California water revenue decoupling pilot programs
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California Water Revenue Decoupling Pilot Programs. Lisa M. Bilir , Senior Policy Analyst, Division of Ratepayer Advocates NASUCA 2010 Mid-Year Meeting. Outline. Background Prior to California pilot programs regarding revenue decoupling and conservation rate design Pilot programs

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California Water Revenue Decoupling Pilot Programs

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California water revenue decoupling pilot programs

California Water Revenue Decoupling Pilot Programs

Lisa M. Bilir, Senior Policy Analyst,

Division of Ratepayer Advocates

NASUCA 2010 Mid-Year Meeting


Outline

Outline

  • Background

    • Prior to California pilot programs regarding revenue decoupling and conservation rate design

  • Pilot programs

    • Description of pilot programs regarding revenue decoupling and conservation rate design (2008 - present)

    • Preliminary observations

  • Future directions


Background

Background

  • Commission “standard” rate design

    • Uniform rate design

    • 50% of fixed costs recovered through the service charge

    • Conservation rates (increasing block rates) were for times of drought or water shortage

  • No revenue adjustment mechanism

  • Incremental cost balancing accounts

  • Minimal emphasis on water conservation


Background1

Background

2005 Water Action Plan

Emphasis on conservation programs and conservation rate design

Industry-wide Conservation Proceeding

Consolidated several conservation rate design applications

Pilot programs adopted through settlements with Division of Ratepayer Advocates

4


Pilot programs

Pilot Programs:

Conservation rate design

Revenue decoupling

Conservation programs

5


Pilot programs conservation rate design

Pilot Programs: Conservation Rate Design

  • Residential conservation rate design

    • increasing block rates with 2 or 3 tiers; price per unit increases as usage increases

    • shift of revenue from the service charge to the quantity charge

  • Non-residential conservation rate design

    • shift of revenue from the service charge to the quantity charge


Pilot programs price adjustment wram

Pilot Programs: Price Adjustment WRAM

  • A “Price adjustment WRAM,” or “Monterey-style WRAM”:

    • Prevents utility from gaining or losing as a result of implementing conservation rate design

    • Corrects for the difference between revenue under conservation rates and revenue that would have been collected under uniform rates

    • Utility is at risk for lost revenues from decreased sales, and conversely, the utility keeps excess revenues from increased sales


Revenue decoupling

Revenue Decoupling

The Goal:

Sever the relationship between sales and revenues

8


Pilot programs revenue decoupling wram mcba

Pilot Programs: Revenue Decoupling “WRAM/MCBA”

  • Revenue Decoupling Mechanisms: Water Revenue Adjustment Mechanism and Modified Cost Balancing Account (“WRAM/MCBA”)

    • WRAM and MCBA balancing accounts decouple sales from revenues by ensuring the utility will recover adopted fixed costs and actual variable costs

      WRAM: corrects for the difference between adopted and actual quantity charge revenues

      MCBA: corrects for the difference between adopted and actual variable costs


Preliminary observations

Preliminary Observations

  • Too soon to tell if revenue adjustment mechanisms achieve objectives

  • Not yet enough data to evaluate effectiveness

    • First pilot programs implemented mid-2008

    • For example, California Water Service Company had less than one year of available data at the time it filed General Rate Case in July 2009

  • 2008 & 2009 - drought and recession years


Preliminary observations1

Preliminary Observations

Revenue decoupling WRAM/MCBAs adjust for all water consumption reductions, not just consumption reductions due to conservation

Complex and difficult to parse out consumption declines due to utility sponsored conservation programs and rate designs, as well as other factors such as weather, drought, economy, prices, foreclosures, inaccurate sales forecast, etc.

WRAM/MCBA goes further than taking away a utility’s disincentive to promote conservation

11


Preliminary observations significant under collections

Preliminary Observations: significant under-collections

  • WRAM/MCBA over and under-collections can be significant (4% - 11% in 2009, on a company basis)

    • Widespread under-collections in 2009

    • Resulting in significant customer surcharges

  • Unintended consequence of WRAM/MCBA is to shield companies from the impact of the economic downturn

  • Variable costs do not necessarily decrease even when sales decrease


Issues and challenges in implementation

Issues and Challenges in Implementation

  • Steep learning curve for Commission, DRA, and Utilities

    • Complex, customized annual reporting

    • Review and provide recommendations on new, complex reports

    • Additional review and workload outside of the General Rate Case, until we gain more experience with revenue decoupling

  • Importance of sales forecast accuracy for customer bill impacts and timely revenue recovery


Future directions

Future Directions

  • Evaluate data on changing consumption and revenue patterns to analyze key questions such as:

    • Have conservation rate designs and programs changed customer consumption patterns?

    • Is the WRAM/MCBA allowing cross-subsidies among customer classes to occur?

  • Focus on enhancing sales forecast methods to improve accuracy

  • Is there a way to remove conservation disincentives without removing risks properly borne by shareholders

    • The Commission has dealt with this issue and DRA argued for a reduction in return on equity


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