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HomeMy WebLinkAbout2018-08-01 Utilities Advisory Commission Agenda PacketAMERICANS WITH DISABILITY ACT (ADA) Persons with disabilities who require auxiliary aids or services in using City facilities, services or programs or who would like information on the City’s compliance with the Americans with Disabilities Act (ADA) of 1990, may contact (650) 329-2550 (Voice) 24 hours in advance. NOTICE IS POSTED IN ACCORDANCE WITH GOVERNMENT CODE SECTION 54954.2(a) OR 54956 I. ROLL CALL II.ORAL COMMUNICATIONS Members of the public are invited to address the Commission on any subject not on the agenda. A reasonable time restriction may be imposed at the discretion of the Chair. State law generally precludes the UAC from discussing or acting upon any topic initially presented during oral communication. III.APPROVAL OF THE MINUTES Approval of the Minutes of the Utilities Advisory Commission Meeting held on June 6, 2018 IV.AGENDA REVIEW AND REVISIONS V. REPORTS FROM COMMISSIONER MEETINGS/EVENTS VI.GENERAL MANAGER OF UTILITIES REPORT VII.COMMISSIONER COMMENTS VIII.UNFINISHED BUSINESS - None IX.NEW BUSINESS 1.Action Staff Request for Direction and Feedback on Utility Rules and Regulations Requiring Pad-mounted Equipment in all Underground Electric Construction, Including Green Acres 2.Discussion of Natural Gas Capital Improvement Plan Discussion 3.Discussion of Recycled Water Distribution System Business Plan Discussion 4.Selection of Potential Topic(s) for Discussion at Future UAC Meeting Action NEXT SCHEDULED MEETING: September 5, 2018 ADDITIONAL INFORMATION - The materials below are provided for informational purposes, not for action or discussion during UAC Meetings (Govt. Code Section 54954.2(a)(2)). Informational Report 12-Month Rolling Calendar Public Letter(s) to the UAC UTILITIES ADVISORY COMMISSION WEDNESDAY, AUGUST 1, 2018 – 7:00 P.M. COUNCIL CHAMBERS Palo Alto City Hall – 250 Hamilton Avenue Chairman: Michael Danaher  Vice Chair: Judith Schwartz  Commissioners: Arne Ballantine, Lisa Forssell, A. C. Johnston, Lauren Segal and Terry Trumbull  Council Liaison: Eric Filseth Utilities Advisory Commission Minutes Approved on: Page 1 of 5 UTILITIES ADVISORY COMMISSION MEETING MINUTES OF JUNE 6, 2018 REGULAR MEETING CALL TO ORDER Chair Danaher called the meeting of the Utilities Advisory Commission (UAC) to order at 7:00 p.m. Present: Vice Chair Ballantine, Commissioners Schwartz, Segal, and Trumbull Absent: Chair Danaher, Commissioners Johnston and Forssell ORAL COMMUNICATIONS None APPROVAL OF THE MINUTES Commissioner Trumbull moved to approve the minutes from the May 2, 2018 special meeting. Commissioner Segal seconded the motion. The motion carried 4-0 with Vice Chair Ballantine and Commissioners Schwartz, Segal, and Trumbull voting yes. AGENDA REVIEW AND REVISIONS None REPORTS FROM COMMISSIONER MEETINGS/EVENTS Commissioner Schwartz participated in a webcast for the Voices of Experience Initiative. Information from the Initiative will help City of Palo Alto Utilities (CPAU) take advantage of applications that are now available and that use data from advanced metering infrastructure (AMI). Commissioner Schwartz also participated in another webcast of the Low Income Community Solar Working Group. In light of the California Energy Commission's decision requiring all new homes have either solar on the rooftop or access to community solar, some of the community solar models discussed could be applicable to CPAU. Commissioner Trumbull understood the requirement applied to all new construction. Commissioner Schwartz clarified that the requirement applied to residences and businesses over a certain size. UTILITIES GENERAL MANAGER REPORT Ed Shikada, Utilities General Manager, delivered the General Manager’s Report. Municipal Services Center Open House – Follow-Up to Video - The video you are watching now captures a glimpse of this year's MSC Open House which offered the public a “behind the scenes” view of what it takes to operate the City. More than 350 residents attended to take advantage of special hands-on demonstrations, displays, games and information provided by staff from nearly every department. It was a great way to engage with our residents while celebrating our employees and connection with the community during Public Service Recognition Week, May 6-12. DRAFT Utilities Advisory Commission Minutes Approved on: Page 2 of 5 Tree Line USA - For the fourth year in a row, the City of Palo Alto Utilities has been recognized with the Tree Line USA award by the National Arbor Day Foundation! Tree Line USA recognizes a utility for achieving five core standards of Quality Tree Care, Annual Worker Training, Tree Planting and Public Education, a Tree- Based Energy Conservation Program and Arbor Day Celebration. The City is among an elite group of communities that are recognized as a Tree City USA, with a Tree Line USA Utility, and also a Tree Campus USA with Stanford. This trio of honors is a testimony to the importance of trees in Palo Alto, as well as the collaborative management that exists among City staff across departments. RP3 Designation – Our Utility has also been recognized as a “Diamond” level Reliable Public Power Provider (RP3) by the American Public Power Association (APPA). Diamond level is the highest honor in this award category! The RP3 program recognizes community-owned, not-for-profit public power utilities that exhibit operational excellence and demonstrate leading practices in: Reliability, Safety, Workforce Development and System Improvement. This recognition is a testament to our Utility's commitment to these values and excellence in the service we provide to the City of Palo Alto. Mylar Balloon Causes Power Outage for 4,500 Customers - This past weekend a mylar balloon became entangled in power lines in Palo Alto and caused a power outage for about 4,500 utility customers. Unfortunately, this is not an uncommon occurrence, as metallic foil balloons, commonly known as mylar, are a major cause of power outages. We are taking the opportunity to spread awareness about this risk to avoid future incidents, encouraging people to consider an alternative to mylar and to hold onto all balloons when celebrating an occasion. Annual Walking & Mobile Gas Leak Surveys in Progress - Utilities recently began the annual mobile and walking gas leak detection survey of the City. This routine safety check is conducted every year as required by Department of Transportation Pipeline Safety Regulations, and is carried out to ensure the safety of all who live and work in Palo Alto. Approximately one-half of the City is covered every year so that the entire City gas service system can be reviewed in a two year period. If any gas leaks are found, they are documented and repaired according to Utilities regulations. City contractor, Manesco Corporation, will be performing these gas leak detection surveys through September. New Water Conservation Legislation - Governor Brown signed into law last week AB 1668 and SB 606 for additional water management planning and urban water use standards. We are working closely with our partners at the Bay Area Water Supply and Conservation Agency (BAWSCA) and Santa Clara Valley Water District to monitor any potential implications to current water use efficiency practices in Palo Alto. Commissioner Trumbull requested a report at an upcoming UAC meeting, so we will be prepared to provide an update as more information becomes available. Utilities Rates Update – The fiscal year 2019 financial plans and proposed utility rate adjustments will be presented to the City Council on Monday, June 11. If approved, these rates will go into effect July 1. We thank the UAC for review and guidance throughout this process. An overview of these rate changes is available on our website cityofpaloalto.org/RatesOverview and we have provided a printed copy for each Commissioner tonight. Fiber to the Node RFP - Just a note to let you know that this RFP was issued on May 24. RFP and bid dates can be reviewed via the City’s online vendor portal, Planet Bid. Proposals are due June 28. Upcoming Events • Leveraging Blockchain for Sustainable Energy - June 7 - This is a panel discussion and networking event hosted by CPAU in partnership with Women in Cleantech and Sustainability and EDF (Electricity of France). Register at cityofpaloalto.org/workshops. • Re: Maker Fair - June 23 – This free City-sponsored event offers all-ages interactive activities and presentations on sustainable technology and home living. Utilities Advisory Commission Minutes Approved on: Page 3 of 5 COMMISSIONER COMMENTS Commissioner Schwartz shared Nextdoor posts regarding a City contractor requesting entry to a resident's home and utility rates that contained misinformation. Commissioner Trumbull remarked that meter readers did not believe his assertions that he did not utilize City utilities. UNFINISHED BUSINESS None NEW BUSINESS ITEM 1: ACTION: Election of Officers. Commissioner Trumbull suggested Chair Danaher and Vice Chair Ballantine continue serving as Chair and Vice Chair. Vice Chair Ballantine proposed Commissioner Schwartz serve as Chair or Vice Chair. ACTION: Vice Chair Ballantine moved to nominate Chair Danaher to continue as Chair and Commissioner Schwartz to become Vice Chair. Commissioner Trumbull seconded the motion. The motion carried 4-0 with Vice Chair Ballantine, and Commissioners Schwartz, Segal, and Trumbull voting yes. ITEM 2. DISCUSSION: Discussion of Special Resiliency Workshop. Debra Lloyd, Acting Assistant Director of Utilities Engineering, reported the resiliency workshops fall under Priority 4/Strategy 5 of the Strategic Plan. The first action is to engage in community outreach through the UAC. Timelines for other actions are dependent on the outcome of the workshops. On April 10, staff, Vice Chair Schwartz, and Commissioner Ballantine met to begin planning the workshops. The group proposed the first workshop be held in August over a 2-4-hour period and be structured with two panel discussions and one breakout session. The first panel could be comprised of three or four experts in the field of resiliency. The second panel could be comprised of City staff who would discuss resiliency in the framework of Palo Alto and highlight community assets and potential hazards. During the breakout session, participants could discuss vulnerabilities and protection of assets; identify potential hazards categorized by impact to the community, critical services, built environment, economy, and natural environment; and finally identify the top three priorities. The group proposed a second workshop be held in October over a 1-2-hour period perhaps as part of a UAC meeting. The second workshop could refine a vision and goals based on information and comments learned during the first workshop. Participants could review more specific scenarios such as plans for a second transmission line and development of Distributed Energy Resources (DER). Following the workshops, staff would develop timelines for implementing resiliency efforts, identify further outreach efforts, and present the UAC with a proposed implementation plan in the first quarter of 2019. Vice Chair Schwartz explained that several hours would be needed for the first workshop because of the complexity and interdependence of issues. The many aspects of resilience need to be viewed holistically in order to understand them. She requested Commissioners comment regarding the length of time. Councilmember Filseth suggested Commissioners consider the impact of a lengthy workshop on staff as well. The workshop probably should not provide participants with a blank sheet of paper and ask for their ideas. To involve participants in discussion, topics should include actions that individuals can take. For example, participants may be interested in a second transmission line, but there are few if any actions they can take with respect to it. Utilities Advisory Commission Minutes Approved on: Page 4 of 5 Commissioner Trumbull concurred with planning a 3-4-hour workshop. Because the focus is community outreach, concepts should be kept short and simple so that the community understands them. Workshop participants should have a glossary of acronyms and terminology as experts do not always explain terms. Vice Chair Schwartz remarked that carefully selecting the panel participants; involving the community in discussions; and actively recruiting participants who will prepare in advance of the workshop can help the community achieve understanding. Commissioner Segal also agreed with holding a 3-4-hour workshop and shared Commissioner Trumbull's concern. Workshop information should also provide a sense of the economics for each option. Commissioner Ballantine stated more time for the workshop would be better. In response to Councilmember Filseth's question regarding the amount of overlap between resiliency and emergency preparedness, Commissioner Ballantine advised that there is a great deal of overlap between the two. Department of Energy statistical analysis appeared to indicate resiliency and emergency preparedness funding is best spent in preparing for the disaster that cascades into a second disaster. Vice Chair Schwartz noted consensus for a 3-4-hour workshop. Many experts and businesses that can be invited to the workshop are located in the Bay Area. Ed Shikada, Utilities General Manager, advised that staff would contact parties to determine possible dates for the first workshop. ACTION: No action ITEM 3. DISCUSSION: Long-Term Electric Portfolio Analysis Results and Options for Rebalancing Portfolio in the Next Five to Ten Years. Shiva Swaminathan, Senior Resources Planner, reported that every five years staff develops criteria to plan and execute portfolio management. Utilities are required to file their Electric Integrated Resource Plans (EIRP) with the California Energy Commission. The Utility's contract with Western for hydroelectricity will expire in 2024. Staff requests Commissioners' input regarding the summary of findings and the EIRP objective and strategies. Based on UAC input, staff will return with a revised EIRP objective and strategies, EIRP regulatory documents, and a work plan for proceeding over the next 3-5 years. Commissioner Ballantine appreciated the analysis of each portfolio option from a number of perspectives. With the analysis of data, Commissioners can decide how to handle the implications. Commissioner Segal noted the inherent conflict in the list of EIRP objectives. She questioned whether staff had obtained community input regarding tradeoffs the community is willing to make. Community input is needed to evaluate priorities. EIRP Strategy Number 8 has to be number one because the Utility has to comply with laws. Swaminathan advised that the Council set a premium of no greater than 0.5¢ per kWh when adopting the Renewable Portfolio Standard (RPS) and the Carbon Neutral Plan. Staff achieved the Carbon Neutral Plan with a premium of 0.1¢-0.2¢ per kWh. Now, the decision is how to optimize within the established premium. In December, the UAC suggested Staff focus on minimizing costs while maintaining the RPS and carbon-neutral goals. As to an inherent conflict, staff can present it and the rate impact for discussion. Vice Chair Schwartz believed tradeoffs were not well understood. The Utility could not be greener than all other electric utilities and have the lowest prices of any electric utility. Councilmember Filseth could assist the UAC with presenting tradeoffs to the Council so that they understand them. The priorities in the community may not align fully with the priorities of the City Council or the UAC. If people really want the Utilities Advisory Commission Minutes Approved on: Page 5 of 5 least expensive electric cost, they need to understand that buying Renewable Energy Certificates (RECs) is not the solution. Commissioners need to know the tradeoffs in order to make recommendations to the City Council for direction to staff. Councilmember Filseth agreed that the City Council and the general public need to understand the meaning of tradeoffs. Commissioner Trumbull commented that the community does not want to be minimally compliant. The UAC has to sell the notion that being the greenest and the cheapest utility is difficult. In response to Commissioner Trumbull's query regarding the Utility's compliance with regulatory requirements, Swaminathan advised that the Utility is compliant with regulations. In answer to Vice Chair Schwartz’s question regarding the amounts of market power purchases and RECs in the electric supply mix, Jonathan Abendschein, Assistant Director of Utilities Resource Management, explained that the Utility purchased RECs a few years back when the Utility had a deficit from long-term Power Purchase Agreements. The Utility has surpluses from long-term resources that are sold in the summer. In the winter, the Utility has a deficit and brown power is purchased. Commissioner Ballantine remarked that the Utility net meters at a macro scale. In reply to Vice Chair Schwartz's inquiry regarding the purchase of market power in 2020, Swaminathan reported the Utility was not planning to purchase any RECs. In answer to Councilmember Filseth's query about the CO2 emitted into the atmosphere over a one-year cycle, Commissioner Ballantine responded the amount is 17% because nighttime power is browner than daytime power. Swaminathan referred to Tables C-1 and C-2 and stated the surplus of 263 GWh of energy displaces 63,000 metric tons of CO2 per year while the deficit of 201 GWh of energy adds 68,000 metric tons. The net amount of CO2 is 4,800 metric tons. Total City emissions are approximately 500,000 metric tons; therefore, CO2 emissions from electricity represent approximately 1% of the total. In response to Commissioner Ballantine's question regarding potential biogas generation at the City’s landfill, Swaminathan explained that staff analyzed a multipurpose project years before, but it did not pencil out. Abendschein reported legislative and regulatory discussions were underway regarding reporting information on the power content label and counting the carbon in an electric portfolio. Before discussing any changes to the electric portfolio based on carbon emissions, staff wanted to wait for those discussions to unfold. The UAC would have at least two additional meetings to discuss this in more detail. Staff would present a policy discussion of tradeoffs in early 2019. Commissioner Segal requested staff notify the UAC when the Council's adopted limit on bill impacts related to the Carbon Neutral Portfolio becomes a barrier. ACTION: No action ITEM 4. ACTION: Selection