only 9% of total commercial consumption.
With 3,100 multi-residential customers,
approximately 8% of those customers utilize over 1,000 m3 per month and account for 35% of
total multi-residential consumption. By shifting to an inclining rate structure, EPCOR’s large
volume commercial and multi-residential customers would be most adversely impacted with
increased water costs. Such customer groups would include hospitals, brewery & beverage
processing, manufacturing and food processing plants, schools, recreational facilities,
universities and colleges, major shopping malls and retail complexes, senior living complexes
including nursing homes and assisted living facilities, and apartment complexes and
condominiums.
A comprehensive public consultation process with large volume water users would be required
given that any increase in water rates to encourage water conservation will most adversely affect
those customers who likely already utilize water efficiency initiatives in their business
operations.
B. Other Potential Financial Strategies to Encourage Water Conservation
For consideration, EPCOR provides a discussion on three potential financial strategies to
encourage water conservation:
Financial Strategy #1: Water Conservation Surcharge
A water conservation surcharge would be applied to every rate block above 100 m3 per month
for both multi-residential and commercial rates. The surcharge would be a uniform flat per cubic
metre rate applied to all affected blocks. The funds from the surcharge could be used to more
actively promote the EnVestTM Program or work in conjunction with the City of Edmonton to use
the funds to create and administer demand side management water conservation programs.
One of the advantages of using the conservation surcharge would be the separation of the charge
on water bills to send a clear public awareness message about conservation. The disadvantage of
using the surcharge option is that it could be perceived as cross subsidization of low volume
water customers by high volume customers, who through their own desire to reduce costs, are
already actively involved in water efficiency initiatives.
Financial Strategy #2: Combine Consumption Rate Blocks
With this approach, EPCOR would combine the two lowest volume rate blocks for both
commercial and multi-residential customers. There would be a shift to decrease water bills for
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those using less than 1,000 m3 per month and increase bills for those using greater than 1,000
m3 per month, assuming no change to the total amount required to recover EPCOR Water’s
revenue requirement.
One of the advantages of using this option is it would simplify the water rate structure by
reducing the number of consumption blocks. The disadvantages would be increased water bills
to large users, which may be not large enough to stimulate reduced consumption, and reduced
water bills for low volume users, which will tend to adversely impact the conservation initiatives
aimed at these customers..
Financial Strategy #3: Increase Rates for Small Volume Commercial Customers
To encourage water conservation for all commercial customers, EPCOR could increase the rates
charged to low volume commercial customers to provide a greater incentive for water
conservation. With over 14,000 commercial customers, 79% of these customers utilize less than
100 m3 per month but account for only 9% of total commercial consumption; and 18% of
customers utilize between 100 m3 and 1,000 m3 per month and account for 28% of
consumption. Under the current rate structure, water rates for these small volume commercial
customers are lower than both the residential and multi-residential customer classes. Small
volume commercial customers are not likely to participate in water efficiency initiatives to the
same extent as large volume water users given the size of their operations. By increasing the
rates for these small volume commercial customers, a consistent water conservation pricing
strategy would apply to all low volume users regardless of customer class.
The increase in revenue from the small volume commercial customers would further reduce the
rates to the large volume water users to encourage more economic spin-off to the City.
However, the small volume commercial customers may view the change as cross-subsidization
to large water users.
Recommendation
Our recommendation is based upon continuing with EPCOR’s existing programs and ongoing
collaboration with industry to encourage water conservation among multi-residential and
commercial customers coupled with no change to the existing water rate structure. In our view,
this approach effectively promotes demand side conservation in a positive manner and is
consistent with objectives of the EPCOR Rates Bylaw and industry practice in Canada. Large
volume water users account for 63% of total commercial consumption and tend to seek water
efficiency opportunities to reduce operating costs as part of their business operations. Any
increase in the rates charged to large volume customers would likely result in lower water rates
for small volume customers and could adversely impact existing conservation initiatives.
Accordingly, we recommend no change to the current pricing methodology for commercial and
multi-residential customers as it best reflects the cost of servicing these customer groups and
encourages economic growth within the City of Edmonton.
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