United States Office Of Water EPA 230-R-94-001
Environmental Protection (4102) February 1994
Agency
«4EPA Customer Incentives
For Water Conservation
A Guide
Recycled/Recyclable
Printed on paper that contains
at least 50% recycled fiber
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A GUIDE TO:
CUSTOMER INCENTIVES
FOR WATER CONSERVATION
CALIFORNIA URBAN WATER AGENCIES
with
CALIFORNIA URBAN WATER CONSERVATION COUNCIL
and
UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
Prepared by:
Gary S. Fiske, Principal
Ronnie Ann Werner, Associate
BARAKAT & CHAMBERLIN, INC.
Partly funded by a grant from USEPA (X820683-01-1)
February 1994
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ACKNOWLEDGMENTS
This document represents the collective knowledge of many individuals involved with
water conservation. The authors would particularly like to thank the members of our
Project Advisory Committee for their ongoing dedication and input to this project. We
would also like to thank the U.S. Environmental Protection Agency's Office of Policy,
Planning & Evaluation, California Urban Water Agencies (CUWA), and the California
Urban Water Conservation Council (CUWCC) for their support. Sincere thanks also go
to the staff of the Seattle Water Department, Seattle City Light, and Puget Power &
Light, as well as the staff of Los Angeles Department of Water & Power for their
assistance with developing the case studies on their incentive programs. Finally, we
would like to thank the many staff members of water agencies around the country who
shared with us their knowledge of and experience with customer conservation
incentives. A list of these individuals is included in Appendix A of this handbook.
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FOREWORD
California Urban Water Agencies (CUWA) is an organization of the largest urban
water providers in California, which serve water to metropolitan areas comprising
about two-thirds of the state's 31 million population. CUWA was formed to work on
water supply issues of concern to the large urban areas in California. Among those
concerns is water use efficiency; in particular, urban water conservation.
Cosponsor of this Guidebook is the California Urban Water Conservation Council
(CUWCC). This council is a broad-based organization which administers the 1991
Memorandum of Understanding Regarding Urban Water Conservation in California,
the agreement that forms the basis of progressive conservation programs for the large
majority of urban Californians.
As urban water conservation programs grow and mature, there is strong interest in
many communities in providing incentives, monetary and other types, to stimulate
further involvement of consumers. But the questions of which types of incentives to
offer, and how to manage and optimize incentive programs have remained largely
unanswered.
CUWA and CUWCC decided it was time to provide solid information on a variety of
water conservation incentive programs to help water agencies design and evaluate
programs on a more rational, thoughtful basis. U.S. EPA provided a grant (X820683-
01-1) for the major funding for this project. Obviously, none of these project sponsors
recommend specific approaches, devices, or price levels.
We were pleased to obtain the services of Barakat & Chamberlin, a leading consultant
to water and energy utilities, to conduct this work. We were also pleased to invite
representatives of water agencies, industry, and environmental and other public interest
organizations to serve on an active Project Advisory Committee. Their work is
acknowledged and appreciated.
CALIFORNIA URBAN WATER AGENCIES
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CALIFORNIA URBAN WATER AGENCIES
Alameda County Water District
Contra Costa Water District
East Bay Municipal Utility District
Los Angeles Department of Water & Power
Metropolitan Water District of Southern California
Municipal Water District of Orange County
Orange County Water District
San Diego County Water Authority
San Diego Water Utilities Department
San Francisco Public,Utilities Commission
Santa Clara Valley Water District
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PROJECT ADVISORY COMMITTEE
Richard Bennett
East Bay Municipal Utilities District
Prof. Richard Berk
Department of Sociology, U.C.L.A.
Rosalie Bock
Alameda County Water District
Roberta Borgonovo
League of Women Voters of California
Larry Dale
Dornbusch & Company
John Farnkopf
Hilton, Farnkopf & Hobson
James Fryer
Marin Municipal Water District
David Fullerton
Natural Heritage Institute
David Hanson
Green Industries Council
Lyle Hoag, Ex Officio
California Urban Water Agencies
Bill Jacoby
San Diego County Water Authority
Steve Kasower
Department of Water Resources,
Division of Local Assistance
George Martin
L. A. Department of Water & Power
Michael Moynahan
Metropolitan Water District of Southern
California
Craig Perkins
City of Santa Monica
Larry Rohlfes
California Landscape Contractors
Association
Barbara Sarkis
Contra Costa Water District
Peter Vorster
Consulting Hydrologist
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VI
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CONTENTS
Chapter 1. INTRODUCTION . 1
What This Handbook Is (And Isn't) . . . . 2
Handbook Organization 3
Chapter 2. INFORMATION INCENTIVES . 1
Audits ; 1
Residential Audits 2
Nonresidential Audits . 7
Program Participation and Implementation of
Recommended Measures 13
Training Programs 16
Irrigation Workshops . 17
Residential Water-Efficient Landscape Design
Workshops 19
• Commercial/Industrial Water Conservation
Workshops 20
Results of Training Programs 22
Chapter 3. ACCESS TO CONSERVATION TECHNOLOGY 1
Device Distribution/Direct Installation " 1
Which Devices Are Included in the Program . 2
Distribution Mlethod 3
Who Installs the Devices 4
Installation and Retention Rates . . 6
Rebates to Builders, Developers, Manufacturers, and
Distributors 8
Chapter 4. CASH TRANSFERS 1
Direct Rebates 1
Ultra-Low-Flush Toilets (ULFTs) : 2
Efficient Landscape Rebates 6
Efficient Irrigation Equipment 7
Industrial HVAC and Process Modifications : . 8
Rebate Program Administration 10
Grants . . 11
Bill Modifications 12
Vouchers . . . 14
VII
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CONTENTS (continued)
Chapter 5. FINANCING AND OTHER TYPES OF INCENTIVES ......... 1
Low-Interest Loans ......................... i
Shared Savings .............................. 2
Leasing ......................... ; ................ 4
Other Types of Programs .......................... 5
Low-Income Programs ...................... 5
New Construction ............................ 6
Chapter 6. A COST-EFFECTIVENESS FRAMEWORK FOR
CALCULATING CUSTOMER INCENTIVES
Introduction ..... .................. ,
Perspectives of Water Conservation Cost Effectiveness ......... 2
Program Participants .... ..................... 3
The Water Utility .................. '.'.'.'.'.'.'.'.'.'.'.'.'. 3
The Water Supply System ....................... 7
Society ............................ o
Using the Cost-Effectiveness Perspectives to Calculate
Appropriate Incentive Levels .................... g
Use of the Participant Perspective .................... 9
Use of the Water Utility Perspective .................. 11
Extensions of the Cost-Effectiveness Framework . ............. 13
Chapter 7. CASE STUDIES ....................... j
Los Angeles Department of Water and Power: Ultra Low
Flush Toilet Rebate Program .................... 2
Program Description ......................... 2
Program Goals ............................ 3
Target Market .......................... 3
Incentive Structure ........................ 4
Implementation Methods ........................ 5
Marketing Approaches .................. ......... g
Participation Levels and Water Savings ................ 10
Application of Cost-Effectiveness Tests ................ 10
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CONTENTS (continued)
Seattle Water Department: Home Water Savers Program 15
Program Background and Description 15
Program Goals . 18
Target Market . . 18
Incentive Structure 18
Implementation Methods 19
Marketing Approaches 19
Program Budget 20
Program Evaluation 20
Installation Rates and Water Savings . 21
Application of Cost-Effectiveness Tests 23
Hypothetical Industrial Incentive Program 27
Program Description 27
Target Market 27
Incentive Structure 28
Marketing Approaches 28
Implementation Methods 28
Water Savings . 29
Application of Cost-Effectiveness Tests . 29
Chapter 8. MARKET RESEARCH FOR BETTER PROGRAM
DESIGN 1
Introduction 1
Potential Market Research Components 3
How Do Customers Use Water? 3
Customer Attitudes Toward and Knowledge of
Water Use and Conservation 5
How Do Customers Make Appliance/Equipment
Purchase and Use Decisions? 7
How Do Water Needs, Preferences and Attitudes
Differ Among Customer Subgroups? 9
Which Incentive Program Designs are Most Likely
to Encourage Customer Participation? 13
General Survey Issues 15
Conclusion 16
IX
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CONTENTS (continued)
APPENDIX A: List of Water Agencies that Responded to Survey of Conservation
Customer Incentives
APPENDIX B: Matrices of Incentive Applicability to BMPs, By Customer Class
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Chapter 1
INTRODUCTION
Incentive—Something that incites or has the tendency to incite to
determination or action. (Webster's Ninth New Collegiate Dictionary,
1991.)
As a result of the political, economic, and environmental barriers to procuring new
sources of supply, water agencies are increasingly turning to conservation to achieve
permanent reductions in demand. The focus on demand-side management (DSM) as a
reliable resource poses a plethora of new challenges for water agencies. One of these
challenges is to motivate customer participation in conservation programs. While
acquiring supply-side resources is predominantly the responsibility of the water
agency, conservation requires customer action.
Customers choose to participate or not to participate in conservation programs for
many reasons. Customers may perceive barriers to adopting conservation technologies
or behaviors. These barriers can take a variety of forms, including economic or
financial impediments, insufficient knowledge or skills, interference with established
lifestyles, mistrust of conservation technologies, or difficulty in procuring water-
efficient appliances or equipment. A water agency can offer a variety of incentives to
customers to overcome these barriers. For the purposes of this handbook, we define an
incentive as follows:
Any transfer of something of value from an agency to a customer for
the express purpose of encouraging participation in a conservation
measure or program.
For many water agencies, convincing customers to adopt water-efficient technologies
and behaviors is an unfamiliar responsibility. The U.S. Environmental Protection
Agency (EPA), California Urban Water Agencies (CUWA), and California Urban
Water Conservation Council (CUWCC), recognizing the novelty of this task for many
water agencies, commissioned this handbook to assist water agencies with the selection
and design of appropriate, cost-effective customer conservation incentives.
CUWA and the CUWCC have another reason for supporting this project: The
Memorandum of Understanding Regarding Urban Water Conservation in California
(MOU), which links water utilities serving 25 million Californians in the largest water
conservation program ever undertaken, requires signatories to evaluate financial
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INTRODUCTION
incentives to encourage customer participation in conservation programs. This
handbook will assist California water agencies in meeting their commitments under the
MOU. The applicability of the various incentives in this handbook to the Best
Management Practices (BMPs) required by the MOU is illustrated in a series of
matrices contained in appendix B of this handbook.
WHAT THIS HANDBOOK IS (AND ISN'T)
The information presented in this handbook comes from extensive research, including:
• A literature review;
• A mail survey and follow-up interviews with staff members from
approximately 40 water agencies (a list of responding agencies is found in
Appendix A);
• Several in-depth case studies; and
• Development and application of a cost-effectiveness framework.
All program costs and savings estimates presented in this handbook are from agency
reports and were not verified by the authors of this handbook.
This handbook is intended as a guide to help water agencies through the process of
selecting incentives that are appropriate and cost-effective for their jurisdiction It
is not intended to be a "cookbook" for incentive programs. Each agency will have to
go through the process of determining how water is used in its service territory and
identifying appropriate conservation measures. For example, this handbook will not
help an agency determine whether it should have an ultra-low-flush toilet (ULFT)
retrofit program. Rather, if an agency decides to have a ULFT retrofit program this
handbook discusses the range of incentives available—including rebates, direct'
installation programs, low-interest loans, and others—to encourage customers to
participate in that program. It also provides a cost-effectiveness framework to help the
agency determine how much of an incentive customers need to participate in the
program and how much of an incentive the agency can afford to offer.
In selecting appropriate incentives, each agency will have to consider carefully its
water supply situation and the needs of its customers. This handbook is intended to
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INTRODUCTION
help structure and guide that process. No incentive is appropriate for all jurisdictions.
No handbook can substitute for careful thought and analysis.
For each of the incentives discussed in the following chapters, there may be local
political or institutional constraints that preclude or limit the use of that incentive.
Some of the incentives are controversial for a variety of reasons, including impact on
established industries or lifestyles. As they select incentive mechanisms, water
agencies must consider these issues as well as the issues that are raised in this
handbook.
Regardless which type of incentive an agency offers, three points should be kept in
mind. Each of these will help keep overall incentive costs down.
• Flexibility is valuable. It is important to reevaluate incentives as
conditions change. Many of the most successful programs are those that
were reevaluated as situations changed—for example, as droughts
ended—and were redesigned accordingly. Adaptive management can
enable programs to remain effective over time.
• Program implementation affects water savings. The type and level of
incentive is only one feature of program design. All elements of program
design and implementation affect the level of water savings the program
will achieve. For example, extensive follow-up will enable an audit
program to achieve greater water savings, albeit at greater program
implementation cost.
• Program marketing is key. A good marketing campaign may enable an
agency to offer a lower level of incentive. In addition, marketing
requirements may change over time. For example, during a drought,
customer awareness of the need for conservation may be higher, and thus
programs may not require as much marketing.
HANDBOOK ORGANIZATION
The incentives discussed in this handbook fall into four categories:
• Information incentives
• Access to conservation technologies
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INTRODUCTION
• Cash transfers
• Financing
Within each of these broad categories there is a variety of different incentives and they
can be combined within and across categories.
This handbook is structured as follows:
• Chapters 2 through 5, which are based on the experiences of water
agencies across the U.S., provide a summary of the types of water
conservation customer incentives, the advantages and disadvantages of
each, and the costs and water savings associated with these incentives.
Examples of incentive programs offered by water agencies are cited
whenever possible. However, some incentives are still relatively untested in
the water industry but have been used extensively in the energy industry;
examples of these are drawn from energy utilities.
« Chapter 6 presents a comprehensive cost-effectiveness framework and
shows how it can be used to help determine the appropriate level of an
incentive.
• Chapter 7 presents three in-depth case studies—two actual and one
hypothetical—to provide a better understanding of incentive design and
implementation issues and to illustrate the application of the cost-
effectiveness framework.
• Chapter 8 describes market research that water agencies can conduct to
help them design more effective incentive programs.
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INFORMATION INCENTIVES
Chapter 2
INFORMATION INCENTIVES
Lack of information about water-conserving technologies and behaviors may prevent
customers from using water efficiently. Utilities can provide customers with
information about conservation in many different ways, including guidebooks,
brochures, hotlines, and other media approaches. These materials may focus on
particular conservation measures or on the need for conservation in general.
Public education about the benefits of water conservation is critical for raising
customer awareness and generating community support for conservation. In fact, many
water agency staff members involved with incentive programs claim that creating
general awareness of the importance of water conservation is a key factor in
encouraging program participation. In some cases, public education is the driving force
behind an inclusive program. However, in this handbook we distinguish between
public information/education programs and informational incentives. We define the
latter as the provision of information for which customers would otherwise have to
pay. Specifically, this section reviews the use of indoor and outdoor audits to provide
site-specific information and seminars and workshops to provide specialized training
and skills.
AUDITS
Audits provide potentially valuable information to customers on conservation
technologies and behaviors, sometimes including estimates of how much money
customers could save on their water bills by adopting these measures. The receipt of
such information could encourage the installation of water-efficient technologies or the
adoption of conservation behaviors by some customers.
For purposes of our discussion, an audit has two components: (1) a systematic
customer-specific on-site survey of water usage patterns and needs; and (2) specific
recommendations on ways for that customer to increase the efficiency of water use.
Audit results presented to the customer might, for instance, identify and recommend
installation of cost-effective water conservation measures that have a specified payback
(e.g., two years or less). Audits may focus on indoor and/or outdoor water use for
residential or nonresidential customers. Residential and nonresidential audits have
different components and will be discussed separately.
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INFORMATION INCENTIVES
Residential Audits
Residential audits involve sending trained agency staff or outside contractors to
evaluate indoor or outdoor water uses (or both). Some water agencies offer audits to
all residential customers, while others target subsets of customers based on housing
type (e.g., all single-family residences or pre-1980 multifamily buildings) or on
quantity of water use (e.g., top 20% of users). Many residential audit programs include
direct installation of conservation devices.
Residential audits are further divided into indoor and outdoor (landscape). The surveys
reported the following audit components.
Residential Indoor Audits
• Perform meter test for leaks (i.e., turn off all water-using equipment and
see if meter still registers use);
• Perform dye tablet leak detection tests in toilets;
• Adjust toilet floats;
" Check toilet flapper valves;
• Test shower flow rate;
• Check for faucet leaks;
• Check water level settings on dishwashers and washing machines;
• Calculate water savings for various water level settings on appliances;
• Check cycles for water softeners;
• Check toilet flush volume; and
• Identify opportunities to replace standard toilets, faucets, etc., with water-
conserving models.
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INFORMATION INCENTIVES
Residential Outdoor Audits1
• Provide basic information on soil, water, and plant relationships;
• Gather information about:
Landscape size
Irrigation equipment
Plant mixes • _ ..
Environmental factors (shade, slope, etc.)
Soil type
Pool, spa, fountain, other water features
Overall appearance of landscape
• Locate meter; show customer how to read it;
• Turn on irrigation system; identify leaks, overspray, and runoff;
• Perform soil tests;
• Evaluate irrigation system:
Check controller station settings
Check for matched precipitation rates
Check sprinkler heads for damage, misalignment
• Check that landscape manager knows how to program controller
Conduct a precipitation test of the sprinkler or irrigation system
• Examine drip irrigation systems for emitter size and spacing;
• Prepare an irrigation schedule; assist in resetting of controller;
• Check for faucet leaks; and
• Suggest additional water-saving opportunities where appropriate—e.g., pool
and spa coverings, appropriate plant selection and grouping, irrigation
equipment upgrade.
'Some of these landscape measures may only be applicable for large landscapes.
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INFORMATION INCENTIVES
Contra Costa Water District (CCWD), California. CCWD has a residential
water audit program that targets high water users. Auditors check toilets and
faucets for leaks, install low-flow showerheads and toilet dams, perform a lawn
irrigation system audit, and prepare a lawn watering schedule for the customer.
Each audit lasts approximately one hour. CCWD estimates that the cost of each
audit, including equipment, labor, and management, averages $39.
North Marin Water District, California. North Marin conducted a pilot
home water audit program in 1988, offering a free audit and direct installation
of conservation devices to the upper quartile of single-family water users. The
initial mailing was sent to 1,276 randomly selected single-family upper quartile
water users; approximately 19% responded. The cost of performing an audit
was $45 per single-family home.
Several survey respondents described combined water and energy audits offered in
collaboration with local energy utilities.
City of Mountain View, California. Mountain View conducted a residential
audit program jointly with the local energy utility, Pacific Gas & Electric
(PG&E). Mountain View scheduled the audits with their customers and PG&E
contractors performed the audits. In this case, Mountain View joined an already
operating PG&E audit program by providing the water devices and some
additional training for the auditors regarding water conservation. Once the
interest in the audits died down, it no longer made sense to give the PG&E
auditors special training for a few audits per year. Therefore, the water audits
are currently performed by City staff.
City of Anaheim, California. Anaheim also offers single-family and
multifamily customers combined water/energy audits. Auditors are sent to a
Metropolitan Water District of Southern California (MWD) training program
for water audit skills, as well as an Edison Electric Institute program on energy
audit skills. The Anaheim auditors install showerheads, toilet dams, and
compact fluorescent lightbulbs during the audit.
City of Pasadena, California. Pasadena has offered two versions of
residential water audits: the LITE Bill program and the Home Water Survey.
The LITE Bill program, offered from November 1989 through October 1990,
was an elaborate program that featured door-to-door canvassing of all city
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INFORMATION INCENTIVES
residents and offered a combined water and energy audit and direct installation
of conservation devices. The program included an Energy Eaters survey, which
presented a detailed analysis of the customer's electric bill, by appliance.
Survey information was run through a computer program, which generated a
report that was sent to the participant.
The Home Water Survey began in August 1988 (although multifamily units
were not included until August 1990) and is still being offered. The Home
Water Survey is a simpler and less expensive program for the agency than the
LITE Bill program. Each survey includes an indoor and outdoor component
and lasts one to two hours. Participants receive free devices and direct
installation of low-flow showerheads, toilet dams, faucet aerators, hose bib
timers, moisture meters, and soil enhancers. The audit also includes leak
detection, soil analysis, irrigation system check-up, and a lawn watering
schedule. Customers receive written recommendations at the end of the audit,
but the analysis is less sophisticated than the one performed for the LITE bill
program. For the Home Water Survey, Pasadena has successively targeted (by
mail) tiers of water users, beginning with customers using 55% above average,
then customers using 40% above average, until they targeted all customers
using at least 10% above average.
The cost of the LITE bill program was approximately $75 per audit, while the
Home Water Survey costs approximately $50 per audit.
Audits can be performed by utility staff or by outside contractors, community groups,
or students. All of these approaches have been used successfully. However, water
agency staff members involved with residential water audits stressed the customer
educational component of the audits and the need for well-trained auditors to
accomplish this.
Cost of a residential audit depends on the services provided. A one-hour indoor-only
residential audit costs approximately $25 to $40. When an outdoor audit is included,
costs range from $45 to $75/audit.
Very few agencies in our survey have completed evaluations or studies of water
savings associated with their residential audit programs. The few that have done so
report savings ranging from 25 to 40 gallons per household-day. All of these programs
included audits of both indoor and outdoor water use. The evaluated programs all
included other incentives—such as free devices, discount coupons, and direct
installation—so water savings cannot be attributed solely to the audit.
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INFORMATION INCENTIVES
There is no consensus among agencies about the value of landscape audits for single-
family residential customers. The landscape audit is typically the most time-consuming
component of residential audits, and water savings are disputable. Because most of the
changes are behavioral, the persistence of any savings is uncertain. Also, an MWD
study showed that many customers under-irrigate their landscapes.2 Another problem
cited with the outdoor component of the residential water audit is that auditors cannot
rectify most of the bigger problems that they identify. Even if they are able to
diagnose major problems, those problems are likely to be systemic and beyond the
skills of the typical residential auditor. In general, residential auditors receive minimal
landscape training and apparently have little prior experience with irrigation systems.
In some cases, respondents noted, auditors do not know how to program the
controllers. Furthermore, some of the information provided to customers is not
practical—for example, some auditors told customers to water their lawns for 10
minutes twice a day, but the customers' controllers could not be programmed to do
this. The North Marin Water District in California attributes only 1.8 gallons per
capita daily out of a total estimated savings of 8.5 gallons per capita daily to the
outdoor component of the pilot home water audit program.
Other respondents, in contrast, said that overwatering of landscapes was the most
common source of residential excess use, and that residential landscape audits were
very useful to customers. In support of this view, the evaluation of the Contra Costa
Water District audit program in California attributed three times more savings to the
outdoor component of the audit (29.1 gallons/household-day) than to the indoor
component (8.9 gallons/household-day).3 Evaluations of several other residential audit
programs are under way and may help establish the level of savings achievable with
this incentive. Aside from water savings, residential audits tend to be popular among
water retailers as a service that they can offer to then- customers.
Planning and Management Consultants, Ltd. Analysis of Residential Landscape Irrigation in Southern
California (Metropolitan Water District of Southern California, Planning Division, December 1991).
John B. Whitcomb, Measuring the Water Reduction from Contra Costa Water District's 1989
Residential Water Audit Program (Brown and Caldwell: May 1991).
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INFORMATION INCENTIVES
Nonresidentia! Audits
Industrial Audits
Industrial audits are highly site specific and require specialized training and skills. In
these audits the auditor generally tabulates and diagrams how and why water is used
throughout the facility. Once this is established, the auditor can look for inefficient
uses and identify potential efficiency improvements. Industrial audits may include the
following measures:
• Perform all of the indoor residential audit components;
• Record hours of operations for each water-using process or piece of
equipment;
• Identify water needs for each use;
• Measure amount of water and verify flow rates (this may involve installing
temporary or permanent meters on major processes or flows);
• Identify flow and quality of wastewater resulting from each use;
• Evaluate heating, ventilation, and air conditioning (HVAC) systems;
• Evaluate water-using process equipment (e.g., check on/off valves for
spray equipment); and
• Prepare a water balance diagram to illustrate all water uses from the supply
source through the on-site processes, machines, and buildings, and on to
evaporation and waste discharge.
