Independent Consumer Advocate Opposes MDC Incentives for Water Bottlers

Statement of the Independent Consumer Advocate on Proposed MDC Ordinance Changes

"The Independent Consumer Advocate(ICA) submits this statement in opposition to the proposed Economic Development Rate (EDR) which is the subject of the public hearing of February 24, 2020. All of the evidence currently available demonstrates that the EDR will not produce additional revenue for the MDC.  In fact, based on the evidence available, the EDR will reduce revenue from the only customer in any position to take advantage of this rate and as a result, increase the revenue which must be raised from other customers.

The ICA agrees that a major driver of the 2020 water rate increase is the decrease in sales.  It articulated the reasons for this decrease in its December, 2019 statement regarding the proposed rates for 2020.  Further, the ICA supports measures, including rate design, which encourages the prudent use of additional water by existing and new customers which increases water revenue.  The current proposal, however, risks existing revenue and if anything, is likely to exacerbate the conditions which led to the 2020 water rate increase.

The current proposal establishes a threshold for a discount at 600,000 gallons a day or 802ccf.  This is an increase from the original proposal set by the Revenue Committee of 500,000 gallons a day.  (The ICA submitted a statement regarding the original proposal indicating that it put over $200,000 of revenue at risk based on consumption in the first 11 months of 2019. Shortly thereafter, this new proposal was submitted to the Public Works Committee). Based on the revised numbers, and with consumption through January 2020 now available, this new proposal puts at risk approximately $115,000 of revenue.  That is, if 2020 consumption mirrors 2019 consumption, MDC will collect $115,000 LESS revenue than it did in 2019, further exacerbating the revenue shortfall.

There is only one customer who comes anywhere close to, or exceeds, the 600,000 gallon threshold.  In 2019, that customer exceeded the threshold in 6 of the 12 months of 2019.  Importantly, for the last 8 months for which data is available (through January 2020), this customer exceeded the threshold in 7 of those months.  Given that the discount for consumption above the threshold amounts to approximately 50% (water rate discount of 20% and Clean Water Project Charge discount of 75% produces a weighted average of approximately 50%.), the MDC will lose $115,000 in revenue if 2020 consumption mirrors 2019.

There seems to be some belief that by giving this discount and putting over $100,000 of revenue at risk, consumption will increase sufficiently to offset this revenue loss and in fact add additional revenue.  The ‘bet’ is that if MDC gives up $100,000, it will get this much back and more by enacting this rate proposal.  The data indicates that this ‘bet’ is ill advised.

The customer eligible for the discount has been steadily increasing its consumption, without any discount.  In January 2020, for example, it increased its consumption by approximately 50% over its January 2019 consumption—711,000 gallons a day in 2020 as compared to 475,000 gallons a day in 2019.  Given that there appears to be some seasonality in consumption by this customer (based on 2019 data), it makes sense, before betting $115,000, to at least get data from the summer months in 2020 to determine if this level of  increase in consumption continues without the discount.  For example, if there were an increase in August consumption comparable to the 50% increase in January, the result would be an average consumption of over 1.3 million gallons a day—about the capacity of the currently installed production equipment. 

The data that currently exists strongly indicates that this customer’s consumption of water is not price sensitive.  That is, its consumption is not based on price.  Of course, this doesn’t mean that other customers are not price sensitive and that there are not rate designs that could encourage prudent, increased water consumption.  The data simply indicates that for this customer, price does not appear to affect how much water it uses.

Before betting $100,000 of revenue that will have to be made up by other customers, the MDC needs some data, some evidence, that the bet will prove worthwhile.  The available data for the current proposal indicates just the opposite.  The MDC should reject the proposal at this time."
 
Respectfully Submitted
 
David Silverstone
Independent Consumer Advocate