Responding to Market/Demand Erosion – Tacoma’s Approach

CASCADE WATER ALLIANCE 15TH ANNIVERSARY CELEBRATION

1

Sean SenescallTacoma Water

Rates & Financial Planning Manager

May 15, 2014

Understanding Market/Demand Erosion:Forecasted and Actual Demands (1954-2060)

2

25

45

65

85

105

125

145

165

185

1954 1964 1974 1984 1994 2004 2014 2024 2034 2044 2054

Mill

ion

Gal

lons

per

Day

, Ave

rage

Day

Dem

and

Actual Historical Demand with Losses 1985 Water Demand Forecast (EES) 1991 Water Demand Forecast (TPU)

1993 Water Demand Forecast (EES) 1995 Water Demand Forecast (EES and CH2MHill) - HIGH 1995 Water Demand Forecast (EES and CH2MHill) - LOW

1999 Water Demand Forecast (October 1999) (RW Beck) HIGH 1999 Water Demand Forecast (October 1999) (RW Beck) LOW 2003 Demand Forecast Draft Report (August 2003) (IUG) EXPECTED

2009 Demand Forecast (Fiske) EXPECTED 2012 Demand Forecast (Fiske) MEDIUM 2012 Demand Forecast (Fiske) LOW

Understanding Market/Demand Erosion:Demands by Customer Class (1989-2013)

3

22 23 23 21 21 23 23 23 22 24 23 23 22 24 26 25

23 24 23 22 23 21 21 21 21

16 16 17

12 7

7 7 7 7 7 7 7

7 7

7 7

7 7

6 6

6

6 6 6 5

0

4

8 6 5 6 6

4 5 4

4 2

2 2

2 3

3 3

2

2 2 2 2

1 1 1

1 1

1 1 1

1 1

1 1

1 1

1 1

1

1

1 1

1

1 1 1 1

32 31 28

23

20 20 20 21 22 20 19 19

18 16 15 17

15 14

15 16 15

16 16 16 16

1 1 2

1

1 2 2 4 4 4

3 3

2 2

3 3

3 3

2 2 2

2 2 2 3

73 73 71

63

59 60 59 62 62 62

59 58

53 52 56 56

51 52

51 52 51 48 47 48 49

-

10

20

30

40

50

60

70

80

Mill

ion

Gal

lons

per

Day

, Ave

rage

Day

Dem

and

Private Fire Protection

Wholesale

Simpson Tacoma Kraft

Parks and Irrigation

Commercial (Large Volume)

Commercial (General)

Residential

Understanding Market/Demand Erosion:Single Family Residential Population and Per Capita Demand (2000-2013)

4

91

80 86

97 89

79 86

79 76 80

70 69 70 69

-

20

40

60

80

100

120

140

160

180

200

-

50,000

100,000

150,000

200,000

250,000

300,000

350,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Resi

denti

al P

er C

apita

Con

sum

ption

(gpd

)

Sing

le F

amily

Res

iden

tial P

opul

ation

SF Residential Population SF Residential Per Capita Water Demand (gpd)

SF Residential Per Capita Water Demand (Inside City, gpd) SF Residential Per Capita Water Demand (Outside City, gpd)

Responding to Market/Demand Erosion:Rate Design – Fixed vs. Variable Recovery

5

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

% of Rate Revenue from Base/Fixed Rate Response Average

Stronger Conservation

Message

More Revenue Stability

Responding to Market/Demand Erosion:Understanding the Market

6

2005 AGREEMENT ENVISIONED FUTURE REGIONAL DEMAND INCREASES

AGREEMENT INCLUDED “TAKE OR PAY” PROVISION

REGIONAL WATER SUPPLY SITUATION SHIFTED

RESTRUCTURED AND FIXED PAYMENT STREAM

ENABLED CASCADE TO TRANSFER ITS CAPACITY PURCHASES TO CONNECTED CUSTOMERS (10 MGD, ADD)

ACKNOWLEDGED THAT ACTUAL WATER PURCHASES WERE UNLIKELY IN THE MEDIUM-TERM

Responding to Market/Demand Erosion:Renegotiation with Cascade Water Alliance

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WHOLESALE CAPACITY IS UNDERUTILIZED

INEFFICIENT REGIONAL INVESTMENT PLANS

• New water resource and water right development

• Infrastructure (treatment, transmission, supply)

COST STRUCTURE CAN BE AN OPPORTUNITY

PRICING FLEXIBILITY MAY BE NECESSARY

EVERY SYSTEM IS UNIQUE (BUYERS AND SELLERS)

Responding to Market/Demand Erosion:Wholesale Market Pricing Approach

8

MARKET DEVELOPMENT

• Less emphasis on provincial autonomy and control

• Focus on efficient options, cooperation, flexibility

ECONOMIC DEVELOPMENT

PRICING FLEXIBILITY

CALCULATED RISK-TAKING = FINANCIAL OPPORTUNITY

Looking to the Future

9