of Potential Topic(s) for Discussion at Future UAC Meeting. None NEXT SCHEDULED MEETING: August 1, 2018 Meeting adjourned at 8:02 p.m. Respectfully Submitted Rachel Chiu City of Palo Alto Utilities MEMORANDUM TO: UTILITIES ADVISORY COMMISSION FROM: UTILITIES DEPARTMENT DATE: August 1, 2018 SUBJECT: Natural Gas Capital Improvement Plan (CIP) 2 The purpose of this report is to provide information of City of Palo Alto Utilities' natural gas capital improvement plan (CIP), specifically the gas main replacement program, and to solicit feedback from the Utilities Advisory Commission (UAC) regarding future planning for gas CIPs. The Gas Utility's five-year CIP program consists of the following: • The Gas Main Replacement Program, under which the Gas Utility replaces aging gas mains ranked to have the highest threat scores within the system. • Customer Connections, which covers the cost when the Gas Utility installs new services or upgrades existing services at a customer's request in response to development or redevelopment. The Gas Utility charges a fee to these customers to cover the cost of these projects. • Ongoing Projects, which covers the cost of routine meter, regulator, and service replacement, minor projects to improve reliability or increase capacity, and other general improvements. • Tools and Equipment, which covers the cost of capitalized equipment, such as directional boring, gas pipeline maintenance and emergency equipment. • One-time Projects, which represents occasional large projects that do not fall into any other category. Attachment A: Natural Gas CIP Planning presentation PREPARED BY: REVIEWED BY: APPROVED BY: ED SHIKADA Utilities General Manager AARON PERKINS, Senior Engineer DEB LLOYD ding Assistant Director Utilities Engineering Page 1 of 1 1 1 NATURAL GAS CIP PLANNING August 1, 2018 2 CPAU NATURAL GAS SYSTEM •FourPG&E/CityofPaloAlto(CPAU) citygatestations •3distributegastotheCityata deliverypressureof25 •1dedicatedtoVA Hospitalata deliverypressureof40 •386milesofnaturalgaspipeline •210milesofdistributionmain •176milesofservicepipe •17,500naturalgasservicepipelines •24,000naturalgasmeters MATERIAL MILESOF MAINSIN SYSTEM NUMBEROF SERVICESIN SYSTEM MILESOFSERVICES INSYSTEM (AVG53'/SERVICE) STEEL 63.231 1820 18.269 COPPER 0 1 0.010 PLASTICPVC 36.110 716 7.187 PLASTICPE 110.380 13988 140.410 PLASTICABS 0.380 102 1.024 PLASTIC OTHER 0.017 65 0.652 OTHER 0 851 8.542 TOTAL 210.118 17,543 176.095 0((7,1* 5HFHLYHG%HIRUH0HHWLQJ UAC August 1, 2018 ✔ 2 7/25/2018 2 3 •FederalDepartmentofTransportation •PHMSA– PipelineandHazardousMaterialsSafetyAdministration •FiveregionsthatcovertheUnitedStates:Western,Central,Eastern, SouthernandSouthwest •Responsibleforregulatingandensuringthesafeandsecuremovement ofhazardousmaterials •Establishnationalpolicy,setandenforcestandards,educateand conductresearchtopreventincidents •151inspectionandenforcementemployees;90ofwhicharepipeline inspectors REGULATORY OVERSIGHT 4 PIPELINE INTEGRITY PLAN •InAugust2011distributionoperatorswererequiredtodevelopand implementaGasDistributionIntegrityManagementPlan(DIMP) •DistributionIntegrityManagementPlanelements: •Knowledgeofthesystem •Identifyingthreatsofthesystem •Evaluateandrankrisks •Implementmeasurestoreducerisks •Measureperformance •CPAUusesAmericanPublicGasAssociation’stool,“SHRIMP”,tocreate theCity’scustomDIMPplan •SHRIMP:Simple,Handy,RiskͲBased,IntegrityManagementPlan 7/25/2018 3 5 CPAU INTEGRITY MANAGEMENT PLAN SHRIMP GasLeakData Ͳ Yearly leakdata Ͳ Historicalleakdata SystemKnowledge Ͳ 30+yrsofindividual operationsstaff Ͳ Cityengineeringstaff DIMPPlan GasSystemConfiguration Ͳ Systemmaterial Ͳ Systempipediameter Ͳ Systemcomponents 6 •DIMP– DistributionIntegrityManagementPlanriskassessment •#1– Material,Weld orJointFailure;PVC •#2– ExcavationDamage;byThirdParty •#3– ExcavationDamage;byCreworContractors •#4– Material,Weld orJointFailure;ABS/Tenite •#5–Corrosion,ExternalCorrosion •#6–OtherThreats,LegacyCrossbores •#7–NaturalForces CPAU INTEGRITY MANAGEMENT PLAN 7/25/2018 4 7 NATIONWIDE PVC FAILURES SINCE 1970 •PlasticPipeDatabase Committee,with119operators •PVCfailure/leaksincreaseafter 20+yearsofservicelife •CPAUhasprioritizedthe replacementofPVCpipesinits systembasedonthisindustry dataandexperience Report:April27,2017 8 CPAU REPORTED LEAKS TotalReportedLeaksbyCategory(6year) 2012 2013 2014 2015 2016 2017 Corrosion 11 11 14 6 12 5 NaturalForce 351153 Excavation 47 54 52 42 35 19 OtherOutsideForce 020222 Pipe,Weld,Joint 16 47 34 19 9 9 Equipment 837155 IncorrectOperation 000000 OtherCause 10 32 39 12 8 1 0 10 20 30 40 50 60 2012 2013 2014 2015 2016 2017 Corrosion NaturalForce Excavation OtherOutsideForce Pipe,Weld,Joint Equipment IncorrectOperation OtherCause 7/25/2018 5 9 CPAU PVC RISK ASSESSMENT •In2015CPAUcommissionedaPVCandPEgaspipingstudy. •AssessedriskofvintagePVC,vintagePEandmodernPEbyanalyzing extractedsegmentsofpipefromthesystem. •ConcludedPVCmaterialpresentedagreaterrisktothesystemthan PEmaterial. •ComparedtoPEpipe,PVChasa4timesgreaterriskoffailurewhen usedondistributionmainsanda3timesgreaterriskoffailureon services. •Threescenarios:5Ͳ,10Ͳ,and15Ͳyearreplacementprograms, indicatingasmallbenefittoacceleratingfromthe15Ͳyearprogram. 10 GAS CIP BUDGETING •NaturalgasCIPmasterplan FY2019ͲFY2023 •Averageabout18,000linearfeet ofmainreplacementperyear •Locatereplacementeconomically •Replacementincludesdistribution mainandservices •Estimatingatotalof$6.5Min pipelinemainandservice replacementperyear 7/25/2018 6 11 GAS CIP BUDGETING •Estimated$325perlinear footinFY20 •Annuallaborandmaterial costincreaseof3% •Replacementcostvariesdue toreplacementsizeand projectsiteconditions. •13yearreplacementstrategy forPVCmain TotalPVCFootage Remaining MainReplacement Footage $/ftofReplacement+ 3%AnnualIncrease TotalͲ13years 190,87218,250325.00$5,931,250.00$ 172,62217,703334.75$5,925,911.88$ 154,92017,171344.79$5,920,578.55$ 137,74816,656355.14$5,915,250.03$ 121,09216,157365.79$5,909,926.31$ 104,93515,672376.76$5,904,607.37$ 89,26315,202388.07$5,899,293.23$ 74,06214,746399.71$5,893,983.86$ 59,31614,303411.70$5,888,679.28$ 45,01313,874424.05$5,883,379.47$ 31,13813,458436.77$5,878,084.43$ 17,68013,054449.88$5,872,794.15$ 4,62612,663463.37$5,867,508.64$ 12 GAS CIP FY 2019 - 2023 CIPProjectTitle FY2019 FY2020 FY2021 FY2022 FY2023 GasMainReplacementProjects:22 $800,000$Ͳ $Ͳ $Ͳ $Ͳ 23 $550,000$6,500,000$Ͳ $Ͳ $Ͳ 24 $Ͳ $804,525$6,500,000$Ͳ $Ͳ 25 $Ͳ $Ͳ $650,000$6,500,000$Ͳ 26 $Ͳ $Ͳ $Ͳ $650,000$6,500,000 27 $Ͳ $Ͳ $Ͳ $Ͳ $856,180 SystemExtensionsͲ Unreimbursed $210,590$216,908$223,415$230,117$237,021 GasABS/Tenite ReplacementProject $1,500,000$Ͳ $Ͳ $Ͳ $Ͳ GasDistributionSystemModel $20,000$20,000$20,000$Ͳ $Ͳ GasDistributionSystemImprovements $246,036$253,417$261,020$268,851$276,916 GasEquipmentandTools $350,000$100,000$100,000$100,000$100,000 GasMetersandRegulators $376,652$387,952$399,591$411,579$423,926 GasSystem,CustomerConnections $1,303,315$1,342,415$1,382,688$1,424,169$1,466,894 TotalExpenses $5,356,593$9,625,217$9,536,714$9,584,716$9,860,937 GasSystem,CustomerConnections $(1,078,935) $(1,111,303) $(1,144,642) $(1,178,981) $(1,200,000) TotalRevenues $(1,078,935) $(1,111,303) $(1,144,642) $(1,178,981) $(1,200,000) GrandTotal $4,277,658$8,513,914$8,392,072$8,405,735$8,660,937 MEMORANDUM TO: UTILITIES ADVISORY COMMISSION FROM: UTILITIES DEPARTMENT DATE: AUGUST 1, 2018 SUBJECT: Recycled Water Distribution System Business Plan RECOMMENDATION This is an informational report to facilitate UAC discussion on recycled water expansion. There is no staff recommendation at this time. EXECUTIVE SUMMARY The proposed Phase 3 Expansion Project (Phase 3) is a non-potable water pipeline extending the current recycled water distribution system to the Stanford Research Park. The Business Plan for Phase 3, which presents the costs, benefits and budgetary impacts of Phase 3 as modeled by the City’s consultant, Woodward and Curran, is included as Attachment A with appendices in Attachment B. The Phase 3 Business Plan is part of a larger Northwest County Recycled Water Strategic Plan which entails a broader evaluation of alternatives for using the recycled water from the City’s Regional Water Quality Control Plant (RWQCP). Because the Northwest Recycled Water Strategic Plan is not complete, there is no staff recommendation at this time. BACKGROUND In November 2016 Council adopted the Sustainability and Climate Action Plan (S/CAP) Framework (Staff Report #7304) including four water-specific goals, all of which have implications for water reuse: 1. Utilize the right water supply for the right use; 2. Ensure sufficient water quantity and quality; 3. Protect the Bay, other surface waters, and groundwater; and 4. Lead in sustainable water management Two relevant strategies identified in S/CAP are: 1. Verify Ability to Meet City’s long term water needs; and 2. Investigate all potential uses of Recycled Water In December 2017 Council adopted the Sustainability Implementation Plan (Staff Report #8487). Key actions included developing a recycled water strategic plan and exploring the most 3 effective uses of recycled water, both inside and outside Palo Alto. All of the work regarding Phase 3 and the other alternative uses for recycled water are tantamount to the water-related sustainability goals adopted by the City. The proposed Phase 3 project, shown in Figure 1, includes over 10 miles of transmission and distribution pipelines, two pump stations, and customer connections to deliver around 1,000 acre feet per year (AFY) of recycled water from the Regional Water Quality Control Plant (RWQCP) to the Stanford Research Park in the southwest area of Palo Alto. The project was first identified in a 2008 Recycled Water Facility Plan that was then converted to a Title XVI-compliant Feasibility Study in May 2012. The Program Environmental Impact Report for the Phase 3 project facilities was certified by the Palo Alto City Council in September 2015 (Resolution 9548). The primary purpose of extending the recycled water system would be to maximize the availability of recycled water as a supplemental water supply, reducing the water system’s reliance on imported supplies and improving the water supply reliability of the system in the event of a drought. Expansion of the use of recycled water would also reduce the amount of effluent discharged to the San Francisco Bay from the RWQCP. Figure 1: Phase 3 Expansion Project Overview The Phase 3 Business Plan is part of the Northwest County Recycled Water Strategic Plan being undertaken in collaboration with the Santa Clara Valley Water District (District). The scope includes high-level assessments of a variety of projects for RWQCP-related water reuse projects including purifying the water for groundwater recharge, direct potable reuse, and the expanded distribution of non-potable water beyond Phase 3. Because there are many treatment options, water quality types, and applications for water reuse, a reference sheet along with a map of the local recycled water distribution are provided in Attachment C. It should be noted that the Business Plan presented here is offered to facilitate a discussion of the economic feasibility of this project under various scenarios. It is separate and distinct from a cost of service study, which will fully determine the amount of project costs to be allocated system-wide, as well a constitutionally compliant recycled water rate. DISCUSSION Potential Positive Impacts of the Project By substituting recycled water for potable water in the areas to be served by Phase 3, the City can reduce the demand for potable water (and reserve potable water supplies for uses for which recycled water would be inappropriate). Reductions in potable demand will improve the supply reliability of the potable system, potentially translating to less severe cut-backs being needed from all customers during a drought. Additionally, the project will create an additional, local and renewable water supply source, reduce dependence on the Tuolumne River, Palo Alto’s potable water source, and permit public and commercial landscapes and trees to remain green and lush during a water supply shortage. Questions Answered by the Woodward and Curran analysis • What are the long-term recycled water demands for potential recycled water uses in the vicinity of the Phase 3 Expansion? The total average annual recycled water demand for uses that would be served by Phase 3, including uses in the Embarcadero Road area near the RWQCP, is 924 acre-feet per year (AFY).1 In the future, if dual-plumbing uses at Stanford University are also served, demand increases by about 17 AFY. • What are the updated costs for construction of the Phase 3 facilities considering updated demand projections and various construction challenges? Construction cost is estimated to be $36,800,000 in 2020 dollars. The unit cost of the Phase 3 Project (without any outside funding or financing) is estimated to be $3,030/AF in 2020 dollars, over the life of the project, which is higher than some similar projects with limited distribution system piping, but lower than other similar projects in urban settings. • What is the economic feasibility of implementing the Phase 3 Expansion Project? The Phase 3 project includes direct costs of construction, other capital costs, energy, operation, maintenance and revenue lost from lost potable water sales. Project revenues and new funding sources include external funding such as loans or grants, the avoided cost of wastewater discharges and SFPUC purchases, recycled water revenues, and system reliability enhancement benefits incorporated into potable water rates. Figure 2 shows the cost and benefit components. 1 One acre-foot per year is equal to roughly 450 hundred cubic feet (CCF) or 326,000 gallons. For comparison, Palo Alto’s total annual water consumption is 11,000 AFY Figure 2: Cost and Benefit Components The Business Plan analysis considers the project economically feasible if the total monetized value of benefits exceeds the total cost to construct and operate the Phase 3 system at full build-out. One benefit of expanding recycled water distribution is referred to as the Potable, or System Reliability Enhancement, which is measured as the improvement in reliability of the potable water supply and resulting reduction in the need for conservation measures, particularly in drought conditions. Quantifying this benefit can support the allocation of some project costs from potable water revenues. Outside funding, in the form of a low interest loan and/or a grant, is also a significant factor in the economic feasibility of this project. If a low interest loan can be secured, the Potable Reliability Enhancement rate is estimated at $150 per AF. $150 per AF ($0.34 per ccf) represents approximately a 3-4 percent increase on a typical residential bill in 2018. Absent grants or loans, the analysis indicates that a reliability rate of about $225 per AF ($0.52 per ccf) would be required in the early years of the project. Figure 3 shows the Potable Reliability Enhancement rate at different points in time for various outside funding scenarios. Costs •Construction Costs •Other Capital Costs •Energy Costs •Other O&M Costs •Loss of Potable Water Revenue Benefits •External Funding •Avoided Cost of Wastewater Discharges •Recycled Water Revenue •Avoided Cost of Water Purchases •System Reliability Enhancement Figure 3: Reliability Enhancement Rate Over Time One significant design choice that needs to be made is whether to include the outermost section of the Phase 3 pipeline in the project. A cemetery located at the end of the Phase 3 pipeline currently uses groundwater, rather than potable water. The cemetery paid a groundwater production charge of $1,072/AF for this pumped water over the past year (by 2020 this rate is expected to go up to $1,414/AF), and also incurs energy costs for pumping. Thus, substitution of recycled water for pumped water could be a substantial additional expense for the cemetery and would not reduce the City’s reliance on its potable water source. A preliminary rate analysis showed that the cemetery could pay approximately the same for Phase 3 recycled water after switching from District groundwater, if the recycled water rate is approximately 60 percent of Palo Alto’s potable water rate. A scenario excluding the cemetery and some smaller customers nearby was explored. The simplified analysis assumed lower capital costs for a shorter pipeline, and studied project feasibility with a recycled water rate of 95% of Palo Alto’s potable water rate. For this scaled down project, the reliability rate would be lower. At this point, no final conclusions have been drawn regarding the appropriate rate design, expected recycled revenue requirement, nor ultimate economic feasibility, although various scenarios have been outlined in the report. A robust cost of service study will need to be conducted in order to fully ascertain the proper recycled water rate, including all cost and benefits of the project system-wide. What are the variations in ranges of potential costs and benefits for the Phase 3 Expansion Project and what are the resulting impacts to the potable water customer base? A Risk Assessment Model was developed specifically for this analysis to evaluate the costs of Phase 3 given the range of estimates for the individual components that make up the costs and benefits of the project. Additional details about the model are included in the final report. Generally, the annual net cost of the project is expected to decrease over time as the capital debt service is held constant but SFPUC wholesale and Palo Alto retail water rates increase. This is seen in aggregate for the various model runs in Figure 4. The farther into the future, the greater likelihood that the reliability rate will trend towards zero. Figure 4: Probability of Reliability Rate at Different Time Steps • What are the risks to economic feasibility if changes occur related to demands, water costs, and external funding—in other words, what is the risk of the Phase 3 pipeline becoming a stranded asset? Construction costs, recycled water demand, and outside funding are all significant variables that impact the economic feasibility of Phase 3. For the early years of the project, a Potable Enhancement Reliability rate between $60 and $225 per AF is adequate 90 percent of the time. The economic feasibility of the project is expected to improve over time as Palo Alto’s retail potable water rate converges with SFPUC’s wholesale rate. • What are potential risk mitigation strategies to improve project feasibility or re- purpose Phase 3 Project facilities if future changes negate the economic feasibility of planned recycled water use? Phase 3 was found to