Now in pursuit of his PhD at the University of Maryland, Casey Wichman wrote the report referenced below as an Environmental Economics Analyst with the Environmental Finance Center.
Water utilities in the Southeast are increasingly considering the adoption of “smart” water meters to replace decades-old infrastructure and outdated technology. With increasing demand for clean drinking water in the US, the need for efficient management of water supplies is driving the upward trend in demand for advanced metering infrastructure (AMI). New metering technology is attractive for a host of benefits well-known to those in the water management business: improved leak detection, reduced meter reading costs, enhanced customer service, remote service connections and disconnections, among others. AMI meters also provide an opportunity for better demand management by rethinking the way water is priced and distributed for different end-uses.
Interruptible rates have long been used by electricity utilities to manage peak demand. A typical program allows a customer to opt-in to an interruptible rate program in which the customer is charged a lower variable rate for electricity consumption, but gives the utility the ability to cut-off a portion of electricity service when the utility approaches its supply constraints. For an electric utility, there are significant benefits from managing peak demand. The corollary to peak demand in the water industry could include drinking water treatment plant capacity, supply constraints requiring an immediate demand reduction, and wholesale water purchases. The ability to better manage these capacity constraints by controlling the use of non-essential water demand (i.e., turf irrigation) is an attractive option for utility managers.
The EFC just released a report that explores the “business case” for the adoption of an interruptible irrigation rates program for a large Southeastern utility. The main findings of the report, from a synthesis of interviews, research, data analysis, and program simulations, are:
- While the decision to install the necessary metering technology (AMI) at a utility-wide scale is not likely to be influenced by the desire to implement an interruptible irrigation rates program, the benefits of such a program would add to the cumulative benefits of investing in new water infrastructure.
- Water supply, treatment capacity, and wholesale water purchases are three of many possible constraints that could benefit from obtaining remote turn-on and turn-off capabilities for irrigation meters.
- Since customers tend to increase consumption when prices drop, which counteracts the utility’s goals of water conservation, our analysis finds that irrigation rate decreases between 5-15% exhibit properties conducive to satisfying the program goals of irrigation water use reduction.
- Simulation results indicate that the utility should decrease rates just enough to induce customers to participate in the interruptible rates program (while also improving the cost-effectiveness of the interruptible rates program), though not so much so that it affects the utility’s revenue goals from decreased income in non-interrupted months.
- The option of discounted variable rates for irrigation will incentivize customers who irrigate through a standard meter to install an irrigation meter. This will benefit the utility since a higher proportion of water volume flowing through an interruptible irrigation meter gives the utility more control over their distributional capacity in this type of program.