WaterEcon Rate Model

WaterEcon Rate Model

WaterEcon: A Comprehensive Water Rate Model

Public water agencies are required by law to operate so that their costs are recovered from water sales. Market discipline requires that investor-owned water utilities operate in much the same way, with allowances for competitive returns to their shareholders. We have assisted both public and investor-owned water utilities with critical components of their rate setting, demand forecasting, and resource management functions. This work has been performed throughout California, with particular focus on drought contingencies, conservation, and usage tradeoffs among agriculture, municipal, and other uses.

RDN WaterEcon rate model flowchart

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RDN’s rate-setting model, WaterEcon, is unique in its emphasis on identifying sustainable rate structures under varying water demand, supply, and weather scenarios. Key inputs are local-agency customer account water usage, household demographic characteristics, weather, recent actual rate structures, and conservation policies. The model uses rigorously developed econometric relationships to forecast aggregate agency water demand. It consequently allows agency rate-setting to be founded on how responsive customers are to changes in water rates (i.e., the price elasticity of water demand) and year-to-year variations in weather patterns. It uses alternative weather scenarios (normal, wet, and dry years) to inform our revenue requirements, cost of service, and rate-setting analyses. WaterEcon addresses the simultaneous impacts of variability in water supply and demand, alternative rate structures, and potential conservation policies on agency revenues. It therefore permits agencies to identify sustainable rate structures and rate adjustments necessary to assure the stability of agency finances under varying weather and conservation conditions.

We have conducted both comparative rate studies and cost-recovery water rate analyses for private and public entities throughout California. Additionally, we have projected municipal, industrial, and agricultural water demands for public and investor-owned water systems in both economically depressed areas and diverse jurisdictions. Water demand functions were developed incorporating population growth, planted acreage, and water prices.