be economically feasible for several scenarios where external funding is received. However, if continued operation of the recycled water project becomes infeasible, there are three key mitigation strategies: (1) increasing the recycled water rate, if supported by a cost of service study; (2) increasing recycled water throughput by expanding distribution beyond Phase 3; and (3) finding an alternative use for the Phase 3 Expansion Project facilities. The alternative uses for the Phase 3 pipeline will be developed under the Recycled Water Strategic Plan and well as a high level assessment of recycled water distribution opportunities beyond Phase 3. Based upon the work conducted in the Business Plan the following will be undertaken: • Evaluate a scaled-down project that excludes the customer currently using groundwater that takes into consideration the water reuse alternative results in the Recycled Water Strategic Plan. • Conduct a rigorous cost of service study to refine the estimated recycled water revenue, and update the cost versus benefit calculation. • Continue aggressive pursuit of external funding, including grants and low interest loans. • Continue identification and evaluation of additional uses that might be served by recycled water from the Phase 3 Expansion Project. • Evaluate incorporation of Phase 3 facilities into a future groundwater recharge project in the Indirect Potable Reuse Feasibility Study. • Evaluate incorporation of Phase 3 facilities into a future Direct Potable Reuse (DPR) facility as part of the Northwest County Recycled Water Strategic Plan. • Complete the Northwest County Recycled Water Strategic Plan to compare Phase 3 to other recycled water use alternatives. POLICY IMPLICATIONS While there is no recommendation at this time, expanding the use of recycled water would be consistent with the Sustainability Climate Action Plan Framework (Staff Report #7304) and the Sustainability Implementation Plan (Staff Report #8487). ENVIRONMENTAL REVIEW The UAC’s review of the concepts in the forthcoming Business Plan for Phase 3 Expansion does not require California Environmental Quality Act review, because the review does not meet the definition of a project under Public Resources Code 21065. The Program Environmental Impact Report for the Phase 3 project facilities was certified by the Palo Alto City Council in September 2015 (Resolution 9548). ATTACHMENT A. Phase 3 Business Plan B. Phase 3 Business Plan Appendices C. Recycled Water Reference Sheet PREPARED BY: REVIEWED BY: DEPARTMENT HEAD: Karla Dailey, Senior Resource Planner dschein, Assistant Director, Resource Management Ed Shikada Utilities General Manager Business Plan for Phase 3 Expansion Project Northwest County Recycled Water Strategic Plan Final Report Prepared by: July 2018 ATTACHMENT A Business Plan for Phase 3 Expansion Project FINAL July 2018 Table of Contents Chapter 1 Background ........................................................................................................... 1-1 1.1 Northwest County Recycled Water Strategic Plan ................................................... 1-1 1.2 Phase 3 Expansion Project ...................................................................................... 1-1 1.3 Purpose of Business Plan ........................................................................................ 1-3 Chapter 2 Recycled Water Demand Projections .................................................................. 2-1 2.1 Proposed Service Area ............................................................................................ 2-1 2.2 2008 Demand Estimate ........................................................................................... 2-1 2.3 Approach to Updating Demands .............................................................................. 2-1 2.4 Updated Potential Phase 3 Demands ...................................................................... 2-6 2.5 Other System Demands ........................................................................................... 2-8 2.6 Summary of Demands ............................................................................................. 2-8 Chapter 3 Costs vs. Benefits ................................................................................................. 3-1 3.1 Cost and Benefit Components ................................................................................. 3-1 3.2 Key Assumptions ..................................................................................................... 3-2 3.3 Direct Costs ............................................................................................................. 3-2 3.4 Direct Benefits .......................................................................................................... 3-4 3.5 Total Costs versus Total Benefits ............................................................................ 3-6 Chapter 4 Preliminary Rate Analysis .................................................................................... 4-1 4.1 Background on Recycled Water Rates in Palo Alto ................................................. 4-1 4.2 Purpose of the Preliminary Rate Analysis ................................................................ 4-1 4.3 Summary of Revenue Inputs ................................................................................... 4-1 4.4 Summary of Cost Inputs .......................................................................................... 4-2 4.5 Conclusions from the Preliminary Rate Analysis ..................................................... 4-2 Chapter 5 Risk Assessment .................................................................................................. 5-1 5.1 Risk Assessment Methodology ................................................................................ 5-1 5.2 Assumed Input Ranges ............................................................................................ 5-2 5.3 Risk Assessment Modeling Results ......................................................................... 5-4 Chapter 6 Conclusions and Recommendations .................................................................. 6-1 6.1 Business Plan Objectives ........................................................................................ 6-1 6.2 Project Feasibility Assessment ................................................................................ 6-2 6.3 Business Plan Recommendations ........................................................................... 6-3 References ................................................................................................................................ 6-1 List of Tables Table 2-1: Summary of Updated Demand Projections ......................................................... 2-8 Table 2-2: Largest Projected Recycled Water Users ............................................................ 2-8 Table 3-1: Summary of Net Present Value of Direct Costs .................................................. 3-6 Table 3-2: Summary of Net Present Value of Direct Benefits .............................................. 3-6 Table 3-3: Example Scenario Net Present Value of Direct Costs ........................................ 3-7 Table 3-4: Example Scenario Net Present Value of Direct Benefits .................................... 3-7 Table 5-1: Probability of Discrete Events in Risk Assessment Model ................................ 5-3 Table 5-2: Reliability Rates at Different Time Steps Given Different Funding Scenarios ... 5- 10 List of Figures Figure ES - 1: Overview of Phase 3 Expansion Project ........................................................... i Figure ES - 2: Cost and Benefit Components .......................................................................... ii Business Plan for Phase 3 Expansion Project FINAL July 2018 Figure ES - 3: Reliability Rate Over Time Given Funding Scenarios .................................... iv Figure 1-1: Phase 3 Expansion Recycled Water Pipeline .................................................... 1-2 Figure 2-1: EIR Alignment and ¼ Mile Buffer ........................................................................ 2-2 Figure 2-2: Target Recycled Water Users from 2008 Facilities Plan Recommended Project ........................................................................................................................................... 2-3 Figure 2-3: Phase 3 Alignment Modifications ....................................................................... 2-4 Figure 2-4: Historical and Projected Water Demand Served by the CPA ........................... 2-6 Figure 2-5: Updated Alignment and Recommended Project Target Recycled Water Uses 2- 7 Figure 3-1: Comparison of Costs and Benefits to Ascertain Feasibility ............................ 3-2 Figure 5-1: Risk Assessment Model in GoldSim .................................................................. 5-1 Figure 5-2: Risk Assessment Model in GoldSim (Part 2) ..................................................... 5-2 Figure 5-3: Range of Recycled Water Demands Used in Risk Assessment Model ........... 5-3 Figure 5-4: Range of Construction Costs used in Risk Assessment Model ...................... 5-4 Figure 5-5: Example of How to Read an Exceedance Chart ................................................ 5-5 Figure 5-6: Example of How to Read a Bell Curve ................................................................ 5-6 Figure 5-7: Trend in Feasibility as Recycled Water Demand Varies ................................... 5-7 Figure 5-8: Trend in Feasibility as Construction Costs Varies ............................................ 5-8 Figure 5-9: Bell Curves for Reliability Rate in All Modeling Scenarios and at Different Time Steps ........................................................................................................................ 5-9 Figure 5-10: Bell Curves for Reliability Rate in the Year 2020 Given Different Funding Scenarios ........................................................................................................................ 5-10 Figure 6-1: Reliability Rate Over Time Given Funding Scenarios ....................................... 6-2 Appendices Appendix A - Customer Demand Update Database Appendix B - Preliminary Rate Analysis Results Appendix C - Risk Assessment Modeling Results Business Plan for Phase 3 Expansion Project FINAL July 2018 Acknowledgements This report was prepared with support from the following participants: City of Palo Alto Samantha Engelage, P.E., Project Manager Lena Perkins, PhD Karla Dailey Lisa Bilir Eric Keniston Santa Clara Valley Water District Henry Barrientos, Project Manager Luis Jaimes, P.E. RMC, a Woodard & Curran Company Randy Raines, P.E., Project Manager Carrie Del Boccio, P.E. Emmalynne Roy, P.E. Rachel Gross, P.E. Warren Greco Business Plan for Phase 3 Expansion Project FINAL July 2018 List of Abbreviations AF Acre-foot ccf 100 (centum) cubic feet CPA City of Palo Alto DPR Direct Potable Reuse gpd gallons per day gpm gallons per minute HP Horsepower IPR Indirect Potable Reuse kwh kilowatt hours mgd million gallons per day RW Recycled Water RWQCP Regional Water Quality Control Plant SCVWD Santa Clara Valley Water District SFPUC San Francisco Public Utilities Commission Business Plan for Phase 3 Expansion Project Executive Summary FINAL July 2018 i Executive Summary The purpose of this Business Plan is to evaluate the economic feasibility of constructing and operating the City of Palo Alto’s (CPA’s) Phase 3 Expansion Project to extend recycled water service from the Regional Water Quality Control Plant (RWQCP) to the Stanford Research Park in the southwest area of the City (see Figure ES-1). At full build-out, demand for recycled water in the proposed service area is projected to be greater than 900 acre-feet per year (AFY). If the project is implemented, recycled water will be utilized primarily for landscape irrigation, but also for dual plumbing and cooling towers at several sites. Recycled water will replace groundwater being used at one location and potable water being used at over 100 other locations. Figure ES - 1: Overview of Phase 3 Expansion Project It is assumed in this Business Plan that the project will be economically feasible if the total monetized value of benefits exceeds the total cost to construct and operate the Phase 3 system at full build-out. As described in Chapter 1, there are several major questions answered in this Business Plan about the Phase 3 Business Plan for Phase 3 Expansion Project Executive Summary FINAL July 2018 ii Expansion Project. The three most critical questions relate to economic feasibility, potential risks and mitigation strategies: · Economic Feasibility: What conditions are required for the total value of benefits to exceed the total costs of the project? · Risk Assessment: What are the probabilities that changed conditions will cause total costs to exceed the value of benefits, thus negating economic feasibility? · Mitigation Strategies: What mitigation strategies could be employed to improve project feasibility or re-purpose Phase 3 facilities if changed conditions negate economic feasibility? Economic Feasibility The separate components that make up the comparison of costs versus benefits conducted in this Business Plan are shown in Figure ES-2. Indirect costs (e.g. impacts to businesses during construction) and indirect benefits (e.g. increase in construction jobs during construction) are not shown. The total net present values (NPVs) of costs and benefits were estimated for varying demand and external funding scenarios to determine the conditions necessary for economic feasibility. Figure ES - 2: Cost and Benefit Components As developed in the preliminary design, the cost to construct the Phase 3 Expansion Project is estimated to be $36.8 Million (in 2020 dollars). Other capital costs include engineering design, construction management, legal and administrative costs. The energy cost is for operation of the recycled water pump station at the RWQCP and a booster pump station in the distribution system. Other operation and maintenance (O&M) costs include staffing and equipment required to operate and maintain the pump stations and pipelines. Potable water will be replaced by recycled water at over 100 locations and, therefore, the CPA will not receive revenue from the sale of over 750 AFY. The decrease in potable water revenue is accounted for in the total costs. The expected benefits of project implementation are indicated in the figure. External funding includes State and Federal grants or low interest loans. The avoided cost of wastewater discharges reflects the reduced need for RWQCP nutrient removal if such treatment is required for discharge to the Bay in the future. Discharge regulations are expected to become more stringent. The CPA will lose potable water Costs • Construction Costs • Other Capital Costs • Energy Costs • Other O&M Costs • Loss of Potable Water Revenue Benefits • External Funding • Avoided Cost of Wastewater Discharges • Recycled Water Revenue • Avoided Cost of Water Purchases • System Reliability Enhancement Business Plan for Phase 3 Expansion Project Executive Summary FINAL July 2018 iii revenue but will collect recycled water revenue. Another benefit of the project will be the reduction in water purchased from SFPUC for potable water distribution (i.e. the 750 AFY referred to previously). During droughts, the City’s existing water sources may offer reduced supplies, requiring conservation by potable water customers. Because a recycled water system expansion would reduce demand for potable water on a consistent basis (including during drought years), the expansion “frees up” potable water supplies for use by water customers for whom recycled water is not available. This improves the reliability of the potable water supply, reducing the need for conservation measures. This benefit is referred to as Potable Reliability Enhancement. For purposes of this Plan, the cost of providing the Potable Reliability Enhancement Benefit is assumed to equal the difference between the quantified costs and benefits of the project. Furthermore, it is assumed that the full amount of these costs will be collectable from potable customers as an actual expense to CPAU of enhancing potable supply reliability. A separate cost of service study will be necessary to determine the amount of project costs to be allocated system-wide, and the resulting recycled water rate. In addition to the benefits related to increased revenue and savings that are quantified in this report, implementation of the Phase 3 Expansion Project will result in a number of other system-wide benefits. First, there is an environmental benefit from reducing dependence on the Tuolumne River, the source for SFPUC Regional Water System (RWS) water supply. Second, because recycled water is a locally- controlled drought-proof supply, Mitchell Park and the Cubberley Community Center will be able to maintain playing fields and other outdoor public spaces during a water shortage, benefitting all Palo Alto residents. Even landscaped areas and trees owned by commercial customers, when kept green and lush during a water supply shortage, provide aesthetic and environmental benefits to the whole community. As explained in the Risk Assessment discussion, values of some of the cost and benefit components are proportional to the actual amount of recycled water utilized from year to year. Other factors that significantly affect the value of benefits are the level of external funding and the rate customers will be charged for recycled water. Assuming an annual average recycled water demand of 924 AFY and total construction costs of $36.8 M (2020$), the total estimated NPV for all the cost components is $159.8 M (2020$). There is a cemetery at the terminus of the proposed pipeline that currently does not purchase its irrigation water from CPA, but instead relies on the pumping of groundwater. This customer therefore pays the Santa Clara Valley Water District’s (District) groundwater production charge instead of CPAs potable water charge. Unless recycled water rates are kept no higher than approximately 60% of potable rates, it may be difficult to serve this customer in a way that will be cost effective for the customer. Therefore, while this customer is included in the main analysis of this report, the report also includes information about what might occur if the customer were not served. Because the cemetery is located at the end of the Phase 3 project, a scenario excluding that customer, as well as some smaller CPA customers