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Using the AWE Rate Model to Examine Drought Rates:The Benefit of Analyzing Scenarios

Ken JenkinsInterim Director of Drought Management & Conservation California Water Service

Mary Ann DickinsonPresident/CEOAlliance for Water Efficiency

Quality. Service. Value.

AWE’s Financing Sustainable Water

• Building Better Rates in an Uncertain World: A Handbook to explain key concepts, provide case studies and implementation advice

• AWE Sales Forecasting and Rate Model: An innovative, user-friendly tool to model scenarios, solve for flaws, and incorporate uncertainty into rate making

• FinancingSustainableWater.org: Web-based resources to convene the latest research and information in one location

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• Models Water Demand Variability

• Models Water Revenue Variability

• Analyzes Customer Bills• Assesses Affordability• Assesses Fiscal

Sustainability• Analyzes Uncertainty• Allows Scenario Planning

AWE Sales Forecasting and Rate Model

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The Model in the Rate Setting Process

Rate DesignCost Allocation

Cost of Service/Revenue

Requirements

Capital Planning

Model Useful HereModel Does Not Do These Things

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Designing Drought Rates

2. Rate Performance by Drought/Shortage StageThe tables in this section hold two sets of rates. Your proposed rates are carried over from Step 3. These cannot be modified on this worksheet. They provide the point of referencefor calculating the revenue impacts of drought stages. The Stage rates are the rates that would apply for a given drought/shortage stage. To see how your Proposed rates would perform ina drought stage, click the Reset Drought Stage Rates to Proposed Rates. This will copy your Proposed rates into the tables for the Stage Rates. You can then use the Select Drought Stagedrop-down list to cycle through the drought stages and see how your sales revenue would be impacted by each stage. Impacts to annual sales volume and revenue for each Customer Class Select Drought Stageare summarized to the right of the rate tables. You can adjust the Stage Rates to see how your annual sales volume and revenue would respond. You can adjust the size or number of blocksas well as the rates for each block. You can use trial and error to find rates appropriate to each drought/shortage stage, or you can use Excel's goal-seek or solver functionality to do this. Section 3 provides a calculator that can quickly identify rates for a given drought/shortage stage that are revenue neutral. Rate Performance by Customer Class

Single Family Off Peak Season Peak Season Annual Sales VolumeProposed Rates Stage 2 Rates Proposed Rates Stage 2 Rates Proposed Stage 2 % Change

Block Rate Block Rate Block Rate Block Rate CCF 8,913,705 7,844,060 -12.0%(CCF) ($/CCF) (CCF) ($/CCF) (CCF) ($/CCF) (CCF) ($/CCF)

Block 1 5 $2.50 5 $2.50 5 $3.75 5 $3.75 Annual Sales Revenue (Thou. $)Block 2 10 $2.50 10 $2.50 10 $3.75 10 $3.75 Proposed Stage 2 % ChangeBlock 3 15 $2.50 15 $2.50 15 $3.75 15 $3.75 Service $12,263 $12,263 0.0%Block 4 15 $2.50 15 $2.50 15 $3.75 15 $3.75 Volume $27,744 $24,415 -12.0%Block 5 15 $2.50 15 $2.50 15 $3.75 15 $3.75 Total $40,007 $36,678 -8.3%

AnnualSales Volume(% Change)

AnnualService & Volume Revenue

(% Change)

Impact of Drought Stage Rates Relative to Proposed Rates

0

0.2

0.4

0.6

0.8

1

1.2

-50%

-30%

-10%

10%

30%

50%

0

0.2

0.4

0.6

0.8

1

1.2

-50%

-30%

-10%

10%

30%

50%

Rate Design TablesRate Performance

Indicators

Drought Stage Selector

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California Water Service

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California Water Service

• 24 service areas• 80 communities• 500,000 service connections• 2,000,000 population

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Single-Family Residential Indoor/Outdoor Water Use

