Real Time Water Rate Policy

In fall 2019, as part of a capital strategic planning initiative, Opelika Utilities General Manager, Dan Hilyer, reported the following to his Board of Directors: 'The rate structure for Opelika Utilities is arguably the greatest weakness within the entire enterprise. As long as the rate structure continues to undermine the value of the water service connection, water users will not appropriately value the investments necessary over the next 40 years to simply maintain current levels of service.' [1] According to the AWWA 2021 State of the Water Industry report [2] the public's understanding of the value of water systems and services is in the Top 5 issues facing the water industry in 2021. Even more so, this issue has been in the Top 5 issues facing the water industry since 2015 [3,4,5,6,7,8], and its continued presence threatens the financial sustainability of the community water system. A rudimentary understanding of Gestalt psychology (the basis for the modern study of perception [9]) and the law of proximity yields a clear cause-effect relationship between the value of water service and the perception of its value held by the public. The law of proximity theorizes that people associate things that are in proximity and, likewise, disassociate things that are distant to each other. For the vast majority of water rate scenarios in America, significant space exists between the variables that influence a customer's monthly water bill and the point where customer value is realized at the water meter. As long as this space exists, the customer will not understand or value the water service connection. Opelika Utilities adopted a water rate policy in 2020 that significantly increases proximity between every rate variable and the point of customer value realization (meter), learning from Gestalt principles to increase the perceived value of the water service connection and more appropriately value the cost of each consumed gallon of water. The Opelika Utilities rate policy achieves the following proximity improvements: Increase in proximity of time: - Reduces the time from the realization of any variable water production cost to its direct recovery to 60 days; and - Reduces the time from the realization of any fixed cost to its direct recovery to 90 days. Increase in proximity of process: - Associates 100% of the true costs of water service to a unique line item in the monthly water bill; and - Associates 100% of the true costs of water production to a unique line item in the monthly water bill. Increase in proximity of space: - Associates an equitable portion of the total costs of water service to the peak capacity of the customer's water meter; and - Associates true costs of water production to each gallon that passes through the customer's water meter. The Opelika Utilities real-time rate policy is able to accomplish these transformational results through utilizing a modern data warehouse with more than 13 disparate data sources to calculate true variable and fixed costs, equitably apportion those costs, and update monthly water rate variables, all in real-time and based on actual measures of the following variables: - Raw water use; - Chemical use; - Energy use; - Maintenance; - Overtime; - Number, size, and rate category of active meters; - Changes in horizontal infrastructure characteristics; - Wholesale water sales; - Parts; - Annual budget; - Emergency contracts; - Water loss; and - Metered water. Significant additional values are anticipated to be realized over time in the areas of Board of Directors decision-making velocity, replacement of aging infrastructure, and financial resources for capital investment. This session will provide an overview of the water rate policy, present the catalog of requirements that the business intelligence technology platform delivered to make the policy possible, and review the realized and anticipated benefits for the board, utility management team, and ratepayers.