nearby, was evaluated. That scenario assumed lower capital costs for a shorter pipeline. For the scaled-down project, a recycled water rate that is 95 percent of CPA’s potable water rate would result in reliability rate of zero. For the scaled-back project, any recycled water rate greater than 70 percent of the potable water rate yields more favorable economic feasibility than the full Phase 3 Expansion Project. The preliminary rates analysis completed to date was cursory and did not include a full cost of service study. A robust study, recommended in this report, may result in a different rate design, and therefore economic feasibility of Phase 3. The Recycled Water Strategic Plan will compare the full Phase 3 Expansion Project to other potential water reuse alternatives. Proceeding with a scaled-down Phase 3 project needs to be weighed against the potential benefits the full project facilities may provide in the future. Business Plan for Phase 3 Expansion Project Executive Summary FINAL July 2018 iv Risk Assessment A risk assessment model was developed to analyze the probabilities that Phase 3 will be economically feasible for varying conditions including recycled water demand, construction costs, and assumptions related to discrete events like the external funding. Under this model, the recycled water rate is fixed at 60 percent of CPA’s potable rates to match groundwater production charges. The model utilized Monte Carlo simulations to define trends and predictions for annual costs and benefits at different time steps. The results of risk assessment modeling are summarized in Figure ES-3. The reliability rate is displayed on the vertical axis. This represents the rate that would be charged to the potable water customers in addition to the base potable water rate, to fund the increased reliability of diversifying CPA’s water supplies with a local drought-proof water supply. This analysis considers the potable reliability enhancement cost separately from the potable water rates. In reality, we anticipate that the cost would be charged to potable water users. A potable reliability enhancement rate of $150 per AF of potable water is consistent with the expectation that a low interest loan is likely. $150 per AF ($0.34 per ccf) is approximately a 3-4 percent increase on a typical residential bill in 2018. The analysis shows the project is economically feasible with no grants or loans if a potable reliability enhancement rate, or “reliability rate”, of about $225 per AF ($0.52 per ccf) in the early years of the project is acceptable. The potable reliability enhancement rate decreases over time because the CPA potable water rate to SFPUC wholesale water rate ratio decreases. Figure ES - 3: Reliability Enhancement Rate Over Time Given Funding Scenarios Business Plan for Phase 3 Expansion Project Executive Summary FINAL July 2018 v Mitigation Strategies The results of the risk assessment modeling indicate Phase 3 will be economically feasible for several scenarios where external funding is received. However, if continued operation of the recycled water project becomes infeasible, there are three mitigation strategies within the control of the CPA. The first strategy is to raise the recycled water rate if supported by a cost of service study. The second mitigation strategy is to further expand the use of non-potable water beyond Phase 3. Depending on construction challenges, a high throughput may yield lower costs system-wide. The Recycled Water Strategic Plan includes high-level feasibility studies for several scenarios that expand the distribution system beyond Palo Alto’s service territory including Los Altos, Mountain View, and East Palo Alto. Stanford University may have some limited demand for non-potable water in the future as well. The third mitigation strategy is to re-purpose the Phase 3 facilities. For example, an alternative use for Phase 3 facilities could be transport of advanced treated recycled water to groundwater recharge locations in an indirect potable reuse (IPR) project. This concept will be studied in the IPR Feasibility Study and Recycled Water Strategic Plan (both currently underway, July 2018). Recommendations Based upon the work conducted in this Business Plan the following actions are recommended: · Evaluate a scaled-down project that excludes the customer currently using groundwater taking into consideration the water reuse alternative results in the Recycled Water Strategic Plan (currently underway, April 2018). · Conduct a rigorous cost of service study to refine the estimated recycled water revenue, and update the cost versus benefit calculation. · Continue aggressive pursuit of external funding, including grants and low interest loans. · Continue identification and evaluation of additional uses that might be served recycled water from the Phase 3 Expansion Project. · Evaluate incorporation of Phase 3 facilities into a future groundwater recharge project in the Indirect Potable Reuse Feasibility Study (currently underway, July 2018). · Evaluate incorporation of Phase 3 facilities into a future Direct Potable Reuse (DPR) facility as part of the Northwest County Recycled Water Strategic Plan (currently underway, July 2018). · Complete the Northwest County Recycled Water Strategic Plan (currently underway, July 2018) to compare Phase 3 to other recycled water use alternatives. Business Plan for Phase 3 Expansion Project Chapter 1 Background FINAL July 2018 1-1 Chapter 1 Background 1.1 Northwest County Recycled Water Strategic Plan The Northwest County Recycled Water Strategic Plan Project (Project) is being undertaken by the City of Palo Alto (CPA), in collaboration with the Santa Clara Valley Water District (District), with the purpose of updating CPA’s 1992 Recycled Water Master Plan, assessing the feasibility of utilizing recycled water for groundwater recharge in an indirect potable reuse (IPR) project, and ushering Phase 3 of the recycled water expansion through financial planning, preliminary design and funding, culminating in a Recycled Water Strategic Plan. Construction cost estimates for this Business Plan were developed in a 30 percent engineering design documented in the Phase 3 Preliminary Design Report. 1.2 Phase 3 Expansion Project The proposed Phase 3 Expansion Project includes over 10 miles of transmission and distribution pipelines, two pump stations, and customer connections to deliver around 1,000 acre feet per year (AFY) of recycled water to the Stanford Research Park, in the southwest area of the CPA. The Phase 3 system would build off and connect to the Phase 2 transmission main (the Mountain View/Moffett Fields pipeline). The project was first identified in a 2008 Recycled Water Facilities Plan (RMC 2008) that was then converted to a Title XVI compliant Feasibility Study in May 2012 (Palo Alto 2012). The Program Environmental Impact Report for the Phase 3 Expansion Project facilities was certified in September 2015 (RMC 2015). The primary purpose of extending the recycled water system into CPA would be to maximize recycled water as a supplemental water supply, which would reduce reliance on imported supplies and improve water supply reliability during drought conditions. In July 2017, CPA added an additional 800-foot segment, formerly the Embarcadero Road Extension, into the Phase 3 Expansion Project. This segment would serve auto dealerships and the Baylands Athletic Center close to the Palo Alto Regional Water Quality Control Plant (RWQCP). Figure 1-1 shows the proposed Phase 3 Expansion Project facilities including this additional segment. Business Plan for Phase 3 Expansion Project Chapter 1 Background FINAL July 2018 1-2 Figure 1-1: Phase 3 Expansion Recycled Water Pipeline Business Plan for Phase 3 Expansion Project Chapter 1 Background FINAL July 2018 1-3 1.3 Purpose of Business Plan There are several key issues that must be addressed to assess the long-term feasibility of the Phase 3 Expansion Project. The general approach employed was to initiate preliminary design to the extent necessary to develop an accurate, updated cost estimate for construction and operation and, in parallel, develop this comprehensive Business Plan that assesses project feasibility for a range of possible future conditions in order to: 1) Decide whether or not to proceed with implementation of Phase 3 and; 2) Define the economic risks associated with project implementation. The updated preliminary design cost estimate for construction was used in this Business Plan; this number will be refined as the design development continues. The approach used in this Business Plan to define the economic feasibility of implementing the Phase 3 Project and the risks associated with future changed conditions involved first monetizing the projected value of benefits, identifying the possible ranges for those values, and then comparing the benefit values with total capital and operating costs. A risk assessment model was developed to assess the probabilities of varying values occurring, which in turn predicted the probability of the net present value (NPV) of benefits being greater than the NPV of costs. Finally, mitigation strategies for maintaining economic feasibility in the future were developed. This analysis is based on the full build-out of the Phase 3 pipeline. However, there may be viable projects that include building only a small section of the extension, such as the Embarcadero Road extension to the Baylands Athletic fields, which could be accommodated by the existing backbone pipeline and pump station or a pipeline that does not extend all the way to serve the cemetery. Major questions addressed in this Business Plan include the following: What are the long-term recycled water demands for potential recycled water uses in the vicinity of the Phase 3 Expansion? Chapter 2 Recycled Water Demand Projections What are the updated costs for construction of the Phase 3 facilities considering updated demand projections, water quality requirements and various construction challenges? Chapter 3 Costs vs. Benefits and Preliminary Design Report What is the economic feasibility of implementing the Phase 3 Expansion Project? Chapter 3 Costs vs. Benefits and Chapter 4 Preliminary Rate Analysis What are the ranges of potential costs and benefits for the Phase 3 Expansion Project, and what are the resulting impacts to the potable water customers? Chapter 5 Risk Assessment What are the risks to economic feasibility if changes occur related to demands, water costs, and external funding-in other words, what is the risk of the Phase 3 pipeline becoming a stranded asset? Chapter 5 Risk Assessment What are potential risk mitigation strategies to improve project feasibility or re-purpose Phase 3 Project facilities if future changes negate the economic feasibility of planned recycled water use? Chapter 6 Conclusions and Recommendations Business Plan for Phase 3 Expansion Project Chapter 2 Recycled Water Demand Projections FINAL July 2018 2-1 Chapter 2 Recycled Water Demand Projections This chapter includes a summary of the updated recycled demand projections. A detailed description of the methodology and the database of projected demands listed by customer is included in Appendix A - Customer Demand Update Database. 2.1 Proposed Service Area In updating recycled water demands for the Phase 3 expansion, customers within a quarter-mile of the pipeline alignment included in the 2008 Recycled Water Facilities Plan (Facilities Plan) and associated 2015 EIR were considered. The area reviewed is shown in Figure 2-1. 2.2 2008 Demand Estimate The 2008 Facilities Plan included a market analysis of potential recycled water demand in the proposed Phase 3 service area. Recycled water demand estimates in the Facilities Plan were based on the 2006 Palo Alto Recycled Water Market Survey (Market Survey), which relied on water meter data, acreage analysis for areas without adequate water meter data, and customer surveys of users with high recycled water usage potential. The Facilities Plan refined the recycled water demand estimate from the Market Survey by using updated water use records and customer use information derived from contact with large water users. The projected potential annual recycled water demand from the target customers, shown in Figure 2-2, was estimated to be 916 AFY with 85 percent attributed to irrigation use, and 15 percent split between cooling tower demands and industrial and commercial demands. 2.3 Approach to Updating Demands 2.3.1 Data Review Water use records for Palo Alto’s non-residential customers for 2013, 2015, and 2016 were provided by CPA. These years were selected as being representative of demands prior to water use restrictions enacted because of the recent drought (2013), demands at the height of the drought caused water use restrictions (2015) and demands as drought conditions began to lift (2016). Palo Alto provided data for two different types of meters: W4 and W7. W4 meters are non-residential meters, which may include commercial, industrial and institutional uses. W7 meters are specifically for irrigation. Some customers have both W4 and W7 meters, while others have W4 meters that serve both indoor and irrigation demands. In addition to reviewing existing water use for customers in the service area, the Palo Alto Planning Department was consulted to identify re-development plans that could change the customer base and thereby impact future recycled water demand. Currently there are no firm plans within the study area that would change water use, and thus no adjustments to the existing use to account for land use changes were made. Modifications to the pipeline alignment proposed in 2008 are noted in Figure 2-3. Business Plan for Phase 3 Expansion Project Chapter 2 Recycled Water Demand Projections FINAL July 2018 2-2 Figure 2-1: EIR Alignment and ¼ Mile Buffer Business Plan for Phase 3 Expansion Project Chapter 2 Recycled Water Demand Projections FINAL July 2018 2-3 Figure 2-2: Target Recycled Water Users from 2008 Facilities Plan Recommended Project Source: RMC, 2008. Business Plan for Phase 3 Expansion Project Chapter 2 Recycled Water Demand Projections FINAL July 2018 2-4 Figure 2-3: Phase 3 Alignment Modifications Business Plan for Phase 3 Expansion Project Chapter 2 Recycled Water Demand Projections FINAL July 2018 2-5 2.3.2 Demand Estimate Methodologies The water uses that are potentially convertible to recycled water are irrigation, cooling towers, toilet flushing for dual plumbed facilities and industrial process water demands. Recycled water demand for each water use type was determined based on the customer type and meter type at that customer. Customers were broadly categorized into four types: · General – All potentially convertible customers that did not fall into one of the categories below were considered general customers. · Park – These customers were identified as parks through the customer name and address linked with their meter. · School – These customers were identified as schools through the customer name and address linked with their meter. · Median – Medians were identified through satellite imagery analysis. 2.3.3 Net Use Factor Factors of use were applied to each customer to account for potential issues with implementing recycled water that could prevent serving every potential recycled water use identified along the proposed alignment. This factor is less than or equal to 1 and was multiplied by each customer’s estimated demand for irrigation, industrial, cooling tower, or dual plumbing use to yield a more probable demand for the overall Phase 3 expansion. 2.3.4 Rebound Factor The water meter data used for this analysis is from 2016. While 2016 was a fairly average year for rainfall, 2012 through 2015 was a period of severe drought throughout California that triggered both state and local water restrictions. Many water use restrictions implemented during the drought were still in effect in 2016, likely suppressing the water use shown in the CPA’s metered data. Irrigation demands are likely to rebound following the lifting of drought restrictions. It is assumed that the rebound in irrigation use will follow the trend projected for the CPA’s overall water use. The overall water use rebound projected for Palo Alto, shown in Figure 2-4, predicts an initial increase followed by a decrease assuming additional water use efficiency measures are implemented. A 7.5 percent increase in demand over current demands is the average rebound projected in the period from 2020 through 2040. Thus, a 7.5 percent increase in irrigation demands was incorporated into the recycled water demand estimate. Business Plan for Phase 3 Expansion Project Chapter 2 Recycled Water Demand Projections FINAL July 2018 2-6 Figure 2-4: Historical and Projected Water Demand Served by the CPA 2.4 Updated Potential Phase 3 Demands 2.4.1 Annual Average and Peak Demands Applying the demand estimate methodologies and factors discussed above yields a potential annual average recycled water demand of 810 AFY for Palo Alto’s Phase 3 recycled water system service area. The updated target recycled water users are shown in Figure 2-5. Estimated potential recycled water demand for each customer, including a breakdown of total demand for each customer, is included in Appendix A -Customer Demand Update Database. The peak month for potable demand from the 2016 water use data was August. This is the maximum demand month. The maximum day demand, defined as the average daily demand over August 2016 (the peak month), for the Phase 3 service area is 1.5 mgd. - 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000 19 8 8 19 9 0 19 9 2 19 9 4 19 9 6 19 9 8 20 0 0 20 0 2 20 0 4 20 0 6 20 0 8 20 1 0 20 1 2 20 1 4 20 1 6 20 1 8 20 2 0 20 2 2 20 2 4 20 2 6 20 2 8 20 3 0 20 3 2 20 3 4 20 3 6 20 3 8 20 4 0 De m a n d ( A F Y ) Historical Demand Projected Demand Business Plan for Phase 3 Expansion Project Chapter 2 Recycled Water Demand Projections FINAL July 2018 2-7 Figure 2-5: Updated Alignment and Recommended Project Target Recycled Water Uses Business Plan for Phase 3 Expansion Project Chapter 2 Recycled Water Demand Projections FINAL July 2018 2-8 2.5 Other System Demands CPA’s Phase 3 recycled water system is connected hydraulically to Phases 1 and 2 of the system. While demand estimates for these phases are not part of this Business Plan, they must be considered in the hydraulic modeling and preliminary design of the Phase 3 system. 