To: Members of the Castle Rock Water Commission
From: Mark Marlowe, P.E., Director of Castle Rock Water
Nichol Bussey, Business Solutions Manager
Title
An Ordinance Approving Changes to Municipal Code, 13.12.070, Emergency regulation of water [Entire Castle Rock Water service area]
Town Council Agenda Date: January 7, 2024
Body
________________________________________________________________________________
Executive Summary
The purpose of this memorandum is to seek Town Council approval of an ordinance (Attachment A) making changes to Municipal Code, 13.12.070, Emergency regulation of water for the implementation of Drought Rates, as part of the 2025 Drought Management Plan (“Plan”) update. The Plan was last updated in 2018 and did not include a provision for Drought Rates.
One of Castle Rock Water’s strategic goals is to have a water supply that is 75% renewable by 2050 and 100% renewable (in an average water year) by 2065. While these changes provide a more diverse and reliable long-term water supply, it also subjects the Town to potentially larger impacts from drought as renewable supplies are significantly less available during drought conditions. This also supports the importance of our strategic plan goal to protect our nonrenewable groundwater supplies, which are generally not impacted directly by droughts. Protection of these supplies will strengthen the long-term water resources of the community.
This Plan focused on long-term drought mitigation in addition to strategies that provide short-term responses to temporary drought-related water supply shortages. The largest change to the Plan from the 2018 Plan is the implementation of a reduction of residential water budget levels and an increase in the water surcharge rates during various drought stages.
The revised 2025 Plan (provided in Attachment B) was developed with input from a wide-spectrum of the community, including: Castle Rock Water; representatives of the Water Commission; Douglas County; Castle Rock Fire Department; Parks and Recreation; homeowners associations and members of the development community.
Notification and Outreach Efforts
In June of 2024, Castle Rock Water formed a stakeholder group to be involved in the development of the updated Drought Management Plan. Large water users, key government water users, water users that would be significantly impacted economically, water users associated with critical public health and safety functions (e.g. the hospital), and members of the development community were invited to participate in the stakeholder group. Not all of those invited to participate decided to participate. Approximately 20 water users took part in the stakeholder process. A complete list is provided in the Plan.
On July 10, 2024, Castle Rock Water held the first stakeholder meeting to gain input on the proposed Plan revisions. After this meeting, a full draft updated Plan was prepared and sent to all the stakeholders for input. On September 11, 2024, Castle Rock Water held a second stakeholder meeting to seek additional input on the draft updated Plan.
Discussion
The key change to the Plan is implementation of a reduction of residential water budget levels and an increase in the water surcharge rates during various drought stages. The primary goal of these changes is to incentivize additional water conservation during droughts. Depending on the drought stage, Castle Rock Water is seeking to achieve additional conservation from 10% during the Voluntary Stage to as much as 60% during the Critical/Crisis Stage. A secondary goal is to ensure revenue stability since most of Castle Rock Water’s costs are fixed costs. In fact, fixed costs are estimated at approximately 90% of total costs. Achieving the needed conservation could have a very negative impact on revenues during a drought. Drought rates can help mitigate this impact.
Castle Rock Water uses a water budget rate structure which is specifically designed to incentivize customers to use water efficiently. Changes being recommended to this water budget rate structure during droughts include reductions to outdoor water budgets, reductions to the Conservation Surcharge threshold and / or increases to Tier 3 and Conservation Surcharge rates. These changes can impact customer behavior during a drought by making it increasingly more expensive to use water at their normal consumption pattern. These options for practical implementation of drought rates were selected due to their ease of implementation in Castle Rock Water’s billing system, the familiarity of customers with the concepts, and the ability to easily message the changes.
In 2013, Castle Rock Water worked with Stantec to develop a Conservation Impact Model (CIM) to help evaluate customer response to changes in rates, water budgets and surcharges. The CIM calculates how projected bill impacts to customers will influence water conservation, incorporating price elasticity factors due to price increases associated with various changes to the water budget rate structure. Stantec’s complete report is provided as Attachment C. Ultimately, the CIM shows that increasing pricing has limits in terms of meeting needed conservation goals during a drought. This is in large part due to the relatively low cost of water given the importance and critical need for the resource. According to the CIM, the recommended drought rates are estimated to provide roughly 3% (Watch Stage) to 14% (Critical/Crisis Stage) additional conservation. The functional proposed increase in rates if customers did not change their behavior is 10% to 55%, respectively.
Financial Impact
The updated Drought Management Plan was developed by Castle Rock Water Staff. Thus, there was no direct budget impact to developing the 2025 Plan. The implementation of a reduction of residential water budget levels and an increase in the water surcharge rates during various drought stages in the 2025 Plan will have an impact on revenue during a drought. The exact extent of the impact is hard to measure and will depend on how much customers conserve at the various drought stages. Castle Rock Water had the potential impacts of the reduction of residential water budgets and water surcharge rates evaluated by Stantec, Castle Rock Water’s rates and fees consultant, using the CIM. The estimated revenue impacts from this work are as follows:
|
Drought Stage |
Drought Rates in Effect |
Conservation from Price (% total use) |
Conservation Target (% total use) |
Key Restrictions |
Potential Additional Revenue |
|
Advisory |
N |
N/A |
10% |
Voluntary |
N/A |
|
Watch |
Y |
3.19% |
25% |
2x per week outdoor water |
$2.8 Million |
|
Warning |
Y |
4.86% |
40% |
1x per week outdoor water |
$3.2 Million |
|
Emergency |
Y |
10.29% |
50% |
Outdoor water banned |
$5 Million |
|
Critical/Crisis |
Y |
13.40% |
60% |
Outdoor water banned + indoor restrictions |
$5 Million |
A copy of Stantec’s report is provided as Attachment C.
Proposed Motion
“I move to recommend to Town Council approval of the Ordinance as presented”
Attachments
Attachment A: Ordinance (Not Attached)
Attachment B: 2025 Drought Plan (Not Attached)
Attachment C: Stantec Report (Not Attached)