Water Rates and Rate Structures in Northeastern Illinois

1
Water Rates and Rate Structures in Northeastern
Illinois

• Presented by Margaret Schneemann
• Water Resource Economist
• Illinois-Indiana Sea Grant
• University of Illinois Extension
• Chicago Metropolitan Agency for Planning

2
Conservation-oriented Pricing Providing
Incentives to Reduce Use

• Goal of conservation-oriented pricing is to
  charge the full cost of water service.
• Objectives of full-cost pricing may include
• Conservation - efficient use of water resources
• Infrastructure investment and economic
  development
• Bring long-term supply and demand into balance
• Sustainable utilities via revenue recovery and
  stability
• Clear, legal and defensible rates

3
Importance of Demand Management Strategies
in the NE IL Region

• Demand Growth
• NE IL demand may increase up to 64 by 2050
  (Dziegielewski and Chowdhury, 2008)
• Surface Water Supply Limits
• Lake Michigan Supreme Court Decree
• Inland Surface Water
• Minimum Flow requirements
• Contamination Vulnerability
• Deep Bedrock Aquifer
• Falling water table
• Cannot meet future demand scenarios (Illinois
  State Water Survey, 2009).
• Shallow Aquifer
• Contamination vulnerability
• Interference drawdown, including stream flow
  capture

Source CMAP, 2008
4
Water Pricing and Northeastern Illinois Water
Supply Planning
NE IL Water Demand Scenarios 2005 2050
Scenario Demand Increase Real Annual Increase in Water Prices
Most Resource Intensive (MRI) 64.1 0
Current Trends (CT) 35.8 0.9
Less Resource Intensive (LRI) 7.2 2.5
Source Dziegielewski and Chowdhury, 2008

• Water pricing is a critical demand management
  strategy for meeting increasing regional water
  demands.

5
Northeastern Illinois Water PricingGuidelines
and Regulations

• Sanitary Districts Act, 1889
• The Rivers, Lakes, and Streams Act, 1911
• The Water Authorities Act, 1951
• Supreme Court Consent Decree, 1967
• Level of Lake Michigan Act, 615 ILCS 50/1 et seq.
• Water Use Act, 1983
• Title 17 IL Administrative Code
• The Great Lakes Compact, 2008

6
Northeastern Illinois Water/Wastewater Rate
Survey

• The 11-county northeastern Illinois regional
  water planning area is served by about 420 active
  water supply systems (U.S. EPA SDWIS CMAP,
  2009).
• Systems with service populations less than 1,000
  and ancillary systems not included.
• Rate information is collected from websites,
  local ordinances, and telephone contacts.
• Result is a sample of 290 water supply systems.

7
Conservation-oriented Rate Characteristics

• Customer Class Price Differentiation
• Price according to user costs imposed on the
  system
• Billing Frequency
• More frequent billing sends stronger conservation
  signal.
• Rate Structure
• AWWA recommends two part tariff, USEPA recommends
  increasing block, CUWCC full cost-based,
  conservation-oriented rates.
• Volumetric Charge
• Increasing Rate, Uniform Rate and Peak Pricing
  (Seasonal Rates) can be designed to encourage
  conservation.
• Fixed Component of Bill Provide price signal to
  reduce use
• Fixed charge portion of the bill does not provide
  a conservation message.
• No more than 30 of the total bill should consist
  of base charges.

8
Price Differentiation by Customer Classes Price
According to User Costs Imposed on the System

• Rates differentiated by
• Type of Customer
• Meter Size
• Meter Type
• Location
• Structural Attributes
• Water Source
• Real Estate Tax Status
• Senior Citizen Status
• 45 of systems have one rate class for all
  customers
• Almost 80 of systems have 1 to 4 rate classes
• 6 of systems have over 21 customer classes

9
Residential Billing Frequency by Water Source
More Frequent Billing Sends Stronger
Conservation Signal
10
Rate Structure Basic Residential Charge AWWA
Recommends Two Part Rate Structure

• Water Rate Structure

• Wastewater Rate Structure

Two-part, one block Total Charge Base Charge p1x
Volumetric, one block Total Charge p1x
Flat Total Charge Base Charge
11
Rate Structure Volumetric Charges Price
Subsequent Units Consumed Based on Associated
Costs

• Water Rate Structure

• Wastewater Rate Structure

Uniform Rate Volumetric Charge
p1x Increasing Block (2 Blocks) Volumetric
Charge p1x1 p2(x - x1) where p1 lt p2
Decreasing Block (2 Blocks) Volumetric Charge
p1x1 p2 (x - x1) where p1 gt p2 Flat
Volumetric Charge FC
12
Rate Structure Volumetric Charges Increasing
Rate, Uniform Rate, and Peak Pricing can be
Designed to Promote Conservation

• Median Volumetric Charges for 1,000 gallons Water
  in NE IL, Residential and General Accounts

13
Rate Structure Base Charge and Provision Fixed
Charge does not Provide a Conservation Message
14
Fixed versus Volumetric Share of Water Bill Base
Charge Recommend Maximum 30 percent of Total Bill

• Regional conservation potential of non-price
  conservation programs
• NE IL Average 90 gpcd
• Low Conservation 10 gpcd decrease
• High Conservation 25 gpcd decrease
• Source Dziegielewski and Chowdhury, 2008 CMAP,
  2009

Fixed versus Volumetric Share of Water Bill
15
Water Rates and Rate Structures in Northeastern
Illinois - Conclusions

• Pricing Characteristics
• Customer Class Price Differentiation
• Billing Frequency
• Rate Structure
• Volumetric Charge
• Fixed Component

16
Water Rates and Rate Structures in Northeastern
Illinois - Conclusions

• Regulatory Environment
• Regional Water Authority
• Future Research
• Cost Study
• Scarcity Value
• Land Use Connections

17
Water Rates and Rate Structures in Northeastern
Illinois

• Presented by Margaret Schneemann
• Water Resource Economist
• Illinois-Indiana Sea Grant
• University of Illinois Extension
• Chicago Metropolitan Agency for Planning

Questions? Mschneemann_at_cmap.illinois.gov 312.676
.7456