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Show WATER PRICING POLICY STUDY of wastewater and agricultural water pricing. As noted in the previous discussion on wholesale water pricing, the preferred option is to induce conservation ( in this case, of M& I water) at the point of ultimate consumption. There is a direct relationship between retail water pricing and water conservation. To effect meaningful conservation through pricing, the key is to send the appropriate price signal to ultimate consumers of water. The evaluation of a particular pricing policy depends on the criteria that are being used to evaluate the policy, the rate structure employed, the rate levels employed, the methods used to communicate the relationship between price and consumption to the customers, and the characteristics of the utility and its customer base. The best evaluation of a pricing policy, therefore, would be specific to a particular agency and would enumerate all aspects of the policy, not just the rate structure. This study requires an analysis of pricing policies that could be implemented by agencies within the CUWCD service area. Because these agencies vary greatly in many respects, including number of customers, water supply, water deliveries, and current policies, the evaluation of rate structures is presented in a qualitative manner. The Pricing Study uses the following set of criteria as guidelines for evaluating rate structures. Each criterion examines the positive and negative impacts that each rate structure could be expected to produce. The expectations of each rate structure's ability to positively impact each criterion is based on previous observations of various utilities across the country. Revenue Sufficiency A pricing policy must produce sufficient revenues. Revenue sufficiency is one attraction of pricing policies such as flat rates and property taxes. Any conservation rate will produce sufficient revenues unless the underlying revenue requirements and cost- of- service studies are wrong. Predictability is not, however, a strength of conservation pricing structures. The reason is that revenues depend significantly on the level of water consumption, and consumption is less predictable than the number of customers or the tax base ( the bases of flat rates or ad valorem taxes). Conservation rates entail added risk for revenue shortfalls, and also for revenues that greatly exceed predictions. Thus, while conservation rates can raise sufficient revenues, errors in the underlying rate study can lead to insufficient revenues. Revenue and Rate Stability Rate stability is closely related to revenue stability. Rate stability refers to the year- to- year change in the rate and whether it is stable or predictable to customers. Revenue stability refers to month- to- month ( or year- to- year) swings in revenues collected by the utility and whether the utility can reliably meet their financial obligations. For purposes of evaluation, revenue instability is the primary cause of rate instability and it is assumed that a pricing policy that exhibits revenue stability will exhibit rate stability. Executive Summary ES- 12 |