Metropolitan Water District of Southern California, California (MWD).
MWD has recently begun an industrial audit program. Potential audit
participants receive a walk-through survey to evaluate the potential for water
savings. If this scoping visit indicates that a full-scale audit is warranted, a
detailed water management study is performed. Each of these studies typically
cost $5,000 to $15,000. Program costs are split between MWD (a wholesale
water provider) and the participating member agency in an innovative way:
MWD and the member agency are responsible for auditing facilities with
equivalent daily water use. For example, if MWD audits a facility that uses
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INFORMATION INCENTIVES
20,000 gallons daily, the member agency can meet its responsibilities by
auditing five facilities that each use 4,000 gallons daily. This program design
addresses the fact that large industrial sites can be extremely complex and that
small water agencies may not have the technical capability to conduct those
audits or the resources to hire outside contractors.
City of Phoenix, Arizona. Since 1987, Phoenix has offered audits to large
commercial, industrial, and institutional customers using over 50,000
ccf/month. There have been approximately 100 participants to date. The city
staff consider the free audit to be effective at encouraging participation, but
would like to create an arrangement whereby customers agree to maintain
contact with the city regarding implementation of the recommendations from
the audit.
City of Mountain View, California. Mountain View offers audits to their
large users, which include commercial, industrial, and multifamily customers.
The audits include three elements:
An analysis of domestic water use (conducted by the city's water
conservation coordinator);
An analysis of process, cooling, and other indoor water uses
(conducted by an engineering consultant); and
An analysis of landscape irrigation (conducted by an irrigation
specialist).
Twenty of Mountain View's largest users were offered the opportunity to
participate, and seven of them eventually did. These included research and
development firms, silicon chip manufacturers, and business office parks. The
audits identified ways the participants could save a total of 50% of their current
water use. Most of these savings could be made by improvements in production
processes. The types of improvements identified include: reusing process water,
recycling the final deionized rinse water, updating deionization systems, and
repairing or adjusting cooling towers. All of the recommendations had an 18-
month or better payback on the initial investment. Participants have agreed to
implement at least 50% of the recommended measures with an 18-month or
better payback or reimburse the City for the cost of the audit. These measures
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INFORMATION INCENTIVES
must be implemented within one year of the presentation of the water analysis
findings.
The cost of an industrial audit to a water agency depends on many factors, including
the type of facility, what services are provided, and who performs the audit. Most
agencies use outside contractors to conduct industrial audits.
In our survey, industrial audit costs to the agency ranged widely, from a few hundred
to several thousand dollars. For example, the City of Phoenix estimates that, depending
on the facility, the costs of their commercial/industrial audits range from $1,000 to
$7,000. In the City of Mountain View program, process audits cost approximately
$2,000. MWD estimates that its water management studies typically cost $5,000 to
$15,000. These costs are rough estimates of the price that customers would have to
pay for similar audits.
Due to the highly site-specific nature of industrial processes, it is difficult to evaluate
the savings associated with industrial audit programs. None of the programs included
in our study has yet completed such an evaluation. An MWD staff member involved
with industrial audits estimates that approximately 15% to 20% efficiency
improvements are possible at industrial sites. The same staff member estimated that
just through the MWD audit program and follow-up, approximately 25% of the
recommended measures are implemented. He believes that additional economic
incentives would be necessary to increase that percentage.
The Mountain View audit program identified savings of approximately 50% for the
program participants. A study of industrial water conservation in San Jose, California
found average savings of 30% to 40%.4
Commercial and Institutional Audits
All of the water agencies in our survey that offer audits to commercial and
institutional customers include these customers in their industrial audit programs,
rather than offering a separate program. Commercial and institutional audits typically
include the following components:
"Brown and Caldwell Consultants, Case Studies of Industrial Water Conservation in the San Jose Area
(San Jose: February 1990).
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• Perform all of the residential audit components; and
» Evaluate heating, ventilation, and air conditioning (HVAC) systems.
Institutional customers are often considered to be high visibility customers, serving
many people, and are frequently on very limited budgets. Institutional audits of federal
facilities are supported by the Energy Policy Act of 1992, which requires federal
facilities—including military bases, government office building, courts, post offices
and social security offices—to implement all water and energy conservation measures
that have a payback of ten years or less. When adhered to, this law boosts the cost-
effectiveness of institutional audits at governmental facilities by guaranteeing
implementation of the recommended measures. Also, this law allows savings from
conservation to be reinvested through the same federal facility's program budget.
San Diego County Water Authority, California (SDCWA). The SDCWA
targets large users, such as the U.S. Navy and San Diego State University, in
its commercial/industrial/institutional audit program. The SDCWA audit of a
Navy base identified many cost-effective measures. The SDCWA is also
assisting with project funding; until recently, federal facilities were not allowed
to accept funds for water conservation projects.
Contra Costa Water District, California (CCWD). CCWD has a
commercial audit program that targets indoor uses for commercial, institutional
and industrial customers. This program also includes direct installation of
showerheads and toilet tank displacement devices, when appropriate.
City of Portland, Oregon. Portland has a new water evaluation program for
commercial, institutional, and industrial customers. This program, which is
targeted at peak season high-volume users, focuses on single-pass cooling
systems, rinse water in process industries, and large turf irrigation.
Large Landscape Audits
Large landscape audits contain the same components as described in the residential
outdoor audit description above. Some agencies limit participation to customers with
designated landscape meters or with a specified minimum irrigated acreage- others
target public institutions, including schools and parks. The cost of a landscape audit is
in the $200 per acre range. Usually outside expertise or training is required for an
agency to conduct irrigation or large landscape audits. Texas A&M University and the
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Lower Colorado River Authority train San Antonio Water Service staff to conduct
landscape audits. The San Diego County Water Authority offers landscape audits
cooperatively with Resource Conservation Districts and the University of California
Agricultural Extension Service.
City of Tucson, Arizona. Tucson Water offers large landscape audits
cooperatively with the University of Arizona Agricultural Extension Service,
and has entered into an intergovernmental agreement (IGA) for this purpose.
The Tucson program began in 1990 and targets large multifamily complexes.
The program includes continual follow-up: participants are contacted by
telephone every three to six months to determine whether they have
implemented the recommended measures or whether any additional assistance
is needed. From this follow-up the agency has learned that there is a
tremendous amount of turnover among landscape managers at these properties,
creating a continual need for reeducation. There is also a great deal of mistrust
of new irrigation technologies, particularly because the landscape maintenance
personnel perceive their primary responsibility to be ensuring that the grass is
as green as possible. For these reasons, Tucson has shifted the emphasis of its
landscape program to training management personnel and landscapers on
irrigation techniques. For additional information on this and other landscape
personnel training programs, see page 17 of this chapter.
City of Tampa, Florida. Tampa offers landscape audits for multifamily,
commercial, and institutional customers. The agency staff does not consider
this program to be particularly effective. The biggest barrier seems to be that
water is very inexpensive and not a major component of operating costs. The
agency staff members noted that when customers do participate it is usually
because they have already budgeted funds for landscape improvement for that
fiscal year. Therefore, the agency believes that is important to be out working
with customers significantly in advance of inviting them to participate in an
audit program. The staff members felt that at a minimum it is important to
begin contacting the customers six to eight months in advance, so that
landscape improvements can be put into the budget. At the same time, it is
important to work with professional associations to build support for this type
of program.
For customers who have participated in the Tampa program, audits identified as
much as 65% residential savings. The most popular changes made by
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participants are revising irrigation schedules and installing rain-activated shut-
off devices. The agency also found that there is a much greater likelihood of
measure implementation if the property manager, maintenance staff, or
landscape contractor accompanies the auditor. However, because it 'is a
voluntary program, the agency feels that requiring one of those individuals
accompany the auditor is too much of a barrier to participation.
The Tampa program was initiated as a pilot. The agency will continue to offer
these audits on a request basis, but will not do extensive marketing. Instead,
emphasis is shifting to a newly initiated residential landscape audit program'.
City of Pasadena, California. Pasadena has recently instituted a large turf
audit pilot program. Customers with over 2,500 sq. ft. of landscaping qualify
for the program, but participants have typically been much larger (e.g., one
industrial park, three golf courses, one college). Although the program'has not
been formally evaluated, the Pasadena water conservation staff keep close track
of implementation. The program appears to be quite successful. All participants
have at least changed their watering schedules, and many have implemented
other recommended measures as well.
The pilot ends in September 1993, and Pasadena will move into full-scale
implementation. The city is considering the addition of financial incentives
such as rebates or shared savings. Potentially the city will require installation
of recommended measures with payback of less than two years, or may require
some copayment for audits if the recommended measures are not implemented.
North Marin Water District, California. North Marin conducted a pilot
large landscape audit program. All commercial/government customers with
annual water consumption of 400 ccf or greater were included in an initial site
selection screening. An initial site audit was performed to assess the irrigation
system's operating condition and design configuration, and to determine if an
audit and subsequent irrigation scheduling changes could result in significant
reductions in water use. Customers chosen for participation included one
private park, as well as city parks and schools. A total of 86 acres were
audited.
Few of these large landscape audit programs have been formally evaluated. An
analysis of the North Marin pilot program found savings ranging from 7% to 16% of
expected water use. The.San Diego County Water Authority program also provides
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some indication of potential savings. In fiscal year 1992, the SDCWA completed 155
audits, covering 2,116 acres. The program costs for the year were $176,614 and
estimated potential savings for the year were 300 acre-feet. These savings are just for
the current year; there should be continued savings over the following years for any .
measures that are implemented. However, these savings are potential savings, as
identified by the audit. An evaluation of actual savings was hindered by the recent
drought, but renewed evaluation efforts are under way.
The SDCWA landscape audit program also offers interesting information regarding
potential savings from different site types. Overall, the greatest potential savings came
from homeowners associations, which represented 44.5% of the sites audited and
yielded 58.7% of potential savings. Proportionally, the greatest potential savings came
from commercial/industrial sites, which represented only 7% of the sites audited but
yielded 25% of all potential water savings. Lowest potential savings came from
schools (14% of sites, 4% of savings) and parks (30% of sites, 12% of savings)
because they frequently did not have the budget or staff to make the recommended
changes. Interestingly, although small sites (less than three acres) represented only 7%
of sites audits and only 3% of the acreage audited, those sites yielded at least 21% of
all potential water savings. SDCWA staff members noted that these smaller sites
frequently do not have full-time landscape staff, and were thus less likely to be using.
water efficiently prior to the audit.
Program Participation and Implementation of Recommended Measures
The ultimate success of an audit program must be judged by the amount of
conservation that occurs as a result (perhaps a partial result) of the audits. There are
two prerequisites to achieving a positive result:
• Customers must participate in the audit program in sufficient numbers; and
• Customers must follow audit recommendations (technological and/or
behavioral).
Even if audits are provided free of charge, survey respondents described several
reasons why customers may not take advantage of them. First, there are issues of
confidentiality, particularly for industrial customers who may not want outside auditors
inspecting proprietary production processes. Second, there is a time commitment
required of the participant. This commitment can be as little as one hour or less or as
extensive as several days, depending on the customer being audited and the depth of
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the audit. Related to this are potential scheduling difficulties—particularly if audits are
only offered during standard working hours—as well as other administrative
difficulties of signing up for an audit. Third, certain types of sites may present
particularly complex institutional challenges, which require cooperation from various
parties (e.g., homeowners associations, property management services, and landscape
contractors).
To obtain participation from the more reluctant customers it may be necessary to
combine a free audit with other customer incentives. Many of the agencies in our
survey offered free devices or free installation at the time of the audit; they found that
this was an important factor in encouraging participation. (See Chapter 3 for additional
discussion of these'incentives.) However, another respondent noted that including
direct installation as an incentive made installation, rather than education, the
measurable task. As a result attention may become focused on achieving high
installation rates—even in inappropriate locations where the devices might not save
significant amounts of water—and education opportunities may be lost.
Some water agencies make audits a prerequisite for rebate or financing programs. For
example:
East Bay Municipal Utility District, California (EBMUD). EBMUD
requires customers to submit to an audit, as well as to sign an agreement to
install the recommended equipment, in order to qualify for an irrigation rebate.
EBMUD considers this a very effective incentive program design. The San
Diego County Water Authority is in the process of implementing a similar
program.
In another approach to increasing participation, some California water agencies
encourage or require audits for customers who apply for variances from drought
allocations. Once the audit has been performed, customers must take the recommended
steps in order for savings to occur. There are several reasons why they may not
implement the recommendations:
« Up-front cost of purchasing and installing the measures;
• Time required to locate, purchase, and install the measures;
• Inconvenience of changing behavior patterns;
• Lack of technical knowledge required to install the measures; or
« Mistrust of the recommended measures.
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Survey respondents address these barriers in different ways. Some have required
participants to implement particular measures (e.g., those with no more than a
specified payback period) or to reimburse the agency for the cost of the audit.
City of Mountain View, California. Mountain View requires participants in
the Large User Water Analysis Program to implement measures that will
achieve at least half of the savings with an 18-month or better payback period,
or to reimburse the City for the cost of the audit (usually approximately
$2,000). Participants have one year to implement these measures.
Other agencies have combined their audit programs with other customer incentives,
such as free device distribution, direct installations, leak repairs, rebates, or vouchers.
For example:
City of Tampa, Florida. Tampa offers a rebate of 50% of the cost of
implementing recommended measures in their landscape audit program.
However, because of relatively low water rates, program staff do not find this
program particularly effective at encouraging participation.
Notes on Audit Program Design
The following suggestions were made by survey respondents based on their
experiences with audit programs:
• Devote sufficient resources to selecting and training auditors.
• Offer audits at times that are convenient for participants.
• Encourage customers to accompany the auditor so that the auditor can
educate the participant on water conservation.
• Present results to the participant in oral and written form.
• Look for opportunities to cooperate with other water agencies. For certain
types of audits it may be most cost-effective to have one program that
provides services to many districts.
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• Consider collaborating with the local energy utility to offer joint energy
and water audits.
• Perform a pre-audit site survey for commercial and industrial customers to
gather base information prior to the actual audit.
• Include a follow-up visit to ensure proper installation of recommended
measures and to evaluate persistence of savings.
• Provide customers with information on implementation and costs of
recommended measures.
• In calculating payback period of conservation measures, include energy
savings and avoided wastewater costs, if appropriate.
• Utilize residential energy audit experience.
TRAINING PROGRAMS
Many customers are not aware of actions they can take to conserve water or do not
have the necessary technical expertise to implement conservation measures. Training
programs or workshops that provide the necessary information or skills may encourage
customers to undertake or expand then- conservation efforts.
Workshops or training courses can be offered or sponsored by the utility for specific
groups of customers. Most of the training programs currently offered by water
agencies target landscape/irrigation or commercial, industrial, and institutional water
use. Some of the survey respondents noted that these classes and workshops offer a
good opportunity to create partnerships with universities, horticultural societies,
community groups, or other organizations that have the required technical expertise
and have well-established reputations in providing community education.
Survey respondents described three types of workshops: irrigation, residential
landscape design, and commercial/industrial water conservation.
Irrigation Workshops
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Seattle Water Department, Washington. Seattle offers a three-day landscape
auditor training course, which is a prerequisite for the Irrigation Association
certification exam. The class is open to commercial and institutional customers
and is targeted at large irrigators, such as parks and schools.
Some agencies offer irrigation workshops at no charge; others require participants to
pay some portion of the costs. The Seattle Water Department charges participants $45
for its three-day landscape irrigation auditor training course, while the course has a
$250 value. The agency found that requiring participant contributions made customers
more likely to actually attend the course, because people believe that they get what
they pay for and that a "free" training will not be worthwhile. However, requiring
customers to pay a portion of the costs may discourage some people from attending. A
City of Phoenix staff member noted that offering classes for free increases the
likelihood that field staff may be able to attend; particularly for landscape, these are
often the people with the most direct opportunity to change water use practices.
If an agency does require participants to pay a portion of the workshop cost, the actual
incentive is then the difference between what the utility charges and what participants
would have to pay to receive comparable training or information on their own.
Residential Water-Efficient Landscape Design Workshops
The focus of residential landscape workshops is to teach customers to use creative
landscaping techniques and low-water-use plants to develop practical and attractive
landscapes that use little water. These workshops can also include information on
efficient irrigation.systems and techniques, as described in the earlier discussion of
irrigation workshops.
San Diego County Water Authority, California (SDCWA). The SDCWA
offers a four-hour water-efficient landscape class for which participants are
charged $10. The agency estimates that comparable classes at nurseries and
community colleges cost up to $50 or more.
City of Phoenix, Arizona, Phoenix has conducted introductory residential
water-efficient landscape workshops for the past four years, offering 14 two-
hour workshops annually, with an average of 40 participants per workshop.
Phoenix has recently expanded its program to include more advanced water-
efficient landscape design workshops to be conducted by two different
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landscape consulting firms. One firm offers a weekend (12-hour) workshop
utilizing site/use analysis techniques and computer imaging systems to develop
conceptual landscape plans. The other contractor offers a more hands-on
approach to developing landscape plans, using bubble diagrams, tracing paper,
and colorizing.
These advanced classes have approximately 25 participants and feature
significant one-to-one assistance that focuses on each participant's landscape.
Participants are charged $20; similar individualized consultation with a
landscape architect would usually cost over $200. The agency's budget for a
total of 19 workshops is approximately $46,000. The City of Phoenix considers
these workshops to be an important part of its education program and believes
that the xeriscapes that result from the classes can serve as models in the
community.
Water agency staff members involved with these programs indicated that these water-
efficient landscape workshops are very popular among customers. San Diego County
Water Authority staff said that they had a "positive and overwhelming" response to
their workshops, and that classes were over-enrolled until the agency scheduled
additional workshops. The City of Phoenix noted in the survey that, "Residents have
shown an overwhelming interest in the implementation of water-efficient landscape
principles which increase property value, improve home salability, reduce water use,
reduce maintenance costs, improve community aesthetics and pride, and enhance
regional identity." A staff member from another water agency cautioned that landscape
retrofits may be very expensive and these workshops may be more appropriate in areas
where new housing is being developed. Consistent with this reasoning, the City of
Phoenix intends to target its next round of xeriscape workshops at homeowner
associations in new developments.
Commercial/Industrial Water Conservation Workshops
Industrial customers were widely cited by respondents as a difficult-to-reach customer
class. Some of the problems described include the site-specific nature of industrial
conservation, the high cost of the measures, and up-front capital requirements.
Training is one approach that many respondents believe to be successful in reaching
these customers.
City of Phoenix, Arizona. Phoenix Water Department offers water
conservation workshops to commercial, industrial, and institutional customers.
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While discussing landscape conservation measures, one agency staff member noted
that, "Hardware alone never saved a nickel." Almost all irrigation systems can be run
with a high degree of efficiency—but not unless they are operated correctly. Irrigation
training workshops attempt to address this by educating landscape maintenance
personnel.
These workshops teach low-water-use irrigation methods and are particularly relevant
to sites with extensive turf areas, including parks and open space, golf courses,
industrial parks, and schools. Some water agencies also invite to these classes property
managers or landscapes for multifamily housing or condominium/townhouse
complexes with large landscaped areas.
Topics covered in these workshops include efficient irrigation techniques, such as drip
irrigation, as well as methods for improving soil conditions to promote water
penetration and retention. Most of them focus on evapotranspiration (ET), scheduling,
controller programming, auditing matched precipitation rates, and maintenance
programs. They may also cover new technologies such as soil and rain sensors and use
of ET data, such as the California Irrigation Management Information System (CIMIS)
program sponsored by the California Department of Water Resources.
San Diego County Water Authority, California (SDCWA). The SDCWA
offers a basic irrigation course, in Spanish and English, to field-level workers
at large turf sites and private landscape maintenance companies. California
Polytechnic State University at San Luis Obispo (Cal Poly), under contract to
SDCWA, developed the class and trained local Resource Conservation District
staff to teach the course. The course, which runs three to four hours,
emphasizes soil/plant/water relationships, basic irrigation concepts, and what
landscape maintenance workers can do to save water. The course takes a
"hands-on" approach and is taught in the field. Once the program caught on,
the agency was flooded with requests for the workshop. The program began in
March 1992, and there have been over 400 participants to date.
Surprisingly, middle managers have also participated in the SDCWA program.
According to SDCWA staff members, reaching these supervisors can be very
helpful because they are often involved with purchasing equipment, but
frequently buy the least expensive alternative, rather than the model that will
help their system run most efficiently. Also, this training teaches supervisors
what is achievable, so that they know what level of water use and conservation
- they can realistically expect their staff to achieve.
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Metropolitan Water District of Southern California, California (MWD). A
CIMIS training program funded by MWD is offered in five counties in
Southern California. The class is offered through University of California
Extension Service and through Cal Poly. The program has been offered for five
years and is marketed and administered through farm advisors in each county.
The course is open to all landscape professionals; in most cases there is no cost
to participants. (An equivalent Cal Poly class offered through the Department
of Water Resources costs participants approximately $250, which suggests the
value of the incentive.)
City of Phoenix, Arizona. Phoenix Water Department offers half-day
commercial landscape classes covering turf irrigation, system design, and
landscape conversion. Classes are designed in-house by conservation program
staff. These classes are very popular and always filled to capacity (40
participants per class). Participants include facility managers from hotels, golf
courses, and cemeteries. Costs to the agency are approximately $250 for the
facility, $10 per participant for materials, plus approximately 60 hours of staff
time.
City of Tucson, Arizona. Tucson Water also offers training in irrigation
techniques. The program is targeted at schools, parks, and recreation areas, but
is also open to landscape companies. The training program was initiated when
it became clear through the landscape audit program that management
personnel and landscapes did not have the expertise to maintain low-water-use
landscapes. The full-day workshop is offered at no cost to participants. Three
workshops have been offered, and the response has been very positive.
City of Santa Monica, California. Santa Monica offers an irrigation training
with the goal of providing the City with trained maintenance personnel. The
program is targeted at minority youth and is offered through the regional jobs
training program. The course provides training in basic irrigation system
maintenance and repair, use of ET information, and irrigation water audit
techniques. Students receive a $400 stipend if they attend 95% of the classes
and complete all required materials. At the end of the course participants are
prepared to take the California Landscape Contractors Association Certified
Landscape Technician Test and the Irrigation Association Landscape Auditor
Exam. The course participants currently include students as well as adults
currently working in the landscape profession who are interested in skills
enhancement and professional certification.
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Half-day or full-day workshops are offered on a variety of topics, including
cooling tower efficiency, water conservation in hospitals, and water
conservation in hotels. These workshops, which are designed in house, have
been offered to customers since 1987 and there have been over 800 participants
to date. Topics vary depending on demand, which in part is determined by
surveying participants in each class about what future workshops they would
find most useful. Currently the most popular courses are commercial landscape
classes.
Metropolitan Water District of Southern California, California (MWD).
MWD's commercial/industrial program has a heavy emphasis on training.
MWD has offered two training programs. The first is a Cooling Tower
Training Program. Eight of these full-day workshops have been offered. MWD
fully funds and develops the classes, with the assistance of outside contractors.
There is no charge to participants. Member agencies host the classes and invite
participants, who typically are building managers, cooling tower operators,
conservation coordinators, and other appropriate individuals.
The second class offered is a Commercial & Industrial Conservation Program
Coordinators training. As a water wholesaler, MWD does not have commercial/
industrial customers, but can train conservation coordinators from its member
agencies to set up industrial conservation programs. This class is designed to
provide the necessary skills.
