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HomeMy WebLinkAbout09/00/1989, 2 - FINANCIAL REBATE PROGRAM ��pp��Q - MEETING DATE: 1111111I J111ip City of san lues ompo Sept. 26 1989 COUNCIL AGENDA REPORT ITEM NUMBER: U FROM: William T. Hetland Prepared by Allen Short Utilities Director Water Division Manager SUBJECT: Financial Rebate Program RECOMMENDATION: By motion, approvea flat rate one time rebate to be funded through surcharges and related program revenues at the conclusion of the Mandatory Water Conservation Program (Alternative 3). OVERVIEW: During Council consideration of the current water conservation program on April 5, 1989 the concept of a rebate program was discussed. At that time, a rebate program was not recommended due to the following considerations: Any substantial rebate program on an ongoing basis would require a rate increase. Significant savings would be available to the customer simply through the rate structure and reduced usage. There has been a renewed interest in establishing a rebate program that more directly recognizes customer response to the water conservation program. However, the concerns that led to the initial recommendation against establishing a rebate program continue. If the Council decides to adopt a rebate program, the method outlined in Alternative #3 is recommended. Each of the rebate options and their financial impacts have been reviewed by the Finance Director and he is in concurrence. BACKGROUND: On April 5, 1989, the City Council approved an emergency ordinance and resolution implementing the mandatory water conservation program. The present program is designed to reduce water consumption overall by 20 percent. The proposed mandatory water conservation rate structure is designed to conserve water and meet the City's operational and capital requirements. Part of the water conservation program included options and alternatives for financial incentives for those customers which meet or substantially reduced their consumption below their water allocation targets. Initially staff investigated a number of programs which were not financial in nature. They included T-shirts, cups, hats, certificates of achievement, and plaques. Up to this point, the water conservation program has been very successful with approximately 85 percent of the customers having met or substantially cut their usage. Contained within the water conservation program is $75,000 which has been identified to support a financial award program. One of the options under consideration is to reward those individuals who have substantially cut their usage through the rebate program. ul l��ilp� � 11 city of sari-Luis o5ispo AONGO COUNCIL AGENDA REPORT Rebate Page Two For a rebate program to be successful and effective, it should meet the following criteria_ Be easily understandable and communicable to the public. Be funded from an identifiable and predictable revenue source. Be of an amount that is truly an incentive that will obtain customer response. Be administered without significantly increasing existing staff and program resources. To fairly and efficiently distribute any rebates. REBATE OPTIONS: Three basic rebate alternatives have been identified 1. Flat Rate Rebate - Ongoing. 2. Percentage Rate Rebate - Ongoing. 3. Flat Rate Rebate - One time. This is the recommended alternative. The following is a description of each of the three alternatives along with a summary of the advantages and disadvantages associated with each: 1. Flat Rate Rebate - Under this method the City would establish a fixed rebate amount which would be distributed to those customers which met or were below their target allocations. The program would be set up on a continuing basis. The rebate would be identified on the water bill and subtracted from the current billing cycle. Advantages: The program would continue to reinforce the importance and significance of the water conservation program. It would immediately and positively reward those individuals which significantly reduce water usage. Disadvantages: The City's rate structure is based upon a conservation effort of 25 percent. Additional consumption reduction, coupled with a rebate program of any magnitude, would require a rate increase to adequately fund the program. Costs will be incurred for program implementation (computer programming and billing operations), as well as notification and customer service efforts to effectively communicate this program. The administration of this program significantly exceeds current staffing abilities and resources. 2. Percentaee Rate Rebate. - Under this method, the City would establish a rebate rate based upon a percentage reduction from the target allocation. The more that is saved from the target allocation, the higher the rebate. The rebate would be identified on the I water bill and subtracted from the current billing cycle. 1d%jIIA city of San LUIS OBISPO COUNCIL AGENDA REPORT Rebate Page Three Advantages: The program would continue to reinforce the importance and significance of the water conservation program. It would immediately and positively reward those individuals which significantly reduce water usage. The .more one would conserve, the larger the rebate. Disadvantage: The City's rate structure is based upon a conservation effort of 25 percent. Additional consumption reduction, coupled with a rebate program of any magnitude, would require a rate increase to adequately fund the program. As with Alternative 01, additional costs will be incurred for program implementation and customer services efforts. In addition, it will require staff to develop and implement a new public relations program to easily and effectively communicate the program to the customers. The administration of this program may exceed the current staffing ability. 3. A one time flat rate rebate - Under this method, the City would establish a fixed rebate rate which would be distributed to those customers which met or reduced their water consumption below their target allocations. The program would be set on a one time basis using money collected from surcharges as well as any funds remaining at the conclusion of the program from the $75,000 allocated for recognition and financial incentives. The rebate would be identified on the water bill and subtracted from the appropriate billing cycle. These rebates would only be provided to those individuals who continuously met or reduced their water consumption below the target allocation within the program time frame. Advantages: The program would reinforce the importance and significance of the water conservation program. It would positively reward those individuals who significantly reduce water usage. The option would be easier than any of the other alternatives identified to communicate to the public and administer. The program would not require a rate increase to fully fund. The funds would be from an identifiable source. If funded through the general water rate structure (Alternative #1 or #2), customers receiving rebates will also be providing the source of funds for the program. However, under this approach, those not complying with the program will be providing the funding for those who do. Waiting until the conclusion of the program has the added benefit of ensuring that rebates do not go to customers who met their target for one billing cycle but may have exceeded it on others. I i� � city of sari Luis oBispo Whigs COUNCIL AGENDA REPORT Rebate Page Four Disadvantage. Cost and resource impacts will be incurred similar to those described for Alternatives #1 and #2. However, it is anticipated that staffing and resource requirements will be significantly less. By waiting until the conclusion of the program, we will not be providing the same level of ongoing reinforcement through the rebate program as provided under Alternatives #1 and #2. By providing rebates on a flat rate basis, customers will be rewarded in a manner which may not fully recognize the relative difficulty experienced by customers who may have used significantly less than their target. The surcharge revenues and balance remaining from the recognition/incentive appropriation may not provide a meaningful rebate amount. In this case, the goal of providing a significant rebate would not be met and the cost of administration could exceed the rebate amounts. Accordingly, it is recommended that a status report be assembled and presented to Council prior to disbursing any rebates under this alternative. FINANCIAL IMPACT The selection of either Alternative #1 or 02 would require a rate increase. The chart below illustrates a range of rebates, annual costs and the rate increase to fund the program. Annual Cost Annual Cost Rate Increase if 85% of the Rate Increase if all Customers if fully Funded the customers if fully Funded Amount of Rebate Reach Targets From Rates Reach Targets'* From Rates $20.00 per billing $1,400,000 40% $1,190,000 34% $10.00 per billing $ 700,000 20% $ 595,000 17% $ 5.00 per billing $ 350,000 10% $ 297,500 8.5% " The current level of compliance with the mandatory water conservation program is 85 percent. Additional costs will be required to administer any of the rebate alternatives. However, it is anticipated that significantly lower costs are associated with Alternative #3. In the event the Council decides to implement Alteratives #1 or #2, it is recommended that j the staff return to the Council with a fully developed program based on Council direction. 1111%J1111PA111 city of san Lars oBispo COUNCIL AGENDA REPORT Rebate Page Five RECOMMENDATION Due to the factors considered during the development of the mandatory water conservation program, the concept of a rebate program is not recommended. However if the Council decides to adopt a rebate program, the method outlined in Alternative #3 is recommended. APPROVED. City A trati Officer Ananc�nle Director (� Utilities Director Al' Py- 116k Water Division Manager rebate/cas I