How Did the Drought Affect Long-Term Residential Water Use in NC? Implications for Utility Financial Management

Transcription

1 How Did the Drought Affect Long-Term Residential Water Use in NC? Implications for Utility Financial Management Shadi Eskaf Senior Project Director Environmental Finance Center at the UNC School of Government NC AWWA-WEA Spring Conference April 16, 2012 Wilmington, NC

2 Remember the Drought? The drought in North Carolina forced communities to enact severe water conservation measures Fall Lake, Raleigh, NC, October 2007 Peaked Sept 2007 Apr 2008 for central NC University Lake in Chapel Hill, NC, September

3 Drought progression

4 Drought progression

5 Drought progression

6 Drought progression

7 Drought progression

8 Drought progression

9 Drought progression

10 Drought progression

11 Drought progression

12 Drought progression

13 Drought progression

14 Drought progression

15 Drought progression

16 Drought progression

17 Drought levels some counties

18 Water Utilities Responded Public education; media coverage Outdoor watering restrictions Low-flow showerhead exchanges High-efficiency toilet rebate programs Turf buy back programs Change rate structures Drought surcharges (OWASA) Water system interconnections; new sources

19 % of Residential Bills Demand dropped significantly during the drought 20% 18% 16% 14% Residential Demand Distributions in OWASA October 2007 Sept 2008 (during drought) October 2006 Sept 2007 (before drought) 12% 10% 8% 6% 4% 2% 0% Volume (1,000 gallons/month)

20 Trends in residential water use in NC Source: DWR Local Water Supply Plans

21 Reductions in residential water use from 2007 to 2010 Source: DWR Local Water Supply Plans

22 Examples of long-term declines in residential water use Average monthly household water use (kgal) July 2006 June 2007 July 2009 June Year Change (2 years after the drought) Raleigh 5,177 4, % Cary 5,341 4, % Durham 4,163 3, %

23 Cumulative % of Households Households that REDUCED their average use in FY10 from FY07 70% Durham Raleigh 60% 50% 40% 30% 20% 10% 0% -50% -45% -40% -35% -30% -25% -20% -15% -10% -5% Reduced average use by at least...

24 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Gallons / Month Monthly water use averages have declined since the end of the drought 10,000 Average Residential Water Use Raleigh Durham Cary 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,

25 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Gallons / Month Monthly water use averages have declined since the end of the drought 10,000 6-Month Moving Average Residential Water Use Raleigh Durham Cary 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,

26 BILLING DATA Utility Approx. # of residential accounts Billing frequency Billing data period Months Raleigh Utilities 95,224 Bi-Monthly July 2006-October Cary 46,157 Monthly July 2006 June Winston-Salem UC 100,045 Bi-Monthly July 2006 June Durham Water 74,831 Bi-Monthly July 2006 June Greensboro 69,910 Quarterly Monthly July 2006 December

27 Measuring the drought hangover: Duration and new baseline consumption levels Start End Duration of drought hangover Change in baseline demand DROUGHT BEHAVIOR PERIOD

28 Method (1) Duration of Conservation Post-Drought Cumulative sum change-point analysis (CUSUM) Method used in quality control (Hinkley, 1971) Detect shift in trends of the means, adjusting for seasonality, and identify moments when water use patterns shift Test the difference Compute the length of the drought hangover from when the drought period ends.

29 Jul-06 Sep-06 Nov-06 Jan-07 Mar-07 May-07 Jul-07 Sep-07 Nov-07 Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08 Jan-09 Mar-09 May-09 Jul-09 Sep-09 Nov-09 Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-10 Jan-11 Mar-11 May-11 When Conservation Started 800,000 Conservation started around Nov 2007 (bills) 700, , , , ,000 Durham Raleigh 200, ,

30 Jul-06 Sep-06 Nov-06 Jan-07 Mar-07 May-07 Jul-07 Sep-07 Nov-07 Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08 Jan-09 Mar-09 May-09 Jul-09 Sep-09 Nov-09 Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-10 Jan-11 Mar-11 May-11 Length of Drought Hangover 150,000 Peak drought ended April 2008 Drought behavior ends 100,000 50, ,000 Durham Raleigh -100, , , ,000 33

31 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Gallons / Month You can see it in the 6-month average trends 10,000 6-Month Moving Average Residential Water Use Raleigh Durham Cary 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,

32 Method (2) Permanent Demand Decline in the New Baseline Two-stage, instrumented fixed effects regression model using the time series data where i is a household in month t. Price instruments: 1) price for the same quantity in the previous year, and 2) the base charge and volumetric/block rates in current year s rate structure H 0 : 5 = 0

33 Preliminary Results Dur, Ral, WS Fixed effects regression Dependent variable: Total volume of water per household per month (1) (2) Fixed Effects Fixed Effects with IV Explanatory variables log_totvol log_totvol Dummy equal to 1 if in the new baseline period *** *** (0.002) (0.002) Dummy equal to 1 if in the drought behavior period *** *** (0.001) (0.001) Log (average price of water bill that month) (Lagged by 2 months) *** 0.258*** (0.004) (0.007) Log (monthly rainfall) (in inches) *** *** (0.001) (0.001) Log (average max daily temp) (F) *** 0.357*** (0.008) (0.012) Log unemployment rate 0.159*** *** (0.002) (0.002) Dummy equal to 1 if the household used an irrigation meter 0.896*** 0.964*** (0.007) (0.004) Dummy equal to 1 for months with mandatory drought restrictions *** *** (0.001) (0.001) Observations 4,128,266 4,127,388 R-squared Number of new_id 213, ,919 Robust standard errors in parentheses; *** p<0.01, ** p<0.05, * p<0.1; Monthly dummy variables omitted for parsimony; Robust standard errors in parentheses 36

34 How does it affect utilities? Potential to overestimate water use in subsequent years Set rates too low Revenue shortfall

35 Conservation Conundrum Example

36 Revenues from Fixed (Base) Charges vs. Volumetric (Variable) Rates CARY % of household revenue collected from base charges FY07: 8.6% FY08: 9.2% FY09: 9.6% FY10: 8.9% FY11: 7.7% DURHAM % of household revenue collected from base charges FY07: 18% FY08: 18% FY09: 29% FY10: 27% FY11: 28%

37 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 A new business model Simulated charges using City of Durham s actual residential water use (n = 1.6 million bills in 4 years) $100 $90 $80 $70 $60 $50 $40 $30 $20 $10 $- Average Residential Monthly Bill Existing Rate Structure Modeled Rate Structure 4 tiers of base charges and consumption allowances based on last year s max use Revenue-neutral each FY Less dependent on water use Additional benefits: 70% of bills are lowered: 98% of lowest tier customers to 30% of highest tier (progressive) Water use falls inside allowance 40% of time: 80% in the highest tier

38 FY2008 Existing FY2008 Modeled FY2009 Existing FY2009 Modeled FY2010 Existing FY2010 Modeled FY2011 Existing FY2011 Modeled Greater proportion of revenues from base charges (fixed) $35,000,000 $30,000,000 Annual Charges to All Residential Customers Total From base charges $25,000,000 $20,000,000 $15,000,000 $10,000,000 $5,000,000 $0

39 NC Urban Water Consortium / NC Water Resources Research Institute Acknowledgements EFC project team: Shadi Eskaf, Christine Boyle, Casey Wichman, Mai Ngo, Mary Tiger and Jeff Hughes North Carolina Urban Water Consortium 42

40 Shadi Eskaf Environmental Finance Center University of North Carolina CB #3330, Knapp-Sanders Building Chapel Hill, NC USA