The Conservation Coordinators Training is a full-day class that covers how
water is used in different industries, as well as such topics as program
planning, marketing, and assessment. Participants learn how to conduct a
simple water audit and view a videotaped site visit to a typical industrial
facility, including an interview with the facility engineer and a physical
inspection of the water-using features of the building. In small groups,
participants then apply the methods and principles learned in the class to the
televised site. Each group assesses the climate, lists conservation opportunities,
and performs back-of-the-envelope calculations to estimate savings. MWD has
thus far offered 12 of these classes, which are very popular with member
agencies. This training was also offered in Northern California through the
California Urban Water Agencies (CUWA), the Department of Water
Resources, and local water agencies.
Results of Training Programs
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It is difficult to determine the amount of water savings actually attributable to training
programs. None of the agencies surveyed have estimated the actual level of savings
achieved by these programs. The agencies in our survey that offer these programs plan
to continue to offer them, and many are actually expanding their training programs.
Survey respondents differed on how effective they thought the training programs are,
but many respondents noted that these programs are good for public relations. Also,
the classes that include auditing skills provide a cadre of trained auditors that may
improve the effectiveness of audit and direct installation programs (described
elsewhere in this handbook).
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Chapters
ACCESS TO CONSERVATION TECHNOLOGY
In Chapter 2, we discussed how incentives in the form of information—through audits
or training—can increase customer awareness of water conservation. However,
customers cannot install cost-effective conservation technologies if they lack access to
those technologies. Even if the measures are available in the market, it may take time
and effort to locate, purchase, and install those measures. Water agencies can address
this barrier by improving customers' access to conservation technologies. An agency
can either directly distribute and/or install conservation devices, or can take steps to
increase the availability of those technologies in the market, such as offering financial
incentives to distributors or retailers. This chapter discusses these two approaches to
improving customer access to conservation technologies.
DEVICE DISTRIBUTION/DIRECT INSTALLATION
Distributing conservation devices is one direct approach to increasing customers'
access to conservation technologies, Many of the earliest water conservation customer
incentive programs—some dating back to the early 1980s—involved free device
distribution. In a device distribution program, an agency procures conservation devices
and makes them available to customers, usually free of charge. While this incentive
provides a financial benefit to customers, many of the devices typically included in
these programs are relatively inexpensive. Thus, it is likely that the inconvenience of
procuring the device is a greater barrier to adoption by customers than is the "cost of
the device. Convenience to the customer is therefore a critical component of this
incentive.
Device distribution programs can vary along several dimensions, including:
• Which devices are included in the program;
• The distribution method; and
• Who installs the devices.
Discussions of each of these dimensions follow.
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Which Devices Are Included in the Program
While a few water agencies give away single devices, such as ultra-low-flow toilets
(ULFTs) or showerheads, many water agencies included in the survey procure and
distribute free conservation kits containing a variety of devices. Devices typically
included in the kits are toilet tank displacement bags, dye tablets for toilet tank leak
detection, faucet aerators, shower flow restrictors, and low-flow showerheads. Most
kits also include installation instructions, as well as informational and promotional
materials. Some agencies also include landscape water conservation devices, such as
sprinklerheads or moisture meters. However, these are rarely included unless
accompanied by a water audit because the devices themselves are unlikely to achieve
water savings in the absence of appropriate instruction.
Many agencies that distribute conservation kits report that they chose this incentive
approach because the kits were inexpensive and could be widely distributed. The costs
of the kits ranged from $0.50 to $25 each, depending on the items included. Most kits
cost under $10, before distribution, marketing, and other administrative costs.
Some survey respondents noted that customers had experienced problems with the
quality of the devices included in kits, particularly with faucet aerators, and
particularly in earlier programs. They felt that higher quality devices would improve
participation. Seattle Water Department conducted an extended customer preference
study5 to determine the showerhead to be offered in its conservation kits, and felt that
the resulting offer of a high-quality product was the single factor that most encouraged
customers to participate in the program.
Survey responses indicate that participation in many of the device distribution
programs is limited to residential customers. However, several agencies make kits or
showerheads available to commercial and institutional customers as well. For example,
San Diego County Water Authority provides showerheads, "flushometer" retrofits, and
sprinkler heads for public institutions—a program that the agency deems extremely
effective.
5For more information on gauging customer preferences, see Chapter 8 of this handbook.
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Distribution Method
Conservation devices can be mailed or delivered door-to-door, or customers can pick
up the devices at designated locations ("depots"). Some agencies also give away
devices at special events, such as county fairs. The method of distribution, marketing
strategy employed to promote installation of the kit items, and the level of follow-up
and installation assistance, all affect the installation rate. Mailing the kits or
distributing them door-to-door can achieve a higher penetration rate in terms of
number of households receiving the kit and overall number of installed devices.
However, depots and other approaches that require some customer motivation to
acquire the kit tend to have higher installation rates relative to the number of kits
distributed.
!
City of Phoenix, Arizona. Phoenix tried several different distribution
approaches for its conservation kits, including door-to-door distribution, depot
pick-up, and direct installation by staff. They found that depot distribution was
a highly cost-effective way to get kits into the hands of people who would
actually install the devices. However, they noted that some of the more
sophisticated measures, such as early closure flush valves and dual flush
mechanisms, probably would not be successfully installed by homeowners.
Therefore, even though such devices may have greater per-home savings
potential, they are not appropriate for distribution by canvass or depot methods.
Phoenix also found that the level of follow-up was a key factor in program
success, and that there was a direct relationship between program costs and
water savings.
City of Tampa, Florida. Tampa hangs kits on the doorknobs of residences.
Kits contain two toilet tank dams, two low-flow showerheads, three faucet
aerators, teflon tape, a pamphlet on finding and fixing leaks, device installation
instructions in both Spanish and English, a general water savings tips card, a
window display card, and toilet leak detection dye tablets. Follow-up
canvassing is done to encourage residents to install the devices, collect any
unused equipment, provide adapters if necessary, and verify installation. Tampa
considers this to be an extremely effective program. As with the Phoenix
program, follow-up is considered a key to this success.
Bridgeport Hydraulic Company, Connecticut. All 62 utilities in the state of
Connecticut distributed conservation kits to their customers, as required by state
law. Bridgeport Hydraulic Company distributes the kits by mail upon request,
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and through depot pick-up. It also provide kits free of charge to United
Illuminating Company to be installed directly as part of United Illuminating
energy audits and direct installation programs. Elderly, disabled, or other
special-needs customers can have the devices installed directly by Bridgeport
Hydraulic service personnel. These distribution methods were chosen to ensure
that the devices were actually installed rather than distributed to people who
would not use them.
City of Mountain View, California. Customers can pick up showerheads,
faucet aerators, and toilet dams at the Mountain View Public Service
Department during normal business hours. Mountain View has also distributed
these items at local street fairs and special events. Customers are required to
sign an agreement to install the showerhead and to allow an inspection to
verify installation.
City of Fresno, California. Fresno hired a contractor to deliver conservation
kits to all residential customers. Kits contain two low-flow showerheads, toilet
tank displacement devices for two toilets, two toilet leak detection tablets, and
, instructions. A telephone hotline was established to answer customers'
questions. The hotline offers assistance in six languages.
Some agencies in the survey include device distribution as an element of their audit
programs. For example, Pasadena, California, gives customers low-flow showerheads,
toilet dams, faucet aerators, hose bib timers, moisture meters, and soil enhancers as
part of its Home Water Survey. Mountain View, California, auditors install low-flow
showerheads, faucet aerators, and toilet dams during residential audits.
Who Installs the Devices
Distributing conservation devices only saves water if the devices are actually installed
and left in place. Most conservation device distribution programs rely on participants
to install the devices. However, some programs include direct installation as part of
the incentive. In that case, agency staff or agency sponsored contractors install the
measures for free or at a reduced charge.
City of Santa Monica, California. For a $35 fee, Santa Monica offers
customers direct installation of a ULFT and low-flow showerhead. Santa
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ACCESS TO CONSERVATION TECHNOLOGY
Monica supplies and installs the devices. This program is extremely attractive
to customers because of the minimal effort required on their part.
City of Fresno, California. Fresno offers direct installation of conservation
kit devices, by appointment, to residents who are unable to install the devices
themselves.
Some agencies limit installation services to elderly and handicapped customers or to
multifamily buildings, while others offer it to all participants. Several survey
respondents noted that as a component of their direct installation programs the installer
takes away and disposes of the original fixture to discourage people from reusing it.
Many agencies surveyed feel that direct installation is an important component of their
programs; however, one survey respondent found it better to have homeowners install
devices themselves to avoid scheduling difficulties and potential customer reluctance
to let an installer into their homes. Also, direct installation programs require a greater
staffing commitment than limiting the incentive to device distribution. Several
agencies surveyed have retained contractors to distribute or install the devices. Some
agencies operate hotlines to answer customers' installations questions.
Device,distribution or direct installation programs can be offered in collaboration with
local energy utilities, particularly for low-flow showerheads, which conserve both
water and energy. Examples of these partnerships are shown in the following table.
Water Agency
Seattle Water Department, WA
San Diego County Water Authority, CA
City of Mountain View, CA
City of Portland, OR
Bridgeport Hydraulic, CT
Energy Utility
Seattle City Light, Puget Power
San Diego Gas & Electric
Pacific Gas & Electric
Portland General Electric
United Illuminating
Installation and Retention Rates
Survey respondents differed on how effective they found the device distribution
programs. Most agencies in our survey have not conducted evaluations of the savings
A
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ACCESS TO CONSERVATION TECHNOLOGY
associated with their device distribution programs; therefore estimates of the
incentives' effectiveness were subjective. A few agencies have surveyed program
participants and have estimated the following installation and removal rates:
City of Phoenix, Arizona, used three different distribution methods:
(1) canvass—door-to-door distribution in limited areas, with little publicity, and
staff door-to-door follow-up; (2) depot-1—pickup at two customer service
locations; and (3) depot-2—pickup at the two customer service, locations and
supplemental temporary neighborhood depots, as well as direct mail
solicitation. Phoenix found the following installation and retention rates from
its three different distribution methods:
Measure
Toilet dam installation (% of households
receiving kits who initially install the
toilet dam)
% Retention of installed toilet dams after
one year
Showerhead installation (% of households
receiving kits who initially installed the
showerhead)
% Retention of installed showerheads after
one year
Installed at least one of the two devices
Installed both devices
Canvass*
64%
92%
59%
96%
75%
48%
Depot-1*
77%
90%
75%
95%
90%
62%
- Dep6t-2c
88%
88%
80%
92%
90%
70%
"Behavior Research Center, Inc., City of Phoenix Retrofit Survey, Prepared for the City of
Phoenix Water & Wastewater Department, November 1989.
""Behavior Research Center, Inc., City of Phoenix Retrofit Survey, Prepared for the City of
Phoenix Water & Wastewater Department, August 1991.
°Behavior Research Center, Inc., City of Phoenix Retrofit Survey, Phase II, Prepared for the
City of Phoenix Water & Wastewater Department, August 1992.
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/ACCESS TO CONSERVATION TECHNOLOGY
City of Tampa, Florida, estimates the following installation and retention
rates:6
Measure
Toilet dams
Showerheads
Faucet aerators
Installed at least one device
vv , Installation Rate, - -"<„
(% of households receiving kits)
81%
74%
80%
94%
% Retention of Installed
Devices After JLTYear
70%
85%
88%
City of Fresno, California, estimates that 90% of households receiving kits
installed at least one of the devices.
City of Bridgeport Hydraulic, Connecticut, estimates the following
installation rates:7
Measure
Showerheads
Toilet dams
Faucet^ aerators
Lead detection tablets
Installed at least one device
Installation/Use . „
(% of households that ordered kits)
43%
50%
47%
. 23%
61%
Much of the information reported by respondents was gathered through telephone
surveys and may be less reliable than actual on-site inspections. The Tampa study,
however, used on-site inspection as well as a mail survey, and statistical tests found no
6Jack C. Kiefer and William Y. Davis, Tampa Residential Retrofit Evaluation: Analysis of Pilot
Program (City of Tampa Water Department, August, 1991).
7Amy Vickers and Associates, Evaluation of the 1991 Residential Retrofit Program (Bridgeport
Hydraulic, February 1992).
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ACCESS TO CONSERVATION TECHNOLOGY
differences between field and mail survey samples with respect to toilet dam
installation and removal, and showerhead removal.
The Phoenix evaluation of its initial canvass distribution conservatively estimates daily
water use savings of 9 gallons per person.8 The Tampa study also found savings of
9 gallons per person daily.9 The Contra Costa Water District results cited earlier (40
gallons/household-day) were in part attributable to direct installation of showerheads
and toilet tank displacement devices.10
REBATES TO BUILDERS, DEVELOPERS, MANUFACTURERS, AND
DISTRIBUTORS
Offering an economic incentive to the manufacturers and distributors of water-efficient
appliances or equipment increases their stake in encouraging the purchase of that
equipment, and may thus increase the likelihood that they will stock and market it.
This method is included here because the incentive to the customer is not directly
financial, but lies in the increased availability of efficient technologies or appliances.
Rebates to builders, manufacturers, or distributors have not yet been used in the water
industry, but some programs from the energy industry can illustrate the nature of this
type of incentive.
Pacific Gas & Electric Company, California (PG&E). The PG&E
Refrigerator Salesperson Incentive Program was developed because
manufacturers informed PG&E that retailers discontinue stocking efficient
models during months when no customer rebates are offered. The program is
designed to retain demand for efficient refrigerator production by offering
salespeople and dealers incentives for selling efficient refrigerators.
Incentive levels are based on the efficiency level of the models, as compared
with mandated standards. The incentives for 1992 were as follows:
Planning and Management Consultants, Ltd., Phoenix Emergency Retrofit Program: Impacts on Water
Use and Consumer Behavior (June 1988).
9Kiefer and Davis.
IOJohn B. Whitcomb, Measuring the Water Reduction from Contra Costa Water District's 1989
Residential Water Audit Program (Brown and Caldwell, May 1991).
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ACCESS TO CONSERVATION TECHNOLOGY
Energy Efficiency ,.
(% above standards) ,y
15.0% to 19.9%
20.0% to 24.9%
25.0% to 29.9%
30.0% to 34.9%
35.0% to 39.9%
40.0% or more
"Salesperson Incentive
^ x " -^ *s
$10
$15
$20
$25
$35
$45
Dealer. Incentive
'*•
$3
$5
$10
$15
$25
$35
In 1991 the program exceeded its goal of 30,000 units by over 70%. For 1992
the program increased its goals to 40,000 units and was still able to exceed that
goal by 16%.
City of Seattle, Washington. Seattle Water Department is considering a
rebate to manufacturers of washing machines to increase the commercial
availability of residential horizontal-access washing machines. The Department
hopes that in a relatively short amount of time this program could transform
the marketplace and eliminate the need for agency rebates. The rebate program
would likely involve energy and wastewater utilities as well.
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Chapter 4
CASH TRANSFERS
In Chapters 2 and 3 we discussed the types of incentives that provide information
about water conservation technologies and that make those technologies more
accessible to customers. Customers may be unwilling, however, to pay the price of
investing in water conserving devices. To help overcome this barrier to conservation
investments, water agencies can lower the total cost of the customer's investment by
paying for all or a portion of the costs of the measure. These payments can take the
form of rebates, vouchers, grants, or bill modifications. This chapter discusses such
cash transfers, which are considered by most agencies to be an extremely effective tool
for obtaining program participation, particularly for residential customers.
DIRECT REBATES
Rebates are a common and popular form of financial incentive involving cash
payments from an agency to a customer to offset all or a portion of the out-of-pocket
cost of a conservation measure. Rebates are paid after a measure has been purchased
or installed. Proof of purchase or of installation may be required.
Rebate programs vary along many dimensions, including:
• The qualifying measures
• Eligible customer classes
• Rebate magnitude
• Rebate delivery arrangements
• Inspection requirements
Survey respondents used rebates to offset customers' expenditures on a number of
measures: ULFTs; landscape conversion; installation of more efficient irrigation
systems; heating, ventilation, and air conditioning (HVAC) system improvements; and
industrial process modifications. Descriptions of these programs and the corresponding
rebate levels follow.
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Ultra-Low-Flush Toilets (ULFTs)
ULFT rebates are the most common incentive offered by survey respondents. In the
simplest version of this incentive, customers purchase and install a ULFT and submit
the receipt to their water agency, v/ho then refunds all or a portion of the purchase (or
purchase and installation) costs. The program has many variations: In some cases
customers must call in advance to reserve the rebate to ensure that the agency has
sufficient funds available. In other cases rebates can be paid directly to plumbers, who
procure and install the ULFT for a reduced charge and recoup the majority of their
payment from the rebate. In the latter case, some agencies require customers to sign
their rebates over to the plumber, to ensure that customers are aware of the rebate
program. ,
The rebate may take the form of (1) a flat dollar amount; (2) a percentage (50% to
100%) of the price, usually up to a certain maximum dollar amount; or (3) a flat rate
depending on the price of the toilet (e.g., $50 for toilets that cost under $200, $100 for
toilets that cost over $200).
Rebates range from $10 to $240 per toilet for standard ULFTs. The majority of
programs offer $60 to $100 per toilet. This level appears to be sufficient to attract
participation in most residential toilet retrofit programs, although there may be
regional variation due to different costs of parts and labor. Several programs surveyed
began with higher rebate levels and then lowered the rebate to $60 to $75 per toilet.
Staff members from some agencies said that lowering the rebate did not result in a
noticeable decline in participation. Lowering the rebate has resulted in decreased
participation for some other agencies, but staff members also attribute the decline in
participation to market saturation or changing local water supply conditions.
One program began with rebates of $30 per toilet for single-family households and
$20 per toilet for multifamily households, but then raised rebate levels to $40 per
toilet for all residential customers to stimulate participation. Rebates below $40 per
toilet do not appear to provide sufficient incentive. Many survey respondents noted
that the necessary rebate level depends on local water supply conditions and the public
perception about the need for conservation. For example, drought surcharges or
rationing greatly increased program participation for many California agencies because
of heightened public concern and awareness. Now that these surcharges are no longer
in effect, staff members believe that higher rebates may be necessary to entice
participants. For more discussion about the appropriate rebate level, please see Chapter
6 of this handbook on cost-effectiveness.
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A few programs limit participation to residential customers, but the majority offer this
incentive to commercial, industrial, and institutional customers as well. Toilets for
some customers may be in high use locations, such as airports. These may require a
different class of equipment that is likely to be significantly more expensive. They
would also justify a higher rebate amount. The following agencies offer ULFT rebates
to nonresidential customers:
San Diego County Water Authority, California (SDCWA). The SDCWA
offers rebates of $75 per ULFT to commercial, industrial, and institutional
customers, m the Public Institution Retrofit program, the agency targets high-
use, high-visibility public buildings and reimburses the customer for the full
cost of the toilet plus installation materials. These costs have typically ranged
from $100 to $200 per toilet. However, the cost can be as high as $600 per
toilet for vandal proof stainless steel toilets in public buildings.
Los Angeles Department of Water and Power, California (LADWP).
Besides offering rebates to residential customers, LADWP offers a rebate of
$75 per ULFT to nonresidential customers, and there is no limit on the number
of rebates per account. However, less than 1% of total rebate applications have
come from nonresidential customers.
City of Palo Alto, California. Palo Alto found that in the small commercial
sector, 63% of applicants for the $75 ULFT rebate were community
organizations, such as churches, daycare centers, and community centers. A
limit on the number of rebates and a restriction to tank-type toilet retrofits were
found to be disincentives for participation by small commercial customers.
Some survey respondents offer lower rebates for additional retrofits after the first toilet
or limit the number of rebates per household. This approach is adopted in response to
studies illustrating that water savings are highest for the first ULFT installed,
decreasing for additional toilets per household.11 Water savings are also higher per
toilet in multifamily units, which tend to have fewer toilets per person and therefore
more intensive use per toilet.12 However, these customers are often harder to attract
"T. Chesnutt, A. Bamezai, and C. McSpadden, The Conserving Effect of Ultra Low Flush Toilet Rebate
Programs (A&N Technical Services, June 1992).
12-
Ibid.
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to these programs because of the high capital outlay to retrofit an entire multifamily
building.
Some survey respondents felt that it would be more effective to give away toilets
directly rather than go through the rebate process. However, they acknowledged that
this could limit the style options available to customers, which is of concern to many
participants, particularly in higher income areas.
Another approach to delivering ULFT rebates that is gaining in popularity is the use of
community-based organizations.
Los Angeles Department of Water and Power, California (LADWP). The
community-based organization (CBO) approach was pioneered by a partnership
between the LADWP and the Mothers of East Los Angeles (MELA), a group
that originally formed to protest the siting of an incinerator in their
neighborhood. In 1992 this group approached LADWP and offered to take over
the ULFT program in the East Los Angeles area.
The program benefits all parties involved: the resident gets a free toilet and
MELA gets $25 for each toilet they install. Members of the CBO are very
effective at marketing the toilets because they can approach the community
directly, relying on established personal relationships. The original toilet rebate
program in East Los Angeles was generating only approximately 50 toilet
rebates a year; MELA installs up to 500 toilets a week.
The LADWP/MELA partnership has served as a model that is being copied
throughout California. Its success is largely attributed to the fact that the
partnership ties water conservation into other issues that are important to the
community. For example, with profits from the program, MELA has
established a scholarship fund and a Spanish-language hotline for battered
women. A detailed case study of the LADWP/MELA program is included in
Chapter 7 of this handbook.
As the following examples illustrate, water wholesalers can assist their member
agencies in offering ULFT rebates as well.
Metropolitan Water District of Southern California, California (MWD).
MWD has created a turnkey program for ULFT rebates that member agencies
can take advantage of. This turnkey approach allows agencies to take advantage
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of economies of scale without making a major resource commitment. The
program is operated through a contractor who is responsible for procuring the
toilets, marketing, maintaining the database, making inspections and
administering rebates. MWD pays 50% of the program costs (now $60 per
toilet) and the member agency pays 50%. MWD has also modified the program
so that member agencies with no money to contribute can also offer the rebates
to their customers. In this case the member agency's share is paid by the
customer.
City of San Jose, California. San Jose was able to meet its ULFT program
goals for a fraction of the anticipated cost by joining efforts with the Santa
Clara Valley Water District (a water wholesaler) and several other water
retailers. This cooperative approach reduced the city's nonpersonnel costs from
the original projections of $12.7 million to $7 million. Additionally, by
targeting older multifamily dwellings, which tend to have older fixtures, the
program was able to exceed the original projected water savings.
Staff from other agencies also cited successful partnerships with local businesses that
donated in-kind services, such as pick-up of old toilets for recycling.
Multifamily accounts are more difficult to attract to these rebate programs than are
single-family accounts, in part because of the high initial cost of retrofitting multiple
unit dwellings. One approach used in the energy industry to reach multifamily
residences is a rebate program for bulk purchases of equipment.
Pacific Gas & Electric Company, California (PG&E). PG&E's Contract
Refrigerator Rebate Program offers property managers and builders an
incentive when they purchase highly energy-efficient refrigerators in quantities
of five or more. Incentive levels for 1992 were $50, $75, and $100 for units
that were 20%, 25%, and 30% more efficient than 1990 Federal Energy
Standards. PG&E's annual report on demand side management programs notes
that, "Most property managers and builders do not choose efficient models
without a program that offers an incentive. The contract refrigerator program
promotes and encourages the value of efficient refrigerators to a market that is
difficult to penetrate."13
13PG&E, Annual Summary Report on Demand Side Management Programs (San Francisco, Calif.,
1993).
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This approach could be used for toilets or other water-efficient appliances, such as
washing machines.
Efficient Landscape Rebates
Landscape rebate programs pay customers to install low-water-use landscaping or to
convert all or part of their lawn to nonturf landscaping. Participation in this type of
program is predominantly by residential customers.