2.5.1 Phase 1 and the Embarcadero Road Extension Demands upstream of the Phase 3 connection are considered part of Phase 1. These demands were estimated from historical use from large customers such as Greer Park and for the proposed extension on Embarcadero Road to the auto-dealerships and an athletic center. Average annual recycled water demand for these customers is estimated at 114 AF. 2.5.2 Phase 2 and Mountain View Future Demands Phase 2 of the recycled water system serves customers in Mountain View. While Mountain View is planning on expanding their recycled water system over the next several years, for the purposes of the Phase 3 preliminary design (as directed by CPA), Mountain View’s peak demand is modeled to be roughly equal to their historical peak hour demand of 2,083 gpm. 2.6 Summary of Demands Table 2-1 includes a summary of the updated demand projections for the project as annual demand and average day, maximum month demand. As discussed previously, it was decided in July 2017 to incorporate the Embarcadero Road Extension project into the Phase 3 Expansion Project. Unless noted otherwise, this Business Plan always assumes the Embarcadero Road Extension is included in the Phase 3 project. Table 2-2 includes a summary of the five largest projected recycled water users from the total annual demands; 40percent of the total annual demand comes from the top five customers. Table 2-1: Summary of Updated Demand Projections Total Annual Demand (AF) Average Day, Maximum Month Demand (mgd) Phase 3 Expansion Project 810 1.5 Embarcadero Road Extension 114 0.1 Total 924 1.6 Table 2-2: Largest Projected Recycled Water Users Potential Phase 3 Customer Total Annual Demand (AF) Customer 1 167 Customer 2 74 Customer 3 69 Customer 4 41 Customer 5 20 Total of Top 5 Potential Customers 371 Business Plan for Phase 3 Expansion Project Chapter 3 Costs vs. Benefits FINAL July 2018 3-1 Chapter 3 Costs vs. Benefits As previously indicated, the purpose of this Business Plan is to assess the economic feasibility of constructing the Phase 3 Expansion Project to extend recycled water service from the Regional Water Quality Control Plant (RWQCP) to the Stanford Research Park in the southwest area of Palo Alto. The Phase 3 Project should be considered economically feasible if the total monetized value of benefits exceeds the total life cycle costs of the project. Key questions to be answered in this Business Plan are the following: · What conditions are necessary for the total value of benefits to exceed the total costs of the project? · What is the risk of those conditions changing in the future such that benefits no longer exceed costs? This chapter defines the separate components that make up the costs and benefits, identifies the range of conditions that should be assumed for the various components and answers the first question above. The probability of conditions favorable to project feasibility occurring and the risk of those conditions changing in the future are evaluated in Chapter 5 utilizing risk assessment modeling. 3.1 Cost and Benefit Components The separate components that make up the total costs and total benefits are presented on the following figure. As indicated, costs and benefits can be categorized as direct or indirect. Direct costs are being compared with direct benefits in this Business Plan to ascertain feasibility. The sizes of the rectangles are illustrative only and are not proportional to actual estimates which are simulated using probabilities. Indirect costs related to environmental and construction impacts have been considered in preparation of the Environmental Impact Report (EIR) for the Project. Customer connection retrofits required on private property for recycled water use are included in the cost estimate for the Project; these can range in cost from $5,000-$15,000 per site. Indirect benefits related to environmental enhancements, construction jobs and improvements to the regional economy are not accounted for, but descriptions of these benefits should be captured in applications for external funding. Business Plan for Phase 3 Expansion Project Chapter 3 Costs vs. Benefits FINAL July 2018 3-2 Figure 3-1: Comparison of Costs and Benefits to Ascertain Feasibility Direct costs and benefits are shown in Figure 3-1. Indirect costs, such as environmental or construction related impacts, and indirect benefits, such as environmental enhancements or construction jobs, are not captured in this figure. The feasibility threshold is the point at which the total value of direct benefits exceeds the total direct costs. Net benefits are the amount that direct benefits exceed direct costs. Typically, return on investment (ROI) is defined by the value for net benefits divided by total direct costs. 3.2 Key Assumptions The key assumptions and range of conditions utilized in conducting this analysis of direct costs vs. direct benefits and the risk modeling in Chapter 5 are described herein. · Financial Terms. The assumed start date for Phase 3 is January 2020, and net present values (NPVs) are calculated for that date. The assumed planning horizon is 30 years; all facilities are assumed to have a life of at least that long. Inflation rates are assumed to be 3 percent and financing of capital costs assumes bonds would be floated for a 30-year term at a 4 percent interest rate. NPV is used to develop a comparison between costs and benefits for a discrete example. · Recycled Water Demand. As indicated in Chapter 2, the average annual recycled water demand for the area to be served by the Phase 3 Project is estimated to be about 924 acre feet per year (AFY), with a maximum day demand of about 1.6 mgd. For this analysis, a bell-shaped curve is assumed for input of annual recycled water demand with one standard deviation equal to 10 percent of demand, or 92 AFY. 3.3 Direct Costs 3.3.1 Construction Costs The preliminary design resulted in estimated costs to construct the Phase 3 Project of $35,600,000 (2017$), excluding the Embarcadero Road Extension. The level of design conducted to develop this estimate is considered Class 4 according to guidelines of the American Association of Cost Engineers (AACE) and is has an accuracy range of -20 to +30 percent (AACE No. 56R-08). The CPA made Costs • Construction Costs • Other Capital Costs • Energy Costs • Other O&M Costs • Loss of Potable Water Revenue Benefits • External Funding • Avoided Cost of Wastewater Discharges • Recycled Water Revenue • Avoided Cost of Water Purchases • System Reliability Enhancement Business Plan for Phase 3 Expansion Project Chapter 3 Costs vs. Benefits FINAL July 2018 3-3 previous commitments to deliver enhanced recycled water quality with a 50/50 blend of tertiary treated recycled water and reverse osmosis (RO) treated recycled water to all of its existing and future recycled water customers. This cost does not include planned improvements at the RWQCP to provide partial treatment of the recycled water with RO to reduce salinity. The preliminary design costs were developed assuming all irrigation customers receive water delivered on demand during an overnight delivery window. The cemetery maintains onsite storage that may allow recycled water to be delivered during the daytime window, when other demands on the recycled water system are lower. It is estimated that moving the cemetery to daytime delivery would reduce the construction costs for the pipelines and pump stations by 8 percent to an estimated $32,960,000 (2017$), excluding the Embarcadero Road Extension. Including the Embarcadero Road Extension, the estimated construction cost is $34,100,000 (2017$). Assuming an inflation rate of 3 percent, by January of 2020 the estimated 2017 construction cost of $34,100,000 will be approximately $36,800,000 (2020$). Assuming this cost is financed with 30-year bonds at 4 percent interest, the amortized cost will be about $2,100,000 per year. 3.3.2 Other Capital Costs Other capital costs include engineering design, construction management, legal and administration related to project construction. The total of other capital costs is assumed to be 20 percent of the construction cost, or $7,300,000 (2020$), which equates to an amortized cost of about $425,000 per year. 3.3.3 Energy Cost Recycled water will be pumped from Palo Alto’s Regional Water Quality Control Plant (RWQCP). The pressure will be boosted from an inline pump station along the route of the Phase 3 pipeline. The total estimated pumping energy to supply recycled water to the average annual demand of 924 AF is 480,350 kilowatt-hours (kWhs). Assuming pumping energy is proportional to recycled water demand, this usage equates to a ratio of 520 kWh/AF. As described in Chapter 2, a small amount of recycled water demand will occur year-round for industrial cooling and dual plumbing uses, but the major demand will be for irrigation uses during the dry months of the year. Palo Alto’s current electricity rate for large non- residential users during the summer is $0.098/kWh. This rate is expected to go up by 14 percent in 2018 and 7 percent in 2019 to $0.12/kWh by 2020 (Dailey May 2017). Applying the usage ratio of 520 kWh/AF, the energy costs will be $62/AF by 2020. Thus, for the projected average annual demand of 924 AFY, the energy costs are projected to be about $58,000 per year, which equates at an NPV of $1,680,000. 3.3.4 Other O&M Costs Other O&M costs for the pump stations and pipelines to be constructed in the Phase 3 Project, including required staffing and equipment, are assumed to be 0.6 percent of the total construction cost annually. Thus, these costs are projected to be about $191,000 per year, which equates to an NPV of $5,560,000. 3.3.5 Loss of Water Revenue From Palo Alto’s FY 2018 Water Utility Financial Plan, the 2017 volumetric water rate for irrigation (W- 7) customers is $9.08/CCF, where one CCF = one hundred cubic feet. According to this reference, this volumetric rate is projected to go up by 4 percent in 2018 and 6 percent in 2019 (Palo Alto 2016). Thus, the potable water rate for irrigation customers will be $10.00/CCF by January of 2020. This equates to a value of about $4,356/AF for potable water provided by the City of Palo Alto. The only irrigation customer in the area to be served by the Phase 3 Project not currently utilizing the Palo Alto’s potable supply is the groundwater user, which utilizes local groundwater. The cemetery’s current water demand makes up about 167 AFY of the total average annual demand of 924 AFY projected for the Phase 3 Project. The cemetery paid the Santa Clara Valley Water District (SCVWD) a rate of $1,072/AF for this groundwater supply over the past year. By 2020 this rate is expected to go up to $1,414/AF (Dailey Business Plan for Phase 3 Expansion Project Chapter 3 Costs vs. Benefits FINAL July 2018 3-4 March 2018), which means SCVWD would forego $236,000 per year by 2020 if Phase 3 is implemented. Any benefits to SCVWD from the cemetery ceasing pumping (and thereby keeping more water in the groundwater basin) have not be quantified or included. Assuming average annual demand conditions and the $4,356/AF water rate by 2020, the annual loss of potable water revenue for the CPA is $3,300,000 per year, which equates to an NPV of about $103,000,000. 3.4 Direct Benefits 3.4.1 External Funding The Phase 3 Project may be eligible for one or more of the following funding programs: · State Revolving Funds (SRF) loan · State grants · Federal grants If State Revolving Funds (SRF) are secured the interest rate for capital improvements would be ½ of the State’s rate for general obligation bonds, currently about 1.8 percent. If all capital costs are funded using this mechanism, the total annual capital costs would go down from $2,550,000 to about $1,910,000, a savings of about $640,000 per year. This annual savings equals an NPV of about $12,400,000. It is assumed that funding from State and Federal grants could range from 0 percent up to a maximum of about 35 percent of the total construction cost, which would equal about $12,900,000. If this amount were amortized it would equate to a benefit of about $743,000 per year, assuming 4 percent interest or $558,000 assuming 1.8 percent interest. 3.4.2 Avoided Cost of Wastewater Discharges The San Francisco Bay Regional Water Quality Control Board (RWQCB) generally recognizes the benefit of maximizing the use of recycled water and minimizing discharges of treated wastewater to the Bay. Palo Alto’s RWQCP provides tertiary treatment and, therefore, effluent discharged from the RWQCP is relatively high in quality. However, the RWQCB is currently assessing the Bay’s assimilative capacity for nutrients discharged from Bay Area wastewater treatment plants, and it may be necessary for the RWQCP to reduce levels of nutrients, particularly nitrogen, in the future. If nitrogen removal is required at the RWQCP, it is expected that the cost of removal will be in the range of $7.00 to $8.00 per pound of nitrogen removed and that the value of this benefit would be about $300/AF if the plant’s tertiary treated effluent were recycled rather than discharged to the Bay. The costs reflect new equipment needed and are largely fixed; installation depends on future regulations. For the Phase 3 Project, however, one-half of the recycled water flow is expected to be treated with RO to reduce salinity of the supply provided to Phase 3 customers. Assuming the majority of nutrients are removed with the RO process and discharged with RO concentrate back into the plant effluent, the resulting value of this benefit would be up to $150/AF, if nutrient removal is ultimately required. For the average annual demand of 924 AFY, this benefit would equal about $138,600 per year, which equates to an NPV of about $4,040,000. 3.4.3 Recycled Water Revenue The City of Mountain View currently delivers recycled water produced from the RWQCP for a rate equal to 55 percent of its commercial potable water rate. For the Phase 3 Project, and for Mountain View in the future, when one-half of the recycled water produced at the RWQCP receives RO treatment, the water quality will be significantly enhanced, and the value of this supply will also be enhanced. For purposes of this analysis, it is assumed that Phase 3 customers receiving enhanced recycled water will be charged a rate equal to 60 percent of CPA’s potable water rate, which would be equal to $2,614 by 2020. For the average annual demand of 924 AFY, the value of this benefit would be $2,400,000 per year, which equates to NPVs of $75,600,000. The rate used here is illustrative only; Chapter 4 includes a more in- depth discussion of preliminary rates. Rates will be set in a comprehensive Cost of Service Analysis and will be consistent with the requirements of Proposition 218. Business Plan for Phase 3 Expansion Project Chapter 3 Costs vs. Benefits FINAL July 2018 3-5 3.4.4 Avoided Cost of Water Purchases As previously explained, all of the customers to be served recycled water with the Phase 3 project (except the cemetery) are currently utilizing potable water from CPA purchased from the San Francisco Public Utilities Commission (SFPUC). With implementation of the Phase 3 Project, CPA will be able to reduce its purchase of SFPUC supply. The cost of the SFPUC supply is projected to be $1,949/AF by January of 2020 so the value of this benefit will be about $1,475,000 in average demand years, which equates to an NPV of $49,900,000. 3.4.5 Potable Reliability Enhancement During droughts, the City’s existing water sources may offer reduced supplies, necessitating conservation measures by potable water customers. Because a recycled water system expansion would reduce demand for potable water on a consistent basis (including during drought years), the expansion “frees up” potable water supplies for use by water customers who cannot use recycled water. This improves the reliability of the potable water supply systemwide, reducing the need for conservation measures. This benefit is referred to as Potable Reliability Enhancement. For purposes of this Plan, the cost of providing the Potable Reliability Enhancement Benefit is assumed to equal the difference between the quantified costs and benefits of the project. Furthermore, it is assumed that the full amount of these costs will be collectable from potable customers as an actual expense to CPA of enhancing potable supply reliability. A separate cost of service study will be necessary to determine the amount of project costs allocated system-wide. A reliability rate of $150/AF applied to the potable water rate is consistent with the expectation that a low interest loan is likely. $150/AF ($0.34 per ccf) is approximately a 3-4 percent increase on a typical residential bill in 2018. The analysis shows the project is economically feasible with no grants or loans if a reliability rate of about $225/AF ($0.52 per ccf) in the early years of the project is acceptable. In addition to the benefits of increased revenue or savings there are socioeconomic benefits of improved reliability system-wide if recycled water rather than potable water is supplied for non-potable uses. This benefit is sometimes called a welfare loss. “Welfare loss estimates are based on the relationships that capture the amount consumers would pay to avoid a shortage of a given magnitude. Economists refer to this value as ‘willingness to pay’ (WTP)” (Sunding 2017). While not relevant to a cost of service analysis, studies on this concept provide useful data at the feasibility study stage. The SCVWD recently conducted a random survey of 400 voters of Santa Clara County and found that, generally, there was support for improving water supply reliability and support for a small rate increase of $5 to $10 per month to accomplish that objective (EMC 2017). A previous survey taken in 1994 by the California Urban Water Agencies showed, on average, that California residents were willing to pay $12 to $17 more per month to ensure reliable water supplies, which in today’s dollars equates to a range of $20 to $28 per month (Barakat 1994). For current potable water rates, these values would equal about $700/AF to $1,000/AF, significantly greater than the project reliability rate range of $150 to $225/AF. Another recent study of the value of reliability was published in the Journal of the Association of Environmental and Resource Economists. This study was conducted in urban areas of California serving over 20 million customers, and it identified “welfare losses for an annual disruption range from an average of $1,458 per acre-foot of shortage for a 10 percent supply disruption to an average of $3,426 per acre-foot of shortage for a 30% supply disruption…” (Buck 2016). For purposes of this Business Plan, a range of $0 to $700/AF has been assumed for the value of this benefit. For the average potable water demand remaining after the Phase 3 project is online, 10,000 AF, this benefit would range from $0 to $7,000,000 per year, which equates to an NPV range of $0 to $203,900,000. Business Plan for Phase 3 Expansion Project Chapter 3 Costs vs. Benefits FINAL July 2018 3-6 3.5 Total Costs versus Total Benefits Table 3-1 and Table 3-2 provide summaries of NPVs for direct costs and direct benefits specifically for the projected average annual recycled water demand of 924 AFY. Table 3-1: Summary of Net Present Value of Direct Costs Direct Cost NPV Variability Based on Demand Other Variability Construction $36,800,000 n/a -20% to +30% per AACE curve Other Capital Cost $7,400,000 n/a Proportional to construction cost Energy $1,700,000 $62/AF in 2020 n/a Other O&M $5,600,000 n/a Proportional to construction cost Potable Revenue Loss (CPA)a $103,200,000 $4,356/AF in 2020 n/a Total Costs $154,700,000 a. Revenue loss to SCVWD for reduction in groundwater pumping fees from the cemetery is not included in the costs but has a NPV of $9,800,000. Table 3-2: Summary of Net Present Value of Direct Benefits Direct Benefit NPV Variability Based on Demand Other Variability External: SRF Loana $0 - $12,500,000 n/a Upper limit proportional to total capital costs External: Grant $0 - $12,900,000 n/a Upper limit proportional to total construction costs Avoided Wastewater Treatment $0 - $4,100,000 Upper limit of $150/AF Uncertainty of future regulations RW Revenue $75,600,000 $2,614/AF in 2020 n/a Avoided SFPUC Purchases $49,900,000 $1,949/AF in 2020 n/a Other Local Grant Funding $0 - $10,000,000 n/a n/a Reliability Fund $0 - $203,900,000 Upper limit of $700/AF in 2020 n/a Total Benefits $125,500,000 - $368,900,000 a. Benefit from SRF loan represents the cost savings that the project would realize with capital financing at an interest rate of 1.8 percent compared with conventional financing with an interest rate of 4 percent. As shown in Tables 3-1 and 3-2, for the projected average annual recycled water demand of 924 AFY, the total NPV of direct costs is estimated to be about $154.7 million, but the total estimated NPV of direct benefits has a wide range, from about $125.5 million to $368.9 million. The results in the two tables show that, for a fixed recycled water demand, the benefits may or may not exceed the cost but the results do not incorporate the impact of varying demands. Likewise these results do not reveal anything about the probability of economic feasibility nor the future economic risk. The probabilities of various outcomes are evaluated using Monte Carlo simulations presented in Chapter 5. Business Plan for Phase 3 Expansion Project Chapter 3 Costs vs. Benefits FINAL July 2018 3-7 An example scenario to help understand the results presented in Chapter 4 and Chapter 5 is provided in Table 3-3 and Table 3-4. These results represent a single model run from the Risk Assessment Model. Table 3-3: Example Scenario Net Present Value of Direct Costs Direct Cost NPV Construction a $41,700,000 Other Capital Cost a $8,400,000 Energy $1,700,000 Other O&M $5,600,000 Potable Revenue Loss (CPA)a $103,200,000 Total Costs $160,600,000 a. NPV of Construction and of Other Capital Costs are based on conventional financing with an interest rate of 4 percent. Table 3-4: Example Scenario Net Present Value of Direct Benefits Direct Benefit NPV External: SRF Loan a $12,500,000 External: 5% State Grant $1,900,000 Avoided Wastewater Treatment $0 RW Revenue $75,600,000 Avoided SFPUC Purchases $49,900,000 Potable Reliability Enhancement $203,900,000 Total Benefits $343,800,000 a. Benefit from SRF loan represents the cost savings that the project would realize with capital financing at an interest rate of 1.8 percent compared with conventional financing with an interest rate of 4 percent. In this example the total benefits exceed the total costs; this indicates that the reliability rate could be reduced to less than $700/AF with benefits equal to costs. A reliability rate of $71/AF yields a NPV of $20,700,000, which changes the total benefits to $160,600,000, matching the total costs. Business Plan for Phase 3 Expansion Project Chapter 4 Preliminary Rate Analysis FINAL July 2018 4-1 Chapter 4 Preliminary Rate Analysis 4.1 Background on Recycled Water Rates in Palo Alto An important aspect of protecting against the risk of costs exceeding benefits is appropriate recycled water rate setting. While CPA provides recycled water service to some City facilities, there is no recycled water rate structure in place. Rates developed for Phase 3 must proportionately reflect cost of service, in compliance with Propositions 218 and 26, and contribute to the success of implementing recycled water within CPA. 4.2 Purpose of the Preliminary Rate Analysis The purpose of the preliminary rate analysis was to evaluate costs and revenues to determine a potential rate structure for the Phase 3 system. The rate analysis considered cash flows over the first 21 years of operation (from 2020 to 2040) and incorporated available information about future rates for SFPUC, CPA, and SCVWD. For potential revenues, the preliminary rate analysis considered the following: · Recycled water sales (volumetric) · Recycled water monthly service charges (per meter) · Avoided SFPUC wholesale water purchases · Potable reliability enhancement For potential costs, the preliminary rate analysis considered the following: · Capital debt for construction of the Phase 3 system, financed at SRF borrowing rate of 1.8percent · Energy usage · Other O&M costs (e.g. labor, chemicals) · Lost potable water sales revenue (volumetric) · Lost potable water monthly service charges (per meter) 4.3 Summary of Revenue Inputs 4.3.1 Recycled Water Sales The revenue from recycled water sales was based on recycled water being offered at a reduced amount compared to the CPA potable water rate. The reduced amount was determined through the rate analysis such that the cemetery is charged an equivalent amount once they convert from groundwater to recycled water. Using SCVWD projected groundwater pumping charges and projected CPA potable water rates, the recycled water rate would be around 60 percent of the CPA potable water rate to maintain parity with groundwater pumping charges. Based upon a review of other recycled water programs in California, rates for recycled water are typically 60 to 90 percent of potable water rates. 4.3.2 Recycled Water Monthly Service Charges Similar to the CPA potable water system, a fixed monthly service charge equivalent to the potable water monthly charge for every recycled water meter was assumed. Avoided SFPUC Wholesale Water Purchase By using the locally available recycled water, CPA will purchase less wholesale water from SFPUC. The value of the avoided wholesale purchases was determined annually using SFPUC’s projected wholesale rates. Business Plan for Phase 3 Expansion Project Chapter 4 Preliminary Rate Analysis FINAL July 2018 4-2 4.3.3 Potable Reliability Enhancement As is typical with recycled water projects, there is a benefit to all water customers from increasing supply reliability through the incorporation of recycled water into the supply portfolio. The value of this benefit, called the reliability rate, is levied across the potable water customers and, for the purposes of the preliminary rate analysis, was estimated as the difference between the benefits and costs. Due to the various inputs (costs and benefits) changing at different rates, the reliability rate varies annually through the 21-year analysis. As discussed in Chapter 5, the reliability rate will also change with variations to the projected demands, costs, and funding/financing options. Since all customers on the RWS would benefit from reduced demand on the Tuolumne River and increased reliability on the system, there may be opportunities to share some project costs with other stakeholders. 4.4 Summary of Cost Inputs 4.4.1 Capital Debt for Phase 3 System As discussed in Section 3.3.1, the Phase 3 system construction cost estimate is $35,600,000 (2017$), not including the Embarcadero Road Extension. The groundwater customer’s existing onsite storage allows for daytime deliveries of irrigation water, therefore the modified Phase 3 system construction cost is estimated to be $32,960,000 (2017$), or $34,100,000 (2017$) when including the Embarcadero Road Extension. Including additional capital expenses and assuming SRF financing at 1.8 percent, the annual capital debt service for the Phase 3 system is $1,800,000. For the purposes of the rate analysis, the economic benefits to the project of including the cemetery are credited back to that customer. 4.4.2 Energy Usage and Other O&M Costs for annual energy consumption were included in the rate analysis using estimated energy usage between 450,000-500,000 kwh/year and using projected CPA energy rates. Other O&M costs, primarily labor and chemical usage, were included based on estimates from the Preliminary Design Report for the Phase 3 system. Other O&M costs are escalated assuming inflation. 4.4.3 Lost Potable Water Sales Revenue Converting potable water customers to recycled water customers reduces the potable water sales revenue. For the purposes of the rate analysis, the lost potable water sales revenue was calculated as the difference between the CPA potable water sales rate and the avoided SFPUC wholesale purchase rate multiplied by the amount of potable water displaced with recycled water. The rate analysis used future projections for the CPA potable water rate and SFPUC wholesale purchase rate as described previously. 4.4.4 Lost Potable Water Monthly Service Charges Customers with W-7 (irrigation) meters currently pay a potable monthly meter service charge. Once converted to a recycled water meter, they would instead pay the monthly service charge to the recycled water fund, and cause a loss of revenue to the potable water fund. 4.5 Conclusions from the Preliminary Rate Analysis Given the revenues and costs discussed in the previous sections, and assuming a recycled water rate set at 60 percent of the CPA potable water rate, the preliminary rate analysis shows a potable reliability rate of approximately $1.0 million annually or a 3 percent rate increase. The magnitude of the reliability rate depends heavily on the CPA retail rate to SFPUC wholesale rate ratio. This analysis utilized projected rates from both and did not consider the uncertainty of the relationship between the two, which is CPA’s distribution system rate. The SFPUC wholesale rate is reflected in CPA’s retail rate. If CPA distribution rates increase less than projected, the economic feasibility of the project improves. If the cemetery is excluded from the recycled water system, reducing the annual demand and upfront capital costs, and the rate was set at around 95 percent of the CPA potable water rate, the preliminary rate Business Plan for Phase 3 Expansion Project Chapter 4 Preliminary Rate Analysis FINAL July 2018 4-3 analysis shows a reliability revenue of approximately $706,000 in the first year, then decreasing to $0 by 2030 as the ratio of CPA retail potable water rates to SFPUC wholesale rates decreases over time. Appendix B - Preliminary Rate Analysis Results contains the detailed rate analysis results for 2020-2040 for both the baseline and without groundwater customers. The preliminary rate analysis included a single discrete scenario; the risk assessment modeling described in Chapter 5 examines varying inputs and the resulting impact to the reliability revenue. The preliminary rates analysis completed to date was cursory and did not include a full cost of service study. A robust study, recommended in this report, may result in a different rate design, and therefore a different estimate of recycled water revenue. An assessment of Phase 3 economic feasibility will be revised. Business Plan for Phase 3 Expansion Project Chapter 5 Risk Assessment FINAL July 2018 5-1 Chapter 5 Risk Assessment 5.1 Risk Assessment Methodology A Risk Assessment Model was developed specifically for this analysis using GoldSim software, which is a graphical, object-oriented modeling platform often used in water resources applications. Models in GoldSim are built by creating and manipulating built-in objects representing the components of the system being modeled, data, and relationships between the data. The Risk Assessment Model and the mathematical functions it utilizes are depicted in Figure 5-1 and Figure 5-2. One of the main advantages of GoldSim over similar generic tools is its ability to model probabilistically. The Risk Assessment Model evaluates the probability that the Phase 3 Expansion Project will remain cost effective given the range of estimates for the individual components that make up the costs and benefits of the project. The model uses the Monte Carlo simulation technique for generating a range of values using statistical sampling. This approach involves establishing a probability distribution for each of the parameters. The entire system is then simulated a large number (typically thousands) of times. The result is a large number of separate and independent results, called realizations, with each representing an equally likely outcome. The outputs are not single values, but a large number of separate and independent results, represented as probability distributions. Figure 5-1: Risk Assessment Model in GoldSim Business Plan for Phase 3 Expansion Project Chapter 5 Risk Assessment FINAL July 2018 5-2 Figure 5-2: Risk Assessment Model in GoldSim (Part 2) 5.2 Assumed Input Ranges 5.2.1 Overview of Ranges for Costs and Benefits Chapter 3 introduced the various benefit and cost components that were monetized for use in the Risk Assessment Model. Some of the components have probabilities associated with a discrete number of events. For example, the possible inclusion of a Federal grant can be simulated at 35 percent of the construction cost (~$10 million), or with no Federal grant ($0). Each of these discrete events is assigned a probability of occurrence, and the Risk Assessment Model samples one of these outcomes at each realization. Table 5-1 summarizes the discrete events used in the Risk Assessment Model. Business Plan for Phase 3 Expansion Project Chapter 5 Risk Assessment FINAL July 2018 5-3 Table 5-1: Probability of Discrete Events in Risk Assessment Model Value Selected Probability of Occurrence in the Risk Assessment Model State Grant 10% of Construction (~$3M) 80% chance No State Grant 20% chance State Revolving Fund Loan 1.8% Interest Loan 80% chance No Loan 20% chance Federal Grant 35% of Construction (~$10M) 5% chance No Federal Grant 95% chance 5.2.2 Recycled Water Demands Chapter 2 provides information on the detailed methodology that was used to estimate the total recycled water demand for the project (924 AFY). While this was a rigorous approach and includes built in conservativism, real-world experience tells us that demands for water can be different than planned. The Phase 3 recycled water distribution system will have excess capacity due to use of standard pipe sizes and potentially through controlling peak demands (e.g. assigning users to different time slots to offset demand peaks - 8pm to midnight, midnight to 4am). Therefore, for the Risk Assessment Model, a range of recycled water demands was modeled rather than a single predicted value. Figure 5-3 shows the normal distribution assumed for the recycled water demands. Figure 5-3: Range of Recycled Water Demands Used in Risk Assessment Model 700 800 900 1000 1100 1200 AFY Recycled Water Demand 924 AFY Business Plan for Phase 3 Expansion Project Chapter 5 Risk Assessment FINAL July 2018 5-4 5.2.3 Construction Costs As introduced in Chapter 3, the construction cost estimate ($36.8 million in 2020$) is a Class 4 estimate according to guidelines of the American Association of Cost Engineers (AACE) and is considered to have an accuracy range of -20 percent to +30 percent. The accuracy range represents an 80 percent confidence level, with a 50 percent confidence level at the peak (including the contingency). Figure 5-4 shows the skewed distribution assumed for the construction costs. Figure 5-4: Range of Construction Costs used in Risk Assessment Model 5.3 Risk Assessment Modeling Results 5.3.1 Understanding the Modeling Results Figure 5-5 shows an example output from the Risk Assessment Model. The plot shows the difference in the annual costs and benefits (i.e. costs minus benefits) on the x-axis. The difference less than zero (i.e. benefits equal costs) or a net negative value (i.e. benefits are greater than costs) indicates economic feasibility. The y-axis of the plot shows the probability of exceedance. Probability of exceedance is the percentage of modeled scenarios where the condition shown on the x-axis occurred. For the example shown in Figure 5-5, the purple arrows illustrate a 52 percent probability of the annual net costs being at least $0.5 million in the year 2040. In the year 2030, this probability changes to 95 percent (orange arrows). 