Developing Water Rate Structures for a Sustainable Future

How can a water utility encourage efficient water use while fully recovering costs; maintaining and/or increasing industrial, commercial, and wholesale customers; and keeping rates affordable for essential and basic water use? Louisville Water Company (LWC) recently addressed this question.LWC's water use per customer has declined over the last 20 years. Combined with wet weather and a slow economy, water revenues are down, and highlight the need for increased revenue stability so that LWC can keep water rate increases low and generate returns for the sole shareholder. At the same time, LWC also wanted to address trends in conservation. This paper examines the methodology and outcome of a rate restructuring effort at LWC to address these issues.At the time of the study, LWC's retail customers were subject to a seven-tier rate structure, in which unit rates increase through tier three and then decline. We used a series of workshops to identify and prioritize goals and objectives, to review possible rate structures, and to finalize recommended changes to this structure.To achieve greater revenue stability and create a rate structure that allows for sending price signals to consumers to be more efficient with their water use, LWC considered several changes to the existing water rate structure. Some of the structures considered included creating a separate irrigation class, creating separate tiered rates for each customer class, condensing tiers, and moving more distribution costs to the fixed cost recovery component. The wholesale rate structure was also examined. The goal of the rate restructuring effort was to create a flexible structure that could be easily adapted to meet the ever-changing needs of LWC and its customers.