The amount of rebate paid in a landscape conversion program is usually based on the
amount of land converted to water-efficient landscape. Alternatively, the rebate may be
based on the percentage of a customer's landscapable area that is converted to nonturf.
A third rebate structure cited in the survey was rebate of a portion of the connection
fees for participants who installed Ibw-water-use landscapes.
Many landscape professionals are concerned that some landscape conversion programs
do not distinguish between appropriate and inappropriate uses of turf. They feel that
landscape conversion programs should promote appropriate uses of turf and other
landscaping.
Water agencies that offer rebates for turf conversion or efficient landscape design
include the following:
North Marin Water District, California. North Marin pays $35 per 100
square feet of turf removed, to a maximum rebate that depends on the type of
dwelling unit. The maximum rebates are $200 for single-family homes; $150
per dwelling unit for townhouses, condominiums, triplexes, and fourplexes;
$150 per dwelling unit for apartment buildings; and $80 per dwelling unit for
senior citizens complexes.
The North Marin Water District reported that during the peak water use month
the savings were 24 gallons per day per 100 square feet of turf removed; over
the year, savings averaged 9 gallons per day per 100 square feet of turf
removed. This estimate may not adequately consider the effect of careful
irrigation management on turf water use.
This program encountered opposition from sod and seed producers because of
its imnar.t nn their industries.
its impact on their industries.
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City of Glendale, Arizona. Glendale pays $100 to customers who install or
convert over 50% of total landscapable area to nonturf. Preconstruction
appointments are scheduled with homeowners to review landscape plans. The
program staff member makes suggestions to the homeowner regarding
irrigation systems, frequency of watering, placement of plants, and other design
issues. Glendale conducts follow-up inspections to ensure that rebate
requirements have been met. The program has been very popular, particularly
among new residents who are unfamiliar with the plants suitable for
landscaping in an arid climate.
City of Mesa, Arizona. Mesa has a Water Development Fee Rebate Program
that reimburses a portion of the -connection fee for customers who install a low-
water-use landscape. All customer classes are eligible. For landscape areas less
than 2,500 square feet, the rebate is 10% of the water development fee; for
landscaped areas larger than 2,500 square feet, the rebate is 25% of the water
development fee. Because the fee has changed over time, the exact amount of
the rebate has also changed. Currently the 25% level provides a rebate of
$247.50, while the 10% level provides a rebate of $99. Field audits are
conducted to verify compliance with program requirements.
City of Austin, Texas. Austin recently began a Xeriscape It! program,
offering rebates in the form of water bill credits to single-family customers
who replace St. Augustine grass with Buffalo grass or other xeriscaping. There
are additional requirements (e.g., grass to be replaced must receive at least six
hours of direct sunlight). The rebate level is $0.08/sq. ft. installed (for new
landscapes) or replaced (for existing landscapes), with a maximum rebate of
$240. Initially, rebates were lower (50/sq.ft replaced for existing landscapes;
$0.03/sq. ft. installed for new landscapes), but were raised to increase
participation.
Efficient Irrigation Equipment
Water agencies can provide rebates to customers who improve the efficiency of their
irrigation system. Of the agencies included in our survey, only a few offered irrigation
equipment rebates; therefore it is difficult to generalize about rebate levels. The
following examples from the survey may provide an order of magnitude estimate for
this type of incentive.
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City of Glendale, Arizona. Glendale pays a $35 rebate to residential
customers who install automatic timers on an underground irrigation system.
East Bay Municipal Utility District, California (EBMUD). EBMUD
currently offers rebates to irrigation-only customers varying between 10% and
75% of the cost of measures and installation. To qualify for the rebate, the
participant must agree to conduct a landscape audit, install the recommended
measures, and allow a follow-up inspection to confirm proper installation.
When the program began, rebates were set at 30% of the measure cost, which
resulted in an average rebate of $450. Rebate levels were modified in 1993,
however, to tie rebate levels to how much water the measure saves.
industrial HVAC and Process Modifications
Many approaches are available for providing rebates to industrial customers. Rather
than offering flat per-item rebates, most programs included in our survey offer
customized rebates for industrial customers, based on the anticipated water savings of
the measures. Some agencies, such as the City of San Jose, link industrial water
conservation rebates to reductions in wastewater flows. As with irrigation system
rebates, these programs were not common among survey respondents and it is not
possible to generalize about the appropriate level of rebates for HVAC and process
equipment.
Examples cited by survey respondents of industrial water conservation measures that
qualify for rebates include switching from water-cooled to air-cooled HVAC systems,
converting to recirculated water, installing water-efficient process equipment, and
installing controls or timers. The program may be limited to a pre-approved list of
qualifying technologies, or an agency may choose to work with commercial/industrial
customers on a one-to-one basis to determine appropriate measures.
City of Palo Alto, California. The Palo Alto Utilities Department uses the
. customized approach for its Water Efficiency Program and rebates 50% of
project costs up to $10,000 cumulative per account, with a minimum qualifying
rebate of $375. Indoor plumbing measures were the most common projects in
the program, with 13 out of 19 projects related to this area.
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Palo Alto conducted a survey to find out why participation levels were low.
The city found that:
Companies are currently cautious about nonurgent expenditures.
Many customer-initiated water conservation projects had already been
completed.
The customer's payback on water conservation does not justify the
expenditure. (Project costs are disproportionately high in relation to the
value of conserved water, even when considered with wastewater or other
savings.)
The time frame of rebate availability was short compared with customers'
budget cycle.
Facilities managers are too busy to identify projects or evaluate their
feasibility.
• A lack of data on indoor water end uses has hampered the identification of
potential projects.
Los Angeles Department of Water and Power (LADWP) has a Technical
Assistance Program (TAP) for commercial, industrial, and institutional
customers that will pay $1.25 for each 1,000 gallons of water saved over a
two-year period. The minimum per-project savings that qualify is 400,000
gallons over two years, and the maximum rebate is $25,000 per project per
fiscal year, up to 100% of project costs. Projects are subject to pre-approval
and to post-installation inspection.
Participation in the TAP program has been minimal, most likely because water
bills represent a very minor portion of operating costs. One potentially effective
approach to increasing participation in this program is to involve contractors.
For example, one contractor who installs recirculating clothes washers in
convalescent homes generated eight TAP applications.
City of San Jose, California. Since 1991, San Jose has offered monetary
incentives to commercial, industrial, and institutional customers who reduce
wastewater flows by a minimum of 200 ccf/year. Initial incentive levels were
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set at $l/ccf/year, with a minimum rebate of $200 and a maximum of $5,000.
The incentive level was later raised, to encourage participation. Currently,
incentive levels are $2/ccf/year, with a minimum incentive of $400 and a
maximum incentive of $20,000. There have been 16 participants to date.
Rebate Program Administration
Most agencies surveyed indicated that they believed their rebate programs were
effective at encouraging program participation among residential customers. Several
program administrators felt that the getting the rebate to the customer quickly, either at
time of inspection or at point of purchase, made the rebate even more successful at
encouraging customer participation. Conversely, delay in processing rebate applications
was considered to be a real problem by many agencies, as was not having sufficient
funds allocated.
Survey respondents indicated that the greatest barrier to rebate programs was
customers' mistrust of the chosen technologies and mistrust of the estimated savings,
whether for low-water-use landscape, low-flow showerheads, or ULFTs. An associated
barrier is industry and contractor resistance to these technologies-—particularly to
ULFTs. Survey respondents reported that some plumbers actively dissuade customers
from installing ULFTs, telling customers that these models lead to increased plumbing
problems. (These warnings may be based on difficulties that were experienced with
early model ULFTs.) Therefore, a rebate program might be effectively combined with
an education program to alleviate customer concerns about these technologies and to
educate retailers and service staff, including plumbers, HVAC technicians, and
landscapers.
Survey respondents also indicated that installation costs and lack of knowledge about
how to install the devices may also pose barriers to customer participation. Rebates
can be combined with direct installation or training .programs to address this barrier.
Survey respondents made the following additional observations and suggestions
regarding program design:
• Recycle the old toilets, if possible. This provides additional environmental
benefits, and is convenient for customers who then do not need to worry
about disposal of the old unit. However, pick-up and disposal may be
expensive for water agencies that do not have a market available for the
old toilets and fittings.
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m
Provide a pre-approved list of technologies (including models) that qualify
for rebate.
Notify distributors and manufacturers about the program so that they can
have the approved models in stock.
Consider providing easier access to the rebate through discount coupons or
vouchers distributed by water agencies.
Market ULFT rebates to low-income customers to increase water savings
per rebate. (Low-income households tend to have the highest person-per-
toilet ratio and would not likely otherwise purchase the devices.)
Develop one-to-one relationships between an agency representative and a
customer contact, particularly when designing rebate programs for large
commercial/industrial customers.
Estimate the likely magnitude of response and have sufficient funds
allocated to pay out rebates. Waiting lists may cause frustration among
participants and may damage program image.
Maintain program flexibility. Program staff from several agencies noted
that to be successful, incentives should be adaptable to changing
circumstances.
GRANTS
The differences between grants and rebates are subtle, and in many cases the terms are
used indistinguishably. For the purpose of this handbook, the primary difference is that
rebates are usually tied to a specific measure, while grants are made for larger scale,
systemic changes and may be calculated on the basis of project costs or on the amount
of anticipated water savings. Additionally, grants may be made before the project is
completed, to help the customer pay up-front costs.
The Metropolitan Water District of Southern California established a
Conservation Credits Program in September 1988. The first participating
member agency received a grant early in 1989. The program pays member
agencies the lesser of $154/acre-foot (AF) saved over ten years or 50% of
project costs. The program is the cornerstone of MWD's conservation efforts
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and has played an important role in funding conservation programs in Southern
California. Since the program's inception, 19 agencies and 78 programs have
received funding. The majority of these programs are. ULFT rebate programs or
showerhead/conservation kit distribution programs. Many of the Southern
California incentive programs discussed in this handbook have received
Conservation Credit funding.
To qualify, a project must have measurable, verifiable savings. Member
agencies submit an application specifying anticipated program costs and
savings. Once a project is approved, a letter of agreement is signed between
MWD and the participating agency.
Pilot programs are funded in a slightly different manner. MWD pays 75% of its
share up front and the remaining 25% upon performance verification.
(However, even if projected savings do not occur, the member agency is not
expected to reimburse MWD.)
MWD is currently trying to expand the Conservation Credits Program to help
member agencies meet the Best Management Practices (BMPs) that most
California water agencies have agreed to implement. To this end, pilot
programs and evaluations are under way on numerous types of programs, such
as landscape audits, for which savings are uncertain.
BILL MODIFICATIONS
A bill modification is another delivery mechanism for a cash transfer. It differs from a
rebate in that the agency is not required to allocate funds to pay customers. Instead,
the modification reduces the amount the customer must pay to the agency. The
modifications may be a one-time reduction or an ongoing bill discount. Unlike
conservation rate structures, which create incentives for all types of conservation, bill
modifications are tied to a specific conservation measure.
City of Santa Monica, California. In December 1989, Santa Monica
implemented the Bay Saver Incentive Fee in conjunction with the Bay Saver
Fixture Rebate program to encourage residents to install ULFTs and low-flow
showerheads. The program's goals are to conserve water and to reduce
wastewater flows to the regional wastewater treatment facility and ultimately
outflow to Santa Monica Bay. In addition to receiving a $75 rebate, customers
who retrofit their toilets and showerheads avoid a monthly Bay Saver fee of
4-12 .
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CASH TRANSFERS
$2.00/month for single-family households and $1.30/month for multifamily
households. (Initially, the fees were set at $1.00/month for single-family
households and $0.65/unit for multifamily households, but they were doubled
to increase participation.) There have been over 32,500 participants to date.
The Bay Saver fee paid by nonparticipants is used to fund the ULFT program.
It also raises public awareness because it appears on the bimonthly water bill.
Until recently the cumulative charge amount of these fees to date also appeared
on the customer's water bill, which was an effective reminder of how much
they were losing by not replacing their toilet. However, this aspect of the
program will be discontinued because it confused customers, who thought that
the cumulative total represented a new charge, rather than what they had
already paid.
North Marin Water District, California. North Marin discounts the
connection fee for developers who install landscapes meeting the District's
water conservation criteria. The criteria relate to square feet of turf and to
irrigation system design. Developers submit a plan showing turf layout. The
District must approve the plan and conduct post-installation inspection prior to
issuing the discount. The landscape criteria, connection fees, and discounts are
as follows:
Type of Dwelling Unit
Single family
Town house/condominium
Apartment building (5+ units)
Senior citizens unit
Maximum Turf
Area (sq. ft.)
800
400
130
95
Connection ,
Fee
$2,940
$2,350/unit
$l,380/unit
$980/unit
Discount
$200
$150/unit
$100/unit
$80/unit
In 1992, few single-family detached homes participated, whereas all new
apartment projects did. The agency attributes this to the scale of savings:
projects involving multifamily dwellings can save large amounts. Cumulative
participation since program inception in 1986 has been 25 single-family
dwellings, 412 townhouse/condominium units, and 387 apartment building
units.
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CASH TRANSFERS
VOUCHERS
A voucher pays for all or part of a conservation measure at the time of purchase.
Unlike a rebate program, in which customers may have to wait weeks or months for
repayment, vouchers do not require customers to have up-front cash to purchase the
conservation measure. For this reason, vouchers are particularly attractive to owners or
managers of multifamily dwellings, because the up-front cost of retrofitting multiple
units can be prohibitively expensive. From an agency's perspective, a voucher system
can be easier to administer than a rebate system because processing is done for a small
number of retailers rather than for each individual customer.
San Diego County Water Authority, California (SDCWA). The SDCWA is
implementing a ULFT voucher program that will be administered by a
contractor. Customers who want to participate will call to receive a voucher.
The consultant will confirm on a database that the caller is actually a customer
in the qualifying service territory. The contractor will then send the customer a
voucher worth up to $75, along with a list of approved toilets and participating
dealers. The voucher has a 30-day expiration date. At the time of purchase the
customer will owe only approximately $30 for the toilet, depending on the
model selected. The contractor is also responsible for picking-up the old toilet
for recycling. At the time of recycling pickup, the customer will also get a free
low-flow showerhead.
SDCWA staff members feel that the voucher program offers them a much
better program tracking system. Retail stores send a bill and supporting
documentation to the contractor, who can check the serial numbers on the
vouchers to verify that the information matches customer record. The agency
does not have to worry about running out of funds for a voucher program,
because it issues only the number of vouchers covered in the program budget.
Furthermore, the contractor can call customers if the voucher is not used or if
the customer does not call to schedule recycling pickup of the old toilet.
Finally, because customers are prescreened to ensure that they live in the
service area, SDCWA will not need to conduct as many postinstallation
inspections as it did prior to issuing rebates. SDCWA estimates that costs under
the voucher program will decrease from $115 per toilet to less than $100 per
toilet, largely as a result of the decreased number of inspections.
The voucher idea came out of a meeting SDCWA held with its member
agencies on how to cut red tape in ULFT programs. Waiting for rebates had
been a big problem, which vouchers will address. Also, staff members felt that
4-14
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CASH TRANSFERS
while rebates are a good way to start a program, they are unlikely to achieve
the highest market penetration possible because too much effort is required on
the part of program participants. The agency also suspects that a lower subsidy
can be offered in a voucher program than is required for a rebate program,
because customers do not need to make an initial capital layout.
One potential problem with a voucher system is the possibility of fraud. Water agency
staff members raised this concern, citing the San Diego Gas & Electric rebate program
for refrigerators. SDG&E discovered that customers who were buying the appliances
did not really live in the SDG&E service territory. Also, the agency discovered that
retail stores were submitting falsified paperwork, redeeming vouchers for customers
who had not bought qualifying models. The program was later modified to provide for
better verification and accountability. SDCWA believes that its voucher program will
avoid the SDG&E pitfalls by carefully prescreening who receives a voucher.
Marin Municipal Water District, California (MMWD). MMWD provides
vouchers to participants in the agency's loan program for ULFTs. The voucher
is good for a loan of up to $150, which customers agree to pay back through
bimonthly payments of $12.50 on their water bill. The agency has a customer
approval process to ensure that the participant has an active account and good
credit with MMWD. Currently, customers can use the vouchers like cash if
they utilize a contractor to install the toilet. The contractor then redeems the
voucher from the agency. If customers purchase and install the toilet
themselves, they use the voucher like a rebate: customers pay for the toilet up
front and then send the voucher to MMWD for a refund. MMWD is
considering modifying the program to allow the vouchers to be redeemed
directly at retail stores by customers who choose to do their own installations.
Approximately one-third of program participants do the installation themselves,
which is a higher rate of self-installation than the agency had anticipated.
Vouchers are also used by energy utilities, often for lower priced items for which a
rebate program is not justified. For example, PG&E offers "instant rebates" for water
heater blankets ($5 voucher), furnace or air conditioner filters ($1 voucher), or low-
flow showerheads ($4 voucher or 50% of purchase price, whichever is less). PG&E
markets this program through bill stuffers, and the coupons themselves are available at
local retailers. Some utilities include the voucher itself as a bill stuffer.
4-15
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CASH TRANSFERS
4-16
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Chapter 5
FINANCING AND OTHER TYPES OF INCENTIVES
Chapter 4 discussed incentives involving cash transfers. In this chapter we turn to
financing incentives that do not involve direct transfer of cash. Financing incentives
spread the cost of conservation equipment over time, thereby enabling customers to
avoid large cash outlays. Therefore, these incentives are of most interest in cases
where installation of conservation technology has a high up-front cost. To date, very
few water agencies have offered financing arrangements to their customers. However,
financing incentives are currently being explored or are in pilot stages in several
locations. This chapter describes these early efforts as well as some examples from the
energy industry, where financing incentives have been used extensively. In particular,
two types of financing incentives will be discussed:
• Low-interest loans
• Shared-savings programs
LOW-INTEREST LOANS
Low-interest loans are an appropriate incentive when up-front capital costs are a
barrier to participation. Only one water agency in our survey offered a loan program.
Marin Municipal Water District, California (MMWD). MMWD offers
residential customers no-interest loans of $150 for purchase and installation of
ULFTs, repayable through $12.50 payments on bimonthly water bills. The
program uses a voucher system, as described in Chapter 4. There is no limit on
the number of toilet retrofits, and the program is open to all customer classes.
Increasing numbers of applications are coming from commercial and
multifamily accounts, with some accounts installing several hundred ULFTs.
MMWD chose to offer loans because they are a low-cost option for the agency,
which still provide some assistance to people interested in taking action to
reduce water use during the recent drought. Participation was diminished by the
fact that the program was not implemented until the drought ended, and the
sense of immediacy has faded. However, there have still been 2,500 vouchers
mailed to customers, approximately half of which have been used.
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FINANCING AND OTHER TYPES OF INCENTIVES
Loan programs are more common in the energy industry. For example:
Detroit Edison, Michigan, provides residential customers low-interest loans to
upgrade insulation or to replace old water heaters with high-efficiency models.
Lakeland Department Electric & Water Utilities, Florida, offers residential
customers low-interest loans for improving energy efficiency of their homes.
Northern States Power Company, Minnesota, North Dakota, South Dakota,
and Wisconsin, offers commercial and industrial customers low-interest loans
for general energy-efficiency and lighting applications. The loan term is
variable, up to five years.
The Peoples Gas Light and Coke Company, Illinois, offers multifamily
property owners low-interest loans and technical assistance for the installation
of energy-efficiency measures. Although the program is open to all multifamily
dwellings, the utility targets buildings that house low- to moderate-income
tenants.
Idaho Power Company, Idaho, offers low-interest loans for energy efficiency
retrofits to commercial and residential customers. Loans are generally used for
lighting measures among commercial customers and for water heaters among
residential customers.
SHARED SAVINGS
Shared savings programs allow customers to pay for conservation measures through
savings achieved by those measures, or allow the water agency to recapture all or a
portion of the measure costs through those savings. Typically this requires knowing
what the water bill would be in the absence of the efficiency improvements. The
customer's new bill is then comprised of the new, lower charge for water use
(reflecting conservation) plus a charge to repay the agency for the conservation
devices. The combination of those two charges should still be less than the customer's
average bill prior to program participation. The latter charge is discontinued after a
specified period of time, when the agency has been fully reimbursed for the
improvements. These programs are increasing in popularity in the energy industry, but
5-2
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FINANCING AND OTHER TYPES OF INCENTIVES
are still relatively new in the water industry. Agencies that offer shared savings
include:
City of Santa Monica, California. Santa Monica is negotiating a shared
saving pilot program. For the pilot, the agency has proposed retrofitting the
Santa Monica Business Park, a 49-acre multipurpose commercial development
with over 13 buildings, 1 million square feet of office space, and 6.61 acres of
irrigated turf and shrub areas. The retrofit would include replacing all toilets,
installing faucet aerators, and making irrigation system improvements. Total
cost of the project would be $82,350. MWD, Santa Monica, and the business
park would each pay for a portion of the retrofit. The business park would be
responsible for repaying $43,325.
If the project proceeds, the business park will use a portion of the savings to
repay MWD and Santa Monica over five years. Savings will be calculated
using historical water use records. Anticipated savings could be as high as
60%, but an estimate of 35% was used for the purpose of calculating the
repayment period.
Based on savings of 35%, the retrofit has the following projected annual
savings:
Interior use
Exterior use
Reduced wastewater charge
Total
$6,248
$2,577
$4,09.0
$12,915
If the savings are higher than 35%, the payback would occur even faster. If the
business park does not achieve the predicted savings, the owners would still
have to repay Santa Monica and MWD for their investment. After the payback
period is complete, the business park should continue to save approximately
$12,915 annually in water and wastewater charges. Also, the City of Santa
Monica has selected 1990 water use levels as the base year from which future
rationing targets will be set. Therefore, the business park will not be penalized
for conservation in future rationing programs.
5-3
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FINANCING AND OTHER TYPES OF INCENTIVES
The Marin Municipal Water District, California (MMWD). The MMWD
loan program described earlier (in which customers repay a no-interest loan to
the water agency through bimonthly payments of $12.50 on their water bill) is
also, in effect, a shared savings program. It assumes that a large portion of the
customer's bimonthly payment is actually made up by savings on the water
bill.
Shared savings programs in the energy industry are largely run by energy service
companies (ESCOs) who agree to take their payment for the installation of energy
efficiency measures out of the savings achieved by those measures.
LEASING
Utilities may lease equipment to their customers. This arrangement enables customers
to avoid up-front capital costs for equipment. It can also increase access to
conservation technology by making available equipment that customers do not need to
purchase but could use for a limited time, such as leak detection equipment. Leasing
programs can be combined with shared saving programs by allowing customers to
make their lease payments through savings on their water bills.
Leasing has been used by many energy utilities, both for expensive industrial
equipment and for smaller applications, such as compact fluorescents light bulbs. For
example:
Burlington Electric Department, Vermont, leases compact fluorescent
lightbulbs to their customers at a nominal fee per bulb per month. Lease
payments are added to the monthly bill. The lease duration is five years, after
which point the lease stops.
Philadelphia Electric Company, Pennsylvania, also leases compact
fluorescents to residential customers.
Traverse City Light & Power Department, Michigan, leases audit-identified
energy-efficient equipment to commercial and industrial customers. Equipment
ownership transfers to the -customer at the end of the lease period.
While leasing is not yet used as an incentive in the water industry in the United
States, a pilot program leasing water-efficient washing machines is under way in
5-4
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FINANCING AND OTHER TYPES OF INCENTIVES
^^^^"^""^^"^^^'^^''^^"'^^"''•••••••••^•••^•••••BBi
commercial laundromats in Mexico. The specific technology being leased is a washing
machine that cycles water from the last rinse cycle (by which time it is basically clean
water) back into the first wash cycle. This technology has energy savings too, because
the machines save hot water. A meter on the washing machine charges the laundromat
for water each time it cycles through, in effect charging repeatedly for the same water,
but at a lower rate. The laundromat has lower water bills because it pays less for the '
reused water.
