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

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

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

Water Pricing and Northeastern Illinois Water Supply Planning NE IL Water Demand Scenarios: 2005 – 2050 NE IL Water Demand Scenarios: 2005 – 2050 Source: Dziegielewski and Chowdhury, 2008 Water pricing is a critical demand management strategy for meeting increasing regional water demands. Water pricing is a critical demand management strategy for meeting increasing regional water demands.

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

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.

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 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.

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

Residential Billing Frequency by Water Source More Frequent Billing Sends Stronger Conservation Signal

Rate Structure: Basic Residential Charge AWWA Recommends Two Part Rate Structure Water Rate Structure Wastewater Rate Structure

Rate Structure: Volumetric Charges Price Subsequent Units Consumed Based on Associated Costs Water Rate Structure Wastewater Rate Structure Uniform Rate: Volumetric Charge = p 1 x* Increasing Block (2 Blocks): Volumetric Charge = p 1 x 1 + p 2 (x* - x 1 ) where p 1 < p 2 Decreasing Block (2 Blocks): Volumetric Charge = p 1 x 1 + p 2 (x* - x 1 ) where p 1 > p 2 Flat: Volumetric Charge = FC

Median Volumetric Charges for 1,000 gallons Water in NE IL, Residential and General Accounts Rate Structure: Volumetric Charges Increasing Rate, Uniform Rate, and Peak Pricing can be Designed to Promote Conservation

Rate Structure: Base Charge and Provision Fixed Charge does not Provide a Conservation Message

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

Pricing Characteristics Customer Class Price Differentiation Billing Frequency Rate Structure Volumetric Charge Fixed Component Water Rates and Rate Structures in Northeastern Illinois - Conclusions

Regulatory Environment Regional Water Authority Future Research Cost Study Scarcity Value Land Use Connections Water Rates and Rate Structures in Northeastern Illinois - Conclusions

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?