54%

70%

52%63%

56%

25%15%

23%

38% 35%

62% 59%

43% 47% 45% 43%

11%

56%

37%

21%

44%54%

63%

50%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

AV BG BK CH DIX DOM ELA HR KC KRV LAS LIV MPS MRL ORO PV RDV SEL SLN SSF STK VIS WIL WLK

Outdoor

Indoor

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Water Supply Source Overview

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Reclaimed

Surface

Purchased

Wells

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Water Demand Overview

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

AV BG BK CH DIX DOM ELA HR KC KRV LAS LIV MPS MRL ORO PV RDV SEL SLN SSF STK VIS WIL WLK

Single-Family Residential Multi-Family Residential Commercial Industrial Government Other NRW Recycled

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Process

• Preliminary analysis of 14 scenarios– Bakersfield, Livermore, Los Altos, Stockton

• Narrowed to 3 scenarios• Analysis of 3 scenarios

– 21 service areas

• Reviewed and refined• Determined feasibility

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Scenario Planning – 14

• No change to Tier 1• Tier 2 changes (25-50%)• Tier 3 changes (25-100%)• New Tier 4 (25-200%)• New Tier 5 (25%-400%)• Non-residential (25-50%)

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Scenario Planning - 3

Tier Scenario 1 Scenario 2 Scenario 3

Tier 1 No Change No Change No Change

Tier 2 25% 50% 25%

Tier 3 50% 100% 50%

Tier 4* N/A N/A 100%

Non-Residential 25% 50% 25%

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Price Elasticity

Price Response Scenario

Low Medium High

Off Peak Peak Off Peak Peak Off Peak Peak

Single-Family -0.050 -0.150 -0.100 -0.300 -0.150 -0.450

Multi-Family -0.025 -0.075 -0.050 -0.150 -0.075 -0.225

Non-Residential -0.100 -0.100 -0.200 -0.200 -0.300 -0.300

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AWE Model - Inputs

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69%

67%

63%

61%

61%

57%

55%

55%

54%

52%

51%

50%

48%

46%

45%

44%

44%

37%

31%

30%

29%

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

BG

WLK

CH

LAS

WIL

SLN

SEL

VIS

LIV

BK

ORO

PV

ELA

MPS

STK

DIX

MRL

KC

HR

SSF

DOM

% of SFR Demand

% of SFR Demand Facing Higher Drought Rate

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Dominguez

11 17 230

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

Cum

ulat

ive

Use

by

Mon

thly

Con

sum

ptio

n

Use/Bill

Single Family Use - Cumulative Distribution

Offpeak Peak Annual

Block 1 Block 2 Block 3 Block 4

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Average Reduction in SFR DemandPrice + Non-Price Conservation

10 11 12 13 14 15 16 17 18 19

Scenario 1

Scenario 2

Scenario 3

% of Unconstrained 2013 Demand

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Average Reduction in SFR DemandPrice Only

0 1 2 3 4 5 6 7 8 9

Scenario 1

Scenario 2

Scenario 3

% of Unconstrained 2013 Demand

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Average Reduction in Total DemandPrice + Non-Price Conservation

10 11 12 13 14 15 16 17 18 19 20

Scenario 1

Scenario 2

Scenario 3

% of Unconstrained 2013 Demand

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Average Reduction in Total DemandPrice Only

0 1 2 3 4 5 6 7 8 9 10

Scenario 1

Scenario 2

Scenario 3

% of Unconstrained 2013 Demand

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Average Change in Sales RevenuePrice + Non-Price Conservation

0 5 10 15 20 25

Scenario 1

Scenario 2

Scenario 3

% of No Drought Baseline Sales Revenue

Avg Change in Sales Revenue:Price + Non Price Conservation

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Contact Information

Ken JenkinsInterim Director of Drought Management & Conservation

California Water Servicekjenkins@calwater.com

www.calwater.com/conservation

Mary Ann DickinsonPresident/CEO

Alliance for Water Efficiencymaryann@a4we.org

www.allianceforwaterefficiency.org