Payments for the reused water go toward paying for the equipment. At the end of the
lease, the laundromat can buy the machine or continue to lease it (perhaps at a lower
rate). Once the equipment is installed the process is nonintrusive; the customer retains
complete autonomy over the business.
OTHER TYPES OF PROGRAMS
Water agencies may wish to consider targeting incentive programs where they can
achieve the most cost-effective savings. In particular, conservation measures installed
by low-income customers or in new construction may yield greater or more cost-
effective savings than would participation from other customers, for reasons
enumerated below.
Low-Income Programs
Residential conservation measures can often achieve the highest per-measure savings
in low-income housing because there tend to be a greater number of people per
household, so each appliance or fixture is used more intensively. However, it takes
targeted incentive design and marketing to reach this population. Low-income
customers are unlikely to participate in rebate programs because they do not have the
up-front capital. Voucher programs or direct installation are likely to be more
attractive to these customers. Several water conservation customer incentives have
been targeted at low-income customers.
Los Angeles Department of Water and Power, California (LADWP).
LADWP targeted a conservation kit distribution to 60,000 low-income
customers. Each customer was contacted three times by mail. The first letter
announced that the kit would be coming. The second mailing included the kit.
The third mailing asked if the customer had received the kit, gave them a
number to call if they did not receive a kit, and offered installation assistance.
5-5
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FINANCING AND OTHER TYPES OF INCENTIVES
A follow-up mail survey indicated that 75% of the customers who received the
kit installed the measures.
City of Pasadena, California. Pasadena also has targeted low-income
customers in their ULFT program. Initially Pasadena offered a rebate plus free
installation, but had limited success because people could not afford to
purchase the toilets. Now Pasadena provides the toilets and offers installation.
This approach is working much better. Pasadena targeted the low-income
population by a mailing to all Section 8 (subsidized low-income housing)
property owners. To retain customer privacy and protect anonymity, the offer
was included as a bill stuffer sent by the Pasadena Finance Department along
with rent supplement checks. This program has been very successful; the first
week alone the City got 200 to 300 responses.
Pasadena also offers free leak repair to low-income customers. Flyers
advertising this service were sent out through Maintenance Assistance/
Homeowners (MASH) (a nonprofit organization that does external house repair
for low-income homes) and other CBOs. Those organizations provided address
labels without names (addressed to "Resident"). Working with CBOs that
already offer services to low-income customers is likely to be an effective way
of reaching this population.
NEW CONSTRUCTION
Targeting new construction for water conservation customer incentives can be a cost-
effective way of achieving water conservation because it frequently is less expensive
to install water-efficient measures during construction then to retrofit existing
structures. A variety of incentives, especially cash transfers and financing incentives,
are appropriate for new construction. The major difference in a new construction
program is that incentives are often targeted at developers rather than customers.
Several of the landscape programs discussed earlier—such as the City of Austin,
Texas, Xeriscape It! program and the North Marin Xeriscape Credit Program, are open
to new construction. Also, the Phoenix landscape training program plans to target
homeowners associations in new developments. However, no water agencies currently
offer programs that comprehensively address water use in new construction. Through
plan review, low-interest loans, and rebates, a water agency may be able to encourage
purchase of water-efficient equipment and appliances by all customer classes. Dozens
5-6
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FINANCING AND OTHER TYPES OF INCENTIVES
of these programs have been used by the energy industry, most of which offer design
assistance or financial incentives.
Pacific Gas & Electric, California, Residential New Construction Program
offers rebates to builders who surpass the State Building Energy Standards by
10%.
Orange & Rockland Utilities, New York, offers rebates to builders and
homeowners to construct homes to energy-efficiency standards higher than
those required by the state.
Potomac Electric Power Company, Washington D.C., offers technical
assistance and financial incentives to building designers and developers for
designing and constructing energy-efficient commercial buildings and installing
energy-efficient equipment.
New England Electric System, Massachusetts, Design 2000—Commercial/
Industrial New Construction Program offers incentives to architects, developers,
and general contractors for developing energy-efficient buildings. NEES
provides free technical assistance (including a free computer energy analysis of
the building), as well as rebates and grants.
Central Maine Power's Efficient New Construction, New Construction
Lighting Rebate, and Calculated New Construction Rebate Programs all provide
design assistance and rebates.
5-7
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Chapters
A COST-EFFECTIVENESS FRAMEWORK
FOR CALCULATING CUSTOMER INCENTIVES
INTRODUCTION
The handbook thus far had focused on the types of customer incentives that are
appropriate for particular conservation programs. This chapter shifts the focus from the
type to the appropriate level of incentive.
Incentives are designed to overcome specific barriers to customer participation in
conservation programs. A "big enough" incentive is one that exceeds the magnitude of
those barriers. The usefulness of cost-effectiveness analysis is directly related to the
difficulty of quantifying the magnitude of the barriers to participation. Since many of
those barriers are noneconomic, the value of cost-effectiveness analysis is somewhat
limited.
The cost-effectiveness framework presented in this chapter will likely be most useful
in calculating appropriate cash transfers (rebates, grants, vouchers), financing (low-
interest loans, shared savings programs), and bill modifications (one-time or ongoing).
In all of these cases, the barriers that are to be overcome are primarily economic in
nature.
The appropriate type of customer incentive and its amount are closely interrelated.
Customers may respond much better to an incentive of less economic value than other
incentives offered, because of noneconomic factors that influence their decisions. For
example, a customer who faces cash constraints may prefer a $50 voucher to a $75
rebate because the voucher reduces the up-front capital needed to make the
purchase.14 Moreover, effective marketing of a particular incentive type may well
reduce the amount of the economic incentive that must be offered. Therefore, as is the
case with all analytic tools, the results of applying the cost-effectiveness framework
will have to be combined with other information and a healthy measure of judgment
by utility managers and planners.
I4Determining those noneconomic factors is one of the major goals of the market research discussed in
Chapter 8.
6-1
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COST-EFFECTIVENESS FRAMEWORK
PERSPECTIVES OF WATER CONSERVATION COST EFFECTIVENESS
Cost-effectiveness analysis is a way to systematically compare the benefits and costs
of an investment. In performing cost-effectiveness analysis of conservation programs,
it is critical to carefully specify the perspective from which the benefits and costs will
be assessed. Each perspective provides important information that is helpful in
interpreting the analysis.
Over the past decade, California energy utilities and regulators have painstakingly
developed a framework for analyzing the cost-effectiveness of demand-side
management (DSM) programs.15 The following discussion is consistent with that
framework, with adjustments to reflect the differences between water service and
electric or gas service.
The perspectives from which cost-effectiveness will be evaluated can be defined in a
variety of ways, depending on many factors. For example, situations in which there are
several levels of water providers (wholesalers and retailers) may require a somewhat
more complex analysis. It is particularly important to clearly understand the following
four cost-effectiveness perspectives:
• Program participants
• The water utility
• The water supply system
• Society
Figures 6-1 through 6-3 summarize the flow of economic benefits and costs that
defines these perspectives. The figures build upon one another. Thus, Figure 6-1
describes the benefits and costs that define the participant and utility perspectives.
Figure 6-2 expands the view to include the water supply system. Figure 6-3 takes an
even broader view to incorporate the societal perspectives.
Following are discussions of each of these cost-effectiveness perspectives:
15See California Public Utilities Commission and California Energy Commission, Standard Practice
Manual: Economic Analysis of Demand-Side Management Programs (December 1987).
6-2
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COST-EFFECTIVENESS FRAMEWORK
Program Participants
Participants in a conservation program are affected by the program in several ways.
Some of these effects are not easily quantified, such as potential inconvenience or
perceptions of reduced service levels (e.g., poorer quality showers from low-flow
showerheads) or feelings of well-being due to customers' belief that conservation is
inherently the "right thing to do." Figure 6-1 shows the quantifiable economic benefits
to participating customers which include the savings on their water bills due to
reduced consumption and the value of whatever incentive is received from the water
purveyor. In addition, participants may see reduced electric, gas, and/or wastewater
bills. The major economic cost to participants is the cost to purchase and/or install the
conservation device or measure.
The Water Utility
As indicated in Figure 6-1, the major quantifiable benefit of a conservation program to
the water utility is the avoided cost of new supply. As a demand-side resource,
conservation reduces the need for new supplies and thereby reduces long-term costs to
the agency and its ratepayers. Determining the magnitude and timing of these cost
reductions may be extremely difficult and requires the utility to single out the marginal
supply source, that is, the one capital investment that would be scaled back or
postponed as a result of conservation. Electric utilities and their regulators have
wrestled with marginal cost issues over the past decade or more. Water utilities are
beginning to address similar issues.
The costs of the program to the utility include the incentives to participating
customers, as well as any other costs associated with the program (e.g., administrative
or marketing expenses).
Conservation programs also impose another type of cost on the utility—namely lost
revenues, which are the "flip side" of the bill reduction benefits to program
participants. The revenue losses associated with conservation programs are a critical
concern for utility managers, since resulting losses must be recovered through
increased rates. The treatment of conservation-induced revenue losses has been a
matter of some controversy among energy utilities and their regulators. In fact, a
separate cost-effectiveness perspective (the so-called ratepayer impact measure or RIM
test) has been developed, which is distinguished from the utility perspective by its
consideration of revenue losses.
6-3
-------
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COST-EFFECTIVENESS FRAMEWORK
While few dispute the importance of conservation-induced revenue losses, there is
much less unanimity on the extent to which they should be a primary consideration in
evaluating conservation programs. Many believe that revenue losses are best viewed as
a shift of the cost burden from customers that participate in conservation programs to
those that do not participate. This (transfer payment says little about the economic
viability of the conservation program itself.16
Put another way, not including revenue losses in a cost-effectiveness analysis of a
conservation program is equivalent to assessing the program's impact on average water
bills. That is, a positive cost-effectiveness result implies that average bills across
participating and nonparticipating customers will decrease; a negative result implies a
higher average bill. In contrast, the inclusion of revenue losses shifts the focus to
average rates rather than average bills.
Later in this chapter we discuss the significance of considering revenue losses in the
cost-effectiveness analysis used to calculate appropriate incentive levels.
The Water Supply System
For purposes of this discussion, we define the "water supply system" as the water
purveyor,17 the program participants, and the environment. The benefits and costs
from this perspective include the benefits and costs from the water utility and
participant perspectives as well as any impacts that a conservation program has on the
environment. These environmental impacts will include any avoided environmental
damage associated with the marginal supply resource.
The perspective of the water supply system is important because it is not affected by
the transfers of funds among entities, assessing instead the benefits and costs of a
conservation measure to the system as a whole. Revenue losses and incentive
payments are therefore not considered, since (as illustrated in Figure 6-2) such
transfers do not "cross the boundary" of the water supply system. (In other words, the
utility costs and the participant benefits cancel each other out.) This perspective
16This is essentially the position taken by the California Public Utilities Commission in its evaluations of
energy conservation programs. The commission has taken the view that, while rate impacts should not
be ignored, they are subordinate to the other cost-effectiveness tests. See, for example, CPUC Decision
No. 89-12-057, December 20, 1989.
I7When wholesale as well as retail agencies are involved, the analysis must consider all of these
providers.
6-7
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COST-EFFECTIVENESS FRAMEWORK
compares the avoided supply cost benefits (including avoided environmental costs)
with the incremental program and conservation measure costs.18
Society
The broadest cost-effectiveness perspective is that of society as a whole, illustrated in
Figure 6-3. For the purposes of this discussion, "society" includes not only the water
supply system but also other types of utilities that might be affected by the
conservation program.19
This perspective not only "cancels out" transfer payments between the water utility
and participating customers; it also eliminates transfers among the water utility and
other utilities. Thus, the water utility's avoided costs of purchases from nonwater
utilities are not considered, but other avoided water utility costs are included. The
costs that are avoided by the electric, gas, and/or wastewater utilities are viewed as
societal benefits, while any additional costs that are incurred by these utilities as a
result of the water conservation program are societal costs.20
USING THE COST-EFFECTIVENESS PERSPECTIVES TO CALCULATE
APPROPRIATE INCENTIVE LEVELS
The^societal and water supply system perspectives are useful for asking questions such
as, "Which program components should receive greater emphasis?" or "Should the
program be done at all?" Since incentive payments play no role in these perspectives,
they have little to say about appropriate incentive amounts. A conservation program '
must answer these questions before the issue of the appropriate incentive amount is
even addressed.
A program that is not societally cost-effective results in a net loss of societal
resources. Such a program should be carefully examined. It may be that the cost-
'8As shown in Figure 6-1, another benefit from this perspective might include the reduced charges paid
by the program participant to non-water-supply (e.g., wastewater) utilities.
"Strictly speaking, this perspective also considers any non-environmental "external" impacts of water
conservation. For example, certain "third-party impacts" associated with water transfers may be avoided.
MSome .wastewater systems report that they may incur additional costs or reduced revenues due to water
conservation. If so, this would also be a cost to society.
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COST-EFFECTIVENESS FRAMEWORK
effectiveness results have not adequately captured all of the difficult-to-quantify
societal benefits. Alternatively, the program may have to be redesigned to improve its
cost effectiveness. For example, in the case of a ULFT rebate program, a focus on the
types of customers with greater water savings per installed toilet could increase
societal cost-effectiveness. Achieving greater efficiencies in program administration
could have a similar result. If improvements in cost-effectiveness cannot be achieved,
resources should be diverted to other programs.
The distinction between the two perspectives is one of degree: some decision makers
focus on impacts on the water supply system; others take the more all-encompassing
view embodied in the societal test.
Once a conservation program is determined to be cost-effective to society or to the
water supply system, the question of the appropriate incentive amount can then be
addressed. The participant and water utility cost-effectiveness perspectives are useful
in addressing this issue.
Use of the Participant Perspective
The participant perspective addresses the question, "How much of an incentive do
customers need?" Assume that an agency is considering a "cash for grass" rebate
program. Program participants face an initial outlay equal to the difference between
the capital and installation costs for replacement landscaping and the water agency
rebate. Financial benefits, which consist of water bill savings, are spread over time. If
we assume that the typical customer will require a two-year simple payback for this
type of investment, we can compute the necessary incentive level, based on
assumptions about replacement landscaping costs and projected water rates.21
Offering an incentive that makes participation cost-effective from the participant
perspective still does not guarantee participation. The issue of what motivates
customers to undertake various conservation measures is complicated. Research in the
energy sector has shown that the effects of financial incentives on residential
conservation program participation are inconsistent. Several studies have shown that
participation rates are influenced less by the existence or magnitude of an incentive
21There is little firm evidence that a two-year payback is appropriate.
6-9
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COST-EFFECTIVENESS FRAMEWORK
than by the way programs are implemented or marketed.22 Other studies have shown
some degree of correlation between incentive size and program participation but lack
sufficient data to determine the optimum incentive size.23 Further, financial
incentives alone appear to be inadequate for program success.
Commercial investments, in contrast, are more often made on the basis of relative
profitability. Survey and focus group results have shown that the single most important
criterion for evaluation of commercial conservation investments is projected
payback.24 While the required payback for conservation investments is uncertain, it is
thought to be short. Data from nine sources on the average payback from conservation
measures already in place nationwide suggests that planning for a payback of two to
three years is reasonable.25 Five of the nine studies showed average paybacks of two
years or less. A two-year payback is generally used as a rule of thumb for commercial
conservation incentive design, because the uncertainty associated with projected
benefits encourages customers to seek such short payback periods.
The research makes clear that noneconomic factors—including the adequacy of the
marketing effort, perceptions of risk, and the time and effort required to implement the
measure—also significantly affect investment decisions. For example, marketing has
been found to have a considerable effect on the penetration levels of conservation
programs, particularly in the residential sector. In fact, some studies have shown that it
is possible to obtain high participation rates with little or no financial incentives if a
program is well marketed.26
*
Uncertainty about the purported benefits of conservation investments can also be a
major barrier to participation in conservation programs.27 Uncertainties include
performance and aesthetics of the equipment and future changes in rates that affect the
dollar savings associated with the investment. Some of this risk can be reduced—for
Pemtration °f Energy-Efficiency Programs (Oak Ridge National Laboratory,
,InC" DSM Commercial Customer Acceptance Volume 1: Program Planning Insights,
EM-5633 (Palo Alto, Calif.: Electric Power Research Institute, January 1988).
April 1990).
23Ibid., pp. 34-35.
^Ibid. p. 2-8.
26Berry, pp. 32-33.
27Xenergy, p. 2-12.
6-10
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COST-EFFECTIVENESS FRAMEWORK
example, through customer access to information and equipment warranties. However,
the credibility of the source of information to the consumer has been found to be
important.28 Community groups, trade allies, and peers seem to be the most effective
communication media for this type of information.
The time and effort required to implement conservation measures can also be an
important determinant of program participation. Despite the purported benefits, if
significant effort is required on the part of the consumer, he or she may find that
conservation is not worth the bother.
The foregoing observations are based on a large body of market research that has been
performed for energy conservation programs. There is little comparable research on
water conservation programs. Two important conclusions probably do apply:
• For residential customers, noneconomic factors play at least as large a role
as economic incentives in customer participation decisions.
• For commercial customers, economics play a much more central role, and
projected payback periods are critical determinants of willingness to
participate.
The market research that we discuss in Chapter 8 will help agencies better define what
is necessary to overcome program participation barriers. Until that information
becomes available, the prior experience of the energy and water utility industries,
along with judgment, will have to be relied upon. The important point is that,
regardless of the particular criterion that is chosen to represent the "push" needed by
customers, the foregoing type of analysis will translate that into an incentive level.
Use of the Water Utility Perspective
The utility perspective compares avoided supply costs with program and incentive
costs (and potentially revenue losses) to the utility. The maximum incentive that a
utility can "afford" is the level at which the present value of net utility benefits is zero.
In other words, the incentive that can be justified from the water utility perspective is
one that represents a long-term utility "break even point." This can be expressed
mathematically as follows:
28-
'Berry, p. 45; Xenergy, p. 3-19.
6-11
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COST-EFFECTIVENESS FRAMEWORK
uc +1 -y
max ^ ^
ASCt {- LRt]
(1 + r)'
or
ASCt {- LRt]
(1 + r)'
- UC
r
ASCt
LR,
UC
where r = discount rate
= avoided supply costs in period t
: lost revenues in period t (if included)
present value of utility program costs other than incentive
payments
Im*x = present value of maximum cost-effective incentive
For example, if we assume that the per-customer present value of avoided supplv cost
associated with a conservation program is $100, and the program also includes a $20
per customer initial administrative cost, then the maximum rebate that the utility could
afford to pay is $80. If we further assume that the present value of the future lost
revenue stream is $50, and that We Wish to consider that lost revenue as a utility cost,
the affordable" incentive is reduced to $30.
A more complete illustration of this approach will be shown when the cost-
effectiveness framework is applied to the case studies in Chapter 7.
Thus, the decision whether to incorporate revenue losses has a profound effect on the
maximum incentive that a water utility is willing to pay. This is a difficult decision
and one that each water provider must base on its own circumstances. The remainder
of this handbook will assume that revenue losses are not considered in incentive
determination. This is based on:
• The general practice in the energy utility industry;
• The critical nature of conservation as a
country; and
resource in many parts of the
The logic of focusing on the magnitude of average bills rather than average
rate levels. This better serves the goal of placing conservation on a "level
playing field" with supply resources.
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COST-EFFECTIVENESS FRAMEWORK
Some utilities may wish to explicitly consider avoided environmental costs in the
calculation of appropriate incentive levels. Doing so would yield higher permissible
incentives and thereby offer greater encouragement to conservation programs in cases
where they avoid significant levels of environmental damage.
EXTENSIONS OF THE COST-EFFECTIVENESS FRAMEWORK
The basic framework can be extended to define additional cost-effectiveness
perspectives that distinguish between wholesale and retail utilities or that isolate
impacts on particular nonwater utilities (e.g., electric, gas, or wastewater). Such an
expanded framework can be particularly useful when attempting to determine the
manner in which the costs of customer incentives should be divided among the utilities
that are affected by water conservation programs.
The energy utility industry is currently exploring new and more sophisticated cost-
effectiveness perspectives. For example, the so-called "value test" is a complete test of
economic efficiency and explicitly considers such customer impacts as changes in
quality of service, long-run rate impacts, and the ability of a program to overcome
market barrier costs.
Another example of how the cost-effectiveness methodology can be refined is in the
consideration of so-called "freeriders." These are program participants who would have
taken the conservation action even without a utility incentive. For such customers, the
incremental utility benefit as a result of the conservation program is zero. The
existence of large numbers of such customers will reduce the avoided supply costs
and, therefore, the incentive payments that the utility can afford. Clearly, the utility
should attempt to design conservation programs to minimize freeridership.
The treatment of freeridership issues is illustrated in Chapter 7.
6-13
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COST-EFFECTIVENESS FRAMEWORK
6-14
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Chapter 7
CASE STUDIES
This chapter presents three case studies, two actual and one hypothetical. Chapters 2
through 5 of this handbook focused on the types and amounts of incentives water
agencies can offer. This chapter looks more closely at program design and
implementation issues and at the effectiveness of specific incentives in encouraging
customer participation and in achieving conservation. The two actual case studies were
developed through interviews with agency staff and review of program materials and
documentation. Each case study includes, when available, a detailed description of the
following elements:
• The conservation program
• Program goals
• Target market
• Incentive structure
• Implementation methods.
• Marketing approaches
• Program budget
» Participation levels
• Water savings
The cost-effectiveness framework presented in Chapter 6 has been applied to each case
study to determine appropriate incentive levels. The case studies have been selected to
illustrate a variety of program features. The case studies are:
• The Los Angeles Department of Water and Power (LADWP) Ultra
Low Flush Toilet Retrofit Rebate Program. This program was selected
because of the burgeoning number of ULFT rebate programs. LADWP's
ULFT program has gone through several phases that will be explored,
including the use of partnerships with community-based organizations
, (CBOs), an approach that LADWP pioneered and that is currently gaming
in popularity.
• The Seattle, Washington, Home Water Savers Program. This program
was selected to illustrate a regional utility partnership, several examples of
which were cited in Chapters 2 through 5 as cost-effective approaches to
implementing incentive programs. Additionally, as a device distribution
program this is a good candidate for a case study because device
7-1
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CASE STUDIES
distribution is often the first water conservation program an agency
implements.
A hypothetical combination water audit/no-interest loan program for
industrial customers. This case study was developed to illustrate a multi-
level (wholesaler-retailer-customer) incentive program, and to focus on a
program that targets industrial customers.
LOS ANGELES DEPARTMENT OF WATER AND POWER: ULTRA LOW
FLUSH TOILET REBATE PROGRAM
Program Description
Los Angeles Department of Water and Power (LADWP) sells water to retail customers
in the City of Los Angeles, California. LADWP purchases some of its water from the
Metropolitan Water District of Southern California (MWD). Through its Conservation
Credits Program, discussed in Chapter 4 of this handbook, MWD assists LADWP with
funding the ULFT rebate program and also provides input into program
implementation.
The LADWP ULFT retrofit program has two variations. The standard program, which
began in 1990, offers a rebate to all customers who install an approved model ULFT
Current rebate levels are $100/ULFT for single-family residential and condominium
customers, and $75/ULFT for all other customers. Customers are responsible for
purchasing and installing the toilet.
The Community-Based Organization (CBO) program, which began in 1992, offers a
ULFT to residents at no cost; the CBO receives $25/installed toilet. The CBO markets
the program to the community and distributes the toilets, usually at a centralized
location (depot). The Metropolitan Water District of Southern California (MWD) pays
the full program costs to a subcontractor, who handles all program elements, including
procuring toilets, and locating and training the CBO staff. LADWP reimburses MWD
for 50% of program costs.
