Austin Undertakes Major Rate Structure Study

Officials in Austin are undertaking a major review of how customers pay for water.

Austin Water began a “cost of service rate study” last year, conducting the review for the first time since 2008, according to KVUE. “Since then a drought and increased conservation has led to a decrease of water usage, so this year's cost of service rate study is particularly critical,” the report said.

According to the utility, “The process entails a comprehensive review of the methodology used to allocate costs amongst customer classes and to update and improve the methods for determining fair and defensible rates of utility services.”

The city teamed with Raftelis Financial Consultants to review revenue requirements, cost of service, and rate design.

As part of the study, the city is hosting a series of meetings this month about the study, according to KUT, Austin’s NPR station.

At one meeting, “people who represent different classes of customers like wholesale, multi-family, and low income to name a few, gathered at Austin Water headquarters. They discussed 16 different issues they've encountered while planning over the last few years,” KVUE reported.

For Austin, using rate structures that encourage conservation is a priority, according to Sharlene Leurig, the chair of a city water-planning task force.

“Austin has gotten so good at pricing their water in that way, and sending that strong conservation signal through their pricing, that actually they saw people really respond in the upper tiers of use,” she said, per the report. “Once they actually started responding, we weren’t meeting our financial targets.”

Joseph Gonzales, Utility, Budget and Finance Manager at Austin Water, weighed in on how the study is conducted, per CBS News.

"We go through a process to assign cost to different customer classes based on a number of factors, their level of consumption, number of accounts, we go through a process to allocate cost to those classes. Then we forecast the level of consumption that each class has for the subsequent year, then we develop rates that develop those costs," he said.

"If we expect our customer to use less water but we still need to generate the same amount of revenue because most of our cost are relatively fixed, we may need to align the revenue with our cost structure," he added.

To read more about rate structures visit Water Online’s Funding Solutions Center.