Smart Metering East Coast, Raleigh NC Revenue Protection Practices Ken Sharratt Principal, Sharratt...

Smart Metering East Coast, Raleigh NC

Revenue Protection Practices

Ken SharrattPrincipal, Sharratt Water

Management Ltd.Toronto, ON, Canada

Smart Energy Canada 2009, Toronto, ON

Sources of Revenue Variability

• Installing meters first time• Rate type selection• Fixed vs. volumetric rate proportion• Seasonal variation• Large user changes• Full cost capital replacement• Natural water conservation


Water Meters

• Installation impediments

• No supply pressure – slow growth

• Decline in industrial use – over capacity

• Natural conservation – cuts demand

• Cost

• Public opposition


Water Metering

• Provides key data• Water produced but not sold• Sector demand stability

• residential>institutional>indust.• Seasonal usage

• Metering varies across Canada• Metering will cut use significantly

• Key conservation tool


Residential Metering (Population)

0% 2%

93%

48%

16%

92%97% 98%

89%

30%

8%

97%

63%

0%10%20%30%40%50%60%70%80%90%

100%

Env Can 2004 24.7 Million


Canada Residential Usage – Metered/Non-

Metered

-39%

-32% -34%

-26%

-36% -35%

-45%

-40%

-35%

-30%

-25%

-20%

-15%

-10%

-5%

0%

1000-1,999

2,000-4,999

5,000-49,999

50,000-499,999

500,000up

Canada

Population

Pe

rce

nt

Dif

fere

nc

e


OntarioResidential Usage – Metered/Non

Metered

-31%-34% -34%

-30%

-19%

-27%

-36%-40%

-35%

-30%

-25%

-20%

-15%

-10%

-5%

0%

1,000-1,999

2,000-4,999

5,000-49,999

50,000-319,999

320,000 + Total S.Ont.

NorthernOntario


Metering Impacts on Water Sales

• If already metered - ICI

• No impact directly

• May respond to higher rates after meter

• May implement conservation• Non-metered users – SF res.

• 30% reduction in water use

• More, if community concern


Residential Rate TypeUS Can Ont

Flat Rate 4% 23% 4%Constant Unit 36% 45% 56%Decreasing Block 23% 8% 4%Increasing 37% 23% 37%AWWA 2006 based on numberEnv Canada 2004 based on population served

• Constant unit and increasing rates popular• Conservation important to public• Rate types vary in revenue stability


Rate Type Trade Offs

• Moving towards increasing block- public interest• Less revenue stability - implement reserve to deal with this• Need high quality metered data• Need frequent billing – AWWA 60% bill monthly• Need careful analysis – consider demand elasticity • Frequent rate tune ups

Objective Increasing Constant Seasonal FlatConservation High Med High Nil

Cost of Service High Med High NilUnderstandable Low High Med High

Rev. Stability Low Med Low High


Fixed Portion of Rate

• Many System use two part rate• Fixed based on meter size• Variable based on sales volume

• Fixed revenue is almost certain• Variable revenue less certain

• Seasonal factors important

Fixed Portion 100% 40% 20% 0%Volumetric Variability 0% 1.4% 1.9% 2.4%


Incidence of Fixed

• AWWA rate study - 2006• Most have fixed rate • Fixed median 29%• 77% do not include water in fixed rate

• Some use no fixed rate• Toronto, Peel, London, Markham, Vaughan • Fort Worth, Boston


Conservation/Equity Issues• Conservation – want low fixed rate

• Low volume users - want low fixed

• High fixed rate – revenue stability

• But high cost/M3 for low vol. users Effective Cost/M3 According to Fixed Rate

Yearly Fixed PortionUsage (M3) 0% 10% 20% 30%

60 1.32$ 2.00$ 2.68$ 3.36$ 150 1.32$ 1.51$ 1.71$ 1.90$ 300 1.32$ 1.35$ 1.38$ 1.41$ 500 1.32$ 1.29$ 1.25$ 1.22$


Seasonal Variability•

Seasonal variation a reality in Ontario • 07 and 08 were extremes in Ontario

• 07 hot and dry• Outdoor water use – landscape irrigation• 08 cool with frequent rain

• Use conservation to reduce peak• Reserve stabilization fund (RSF)• RSF provides a buffer

• Gains revenues in hot dry years • Gains cover shortfalls in cool wet years


RSF Sample CalculationSector Usage in M3ICI 17,100,000 Res Base 42,691,300 Total Base 59,791,300 Res. Seasonal Dry 4,386,399 Res. Seasonal Wet 1,462,133 Difference 2,924,266 Average Variation 1,462,133 Average Variation 2.4%Surcharge on Var. 2.4%Variable Portion of Rate 75%RSF Surcharge on Bill 1.8%

Assumes Constant unit rate, No ICI seasonal use


Large Users – Strength/Weakness

• Keep rates down for small users

• Large users critical in smaller centres• Comm. A single manufacturer – 31% Rev.

• Plans to cut 30%

• Comm. B large users – 53% Rev• Have cut 30%• Institutional, manufacturing, housing cut also

• Consult large users about plans

• Monitor sales


Capital Renewal Cost Variability

• Walkerton changed regulations

• Required capital expenditures

• Financial planning requirement• Full cost pricing• Infrastructure renewal provisions• Life cycle approach – asset management• Have funds when needed – reserves

• New capital renewal/repl. leading rates


•Small community• 2,500 accounts

•Bill 459 reg. improvements•SWSSA – 100 year life cycle

• Did not include source protection - growth

•User fee increases – 2002 to 2016• $796,000 to $2,797,933 current $• 149% constant $• 6.7% growth/yr constant $

Water bill – use 300 M3/year• 09 - $498 16 $548 constant $

Case Study – Cost Increases


Expenditure Source – Full Cost

Expenditures - 2500 User System

$0.0

$0.5

$1.0

$1.5

$2.0

$2.5

$3.0

$3.5

Mil

lio

ns

Capital

Operating


Op. Expense/Revenue Ratio

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Small Centre

U.S. Survey


Capital Renewal Projection Variability

• Long range projections made originally• Should provide superior database

• Totals being revised up yearly• New technology needs replacement sooner• Emergencies• Road construction schedule takes priority• Operations staff fill gaps

• Long term reserves should buffer• Once capital renewal reserves fully established


Natural Conservation Everywhere

– Savings without water eff. programs • Water eff. toilets, showers, faucets• Front load washing machines• Price increase induced reduction


Water Cost Increase Issues

• Water rates rising in Ontario• Affordability issues• Monthly Billing – 59% of US survey• Demand reduction – elasticity issues


Summary – Dealing with Variability

– Full metering– Rate stabilization reserve– Undertake water conservation – Apply water conservation factor– More frequent readings/billings– Consult key users– Long range capital renewal plan– More frequent rate tune ups– Conservation rates need learning

Smart Metering East Coast, Raleigh NC Revenue Protection Practices Ken Sharratt Principal, Sharratt...

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