Several factors motivated LADWP to initiate a ULFT retrofit program. The agency
tries to be at the forefront in promoting conservation. It had already nearly saturated
the market with efficient showerheads, particularly after a 1988 city ordinance
mandated that LADWP provide, and that customers install, low-flow showerheads and
toilet tank displacement bags. Since 1988, LADWP has distributed 1.5 million
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CASE STUDIES
showerheads and at least 3 million toilet bags. Surveys'indicated a sustained
penetration rate of 60% for installed showerheads. Therefore, in 1990, four years into
the drought, LADWP was ready to take the next step in conservation. Other factors
influenced the decision as well:
• The Board of Commissioners felt that conservation was critical;
• Goleta and Santa Monica already had implemented ULFT programs; and
• Studies emerging from the Metropolitan Water District of Southern
California (MWD) indicated that significant water savings were available
from ULFT retrofits.
The driving element of the chosen program implementation mechanism was that the
customers would do most of the work. They would select, buy, and install an approved
ULFT, and provide the necessary documentation; then LADWP would provide a
rebate.
LADWP considered other options, such as procuring, warehousing/and distributing
ULFTs. However, it was felt that warehousing would be cumbersome in a service
territory as large as LADWP. Also, this method would limit customer choice of
models. Another option considered—having a contractor distribute and install toilets
seemed administratively difficult, more expensive, and would have required more
careful LADWP monitoring. Instead, LADWP selected the simple rebate option.
Program Goals
The program goal for the first year was to install 7,500 ULFTs. The program actually
installed 90,000 ULFTs during that time. As discussed later, the drought and
mandatory rationing were primary reasons for the unexpected participation level. The
current goal is to maximize the number of installed ULFTs, subject to funding
limitations.
Target Market
When the standard program began in February 1990, it was targeted at residential
customers. In December 1990, the program was opened to all LADWP customers.
There was little information quantifying the savings available from installing the
7-3
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CASE STUDIES
ULFTs in nonresidential buildings; however, the Board of Commissioners wanted to
make rebates available to all customers. The actual percentage of rebates that are
given to nonresidential customers has been less than 1% and this case study focuses
on the residential sector.
The CBO program targets low-income customers, who were not responding to the
standard rebate offer.
Incentive Structure
Under the current standard program, single-family residential and condominium
customers are eligible for a $100/toilet rebate, and other customers are eligible for
$75/toilet rebate. There is no limit on the number of retrofits per household or per
account.
Under the CBO program, CBOs provide customers with a ULFT at no cost, and the
CBO receives $25/installed toilet. Again, there is no limit on the number of toilets per
household or per account.
Preliminary cost-effectiveness analysis done by LADWP prior to program
implementation indicated that a $100 rebate would be cost-effective from the agency's
perspective, based on marginal costs of $230/AF and presumed ULFT savings of 29
gallons daily. However, the major factor in selecting the rebate level of $100 was that
it was the level being offered in other nearby jurisdictions, such as Santa Monica and
Goleta. Also, LADWP knew that at least one major supplier offered a mid-level ULFT
for $85. Therefore, $100 seemed a reasonable rebate level that would cover purchase
price as well as a portion of installation costs.
The structure of the CBO program was developed when the Mothers of East Los
Angeles (MELA), a community-based organization, approached LADWP and offered
to run the program in their neighborhood. Because many low-income customers do not
have the cash to purchase a ULFT, the rebate program was not an effective incentive
for them. By offering residents a free toilet, LADWP has been able to achieve a much
higher participation rate in low-income areas.
7-4
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CASE STUDIES
Implementation Methods
The Standard Program: Phase I
During Phase I of the program, customers could purchase any ULFT model on the
LADWP approved list. The list was generated by the city's Building and Safety
Department, which develops specifications for all mechanical equipment sold in Los
Angeles. LADWP retained a contractor to manage most aspects of program
administration. The contractor did all the necessary marketing, information gathering,
verification, and application processing. Once the customer had sent in the application
and proof of purchase, the contractor would schedule an inspection. After inspection,
the customer was then sent a rebate check for $100 per ULFT. In Phase I of the
program all toilets were inspected before the customer received a rebate.
Almost from the beginning, the program began to snowball. The ongoing drought and
drought-related ordinances were clearly primary motivators in program participation.
Significant boosts in participation occurred in March 1991, when LADWP began
mandatory 10% rationing; in May 1991, when LADWP increased rationing to 15%;
and again in June and September 1991, when program discontinuation was anticipated.
Monthly participation rates are illustrated in Figure 7-1.
Four years of decreased consumption due to drought had depressed revenues. In one
12-month period, LADWP spent $25 million on rebates, while operating with a 30%
decrease in revenue due to the drought. Therefore, due to funding difficulties, the
program was discontinued in October 31, 1991. By the end of Phase I, LADWP had
issued rebates for 230,000 ULFTs.
Discontinuing the program was difficult but necessary. In addition to the lack of funds,
.the program needed design changes to handle the magnitude of applications. The
program had been designed to process 7,500 rebates/year and could not provide
adequate customer service while processing 230,000 toilet installations during the first
18 months. Customers were waiting as long as 12 weeks to receive a rebate, while
program literature promised rebates in four to six weeks.
Standard Program: Phase II
LADWP redesigned the program and started Phase H on July 1, 1992; Phase H is
ongoing at this time. The same contractor is handling the program, but many changes
have been made in program administration. One change was the implementation of a
7-5
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o>
8-
§
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CASE STUDIES
reservation system for rebates. Customers who are interested call to reserve a rebate,
and they are then mailed an application. The customer has 60 days to purchase the
ULFT(s). Reservations are not mandatory to receive a rebate; however, rebates are
subject to funding availability, so reservations are recommended.
Another major program change is that the rate structure was revised to allow
conservation programs that resulted in hardware installation to be charged directly to
the ratepayer just like purchased water from MWD. This provides the ULFT program
with a funding mechanism. Prior to this change the program was funded out of the
conservation budget.
Also, before starting Phase n, LADWP reevaluated the rebate structure and level.
Instead of offering $100 per ULFT rebate for all customers, the program was
redesigned to offer $100 rebates for single-family residences, including condominiums,
and $75 for other customers. There is still no limit on the number of ULFTs that could
be installed. The difference in rebate was largely introduced because multifamily
building owners, it was felt, would get ULFTs for a lower per-unit price because they
would be purchasing in bulk, and could also write off the investment. A $75 rebate
still seemed high enough to induce participation. Also, LADWP staff members felt
that multifamily owners are more aware of utility bills than single-family residents and
are more likely to conduct economic analyses and realize that it is to their benefit to
install the ULFTs, even with a lower rebate level.
LADWP also considered a tiered rebate, which was supported by evidence that the
first ULFT installed per household provides higher savings than additional ULFTs.
However, LADWP did no*, want to create additional administrative burdens.
Finally, in Phase II LADWP decreased the number of inspections. In Phase I, LADWP
inspected every ULFT before issuing a rebate. In Phase H, only a portion are
inspected, with applications for multiple rebates having a higher likelihood of
inspection. Approximately 25% of all applications, representing 75% of all ULFTs, are
inspected. This has decreased administrative costs, and LADWP believes that the level
of fraud is minimal and does not warrant the expense of inspecting every installation.
The CBO Program
The CBO program began in September 1992. As with the standard rebate program,
LADWP has eliminated itself from most of the details of program administration. For
the first ten months of the program, LADWP paid $100 to a subcontractor for each
7-7
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CASE STUDIES
installed ULFT. The subcontractor handled all aspects of the program, including toilet
purchase and storage, and $25 payment to CBO, for this price.
Starting in June 1993, LADWP created a separate agreement with MWD for the CBO
program. MWD pays the full program costs to the contractor and LADWP reimburses
MWD for its share (50%). Recently the rebate amount increased to $110 per toilet to
cover a $10 per toilet fee to have the old toilets recycled. The LADWP 50% share is
now $55 per toilet.
The subcontractor locates a willing CBO and procures the ULFTs. The subcontractor
also trains the CBO members on detail of program operations, such as how to
maintain a database to track participation and how to install the ULFTs if necessary.
The CBO is paid $25 per toilet to cover its program expenses. CBOs generally do not
have much funding available and would not be able to operate the program if not
provided the money. Generally the CBO staff market the program door to door and
establish a depot where residents can pick up the ULFT. Some CBOs also offer direct
installation for participants or installation by local plumbers at discounted rates.
The CBO component of the program is increasing. The CBOs distributed 10 000
ULFTs during FY 1992 through 1993. For FY 1993 through 1994, CBOs are likely to
distribute 63,000 ULFTs. Currently four CBOs are running ULFT programs:
• Mothers of East Los Angeles
• Koreatown
• First African Methodist Episcopal Church
• Keeping the World at Peace
Marketing Approaches
The program has always had several marketing mechanisms, including press
conferences, point-of-purchase displays, bill staffers, and a LADWP newsletter, which
is mailed separately from the water bill. According to customer research, most'
customers learn of the program through bill staffers or the LADWP newsletter.
LADWP also made a formal presentation to one plumbing wholesaler who supplies
thousands of toilets to independent plumbers. Plumbers are quite active in marketing
the program, frequently offering to procure and install the toilet in return for the rebate
or for a small additional'charge.
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CASE STUDIES
Because the program began during the drought, and customers were concerned about
the mandatory rationing, marketing the program was not a problem. It basically sold
itself. LADWP had more trouble keeping up with the program demand than with
increasing customer awareness of the program.
Low-income customers were significantly more difficult to reach, but initiation of the
CBO program addressed this by having members of the community market the
program, typically by going door to door.
Program Budget
The following table shows program expenses for fiscal year 1992 through 1993. The
structure of program funding for the ULFT program has varied somewhat over time.
Recently the process has been simplified: for the standard applications, LADWP pays
its contractor for program administration, and pays participants $100 per toilet (single-
family residences and condominiums) or $75 per toilet (all others).
ULFT PROGRAM EXPENSES
FY 1992-1993
Number of ULFTs installed
Rebates to customers
Payment to MWD for CBO Program (since June 1993
Payment to contractor (program administration)
LADWP expenses (1 FIE, printing brochures, etc.)
Subtotal
Reimbursement from MWD (@ 50%/ULFT)
Total
65,167
$5,545,700
$86,405
$846,789
$80,000
$6,558,894
($2,772,850)
$3,786,044
LADWP buys water from the Metropolitan Water District of Southern California
(MWD) to augment existing supplies. Formerly, under the Conservation Credit
Program, MWD would reimburse LADWP for up to 50% of the program cost, subject
to available funds. Currently MWD reimburses LADWP $60 per toilet.
7-9
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CASE STUDIES
Until recently, the CBO program funding was comparable to the standard program in
that LADWP wrote $100 checks to the subcontractor for each toilet installed Starting
in June 1993, LADWP created a separate agreement with MWD for the CBO program
MWD pays for the costs up front, and LADWP reimburses MWD for its share (50%) '
which at this time is $55 per toilet. Until this change was made, the CBOs were
included under the standard program, so the numbers in Table 1 do not accurately
separate out all payments for the toilets installed under the CBO program.
65,167 ULFTs were installed during FY 1992 through 1993.
Participation Levels and Water Savings
ULFTs in Los Angeles are estimated to save 46 gallons daily in multifamily
households and 29 gallons daily in single-family households.29 The standard program
is currently processing approximately 4,000 ULFT rebates per month and the CBO
program is distributing approximately 2,500 ULFTs per month. From program
inception in February 1990 through August 1993, approximately 310,000 ULFTs have
Application of Cost-Effectiveness Tests
The following analysis evaluates the cost effectiveness of the standard program based
on estimates that were available during the program planning stage before Phase I and
again using the numbers that were available at the beginning of Phase II.
The ULFT program can be described as encouraging early adoption of this technology
f™ -ru311^ plumbinS code ^res all "natural" toilet replacements to be
ULFTs. Therefore, some portion of lifetime savings would occur even in the absence
of the program. This issue can be handled in several ways:
• The ULFT natural replacement rate can be calculated and savings from
those toilets can be subtracted out of the estimate of program savings;
" The assumed level of "freeridership" can be increased; or
^Thomas Chesnutt, Anil Bamezai, and Casey McSpadden, The Conserving Effect of Ultra Low Flush
Toilet Rebate Programs, (A&N Technical Services: June 1992).
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CASE STUDIES
• The assumed lifetime of the measure can be shortened in the cost-
effectiveness analysis, thereby lowering the savings attributable to the
program.
We have taken the latter approach and assumed a 15-year life estimate for ULFTs.
As discussed in Chapter 6, the two cost-effectiveness perspectives that are relevant to
determining appropriate incentive levels are those of the participant and the utility.
Phase I
Participant Perspective
From the participant's perspective, program costs include costs of purchasing and
installing a ULFT. Program benefits include water and wastewater bill savings, as well
as the rebate payment. We assume that participants require a two-year payback on
their investment. As discussed previously, payback period is only one factor that
determines customer participation.
In 1990, when LADWP initiated the program, the best available information did not
distinguish between ULFT savings in single-family and multifamily households. The
participant test reflected the following values:
Savings per toilet = 29 gallons/day x 365 days =
10,585 gallons/year = 14.15 ccf/year
Average marginal water rate = $1.20/ccf
Average customer water bill savings/year =
14.15 ccf x $ 1.20/ccf = $ 16.98/year
Marginal sewer rate = $0.75/ccf
Average customer sewer bill savings/year =
14.15 ccf x .75/ccf = $10.61/year
Average customer combined two year water
and sewer bill savings =$55.18
Average cost per installed ULFT = $150
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CASE STUDIES
Required rebate to achieve a two-year payback
is therefore $150 to $55.18
= $94.82
The Utility Perspective
The utility perspective determines the level of incentive that the water provider can
afford. Recall that in Chapter 6, we defined affordable incentives as those that do not
increase the present value of the utility's revenue requirement. In this case the
incentive cost is the cost of the rebate. The maximum allowable rebate is the
difference between the present value of the agency's avoided water supply costs (plus
any reimbursement from MWD) and the program costs.
During program planning, projected administrative costs were $20/participant
Marginal cost was $230/AF, which was the cost of purchasing MWD water The
program assumed a ULFT lifetime of 30 years. However, as explained earlier, we use
a 15-year life of measure in this cost-effectiveness analysis to account for the early-
adopter effect. J
As described above in the participant test,
Swings = 29 gallons/toilet x 365 days = 'lO,585 gallons/year = .033 acre foot yearly
Based on the $230 marginal cost of supply, an 8% discount rate, and a 5% escalation
rate, the present value of utility avoided costs over the assumed 15-year life of the
measure is $2774/AFY.30
Net present value (NPV) of avoided supply costs per
toilet = $2774/AFY x .033 AFY
NPV of program costs per toilet
= $92
= $20
It is therefore cost-effective for LADWP to offer a rebate of up to $72, plus any
additional reimbursement from MWD. Under the Conservation Credit Program MWD
paid LADWP an incentive of $154 per acre-foot of savings over the program life In
this case, because a ULFT saves approximately half an acre-foot over its assumed 15-
year lifetime, MWD would pay $77/ULFT. Therefore the maximum cost-effective
rebate that LADWP could offer would be $149 ($72 + $77).
C°nSerVatiVe' beCaUSe m^inal costs h-e more than doubled in the
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CASE STUDIES
Given the results of the participant perspective and the utility perspective the cost-
effective incentive should be in the range of $95 to $149. The chosen level of $100
falls within this range.
Phase II
When' Phase II of the program began, marginal costs had changed, water and sewer
rates had increased, and estimates of savings per toilet had been refined to reflect
differences in single-family and multifamily retrofits. Also, the average price of
ULFTs had fallen considerably. Based on the updated information, the cost-
effectiveness analysis follows.
Participant Perspective
The following variables changed since Phase I:
Average marginal water rate per billing unit
Marginal sewer rate/billing unit
Average cost per installed ULFT
Savings per toilet
For single-family residences:
Savings per toilet = 29 gallons/day x 365 days =
10,585 gallons/year
Average customer water bill savings/ year =
14.15 ccf x $1.62/ccf
Average customer sewer bill savings/year =
14.15 ccf x $1.37/ccf
Average customer combined two year water and
sewer bill savings
= $1.62/ccf
= $1.37/ccf
= $125
= 29 gpd for single family
retrofits and 46 gpd for
multifamily retrofits
= 14.15 ccf/year
= $22.92
= $19.39
= $84.62
The required rebate for a two-year payback for single-family customers is therefore
$125 - $84.62 = $40.38
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CASE STUDIES
For multifamily residences:
Savings per toilet = 46 gallons/day x 365 days =
16,790 gallons/year = 22.45 ccf
Average customer water bill savings/ year =
22.45 ccf x $1.62/ccf _ $35.36
Average customer sewer bill savings/year =
22.45 ccf x $1.37/ccf - $30.76
Average customer combined two year water and
sewer bill savings = $134.24
Since bill savings exceed the ULFT cost, multifamily customers require no rebate to
achieve a two-year payback.
The Utility Perspective
The following variables changed since Phase I:
• Program costs at this time average SIS/participant, not including the
rebate;
• Marginal cost is now $600/AF, which is the cost of reclaimed water; and
• MWD provides flat $60/ULFT reimbursement.
Based on the $600/AF marginal cost of water, an 8% discount rate, and a 5%
escalation rate, the present value of utility avoided costs over the assumed 15-year life
of the measure is $7,236'.
NPV of avoided supply costs per single family ULFT retrofit = $7,236/AFY x 033
AFY = $239
NPV of avoided supply costs per multifamily ULFT retrofit = $7 236/AFY x 052
AFY = $376
It is therefore cost effective for LADWP to offer single-family residences a rebate of
up to $286 per ULFT ($239 - $13 + $60 MWD reimbursement). The chosen level of
$100 falls within this limit.
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CASE STUDIES
It is cost effective for LADWP to offer multifamily customers rebates of up to $423
per ULFT ($376 - $13 + $60 MWD reimbursement). The chosen rebate level of $75 is
well within that limit, and is not unreasonably low given that multifamily customers
require no rebate to achieve a two-year payback.
Discussion
It is interesting to note that lower water savings per retrofit means that higher rebates
are required by the participant because lower water bill savings require a higher rebate
to achieve an equivalent payback. However, lower savings per retrofit translate into
lower affordable rebates by the utility because of lower avoided costs.
Similarly, the increase in marginal costs and corresponding increase in rates that
occurred prior to Phase II created opposing pressures on rebate levels. In particular,
the higher rates make payback periods shorter, decreasing the rebate required by the
customer. At the same time, the increased marginal costs raise the value to the agency
of each retrofit, raising the affordable rebate. Therefore, although single-family
customers require only $40 to achieve a two-year payback, and multifamily customers
need no rebate to achieve a two-year payback, it is still a good investment for
LADWP to offer rebates to these customers.
SEATTLE WATER DEPARTMENT: HOME WATER SAVERS PROGRAM
Program Background and Description
Home Water Savers was a door-to-door conservation kit distribution program offered
in June through October 1992 by a regional utility partnership that included the Seattle
Water Department, Seattle City Light, and Puget Sound Power and Light.. The
Bonneville Power Administration (BPA), Washington Natural Gas, and the
Municipality of Metropolitan Seattle (METRO) (the regional wastewater agency), also
contributed financial support.
The Seattle Water Department sells water directly to residents of the City of Seattle,
who are also served by Seattle City Light. Approximately 24% of these customers
have nonelectric water heaters. The Seattle Water Department sells water wholesale to
28 water agencies in other areas. Residents in those areas are predominantly served by
Puget Power, and approximately 60% of those customers have nonelectric water
heaters. Therefore, once the program design was complete, the two electric utilities
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CASE STUDIES
covered program costs for all customers with electric water heaters and Seattle Water
covered the cost for customers with nonelectric water heaters. In turn, Bonneville
Power Administration reimbursed a portion of program costs for Seattle City Light.
While conducting studies to update the conservation element of the Seattle Water
Department's water supply plan, the Department identified efficient showerheads as
one of the most cost-effective measures to reduce demand.31 In late 1989, the Seattle
Water Department conducted a pilot study of 2,000 single-family homes to test
distribution methods and installation rates of various devices. Based on the results of
this pilot, the Water Department decided to pursue an efficient showerhead program
using a door-to-door drop-off method. Analysis showed that the program would be
cost-effective even if the Water Department had to cover the entire program cost;
nevertheless, the Water Department sought involvement from other regional utilities
because of the energy and wastewater savings the program could achieve along with
water savings.
In 1991, the Bonneville Power Administration agreed to cover the cost of efficient
showerhead distribution programs offered by its wholesale customers. At this point,
Seattle City Light agreed to participate in the joint venture with the Seattle Water '
Department.
For several years, Puget Power also had been offering free efficient showerheads to
customers (outside of the Seattle Water Department service area) who mailed in a card
requesting one. Approximately 26% of eligible customers mailed in the request cards.
Ultimately, Puget Power acknowledged the benefits of a joint utility venture,
particularly the public relations benefits of cooperation among all regional utilities, and
agreed to delay implementation of its program in the Seattle Water Department service
territory until the joint venture could be implemented. METRO and Washington
Natural Gas also agreed to contribute financial support.
Participants agreed that the benefits of collaborating included:
• Reducing each utility's program costs;
• Increasing program credibility; and
Brown and Caldwell, Single Family Pilot Residential Retrofit Project for Water Conservation
conducted by Seattle Water Department, Northeast Lake Washington Sewer & Water District and
Municipality of Metropolitan Seattle (December 1990).
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CASE STUDIES
• Enhancing customer service by allowing all customers to participate
regardless of the type of water heater.
Each element of program planning (product selection, marketing, distribution, and
evaluation) involved a committee process that included representatives from each
agency. Additionally, a steering committee and a planning committee were established
to ensure coordination and to make overall policy and management decisions.
The participating utilities agreed that product distribution needed to be tailored to the
needs and preferences of each participating electric utility. Therefore Seattle Water
worked with Seattle City Light and Puget Power to plan separate distribution efforts
for each electric utility's service area. The actual 1992 summer "household blitz" was
mounted by the electric utilities, which contracted with a service agency and a private
contractor to perform the distribution.
To ensure customer satisfaction and measure persistence, the utilities conducted an
extensive customer preference study to determine which showerhead should be
included in the kits. The study included on-site product comparison testing as well as a
survey component. Customers in the survey were offered six showerhead models to
choose from. The model selected for the program was preferred by 67% of the
customers surveyed.
Programs in other jurisdictions often offer two showerheads in each conservation kit.
The program planning committee in this case decided to include only one showerhead
in the kit, because according to the federal census, the average Seattle household has
only 1.3 showers. The committee felt that giving away more showerheads than people
could use would conflict with the Seattle anti-waste ethic, evident in the City's
aggressive recycling program. However, the committee decided to make additional
showerheads available upon request by mail or telephone. This approach was well
received. The other items in the kit were included largely because of their low cost.
Even a relatively low installation rate for these items could achieve cost-effective
savings.
This case study focuses on the initial phase of the program, which involved door-to-
door distribution of kits to all one- to four-unit dwellings in the Seattle Water
Department direct and wholesale service areas. The second phase, which is under way,
involves direct installation of kit measures in larger multifamily buildings, as well as
toilet leak repair.
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CASE STUDIES
Program Goals
The overall goal was reduce consumption of water and .energy resources in the
participating utilities' service territories. High installation rate of kit devices was a
corresponding program goal, which influenced the product selection, choice of delivery
mechanism, marketing approaches, and other program features.
Target Market
The first phase of the program, from June through October 1992, targeted all one- to
four-unit dwellings (330,000 households) in the Seattle Water Department service
territory. In October 1992 the program began to target larger multifamily buildings.
Commercial customers will be added to the program in 1994.