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 Construction Cost ($ Million) Construction Cost $36.8M Business Plan for Phase 3 Expansion Project Chapter 5 Risk Assessment FINAL July 2018 5-5 Figure 5-5: Example of How to Read an Exceedance Chart An alternative x-axis is the reliability rate that would be used to supply the reliability benefit revenue. This is the annual net cost spread over the remaining potable water customers (around 10,000 AFY) shown as a rate charged per unit of potable water consumed. The exceedance plots can be presented with either annual net costs or reliability rate as the x-axis. The modeling results can also be represented by a bell curve which shows the most frequently occurring event and the overall range of events. The x-axis for the bell curve can be either annual net costs or reliability rate, similar to the exceedance plots. The example shown in Figure 5-6 shows that the most likely occurring reliability rate in the Year 2030 is $100/AF (purple arrow), but it could be as low as $25/AF (green arrow) or as high as $250/AF (red arrow). In ccf, the most likely occurring reliability rate in the Year 2030 is $0.23/ccf (purple arrow), but it could be as low as $0.06/ccf (green arrow) or as high as $0.57/ccf (red arrow) 0.0 0.2 0.4 0.6 0.8 1.0 -1 0 1 2 3 Pr o b a b i l i t y o f E x c e e d i n g Annual Net Costs ($ Million) Exceedance Probability of Annual Net Costs (2040) (2030) (2020) Business Plan for Phase 3 Expansion Project Chapter 5 Risk Assessment FINAL July 2018 5-6 Figure 5-6: Example of How to Read a Bell Curve 5.3.2 Trends Given Range of Recycled Water Demand As discussed in Section 5.2.2, recycled water demands were given a range of values in the Risk Assessment Model rather than a single input. Figure 5-7 shows the correlation between recycled water demand and annual net costs (cost minus revenue). As the recycled water demand rises, the benefits from more demand (primarily increased recycled water sales revenue) increase at a rate greater than any correlated increases in costs (e.g. more pumping energy to move more water). This shows in the scatter plots as a slightly downward trend, meaning less of a difference between costs and revenue. For the scenarios shown in these figures, the recycled water sales rate was 60 percent of potable water rate and the time steps of 2020, 2030, and 2040 are shown. The impact of time as SFPUC and CPA rates increase while capital debt stays constant can be seen for all the realizations as the annual net cost reduces over time. 5.3.3 Trends Given Range of Construction Costs As discussed in Section 5.2.3, construction costs were given a range of values in the Risk Assessment Model rather than a single input. Figure 5-8 shows the correlation between construction cost and annual net costs (costs minus revenue). As the construction cost increases, the costs increase with no increase in benefits (e.g. no additional recycled water revenue, no additional avoided SFPUC purchases, etc.). This causes the deficit between costs and revenues to grow as construction costs increase, seen as an upward trend in the scatter plots. For the scenarios shown in these figures, the recycled water sales rate is 60 percent of potable water rate and the time steps of 2020, 2030, and 2040 are shown. The impact of time as SFPUC and CPA rates increase while capital debt stays constant is true for all the realizations as the annual net cost reduces over time. -100 0 100 200 300 Reliability Rate ($/AF) Probability of Reliability Rate (2040) (2030) (2020) Business Plan for Phase 3 Expansion Project Chapter 5 Risk Assessment FINAL July 2018 5-7 Figure 5-7: Trend in Feasibility as Recycled Water Demand Varies 800 900 1000 1100 Recycled Water Demand (AF/YR) -0.5 0.0 0.5 1.0 1.5 2.0 2.5 3.0 An n u a l N e t C o s t ( $ M i l l i o n ) Recylced Water Demand and Annual Net Cost (2020) No External Funding Loan State Grant & Loan Federal Grant & Loan 800 900 1000 1100 Recycled Water Demand (AF/YR) -0.5 0.0 0.5 1.0 1.5 2.0 2.5 3.0 An n u a l N e t C o s t ( $ M i l l i o n ) Recylced Water Demand and Annual Net Cost (2030) No External Funding Loan State Grant & Loan Federal Grant & Loan 800 900 1000 1100 Recycled Water Demand (AF/YR) -0.5 0.0 0.5 1.0 1.5 2.0 2.5 3.0 An n u a l N e t C o s t ( $ M i l l i o n ) Recylced Water Demand and Annual Net Cost (2040) No External Funding Loan State Grant & Loan Federal Grant & Loan Business Plan for Phase 3 Expansion Project Chapter 5 Risk Assessment FINAL July 2018 5-8 Figure 5-8: Trend in Feasibility as Construction Costs Varies 30 32 34 36 38 40 42 44 46 Construction Cost ($ Million) -0.5 0.0 0.5 1.0 1.5 2.0 2.5 3.0 An n u a l N e t C o s t ( $ M i l l i o n ) Construction Costs and Annual Net Cost (2020) No External Funding Loan State Grant & Loan Federal Grant & Loan 30 32 34 36 38 40 42 44 46 Construction Cost ($ Million) -0.5 0.0 0.5 1.0 1.5 2.0 2.5 3.0 An n u a l N e t C o s t ( $ M i l l i o n ) Construction Costs and Annual Net Cost (2030) No External Funding Loan State Grant & Loan Federal Grant & Loan 30 32 34 36 38 40 42 44 46 Construction Cost ($ Million) -0.5 0.0 0.5 1.0 1.5 2.0 2.5 3.0 An n u a l N e t C o s t ( $ M i l l i o n ) Construction Costs and Annual Net Cost (2040) No External Funding Loan State Grant & Loan Federal Grant & Loan Business Plan for Phase 3 Expansion Project Chapter 5 Risk Assessment FINAL July 2018 5-9 5.3.4 Modeling Results Given Different Time Steps As seen in the scatter plots in Section 5.3.2 and Section 5.3.3, the annual net cost (or similarly, the reliability rate) decreases over time as the capital debt service is held constant but SFPUC and CPA water rates increase. This is seen in aggregate for the various model runs in Figure 5-9. The farther we look into the future, the greater likelihood that the reliability rate will trend towards zero. Figure 5-9: Bell Curves for Reliability Rate in All Modeling Scenarios and at Different Time Steps (Combined Result of Variable Recycled Water Demand and Construction Cost) 5.3.5 Modeling Results Given Different Funding Scenarios Figure 5-10 shows the bell curves at different combinations of funding and financing for the Year 2020. The additional bell curves that illustrate other years (2030 and 2040) are included in Appendix C - Risk Assessment Modeling Results As a summary, Table 5-2 shows the approximate reliability rates given different combinations of funding and financing and time steps. -100 0 100 200 300 Reliability Rate ($/AF) Probability of Reliability Rate (2040) (2030) (2020) Business Plan for Phase 3 Expansion Project Chapter 5 Risk Assessment FINAL July 2018 5-10 Figure 5-10: Bell Curves for Reliability Rate in the Year 2020 Given Different Funding Scenarios Table 5-2: Reliability Rates at Different Time Steps Given Different Funding Scenarios Scenarios 2020 2030 2040 No External Funding $225/AF $175/AF $125/AF Low Interest Loan at 1.8% Borrowing Rate $160/AF $110/AF $75/AF State Grant at 5% of Construction Costs and Low Interest Loan at 1.8% Borrowing Rate $150/AF $100/AF $60/AF Federal Grant at 35% of Construction Costs and Low Interest Loan at 1.8% Borrowing Rate $100/AF $50/AF $15/AF -100 0 100 200 300 Reliability Rate ($/AF) Probability of Reliability Rate (2020) (Federal Grant & Loan) (State Grant & Loan) (Loan) (No External Funding) Business Plan for Phase 3 Expansion Project Chapter 6 Conclusions and Recommendations FINAL July 2018 6-1 Chapter 6 Conclusions and Recommendations 6.1 Business Plan Objectives As described in Chapter 1, major questions needed to be answered in this Business Plan to determine the feasibility of constructing and operating the Phase 3 Expansion Project. These questions and summaries of the answers are as follows: · What are the long-term recycled water demands for potential recycled water uses in the vicinity of the Phase 3 Expansion? The total average annual recycled water demand for uses that would be served by the Phase 3 Project, including uses in the Embarcadero Road area near the RWQCP, is 924 AFY. In the future, if dual-plumbing uses at Stanford University are also served, demand increases by about 17 AFY. Details regarding seasonal and diurnal variations of these user demands are provided in Chapter 2. · What are the updated costs for construction of the Phase 3 facilities considering updated demand projections and various construction challenges? As indicated in Chapter 3, the construction costs are estimated to be $36,800,000 in 2020 dollars. Various cost saving measures have been identified in the Preliminary Design Report that have actually reduced the total estimated cost compared to the 2008 Facilities Plan. The unit cost of the Phase 3 Project (without any outside funding or financing) is estimated to be $3,030/AF in 2020 dollars, which is higher than some projects with limited distribution system piping, but lower than other similar projects in urban settings. · What is the economic feasibility of implementing the Phase 3 Expansion Project? As described in Chapter 3, the Phase 3 Project is considered economically feasible if the total value of project benefits equals or exceeds total project costs. Outside funding, in the form of a low interest loan and/or a grant, is the most significant factor for economic feasibility. With a low interest loan, an expected reliability rate of $150 per AF for the early years of the project is necessary. Without external funding, the expected reliability is $225 per AF. Because the project increases reliability on the RWS, it may be possible to solicit funding from other stakeholders for the reliability benefit. A project that excludes the cemetery may be more economically feasible, but other water reuse alternatives that utilize the full Phase 3 Expansion Project facilities must be fleshed out in the Recycled Water Strategic Plan before a scaled-down Phase 3 is pursued. Further, a cost of service study may result in a different rate design, different estimated recycled water revenue, and revised economic feasibility assessment. · What are the variations in ranges of potential costs and benefits for the Phase 3 Expansion Project and what are the resulting impacts to the potable water customer base? The variations for the Phase 3 Project annual net costs / reliability rate were defined by the risk assessment modeling conducted in Chapter 5. Secondly, CPA must acknowledge the reliability value to all water customers in Palo Alto and on the RWS of a locally-controlled drought-proof supply. · What are the risks to economic feasibility if changes occur related to demands, water costs, and external funding—in other words, what is the risk of the Phase 3 pipeline becoming a stranded asset? The risks are characterized by the range of probabilities defined by the risk assessment modeling in Chapter 5. Construction costs, recycled water demand, and outside funding are all significant variables that impact the economic feasibility of Phase 3 Expansion Project. For the early years of the project, a reliability rate between $60 and $225 per AF is adequate 90 percent of the time. The economic feasibility of the project is expected to improve over time as the CPA retail potable water rate to SFPUC wholesale rate ratio decreases. The Business Plan for Phase 3 Expansion Project Chapter 6 Conclusions and Recommendations FINAL July 2018 6-2 alternative uses for the Phase 3 pipeline will be developed under the next phase of work - the Recycled Water Strategic Plan. · What are potential mitigation strategies to improve project feasibility or re-purpose Phase 3 Project facilities if future changes negate the cost-effectiveness of planned recycled water use? There are three potential mitigation strategies: (1) increasing the price for which recycled water is sold; and (2) expanding the recycled water throughput by expanding to other service territories and (3) finding an alternative use for the Phase 3 Expansion Project facilities. The expansion potentials and alternative uses for the Phase 3 pipeline will be developed under the next phase of work - the Recycled Water Strategic Plan. 6.2 Project Feasibility Assessment Figure 6-1 illustrates the reliability rate given different points in time and funding and financing scenarios. CPA will need to determine an acceptable reliability rate. Assuming CPA secures a low interest state loan, the reliability rate in the early years of the project is about $150 per AF ($0.34 per ccf) or about a 3-4 percent rate increase for potable water customers. The maximum reliability rate in 2020 with no outside funding is $250 per AF ($0.57 per ccf) and the lowest reliability rate in 2040 is about $25 per AF ($0.06 per ccf). The reliability rate for a scaled-down project is therefore lower than for the full Phase 3 Expansion Project. Proceeding with a scaled-down Phase 3 project needs to be weighed against the other water reuse alternatives to be identified in the Recycled Water Strategic Plan because some of those alternatives may rely on the full Phase 3 Expansion Project facilities. Figure 6-1: Most Likely Reliability Rate Over Time Given Funding Scenarios Business Plan for Phase 3 Expansion Project Chapter 6 Conclusions and Recommendations FINAL July 2018 6-3 6.3 Business Plan Recommendations Based upon the work conducted in this Business Plan the following actions are recommended: · Evaluate a scaled-down project that excludes the customer currently using groundwater taking into consideration the water reuse alternative results in the Northwest County Recycled Water Strategic Plan (currently underway, July 2018). · Conduct a rigorous cost of service study to refine the estimated recycled water revenue, and update the cost versus benefit calculation. · Continue aggressive pursuit of external funding, including grants and low interest loans. · Continue identification and evaluation of additional uses that might be served recycled water from the Phase 3 Expansion Project. · Evaluate incorporation of Phase 3 facilities into a future groundwater recharge project in the Indirect Potable Reuse Feasibility Study (currently underway, July 2018). · Evaluate incorporation of Phase 3 facilities into a future Direct Potable Reuse (DPR) facility as part of the Northwest County Recycled Water Strategic Plan (currently underway, July 2018). · Complete the Northwest County Recycled Water Strategic Plan (currently underway, July 2018) to compare Phase 3 to other recycled water use alternatives. Business Plan for Phase 3 Expansion Project References FINAL July 2018 6-1 References American Water Works Association (2008). Water Reuse Rate and Charges: Survey Results. Denver, CO: American Water Works Association. City of Palo Alto. FY 2018 Water Utility Financial Plan, FY 2018 to FY 2027. February 2016. Dailey, Karla. Email to Carrie A. Del Boccio, et al, providing City of Palo Alto’s projected electric rates. May 10, 2017. Dailey, Karla. Email to Randy Raines providing SFPUC’s and SCVWD’s projected water rates. March 30, 2017. Barakat & Chamberlin, Inc. The Value of Water Supply Reliability: Results of Contingent Valuation Survey of Residential Customers. Prepared for California Urban Water Agencies. August 1994. Buck, Steven, Maximilian Auffhammer, Stephen Hamilton, David Sunding. Measuring Welfare Losses from Urban Water Supply Disruptions. Journal of Association of Environmental and Resource Economists. July 27, 2016. EMC Research. Telephone Survey of Santa Clara County Voters Re: Water Conservation. Prepared for Santa Clara Valley Water District. April 2017. Hauenstein, Heidi. 2013. Toilets and Urinals: Response to California Energy Commission 2013 Pre- Rulemaking Application Efficiency Invitation to Participate. Docket Number: 12-AAER-2C; Water Appliances. May 9, 2013. RMC, 2008. City of Palo Alto Recycled Water Facility Plan. December 2008. Sunding, David, Ph.D. Bay Area Socioeconomic Impacts Resulting from Instream Flow Requirements for the Tuolumne River. Prepared for San Francisco Public Utilities Commission by The Brattle Group. March 15, 2017. Appendix A - Customer Demand Update Database Appendix B - Preliminary Rate Analysis Results Appendix C - Risk Assessment Modeling Results ATTACHMENT B Appendix A - Customer Demand Update Database 1. DETAILED METHODOLOGY FOR UPDATED PROJECTED RECYCLED WATER DEMANDS FOR THE PHASE 3 EXPANSION PROJECT 1.1 APPROACH TO UPDATING DEMANDS 1.1.1 Data Review Water use records for Palo Alto’s non-residential customers for 2013, 2015, and 2016 were provided by CPA. These years were selected as being representative of demands prior to water use restrictions enacted because of the recent drought (2013), demands at the height of the drought caused water use restrictions (2015) and demands as drought conditions began to lift (2016). The intent of reviewing data across these years was to try to identify whether the pre-restriction or post-restriction use is a better representation of recycled water potential for this area. The review found that the percent change in water use varied greatly among the customers, and moreover, while some customers exhibited a decrease in usage from 2013 to 2016 with an increase in usage from 2015 to 2016, which was the anticipated pattern, that trend was not consistent. As such, the 2016 data, which represents the most up to date customer base, was used as the basis for estimating potential recycled water demands. Palo Alto provided data for two different types of meters: W4 and W7. W4 meters are non-residential meters, which may include commercial, industrial and institutional uses. W7 meters are specifically for irrigation. Some customers have both W4 and W7 meters, while others have W4 meters that serve both indoor and irrigation demands. The customer use data was summarized by meter numbers. These meter numbers were also included in the GIS shapefile of customer meter locations provided by Palo Alto. Total annual use and peak month (August) use for each customer meter were extracted from the customer use data and joined to the attributes for each meter location in the GIS database developed by CPA and RMC. Thus, the expected water and recycled water demand for each customer is presented spatially in GIS. Modifications to the pipeline alignment proposed in 2008 were proposed as seen in Figure 1. Extensions were proposed for potential recycled water users with at least 20 AFY of demand and within 1500 feet of the existing alignment to be cost effective. Additionally, through the GIS review, adjustments to the previously proposed alignment were identified to keep the proposed pipeline within the public right of way. Both the proposed extensions and portions of the 2008 alignment that have been eliminated due to these adjustments are noted in Figure 1. In addition to reviewing existing water use for customers in the service area, the Palo Alto Planning Department was consulted to identify re-development plans that could change the customer base and thereby impact future recycled water demand. Currently there are no firm plans within the study area that would change water use, and thus no adjustments to the existing use to account for land use changes were made. Section 1.1.2 addresses tentative re-development plans that have been contemplated within the Stanford Research Park. 2 Demand Methodology for Updated Projected Recycled Water Demands for the Phase 3 Expansion Project Figure 1: Phase 3 Alignment Modifications 3 Demand Methodology for Updated Projected Recycled Water Demands for the Phase 3 Expansion Project 1.1.2 Demand Estimate Methodologies The water uses that are potentially convertible to recycled water are irrigation, cooling towers, toilet flushing for dual plumbed facilities and industrial process water demands. Recycled water demand for each water use type was determined based on the customer type and meter type at that customer. Customers were broadly categorized into four types: • General – All customers that did not fall into one of the categories below were considered general customers. • Park – These customers were identified as parks through the customer name and address linked with their meter. • School – These customers were identified as schools through the customer name and address linked with their meter. • Median – Medians were identified through satellite imagery analysis. W7 and W4 meters for non-residential customers were considered as part of the initial estimate for recycled water demands. Each customer was assigned a customer classification, described Table 1and shown for each customer in the demand estimate table presented in this appendix, depending on its customer categorization and water meter. This analysis describes how the recycled water (RW) demand was estimated for that customer. Customers may have multiple customer classifications assigned to them if they have multiple types of demand; for example, a customer may have both irrigation and cooling tower demands and may have analysis types 1A and 3B assigned to it. Table 1: Recycled Water Customer Classification Customer Classification Description 0 No Demand Served by RW. 1A Irrigation. Assumed 100% of 2016 W7, including rebound factor. Use can be met with RW. 1B Irrigation. No W7 meter, so % of W4 use assigned for irrigation portion of demand based on customer type. Includes rebound factor. 