OCR Text |
Show SUMMARY OF FINDINGS Generally, the more aggressively the utility promotes conservation through rates, the less stable the resulting revenues. A flat rate is the most stable of all. One can reasonably expect very few revenue shortfalls. The opposite is an inverted block, seasonal rate structure. This rate structure produces revenues that vary greatly from one month to the next Instabilities are exacerbated by the fact that outdoor water usage is highly dependent on weather. A conservation pricing structure requires the utility to base revenues on expected demand. Demand is difficult to predict regardless of the rate structure used. The increased uncertainty in predicting demand that a conservation rate structure brings can make revenue estimations and projections less reliable. Unstable revenues can create conditions that cause the utility to revise rates to counteract these instabilities. The better the job the utility does in predicting water usage, the more stable the rates. Ultimately, water conservation rates provide less stability than rates that do not stimulate conservation. Water conservation rates often use a rate stabilization mechanism of some sort. This can take the form of a reserve fund or a system of emergency surcharges. These rates also require specific policies for dealing with " surplus" revenues received during peak pricing periods to ensure adequate reserves and revenues for the off- peak periods. Equity Equity considerations require that rates be cost- based to the extent possible. This review focused on what steps might be required for a rate structure to meet equity considerations. Conservation rates generally require the use of two or more different customer classifications. It could be argued, however, that any rate form requires the grouping of customers into customer classes. If conservation is the primary pricing objective, the cost- based objective might have to be violated to provide price incentives. This does not imply abandonment of the cost- based objective. Unless the utility serves a completely homogeneous customer base, it will be difficult ~ if not impossible ~ to design one conservation rate that is applicable to all customers. Thus, conservation rates might require that customers be segregated into classes in order to design rates that achieve given objectives without penalizing some customers for characteristics that they do not exhibit. Ease of Implementation A utility can administer any rate form, as long as the metering technology exists to physically measure the billing units. Billing is little more than a computer programming issue. Once the program is written the system is automated. Conservation rates depend on price signals to customers. For some utilities, one major issue could be the frequency of billing and/ or whether bills are based on usage levels. To effectively send any kind of message, billing must be monthly or at least bi- monthly. For utilities that currently do not bill on the basis of metered usage, or that bill quarterly ES- 13 Executive Summary |