Incentive Structure
The program incentive was a free kit containing a variety of devices:
« One water- and energy-efficient showerhead (2.5 gpm)
« One bathroom faucet aerator (1.5 gpm)
• One toilet fill cycle diverter
• Toilet leak detection dye tablets
• Plumbers teflon tape
• An instruction booklet
Instruction materials also asked customers to install their own glass jar as a toilet tank
displacement device and instructed them how to do so.
Shower-arm adapters and additional kit materials were available at no charge upon
request. In addition, customers with electric water heaters received a kitchen faucet
aerator with adjustable spray when they requested additional kits or when they brought
their old showerhead to community centers. The cost of aerators was covered by
Seattle City Light and Puget Power.
Free installation of devices was available to elderly or disabled customers upon their
request. (This service was requested by less than 1% of participating households.)
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CASE STUDIES
Implementation Methods
The 1989 pilot test showed that the canvass and drop-off method was the most cost-
effective approach to delivering the kits. With a door hanger as prenotification,
personal drop-off, and a follow-up visit, this approach achieved a 34% showerhead
installation rate in the pilot. Water Department staff members felt that with a regional
marketing program, as well as changes in the showerhead model based on the results
of the customer preference survey, the full-scale program could achieve a 42%
showerhead installation rate.
In the full program, which ran from June through October 1992, kits were delivered
free of charge, door to door, with both prenotification (postcard) and follow-up
services (return for unused device pick-up). A private contractor distributed the kits in
the Puget Power service territory, and the Seattle Conservation Corps, which is a
division of Seattle's Department of Housing and Human Services, delivered kits in the
Seattle City Light service territory. Telephone hotlines were established to answer
questions, solve problems, and send additional kit materials.
Marketing Approaches
The program was marketed regionally through radio advertising and newspapers. A
consultant was retained to develop the marketing and advertising plans and materials.
The advertisements provided general information and education about the water,
energy, money, and environmental resource savings from installing efficient
showerheads.
The advertising campaign was scheduled to run for eight weeks, to correspond with
the projected kit distribution period. However, due to changes in distribution timing
and a depleted marketing budget, advertising ran out before the end of the distribution
period. This was unfortunate, as later studies showed that installation rates were
highest during the time the program had a high level of publicity.
The participating utilities felt that program marketing was one of the most difficult
areas of program implementation in this utility partnership. They suggest obtaining
early participation agreements and consensus on program concepts before developing a
marketing plan.
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CASE STUDIES
Program Budget
The program cost, including marketing and evaluation, was $3,362,296. Seattle Water
Department's share of that was $1,276,496. The breakdown of costs is illustrated in
the following table.
PROGRAM COSTS
Kit Items
Seattle
Water Dept
$712,070
Puget
Power
$284,912
Seattle City
Light
$1,255,779
Program
Total
til1-"' ••• ..•.
$2,252,761
Cost per
Kit
$6.83
Distribution
$383,090
$155,190
$701,655
$1,239,935
$3.76
Marketing
$156,000
$35,000
$125,000
$316,000
$0.96
Evaluation
$25,336
$43,200
$68,536
$0.20
TOTAL
$1,276,496
$475,102
$2,125,634a
$3,877,232
$11.75
'Partial BPA reimbursement.
METRO'S contribution of $100,000 and the Washington Natural Gas contribution of
$125,000 helped offset the costs for gas and other hot water customers. Seattle City
Light's costs include $1,226,600 in fixtures purchased directly by the Bonneville
Power Administration.
Program Evaluation
Several evaluation components were included in the program plan. A Phase I survey
which is complete, included these elements:
• • A short-term survey conducted two to five months after customers received
their kits assessed installation rates for each kit item, potential barriers to
participation, additional purchases of conservation products, household
conservation activities, showering and bathing habits, customer satisfaction,
and demographic household characteristics related to showerhead use.
• A control group survey assessed similar information for a comparison
group of Tacoma residents who were not given the opportunity to
participate in the program.
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CASE STUDIES
• Business trends interviews assessed the type of showerhead and aerator
products carried by wholesalers in the Puget Sound area and sales trends
for these and other conservation products over the past six years.
A Phase n survey contacted customers one year after they received the kit to assess
the long-term retention rates for all of the kit devices. Phase IH will focus on
multifamily buildings receiving direct installation services in the Seattle City Light
Service area. This final phase will also consolidate research concurrently conducted by
the Bonneville Power Administration, and will include an impact evaluation of energy
and water savings from all residential building types.
Installation Rates and Water Savings32
The Phase n survey33 of the completed residential program shows that 68% of
households that received the kits installed the showerhead. Within the first year, 4%
subsequently removed the showerhead, resulting in 64% still installed in 1993. The
dramatic increase in installation rate over the pilot was attributed to a variety of
factors, including the selection of a different showerhead as a result of the customer
preference survey; a severe drought; and the marketing campaign. One-year installation
rates for the other products are as follows: faucet aerator, 44%; leak detection tablets,
31%; toilet fill cycle diverter, 32%; and glass displacement jar, 21%.
Installation rates were not uniform over time or across neighborhoods. Participants
who received their kits during the first three weeks, when the program received
maximum publicity, had the highest initial installation rates (68%). Also, there were
higher installation rates among those who first heard about the program through a
friend or family member (66%), television (65%), or a major newspaper (62%), than
among those who first learned about the kit when it was delivered to their door (44%).
The primary reason the survey respondents said that they installed the showerhead was
the drought (70%) or to cooperate with the city (14%). Few (only 7%) said that they
installed the showerhead primarily to save money on water or energy bills. (However,
32Separate evaluations of program savings have been done in the Seattle City Light and Puget Power
service territories. To simplify the cost-effectiveness analysis, this case study uses numbers from the
Seattle City Light evaluation.
33Karen Brattegani, Seattle City Light Survey Research Report for the Home Water Savers Program:
Phase II Report, prepared by Research Innovations for Evaluation Unit, Energy Management Services
Division, Seattle City Light, (December 1993).
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CASE STUDIES
respondents were only asked to give the primary reason and were not asked about
secondary reasons.) This may reflect the high level of environmental awareness in the
Seattle area, while bill savings may be a bigger factor in other locations. This finding
demonstrates the limited role of economics in predicting levels of customer
participation. As emphasized throughout this handbook, economic considerations are
only one of many dimensions that influence program participation.
\
Approximately 11% of participants who did not install the showerhead claimed that
they already had an efficient model installed. (On-site surveys during the pilot showed
that customers were often mistaken about this.) Aside from that group, the greatest
barriers to participation were lack of showerhead fit, respondents' lack of time and
skill to install the showerhead, and respondents' preference for their own wall-mounted
or hand-held showerheads.
Freeridership, as explained in the preceding chapter, refers to program participants
who would have paid for and installed the measures even in the absence of the
incentive program. In this case, freeridership was estimated by determining the
proportion of Tacoma residents (the nonparticipant sample) who purchased efficient
showerheads during the kit distribution period. Tacoma offered an unusual opportunity
as a control group because Tacoma receives the same media advertising as Seattle so
that those residents received the same information and advertising. Also, Tacoma had
similar drought conditions and lawn watering restrictions. However, Tacoma residents
did not have free showerheads delivered to their homes.
According to a survey of Tacoma residents, a total of 9% of Tacoma households had
purchased a low-flow showerhead from July through November 1992. Normal
purchasing during similar periods before and since is approximately 3%. This leaves a
net of 6% of displaced purchases attributable to the program.
Also, the showerhead program can be described as an "early adopter" program because
a certain percentage of showerheads normally are replaced each year, and the
plumbing code now requires these to be efficient showerheads. Therefore, some
portion of lifetime savings would occur in the absence of the program, even for
participants who are not freeriders. This issue can be handled in several ways in the
cost-effectiveness analysis:
• The showerhead natural replacement rate can be calculated and those
savings subtracted out of program savings;
• The freerider level can be raised; or
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CASE STUDIES
• The lifetime of the measure can be shortened in the cost-effectiveness
analysis, thereby lowering the savings attributable to the program.
We use the latter approach in the following cost-effectiveness analysis.
Application of Cost-Effectiveness Tests
As discussed in Chapter 6, the two cost-effectiveness perspectives that are relevant to
determining appropriate incentive levels are those of the participant and the utility.
Participant Perspective
The program includes few if any economic costs to participants, other than those who
pay for toilet repairs to repair leaks discovered as a result of the use of the leak
detection tablets. Economic benefits are in the form of water, energy, and sewer bill
reductions.
The magnitude of these economic benefits can be calculated from the water savings
shown in the following table.
WATER SAVINGS PER KIT3
Measure " *
Showerhead
>Toilet bottle
Fill cycle diverter
Faucet aerator
TOTAL
Gallons Saved per Day
11
3.3
3.3
2
19.6
(9.56 ccf/year)
"Both the Seattle Water Department and Seattle City Light are still doing program evaluations. Final
savings estimates may change.
Average marginal rate per billing unit = $1.36 (weighted average of peak
and off peak rates, assuming that water savings are uniformly distributed
throughout the year)
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CASE STUDIES
• Average customer water bill savings/year = 9.56 ccf x $1.36/ccf = $13.00
• Marginal sewer rate/billing unit = $2.81/ccf
« Average customer sewer bill savings/year = $2.81/ccf x 9.56 ccf = $26.86
• Average customer electricity savings = 430 kWh annually
• Average customer electricity rates = 3.45 cents/kWh
• Average customer electricity bill savings/year = $14.84
Average customer combined annual water, sewer, and electricity bill savings = $54.70.
In deciding whether to install the delivered devices, most customers implicitly weigh
these economic benefits against the inconvenience and perceived adverse service
impacts.
For customers who use the leak detection tablets and discover a leak, the following
calculation demonstrates the expected payback period for an investment in toilet
repairs:
The Seattle Water Department estimates that repairing a leaking toilet saves 13 3
gallons daily. For participants who pay a plumber to perform repairs, we assume the
cost is approximately $50. Payback for these customers can be calculated as follows:
13.3 gallons/day x 365 = 4,854 gallons = 6.49 ccf
6.49 ccf x ($1.36 + $2.81) combined water and sewer bill savings = $27.06
$50/$27.06 = 1.85 years
For participants who perform the repairs themselves, we assume the cost is less than
$10.00. Payback for these participants is less than five months:
$10.00/$27.06 = .36 year = 4.4 months
Utility Perspective
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CASE STUDIES
The utility perspective is used to determine the level of incentive that the water
provider can afford. Recall that in Chapter 6, we defined affordable incentives as those
that do not increase the present value of the utility's revenue requirement. In this case,
the incentive cost to the utility is the cost of the kit itself.
The following table estimates the present value of the agency's avoided water supply
costs, using the results of the Phase n survey, as well as the following information
about the water agency's marginal costs of supply.
The agency's marginal source of supply is a new dam on the North Fork Tolt River.
The marginal cost of water is $1.85/ccf during peak season (June through September);
this represents the levelized cost of this dam plus transmission and distribution costs.
Off peak (October through May), the agency's marginal cost of supply is $0.25/ccf,
which represents non-capacity-related costs, such as pumping and treatment costs.
Assuming that program savings are distributed uniformly throughout the year, the
weighted average of avoided costs is $0.78/ccf. All calculations assume a 3% real .
discount rate.
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CASE STUDIES
SAVINGS PER KIT
Showerhead
Faucet aerator
Fill cycle
diverter
One-quart glass
jar
Toilet leak
repair*1
TOTAL
Water
Savings per
Device
(gallons/day)
11
2
3.33
3.33
13.3
37.16
Water
Savings
(ccf/year)
5.37
.98
1.62
1.62
6.49
18.13
* v *? ? f
Installation
Rate
64%
44%
32%
21%
1%
,. S-
Lifetime of
Measure
-* (years)
10"
5
3
15
4
Present""
Value of
Avoided
Supply-Costs
', .($/ccf) ,
$6.65
$3.57
$2.20
$9.31
$2.90
Savings
.per Kit,
* -by
Measure
$22.86
$1.54
$1.14
$3.16
$0.19
$28.89
'The showerhead lifetime was reduced from 15 years to 10 years to account for the freerider and early
adopter effects.
•in a survey of participants in the pilot study, 15% reported that they used leak tablets; 3% (of total)
reported that they found leaks; and 1% (of total) reported that they fixed those leaks.
The present value of the agency's avoided supply costs is $28.89 per distributed kit.
Since the actual kit cost was only $11.75, this program is highly cost-effective to the
utility. In fact, since the marketing, distribution, and evaluation costs were
approximately $4.92 per kit as previously illustrated in Table 2, the agency could
afford to spend up to $23.97 per kit ($28.89 - $4.92) on kit items. The contributions
of the other utilities further increase the attractiveness of the program to the Seattle
Water Department. Thus the utility could cost-effectively increase the customer
incentive to increase installation rates. Alternatively, given the apparent close
relationship between program publicity and installation rates, these rates could have
also been cost-effectively improved by devoting more resources to program marketing.
it
HYPOTHETICAL INDUSTRIAL INCENTIVE PROGRAM
The following hypothetical case study is offered to illustrate a range of program
features that were not found in any single program surveyed. Although the numbers
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CASE STUDIES
are not based on an existing program, they have been chosen as realistic estimates of
what this type of program would cost and what it could save.
This case study addresses the issue of how to structure multilevel (wholesaler-retailer-
customer) incentives. The assumed incentive to customers will be a zero-interest loan.
We will focus on the following questions:
• What form and level of incentive do customers require?
• Given these requirements, how much of an incentive do retailers require
from the wholesale supplier?
• How much of an incentive can the wholesaler afford to pay to the retailer?
Program Description
A water wholesaler offers grants to its retail agencies to develop industrial water
conservation programs. Grants are given on a per-acre-foot basis for anticipated
savings as described in grant proposals submitted by member agencies.
One member agency uses this grant to implement a program targeted at medium and
large industrial users. Due to the site-specific nature of industrial water conservation,
the program has two components: a free industrial water audit to identify appropriate
measures and a no-interest loan for the installation of recommended measures. The
grant from the wholesaler is used to seed a revolving loan fund that allows the agency
to lend at below-market rates and to subsidize the audits.
Target Market
The retail agency is a public agency with annual water sales of 300,000 acre-feet
(AF). Industrial customers represent 10% of these sales (30,000 AF). The top 20% of
industrial customers account for 80% of the demand in this customer class (24,000
AF). The program targets this top 20% of industrial customers. There are 75 customers
in this group. Average water use among these customers is therefore 320 AF/year.
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CASE STUDIES
Incentive Structure
The incentive offered from the wholesaler to the retail water supplier is a per-acre-foot
grant. The incentive offered by the retailer to industrial customers is a free on-site
audit to identify cost-effective conservation measures and a no-interest loan for the
installation of some or all measures recommended by the audit. In order to minimize
risk and maintain cash flow, the agency has determined that it does not want to lend
money for longer than a five-year term.
Through discussions with its industrial customers, the agency believes that a sufficient
incentive for these customers to participate would include no initial cash outlay, as
well as an expectation of no negative annual cash flow. In other words, annual loan
payments must not exceed annual water and wastewater bill savings.
Marketing Approaches
Program marketing relies heavily on personal contact. The water agency sends a
direct-mail letter describing the program to each of the targeted customers, and
advising them that they will be contacted by a water agency representative within the
following week. Mail materials include examples of qualifying measures and potential
savings.
Each targeted customer is then contacted by telephone to see if the company has any
interest in participating. An in-person meeting with an agency representative is
scheduled with each customer who expresses interest. Notices about the program are
also sent to trade associations and industry groups.
implementation Methods
The water agency retains a contractor to conduct the water audits. Once a customer
has expressed initial interest in participating, the contractor performs a walk-through
audit to estimate whether there will be significant water savings available. The agency
representative meets with the facilities manager to explain the details of the program.
Once the agreement is signed, the contractor schedules the facility audit. Results of the
audit and recommendations are presented in a meeting with the facility manager and
other appropriate individuals. The customer then prepares a loan application to finance
particular recommended measures.
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CASE STUDIES
Water Savings
Measures implemented and savings achieved by customized industrial programs vary
widely. A study of industrial water conservation in the City of San Jose, California,
showed available savings of 30% to 40%. Industrial audits conducted for the East Bay
Municipal Utilities District, California (EBMUD), indicated average savings of 15%.
Savings in this hypothetical program are assumed to average 20%. Since the average
water use in the target market is 320 AF/year, average annual savings would be 64
AF/participant, or a total potential savings of 4,800 AF annually.
Application of Cost-Effectiveness Tests
The retailer has determined that loans will be of five-year duration and carry no
interest. How large a loan must customers receive in order to participate? How large a
loan can the utility afford? In what ways must the program design change to
accommodate both perspectives? Finally, how great a grant can the wholesaler afford?
To address these questions we rely on the various perspectives of cost-effectiveness
analysis. We begin with the following assumptions.
• Industrial retail marginal water rates = $250/AF
• Industrial retail marginal wastewater rates = $750/AF
• Retailer's current marginal cost of supply = $300/AF
• Wholesaler's marginal cost of supply = $400/AF
• Average capital cost per acre-foot of annual
conservation savings = $10,000
• Agency audit and administrative costs per
acre-foot of annual conservation savings = $200 ($12,800 per
customer)
• Average longevity of savings = 15 years
• Discount rate = g%
• Annual escalation rate =3%
Participant Perspective
In order to meet the customers' need for nonnegative annual cash flow, annual loan
payments must be limited to $l,000/acre-foot-yearly (AFY), which is the sum of the
water and wastewater rates faced by the customer. Thus, the loan amount must be
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CASE STUDIES
limited to $5,000. However, the average $10,000/AFY cost of conservation yields a
$2,000 annual payment. Therefore, as long as rates stay at their current levels, these
terms would not be sufficient incentive to encourage this customer to participate in the
program.
•«
For the program to be attractive to the participant, the retailer could offer an up-front
grant, such that the annual payment on the remaining loan is equal to the value of
annual water and wastewater bill savings. In this case, the agency would have to offer
a $5,000 grant and a $5,000 loan.
Retailer Perspective
From the retailer's perspective, the costs of the program are the audit and
administrative costs, the foregone interest on the loan, and the cost (if any) of a grant.
The benefits of the program are the avoided costs of new supply.
Based on the $300 marginal cost of supply, 8% discount rate, and 3% escalation rate
the present value of the avoided supply costs over the 15-year assumed savings term is
$3,145/AFY. The present value of the incentive required by participants is:
$1,005 + $5,000 = $6,005/AFY
(Note that $1,005 is the present value of the foregone interest on a $5,000 zero-interest
loan.)
When the audit and administrative costs are added to this, the total revenue
requirement is $6,205/AFY. The retailer therefore requires $3,060 ($6,205 - $3,145) in
additional incentive from the wholesaler.
Wholesaler Perspective
From the wholesaler's perspective, the cost of the program is the payment to its
retailers, and the benefits of the program are the avoided costs of new supply. We
assume the variable portion of administrative costs associated with the program is
minimal.
Based on the wholesaler's $400 marginal cost of supply, the 8% discount rate, and 3%
escalation rate, the present value of the wholesaler's avoided costs over the assumed
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CASE STUDIES
15-year savings term is $4,193/AFY. This is the maximum payment that is cost-
effective from the wholesaler's perspective and exceeds the $3,060/AFY required by
the retailer. Thus the wholesaler can afford the incentive that the retailer requires to
meet the perceived needs of the customers.
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CASE STUDIES
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Chapter 8
MARKET RESEARCH FOR BETTER PROGRAM DESIGN
INTRODUCTION
Customer incentives are designed to encourage program participation by helping
customers overcome barriers that limit their participation. Given the wide range of
possible incentives, it is important to understand these barriers so that incentives can
be designed and marketed appropriately.
This handbook describes various customer incentives and explains some of the factors
that make certain types of incentives more effective than others in different situations.
This information can broaden the range of options that a water agency considers
offering to its customers, as well as help narrow that range to the most appropriate
choices. However, detailed information about customers' water use patterns, and the
customers' specific needs and preferences, can be tremendously helpful in designing
and marketing effective incentive programs.
The search for this type of information is a form of market research. Market research
can help water agencies to design conservation programs by illuminating:
• The water uses to target;
• The barriers to conservation for those water uses;
• The incentives that will help customers overcome those barriers; and
• The manner in which to market the incentive program to reach the targeted
audience.
In the past, few water agencies have considered market research relevant to their
mandate of providing customers with a reliable, high-quality water supply. However,
that mandate increasingly requires the active consideration of conservation as a
resource alternative. In many cases, conservation offers a cost-effective,
environmentally benign source of water supply.
One way in which conservation differs from traditional water supply resources is that
conservation often depends on voluntary customer participation. For this reason, water
agencies must learn to behave more like private businesses: they must recognize
customer needs and preferences, understand how their customers use water, and use
this information to create and market conservation programs. Market research can help
identify these customer needs, preferences, and water use patterns.
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MARKET RESEARCH FOR BETTER PROGRAM DESIGN
Market research is a complex undertaking and cannot be covered in depth within the
scope of this handbook. Rather, the purpose of this chapter is to provide a general
introduction to some of the types of research that agencies may want to conduct to
help design more effective incentive programs and, indeed, to help better meet the
needs of customers. Agency staff should consult other sources before actually
developing and conducting this research.
Market research can be conducted in several ways:
• Literature reviews—searching for and reviewing relevant studies and
evaluations, including research that has been done by water agencies,
research institutions, and academic institutions. Lessons learned from
literature reviews should be applied with caution; the needs, preferences
and behaviors of one agency's customers may not predict all customers''
responses to an incentive program.
• Focus groups—assembling a representative group of customers and
• hosting a structured discussion, with a moderator trained to ask questions
and probe for answers.
• Customer surveys—developing a set of questions that may be
administered to customers by mail, telephone, or in person.
• Analysis of observed behavior—reviewing available information on
customer reaction to and participation in conservation programs, including
current and past programs of the agency conducting the analysis and those
of other agencies.
The bulk of this section focuses on customer surveys, which are the most widely used
form of market research. It is important to note an inherent limitation of this type of
survey research: self-reports may differ from reality. Participants may try to give
responses that they believe reflect upon them favorably, rather than reporting their
actual beliefs or behaviors. To the extent that external verification is possible (for
example, by on-site visits to confirm presence of conservation devices), it strengthens
credibility of the survey results.
Where appropriate, this section also points out how the other approaches which
generally require a smaller commitment of agency resources, may also provide
valuable insights into customer preferences. Ultimately, a water agency has to balance
its expenditures on market research against other program expenditures. However
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expenditures on market research should be viewed as an investment that can boost the
effectiveness of the planned incentive program as well as future incentive programs.
POTENTIAL MARKET RESEARCH COMPONENTS
A water agency could collect a large amount of potentially useful customer
information. How much of this information to collect depends on the needs and
resources of the agency and the agency's existing level of knowledge. This chapter
presents a range of research alternatives that represent varying levels of knowledge,
complexity, and expense. More sophisticated analyses are best built upon the
foundation of knowledge that can be obtained by more basic research.
This section discusses the following research questions:
• How do customers use water?
• What are customers' attitudes toward and knowledge of water use and
conservation?
• How do customers make appliance/equipment purchase and use decisions?
• How do water needs, preferences, and attitudes differ among subgroups of
customers?
• Which incentive program designs are most likely to encourage customer
participation?
For each of these research questions, we discuss what type of information will be
obtained by focusing research on each of these questions, why each type of
information is useful in designing incentive programs, and how to get this information.
How Do Customers Use Water?
A water use survey can help determine the purposes for which customers use water
and how much water they use for each of those purposes. Electric utilities have
compiled detailed information regarding customer uses of electricity, but water
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MARKET RESEARCH FOR BETTER PROGRAM DESIGN
agencies, for the most part, do not have this type of information regarding current
water use patterns. A few agencies have started to collect and use this information.
City of Phoenix, Arizona. In 1990 and again in 1993, Phoenix conducted a
survey on customers' water use patterns and attitudes toward conservation. This
survey covered such topics as how many baths and showers are taken weekly;
how many loads of laundry are done at home weekly; how often the
dishwasher is run; whether the bathroom has ULFTs, toilet tank displacement
devices, or low-flow showerheads; and how often landscaping is watered and
with what method. Phoenix uses this information as a barometer to evaluate
trends in public awareness and attitudes toward water conservation. Results of
the survey help determine how future efforts are directed.
Marin Municipal Water District (MMWD), California. MMWD is
conducting a water conservation baseline study that will serve as a basis for
proposing water efficiency and conservation programs. The study will:
determine the level of water efficiency and conservation measures in place and
their effect on use; assist in identifying efficiency and conservation
opportunities; aid in gaging consumer receptiveness to various conservation-
related programs; and provide a basis for an ongoing demand monitoring
program.
Why Is This Information Useful for Program Design?
Identifying customers' water use patterns is a logical first step in market research for
any agency that does not have this information. Understanding the use patterns of
water users can help to target specific water uses in conservation programs For
example, if landscape watering is a large component of usage, then offering incentives
for water-efficient landscaping or efficient irrigation systems might be an effective
approach to conservation. Similarly, if many industrial customers have cooling towers
then a workshop on cooling tower efficiency improvements might be a wise
investment of resources.
How Can an Agency Obtain This Information?
A literature review can prevent duplication of effort by compiling the research
results—including customer surveys and program evaluations—of other water
-------
agencies. While a literature search may provide some information on general water use
patterns of customers, an agency survey of its own customers will provide a more
accurate view of water use in that agency's territory. This type of survey can contain
questions regarding building structure, equipment ownership, and customer habits.
Possible questions for residential customer surveys include the following:
• Does your home have a dishwasher? If so, approximately how old is it?
How many loads of dishes are washed per week?
• Does your home have a washing machine? If so, approximately how old is
it? Is it top loading or front loading? How many loads of clothes are
washed per week?
• How many showers are in the house? Do any of the showers have flow
restrictors or low-flow showerheads?
• If you have a car, how frequently do you wash it at home?
• Do you have a swimming pool or spa/jacuzzi?
• Is there an on-site well? Is it used for indoor uses, outdoor irrigation, or
both?
These questions are offered as examples of the topics that a water use survey could
cover. They are not exhaustive, nor are they presented in any particular order. The
actual wording, format, and layout of questions are all important components of survey
design. These sample questions—as well as sample questions presented throughout this
chapter—should not be used without review and modification as necessary for your
purposes.
Customer Attitudes Toward and Knowledge of Water Use and
Conservation
The second level of information pertains to customers' attitudes toward and knowledge
of water use and conservation. This type of analysis can reveal:
• The accuracy of customers' perceptions regarding their level of water use;
• Their knowledge about alternatives to their current use patterns;
8-5
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MARKET RESEARCH FOR BETTER PROGRAM DESIGN
Their sources for this information; and
The perceived barriers to modifying water use patterns (e.g., technological,
financial, informational, temporal, perceived risk, or institutional).
Why Is This Information Useful for Program Design?
Determining customers' attitudes is an important step in revealing potential barriers to
conservation, as well as in identifying the appropriate incentives that will help
overcome those barriers. Identifying customers' sources of information will help
determine effective points of intervention to change attitudes and perceptions. For
example, if customers think that ultra-low-flush toilets (ULFTs) don't work well, and
that information is coming from retailers, then working to educate retailers can be a
cost-effective way to increase the success of a ULFT program. If customers perceive
financial barriers to conservation, then economic incentives should encourage
participation. If they don't have information on how to conserve water, then
informational incentives could be more effective.
How Can an Agency Obtain This Information?
Some valuable information about customer attitudes and perceptions can be gauged by
analyzing the preferences revealed in past behavior. For example, the low participation
rates of industrial customers in water conservation rebate programs indicates that total
costs may not be as important as other factors, such as perceived risk, for this
customer class.
Focus groups can also be a particularly effective way to determine the underlying
attitudes and knowledge of customers. Water agencies can assemble groups of
customers to discuss water use and conservation. A trained moderator can encourage
participants to elaborate on then- responses in order to elicit the attitudes and beliefs
that engender those responses. Focus groups do not provide details on the number of
customers with a given attitude or belief, but they can identify many of the water
issues and concerns that are important to customers.
A survey can also be used to assess attitudes and knowledge. For example, one type of
question that might be included in this type of survey could be:
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On a scale of 1 (strongly disagree) to 5 (strongly agree), please rate the
following statements:
I'm skeptical about water-efficient equipment because I know
people who have had trouble with it.
I don't know enough about many of the water-efficient technologies.
Water-efficient technologies cost too much to install.
Water-efficient technologies save enough in water bills to pay for
the extra initial cost in a few years.
Most of our plumbing fixtures and appliances are already water-
efficient.
How Do Customers Make Appliance/Equipment Purchase and Use
Decisions?
The next level of complexity is to probe the decision-making mechanism for
purchasing and using water-related appliances. This type of research attempts to
identify the roles of all parties involved in decision-making and what factors they take
into consideration.
Why Is This Information Useful for Program Design?
What are the primary factors that customers consider when purchasing new appliances
or equipment? Who is involved in making purchase decisions? Is initial cost the
primary factor or is reliability of the equipment paramount? Understanding customer
purchase and use decisions should help illuminate barriers to efficient water use and
identify what types of incentives would be likely to encourage program participation.
For example, if up-front cost is the major factor in selecting equipment, then a low-
interest financing program may encourage the customers to select water-efficient
models.
This type of research could be particularly valuable for encouraging conservation in
new construction, because that is when many appliance and water fixture purchases are
made. This information can also help reach commercial/industrial/institutional
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MARKET RESEARCH FOR BETTER PROGRAM DESIGN
customers, who may have multiple levels of management involved in purchasing
decisions. Illuminating the roles and concerns of those different parties involved in
purchase decisions can help an agency better address those concerns.
How Can an Agency Obtain This Information?
Focus groups and surveys can be used to obtain information on equipment/appliance
purchase and use decisions. For example, two survey questions for a commercial/
industrial customer might include:
On a scale of 1 to 5 (where 1 means not at all important and 5 means
extremely important), how important is each of the following in your
firm's decision to purchase equipment:
Compatibility with existing equipment
Initial purchase price
Operating cost
Payback period
Recommendation of supplier or contractor
Reliability or life of equipment
Availability of equipment
What is the maximum payback period that you require to justify an
investment in water-efficient equipment?
. A substantial amount of research has been done on consumer decision making;
however, the decision-making process is still not well understood. One problem with
trying to gain insight into how customers make decisions is that responses to direct
questions may not reflect actual behavior. In particular, people are likely to report a
higher level of conservation awareness than actually figures into their decision. A
partial solution is to question customers about past purchases. Asking them to report
what they did in fact consider when making a specific purchase—rather than asking
hypothetical questions about what they would consider—may provide more accurate
responses, because customers can report on an actual occurrence rather than idealizing
how they would like to behave in a future situation.
Research on water use patterns, attitudes and knowledge, and decision making can be
combined, if desired, into one research phase. Another approach is to stage the
research: first, conduct a literature review to identify issues; second, conduct focus
8-8
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groups to structure the types of responses consumers have to the issues; third, conduct
a survey of a random sample of customers in order to generalize the results to the
entire population. An alternative plan is to survey a subset of customers (e.g., those
with swimming pools) in depth regarding attitudes and decision making.
The next two types of market research are more complex and represent a significant
leap in analytic sophistication. These techniques should follow and build upon a base
of information gained by conducting more basic research.
How Do Water Needs, Preferences and Attitudes Differ Among Customer
Subgroups?
Market segmentation is the process of classifying groups of consumers within an
overall market into groups with similar needs and preferences, and then targeting
product development and marketing toward the satisfaction of those needs. This is a
widely accepted practice in the business world and is becoming increasingly popular
among energy utilities.
The essentials of market segmentation involve:34
• Identifying customer segments that—by virtue of distinct characteristics
such as needs, attitudes, use patterns, demographics, etc.—represent
opportunities for distinct marketing programs;
• Selecting particular segments to target; and
• Developing and positioning for those segments offerings that will cost-
effectively satisfy customer and utility objectives.
The following discussion draws heavily on the Electric Power Research Institute
(EPRI) market segmentation program called CLASSIFY.™ EPRI has the most
extensive utility-related experience with market segmentation research, and CLASSIFY
represents a state-of-the-art market segmentation program. While CLASSIFY cannot
be used by water agencies for the purposes of program planning (because the
34D. Chakravarti, P. E. Hendrix, and W. L. Wilkie, Market Segmentation Research, Vols. 1 and 2 (Palo
Alto, Calif.: Electric Power Research Institute, 1987), Monograph 3.
John Berrigan and Carl Finkbeiner. Segmentation Marketing: New Methods for Capturing Business
Markets (New York: HarperBusiness, 1992).
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MARKET RESEARCH FOR BETTER PROGRAM DESIGN
information it contains is energy specific), it still offers a valuable model for
understanding what market segmentation is and why it can be helpful in program
design.
Why Is This Information Useful for Program Design?
Underlying needs and preferences that guide such decisions as whether or not to
participate in a conservation program may vary widely within traditional customer
classes. For example, some residential customers may base then- decision purely on
economics, while others are motivated by environmental consciousness. EPRI market
research found that for 85% of the participation decisions examined in a national
survey of customers, energy needs characteristics such as convenience or safety
predicted program participation more accurately than demographic characteristics such
as income and education.35 (EPRI, 1989)
A segmentation study can determine the distribution of customer needs within
particular classes. .A water agency can then more appropriately design incentives and
market programs to particular segments. For example, a water agency could use needs-
based segmentation to develop a plan for encouraging residential customers to install
low-water-use landscapes. If the segmentation study showed that budgetary concerns
for a certain group of customers were of less importance than aesthetic concerns, a
rebate would probably be a less cost-effective incentive than a series of xeriscape
workshops that emphasized how pleasing the resulting landscape would be.
How Can Water Agencies Get This Information?
The methodology for market segmentation analysis requires surveying customers'
responses to a variety of statements regarding their water-use needs or preferences.
The first step is to determine the different needs and concerns that water customers
identify as important. This can be done using focus groups or one-to-one interviews.
The second step is to use the issues raised by the focus groups or interviews to
generate survey questions. The survey asks customers to use a rating scale to respond
to statements that reflect their water needs and preferences. The survey does not ask
National Analysts (Philadelphia, Penn.), Synergic Resources Corp. (Bala Cynwyd, Penn.), and QEI,
.Inc. (Davis, Calif.), Residential Customer Preference and Behavior: Market Segmentation using
CLASSIFY™, EPRI EM-5908 (Palo Alto, Calif.: Electric Power Research Institute, March 1989)
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directly about any water conservation program, but rather asks participants to rank
statements such as:
I shop around for appliances to make sure I'm getting the best
price.
I track my monthly water bills very carefully.
I like the convenience offered by lots of different cycle and water
level controls on a washing machine.
The survey provides more detailed information than the initial interviews or focus
groups because of the larger sample size and also because the more general statements
raised by the focus groups are disaggregated into more specific statements to which
survey participants are asked to respond.
Using a technique known as factor analysis, the responses to the survey questions are
sorted into common ideas or concepts. Factor analysis assumes that a respondent's
ratings of the statements depend on underlying needs. The larger number of statements
included in the survey can then be narrowed down to a smaller number of underlying
needs.
For example, the EPRI CLASSIFY model identified the following personal benefits
and concerns relating to energy use:36
• Convenience
• Enthusiasm for high-tech products
• Comfort
• Appearance
• Conservation and budgetary issues
• Personal control
• Safety
• Search minimization
• Task-oriented versus area energy use (e.g., individual lights for different
parts of a room rather than overhead lighting)
We would expect a comparable list developed for water use to include some similar
dimensions; it would also likely include some different ones.
36National Analysts, et el.
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MARKET RESEARCH FOR BETTER PROGRAM DESIGN
Using an analytic technique known as cluster analysis, customers are then grouped
together on the basis of their survey responses. Customers classified in the same
segment share similar perceptions and needs, and differ from customers in other
segments regarding those perceptions and needs. The EPRI study identified the
following six energy-needs-based segments:37
• Pleasure seekers—like all of the benefits: comfort, safety, appearance,
personal control, convenience, and high-technology.
• Appearance conscious—more concerned with the image and aesthetic
benefits of new appliances, and less concerned about budget and
conservation issues.
• Resource conservers—more concerned than most other customers with
conservation and budget issues, and willing to relinquish control of their
household energy use in order to conserve energy.
• Lifestyle simplifies—exhibit less concern with comfort, convenience, and
new technology than any other segment.
" Hassle avoiders—interested in avoiding the effort and costs of searching
for programs, products, and services.
• Value seekers—willing to accept search costs in pursuit of other
needs/benefits.
Again, these categories may not be definitive for water-related needs, but rather are
illustrative of the concerns that may motivate customers.
One limitation of market segmentation is that segments must still be correlated with
observable characteristics in order to reach a given segment. (It's hard to send out a
mass mailing addressed to "hassle-avoiders.") However, the segmentation analysis will
enable the agency to significantly improve the targeting of its incentives, as well as its
overall conservation program design and marketing.
"National Analysts, et al.
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Which Incentive Program Designs are Most Likely to Encourage Customer
Participation?
r
Segmenting the market enables utilities to determine the general types of incentives
that may or may not be appropriate for particular groups of customers. However, it
does not address the issue of the specific incentive features that do a better or worse
job in encouraging customers to take part in a conservation program. One way to
obtain this information is to survey a sample of customers and ask program
participants to rank the reasons they chose to participate. Similarly, an agency can
survey nonparticipants and ask why they have not participated and what incentives
might encourage their participation.
Such a customer survey is relatively easy and inexpensive to perform and can provide
useful information. Nevertheless, its results must be interpreted with caution. Customer
self-reports of reasons for doing or not doing something (in this case participating in a
conservation program) are generally not particularly reliable. For this reason
researchers often rely on a technique known as conjoint analysis, which attempts to
replicate the trade-off process customers use when making such decisions. This type of
analysis attempts to clarify the structure of respondents' preferences among multi-
attributed product or program options, in this case the features of an incentive
program.
Unlike market segmentation surveys—which ask customers to respond to general
statements regarding water use—conjoint analysis surveys ask them to react to specific
program configurations and reveals the relative contribution of each feature to a
customer's preference for the product. The term "conjoint" refers to the fact that
customers are reacting to a combination of program features, rather than evaluating
each attribute separately.
Why is this Information Useful for Program Design?
This information can be used to predict individual respondents' reactions to a variety
of incentives or programs. It can also help illustrate the trade-offs that customers are
willing to make. For example, assume that a water agency determined, for an
identifiable customer group, that the key barrier to participating in a ULFT retrofit
program was an unwillingness to assume the financial risk of potentially unrealized
water use reductions and attendant bill savings. The most cost-effective incentive then
might be some type of shared-savings program—whereby the agency assumes a
portion of that risk—rather than a rebate program. Alternatively, the agency might
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MARKET RESEARCH FOR BETTER PROGRAM DESIGN
structure a program that guarantees a particular (e.g., two-year) payback on the initial
investment.
If we assume, in contrast, that the most important barrier is a lack of convenience or
availability, then a direct installation program will probably obtain a higher
participation rate.
How Can an Agency Obtain this Information?
The methodology for conducting a conjoint analysis is as follows:
• Identify relevant incentive attributes;
• Construct a set of hypothetical incentive program designs;
« Ask respondents to rate the options individually or to rank order
preferences;
• Calculate the relative value of each attribute level (e.g., how changes in a
rebate level influence a customer's preference for purchasing a ULFT);
« Calculate the importance of each attribute relative to other attributes; and
• Estimate customer program preferences or estimate program participation
by market segments.
For example, industrial customers might be given the following three options for a
particular piece of equipment and be asked to rate how likely they are to purchase and
install the item.
Option #1
Purchase price
Utility rebate
Installation
Monthly bill discount
Monthly operating cost
$300
None
Agency
None
$80
8-14
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Option #2
Purchase price
Utility rebate
Installation
Monthly bill discount
Monthly operating cost
$300
$60
Customer
None
$80
Option #3
Purchase price
Utility rebate
Installation
Monthly bill discount
Monthly operating cost
$300
None
Customer
None
$80
Customers are given the same items of information for each option (e.g., purchase
price, monthly operating cost), but the value or level of each feature varies. By
changing one or two feature levels in each option, researchers can isolate and quantify
customer preferences regarding the relative importance of each feature and how
changes in each feature affect customer preferences for that product.
GENERAL SURVEY ISSUES
Survey design and administration is a broad and complex field that is beyond the
scope of this handbook. In general, agencies that decide to proceed with customer
surveys must be cognizant of at least the following issues:
• Sample selection. The first step in sample selection is to identify the
relevant population from which to draw the sample. The second step is to
select a subgroup that represents that population. This involves selecting
participants in such a way as to ensure that any member of the population
being sampled has an equal likelihood of being selected for inclusion in
the sample. This is important in order to obtain results that are
generalizable from the sample to the larger population.
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MARKET RESEARCH FOR BETTER PROGRAM DESIGN
Survey participation. High participation is important for the quality of
results. If only a small percentage of the selected sample actually
completes the survey, then the results might reflect a so-called
"nonresponse bias," with nonrespondents differing in some important ways
from respondents. The results might then not be generalizable to the larger
population. There are many survey design and administration techniques to
minimize this problem.
Survey design. Survey questions must be carefully worded to elicit the
desired information while minimizing the effort required of participants
Ideally, surveys should be pretested to ensure that participants understand
the questions as they are intended, and to avoid unforeseen difficulties with
survey completion.
Survey administration. Surveys can be administered in person, by
telephone, by mail, or with some combination of these. Issues to consider
include cost and time constraints, the compatibility of the administration
technique, and the complexity of the survey instrument. Selection and
training of interviewers must be done carefully to ensure uniform survev
administration.
Data analysis. Volumes have been written on the subject of analyzing
survey data. As a rule, the rigor and depth of the analysis should be
determined by the types of conclusions to be drawn and the type of data
that have been collected. Thus, the form of the data analysis and the design
of the survey instrument must be considered simultaneously, rather than
sequentially.
CONCLUSION
An incentive program will be effective only if it encourages customers to participate
Obtaining information on how customers use water, and their attitudes and preferences
toward water use and conservation, will help water agencies select appropriate
incentives to which customers will respond. The following techniques may help a
water agency obtain this information:
• Market research on water use patterns, customer attitudes and knowledge
and decision-making procedures;
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• Market segmentation to identify customer submarkets; and
• Conjoint analysis to determine the relative importance customers place on
the various features of a multi-attributed product.
Market researchers have spent many years analyzing customer purchasing patterns, but
these decisions are still imperfectly understood. Market research will not provide the
answer to designing the perfect customer incentive program. However, the additional
information from this research should help water agencies design incentives that
address the specific needs of its customers.
pd92M54/cuwaJibk/l-10-94
8-77
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Appendix B
MATRICES OF INCENTIVE
APPLICABILITY TO BMPs, BY CUSTOMER CLASS
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Appendix A
SURVEY OF WATER CONSERVATION
CUSTOMER INCENTIVES
- RESPONDENTS -
-------
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Appendix A: SURVEY OF WATER
CONSERVATION CUSTOMER INCENTIVES
- RESPONDENTS -
ARIZONA
David Schultz
Water Conservation Coordinator
City of Glendale
6210W. Myrtle, Suite 112
Glendale, AZ 85301-1700
(602) 930-2710
Timothy Edwards
City Utilities Supervisor
City of Goodyear
119 North Litchfield Road
Goodyear, AZ 85338
Ann Testa
Water Conservation Supervisor
City of Mesa
P.O. Box 1466
Mesa, AZ 85211-1466
(602) 644-3058
Jane Ploeser
Water Conservation Coordinator
City of Phoenix
455 N. 5th St., 3rd Floor
Phoenix, AZ 85004
(602) 261-8366
Tom Arnold
Planner
Tucson Water
P.O. Box 27210
Tucson, AZ 85726-7210
(602) 791-4331
CALIFORNIA
James Gonzalez
Water Conservation Representative
City of Fresno
Water Conservation Program
1910 E. University
Fresno, CA 93703
(209) 498-1016
Jane Siguenza/Monica Villasenor
City of Palo Alto Utilities
P.O. Box 10250
Palo Alto, CA 94303
(415) 329-2241
A-1
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California (continued)
Christ! Robinson
Conservation Program Specialist
City of Pasadena—Water & Power
Department
150 S. Los Robles, Suite 200
Pasadena, CA 91101
(818) 405-4728
Bob Burkhart/Neal Van Keuren
City of San Jose, Environmental
Services Department
777 N. First St., Suite 450
San Jose, CA 95112
(408) 277-5533
Susan Munves
Conservation Coordinator
City of Santa Monica
200 Santa Monica Pier, Suite C
Santa Monica, CA 90401
(310) 458-8229
Barbara Sarkis
Water Conservation Coordinator
Contra Costa Water District
1330 Concord Avenue
P.O. Box H20
Concord, CA 94524
(510) 674-8136
Richard Bennett
Water Conservation Manager
East Bay Municipal Utility District
375 llth Street
Oakland, CA 94607
(510) 287-0590
George Martin
Water Conservation Manager
Los Angeles Dept. of Water & Power
P.O.Box 111, Room 1348
Los Angeles, CA 90051-0100
(213) 481-6160
James Fryer
Water Conservation Coordinator
Marin Municipal Water District
220 Nellen Avenue
Corte Madera, CA 94925-1169
(415) 924-4600
Kathy Gibson
Associate Resource Specialist
Metropolitan Water District of Southern
California
Two California Plaza
350 S. Grand Avenue
Los Angeles, CA 90071
(213) 217-7295
Lisa Dondick
Water Conservation Coordinator
Mountain View Water Conservation
231 N. Whisman
Mountain View, CA 94043
(415) 903-6217
John Olaf Nelson
General Manager
North Marin Water District
999 Rush Creek PI.
Novato, CA 94948
(415) 897-4133
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California (continued)
Vickie Driver
Water Resources Assistant
San Diego County Water Authority
3211 Fifth Avenue
San Diego, CA 92103
(619) 297-3218
COLORADO
Chris Call
Conservation Specialist
Denver Water
1600 W. 12th Avenue
Denver, CO 80254
(303) 628-6343
FLORIDA
Wendy Nero
Water Conservation Manager
Tampa Water Department
306 E. Jackson St., 5E
Tampa, FL 33602
(813) 223-8653
NEW JERSEY
Frank Gradilone
Resources Planning Analyst
Spring Valley Water Company
200 Old Hook Road
Harrington Park, NJ 07640
(201) 767-2857
A-3
-------
NEW YORK
Warren Liebold
Director of Conservation
New York City Department of Environmental Protection
BWEC—7th Floor
59-17 Junction Blvd.
Corona, NY 11368-5107
(718) 595-6656
OREGON
Cynthia Dietz
Conservation Program Manager
City of Portland, Bureau of Water Works
1120 S.W. 5th, 6th Floor
Portland, OR 97204
(503)823-7421 .
TEXAS
Tony Gregg Cnris Powers
Water Conservation Program Manager Water Resources Manager
City of Austin—E.C.S.D. San Antonio Water System
206 East 9th Street, Suite 14.127 lOQl E. Market Street
Austin, TX 78701 P.O. Box 2449
(512) 499-3557 San Antonio, TX 78298-2449
(210) 225-7461
David Plaisance II
Director of Utilities
Clear Lake City Water Authority
900 Bay Area Blvd.
Houston, TX 77058
(713)488-1164
A-4
-------
WASHINGTON
Kim Drury
Manager, Conservation Office
Seattle Water Department
Dexter Horton Building, 11th R.
710 2nd Avenue
Seattle, WA 98104
(206) 684-5879
A-5
-------
Appendix B
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