1C Irrigation. Special data overrides formula, see customer notes in Appendix A 2 Industrial. Based on customer survey information. 3A Cooling Tower. Based on sq ft of building and cooling tower load assumptions. 3B Cooling Tower. Special data, see customer notes 4 Dual Plumbing. Based on 30% of total water use used for toilet flushing assumption. All demands from type 1A customers with W7 meters are assumed to be irrigation demands, and thus convertible to recycled water. For 1B customers, the amount of demand from the W4 meter deemed convertible to recycled water depends on customer type. Based on an analysis of the percentage of total demand used for irrigation from customers that have both a W4 and a W7 meter, 50% of W4 demands for general and school users are assumed to be for irrigation purposes. Where W4 meters are present for parks and medians, 100% of their demand is attributed to irrigation. For 1C customers, special considerations were used to determine demand. The largest potential irrigation customer in the service area is a cemetery, which was categorized as a 1C customer as it currently operates groundwater wells for irrigation. Irrigation demands for the cemetery were estimated from acreage analysis of their irrigated area. The cemetery’s site is approximately 72 acres, with 75% of that area assumed irrigated. Analysis of evapotranspiration rates in Palo Alto indicate that the annual irrigation demand in this area is 41.3 inches. Thus, total irrigation demand for the cemetery was determined to be 185.9 AFY. 4 Demand Methodology for Updated Projected Recycled Water Demands for the Phase 3 Expansion Project Potential type 2 industrial demands were identified through customer surveys conducted in 2008. Based on data previously provided by an industrial customer, 70% of the water measured by their W4 meter is for manufacturing processes. This customer had expressed interest in using recycled water if the water could meet its bio-science specifications. Several other customers were identified as having industrial uses, and their process water needs were estimated as 8% of combined use as measured by their W4 and W7 meters. The 8% was derived in the 2008 study using water usage information provided by one of the CPA’s major industrial accounts at the time and assumed to be applicable to other industrial customers. Demands for cooling towers included customers previously identified as having cooling towers and customers assumed to have cooling towers as determined by building square footage and number of stories. Using analysis type 3A, buildings over 100,000 square feet and above two stories are assumed to have cooling towers that could use recycled water. The magnitude of cooling tower demand was determined using historical use data from southern California, adjusted for the climate in Palo Alto using Cooling Degree Days (CDD, the number of degrees that a day’s average temperature is above 65°F, which is assumed to be when air conditioning is needed, summed over an entire year). The historical data from several office buildings in Burbank, California showed that the average water demand for cooling towers was .073 AF per 1,000 sq ft of building. Burbank has approximately 4.1 times as many CDDs as Palo Alto, so the Burbank cooling tower use factor was divided by 4.1 to yield a cooling tower use factor of 0.018 AF per 1,000 sq ft for the Palo Alto area. This factor was applied to all large office buildings assumed to have cooling towers in the service area to reach a total cooling tower demand of 54.2 AFY. Several buildings with special circumstances had cooling tower demands that were evaluated using analysis type 3B. There is one customer in the service area known to have dual plumbing and was analyzed as a type 4 customer. It is assumed that 30% of the water measured by its W4 meter is used for toilet flushing that could be converted to recycled water. The 30% of indoor water use for toilet flushing is derived from a California Energy Commission report, which states that toilet flushing accounts for 28-40% of indoor water use, on average (Hauenstein, 2013). 1.1.3 Net Use Factor Factors of use were applied to each customer to account for potential issues with implementing recycled water that could prevent serving every potential recycled water use identified along the proposed alignment. This factor is less than or equal to 1 and was multiplied by each customer’s estimated demand for irrigation, industrial, cooling tower, or dual plumbing use to yield a more probable demand for the overall Phase 3 expansion. A factor of use of 1 was applied to irrigation demands for parks and medians, as these areas are irrigated by CPA and can easily be converted to recycled water. All other customers with irrigation demands that have a total water demand of over 2 AFY were assigned a factor of use of 0.9, as performing retrofits may be a challenge for some customers and CPA is unlikely to be able to convert every customer with potential recycled water demands. A factor of use of 0 was applied to non-park or median users with a demand less than 2 AFY, as conversions are likely to be cost prohibitive for these low water users. Most customers with industrial and cooling tower demands were assigned a factor of use of 0.5 to reflect uncertainty of their acceptance of recycled water. For these users, taking recycled water will likely depend on cost effectiveness and recycled water quality. Several industrial users in the service area were given a factor of use of 0 if they responded negatively to the customer survey due to water quality concerns or concerns regarding retrofit costs. Customers with dual plumbing were given a factor of use of 1 since they are already set up to take recycled water. 5 Demand Methodology for Updated Projected Recycled Water Demands for the Phase 3 Expansion Project 1.1.4 Rebound Factor The water meter data used for this analysis is from 2016. While 2016 was a fairly average year for rainfall, 2012 through 2015 was a period of severe drought throughout California that triggered both state and local water restrictions. Many water use restrictions implemented during the drought were still in effect in 2016, likely suppressing the water use shown in the CPA’s metered data. Irrigation demands are likely to rebound following the lifting of drought restrictions. It is assumed that the rebound in irrigation use will follow the trend projected for the CPA’s overall water use. The overall water use rebound projected for Palo Alto, shown in Figure 2, predicts an initial increase followed by a decrease assuming additional water use efficiency measures are implemented. A 7.5% increase in demand over current demands is the average rebound projected in the period from 2020 through 2040. Thus, a 7.5% increase in irrigation demands was incorporated into the recycled water demand estimate. Figure 2: Historical and Projected Water Demand Served by the CPA 1.1 UPDATED POTENTIAL PHASE 3 DEMANDS 1.1.1 Annual Average and Peak Demands Applying the demand estimate methodologies and factors discussed above yields a potential annual average recycled water demand of 810 AFY for Palo Alto’s Phase 3 recycled water system service area. The updated target recycled water users are shown in Figure 3. Estimated potential recycled water demand for each customer, including a breakdown of total demand for each customer, is included in this appendix. The peak month for demand from the 2016 water use data was August. This is the maximum demand month. The maximum day demand, defined as the average daily demand over August 2016, for the Phase 3 service area is 1.5 MGD. 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 Historical Demand Projected Demand De m a n d (A F Y ) 6 Demand Methodology for Updated Projected Recycled Water Demands for the Phase 3 Expansion Project Figure 3: Updated Alignment and Recommended Project Target Recycled Water Uses 7 Demand Methodology for Updated Projected Recycled Water Demands for the Phase 3 Expansion Project Peak hour demand was determined by creating diurnal demand curves for each use type. Industrial use is assumed to be continuous throughout the day and night and thus has no hourly peaking factor. Cooling towers and dual plumbing demand is assumed to only occur for a 12-hour period during daytime, from 6AM to 6PM. Thus, the maximum day demand to the peak hour demand peaking factor for these uses is 2. Irrigation is assumed to occur only overnight in an 8-hour period from 9PM to 5AM, resulting in an hourly peaking factor of 3. The total peak demand in Phase 3 occurs in this overnight period at a rate of 2,781 gpm. The diurnal peaking factors used to determine demand are shown in Figure 4 and the demand curve for each type of recycled water use is displayed in Figure 5. Figure 4: Diurnal Peaking Factors for Phase 3 Customers 3.5 3 2.5 2 1.5 1 0.5 0 Irrigation Industrial Cooling Tower + Dual Plumbing Weighted Total Pe a k i n g Fa c t o r 8 Demand Methodology for Updated Projected Recycled Water Demands for the Phase 3 Expansion Project Figure 5: Diurnal Demand Curve for Phase 3 Customers 1.1.2 Potential Demand Variability, 2020 – 2040 As discussed in Section 1.1.4, the projected demand for the Phase 3 system assumed that irrigation demands served by the Phase 3 expansion will be 7.5% greater than current irrigation demands. This assumes that recycled water use will follow the overall trend for water use within the City of Palo Alto. However, given recycled water’s branding as a drought proof supply, recycled water irrigators may not adopt the same attitude of water use efficiency for recycled water as they do potable water. The overall water use peaks at 13% above existing demands. Applying this rebound factor to the Phase 3 irrigation demands would result in a total annual demand for Phase 3 of 840 AFY. The Phase 3 service area has seen several changes in the last decade that have led to changes in water consumption. In addition to changes in the customer base, there have been changes in customer practices. Customer account representatives shared that for economic reasons companies have been moving their data servers out of state, resulting in reduced cooling tower water demands for the service area. In recent years, some companies have opted to implement xeriscaping to reduce irrigation demand. It is likely that the Phase 3 service area will continue to see changes through the next two decades, but whether these changes will lead to further reduction in water use or will result in increased recycled water demand is difficult to predict. As discussed in Section 1.1.1, potential zoning changes and re-development plans for the service area were investigated to attempt to account for anticipated changes. However, no firm plans were identified. Concepts that have been discussed include incorporating housing into Stanford Research Park and the development of a hotel and conference center near Palo Alto Square. The Palo Alto City Council has expressed interest in pursuing residential development within Stanford Research Park, but specific locations for housing have not been identified. The vision is to design these developments as communities and not simply adding houses on top of parking lots. If the new housing Diurnal Demand Curves for Phase 3 3000 2,781 gpm 2500 2000 1500 1000 500 164 gpm 0 Irrigation Industrial Cooling Tower + Dual Plumbing Total De m a n d (g p m ) 9 Demand Methodology for Updated Projected Recycled Water Demands for the Phase 3 Expansion Project were to displace parcels with significant landscaping and associated irrigation demands, recycled water demand could decrease. On the other hand, if a new residential community were to take the place of parcels dominated by hardscaping, the recycled water demand could increase through irrigation demand for landscaping around multi-family residences or the lawns of single family homes. Though not mandated by Palo Alto’s mandatory recycled water use ordinance (Ordinance No. 5002), recycled water can be used for irrigation of single family homes. Several California agencies, including Irvine Ranch Water District, City of Windsor and El Dorado Irrigation District, currently supply recycled water to residential developments for lawn irrigation. In addition to requiring new construction to use recycled water for irrigation, for new construction that is within a Recycled Water Project Area, Ordinance No. 5002 requires the use of recycled water for toilet and urinal flushing and trap priming for construction greater than 10,000 square feet or where installation of 25 or more toilets and urinals is proposed. If a new hotel and conference center were constructed near Palo Alto Square (at the corner of Page Mill and El Camino) it would presumably be subject to Palo Alto’s mandatory use ordinance. Whether it would result in a future decrease or increase to recycled water use again depends on the demands it would displace. Expansion of the Phase 3 service area to include Stanford University was considered as part of this Plan. Stanford previously used recycled water for dual-plumbed buildings within the Knight Graduate School of Business, Stanford Medical School and Yang & Yamazaki Environment & Energy Building, and these buildings reached a combined recycled water demand of 15,000 gpd or 16.8 AFY. The Cardinal Cogeneration plant, which was their source of recycled water has been demolished, but the recycled water distribution infrastructure is still in place. The location of these buildings is shown in Figure 6. If Stanford’s existing recycled water pipeline were to be connected to the Phase 3 pipeline, roughly a mile of additional pipeline would be needed. Serving the existing dual-plumbed buildings alone would probably not be cost effective given the length of pipeline required to make the connection. However, there is significant potential for recycled water use within the Stanford campus. As new buildings are constructed on campus they could be connected to the recycled water pipeline, which runs through the center of campus along Serra Street. Along Serra Street is Stanford’s new Codiga Resource Recovery Center. The Codiga Center, which serves a testbed for wastewater treatment technologies, could be a place for the City of Palo Alto and Stanford to partner on research using recycled water from the CPA. Additionally, there are significant irrigation demands within the university campus and neighboring Stanford golf course. Currently Stanford is not interested in using recycled water from CPA, so these demands were not included in the projected demand for Phase 3. 10 Demand Methodology for Updated Projected Recycled Water Demands for the Phase 3 Expansion Project Figure 6: Dual Plumbed Buildings at Stanford University Meter T ypes Customer Type RW Factor of Use for Irrigation Estimated Irrigation Use Including Rebound (AFY) RW Factor of Use for Industrial Process W ater Use RW Estimated for Industrial Process W ater (AFY) RW Factor of Use for Cooling Tower RW Estimate for Cooling Tower (AFY) RW Factor of Use for Dual Plumbing RW Estimate for Dual Plumbing (AFY) Total Annual Demand (AFY)1 Total Max Day Demand (gal) Customer Classification W4 & W7 General 1 5.9 0 0 0 5.91 8,249 1C W4 & W7 General 1 14.4 0 0 0 14.39 27,234 1A W4 General 0.9 1.3 0 0 0 1.33 2,390 1B General 0.9 167.3 0 0 0 167.27 331,128 1C W4 General 0.9 3.0 0 0.5 1.5 0 4.52 6,236 1B, 3B W4 & W7 General 1 1.8 0 0 0 1.76 2,599 1A W7 General 1 19.1 0 0 0 19.15 30,172 1A W4 & W7 School 1 5.6 0 0 0 5.58 15,369 1A W4 & W7 General 1 0.3 0 0 0 0.26 452 1A W4 & W7 Park 1 17.6 0 0 0 17.63 36,839 1A W7 Park 1 14.0 0 0 0 13.96 30,285 1A W4 Park 1 6.4 0 0 0 6.41 13,334 1B W4 Median 1 0.3 0 0 0 0.27 226 1B W7 Median 1 1.1 0 0 0 1.06 4,181 1A W4 Park 1 2.4 0 0 0 2.35 6,780 1B W4 Park 1 2.8 0 0 0 2.80 6,893 1B W4 Park 1 1.2 0 0 0 1.16 678 1B W4 Park 1 3.7 0 0 0 3.71 5,198 1B W4 & W7 Park 1 9.6 0 0 0 9.62 18,533 1A W4 & W7 General 1 1.4 0 0 1 0.5 1.88 3,085 1A, 4 W4 & W7 General 1 20.1 0 0 0 20.10 25,087 1A W4 & W7 General 1 6.1 0 0 0 6.13 8,814 1A W4 General 0.9 10.6 0 0 0.5 3.3 0 13.92 7,852 1B, 3A W7 General 1 2.5 0 0 0 2.45 3,616 1A W4 General 0.9 1.4 0 0 0 1.43 1,882 1B W4 General 0.9 7.0 0 0.5 1.7 0 8.70 12,642 1B, 3A W4 General 0 0.0 0 0.5 0.9 0 0.91 2,152 3A W4 General 0.9 3.1 0 0 0 3.13 2,644 1B W4 General 0.9 3.1 0 0 0 3.13 4,678 1B W4 General 0.9 3.4 0.5 4.1 0 0 7.44 7,403 1C, 2 W7 General 1 6.0 0 0 0 6.02 8,362 1A W4 & W7 General 1 8.0 0 0 0 7.99 13,900 1A W4 & W7 General 1 6.2 0 0 0 6.25 11,187 1A W4 & W7 General 1 0.0 0 0 0.5 9.4 0 9.35 22,114 3A W4 & W7 General 1 35.9 0 0 0.5 4.6 0 40.54 69,261 1A, 3A W4 & W7 General 1 6.7 0 0 0 6.65 18,646 1A W4 & W7 General 1 1.0 0 0 0 1.03 2,260 1A W4 General 0.9 1.6 0 0 0 1.55 1,526 1B W4 General 0.9 3.5 0 0 0 3.54 6,153 1B W4 & W7 General 1 6.8 0 0 0 6.80 10,396 1A W4 & W7 General 1 3.4 0 0 0 3.41 6,441 1A W4 & W7 General 1 0.5 0 0 0 0.49 791 1A W4 General 0.9 3.6 0 0 0 3.60 5,492 1B W4 General 0.9 5.1 0 0.5 2.8 0 7.92 11,011 1B, 3A Meter T ypes Customer Type RW Factor of Use for Irrigation Estimated Irrigation Use Including Rebound (AFY) RW Factor of Use for Industrial Process W ater Use RW Estimated for Industrial Process W ater (AFY) RW Factor of Use for Cooling Tower RW Estimate for Cooling Tower (AFY) RW Factor of Use for Dual Plumbing RW Estimate for Dual Plumbing (AFY) Total Annual Demand (AFY)1 Total Max Day Demand (gal) Customer Classification W4 & W7 General 1 8.3 0 0 0 8.27 7,684 1A W4 General 0.9 4.1 0 0 0 4.11 7,272 1B W4 & W7 General 1 0.2 0 0 0 0.19 226 1A W4 Park 1 3.2 0 0 0 3.24 5,424 1B W4 & W7 General 1 13.6 0 0 0 13.63 18,985 1A W4 & W7 General 1 12.1 0 0 0 12.13 11,300 1A W4 & W7 General 1 5.2 0 0 0 5.20 9,605 1A W4 General 0.9 3.0 0 0 0 3.00 2,502 1C W7 General 1 1.0 0 0 0 0.97 1,130 1A W7 General 1 0.8 0 0 0 0.80 904 1A W4 & W7 General 1 3.1 0 0 0 3.07 6,441 1A W4 General 0 0.0 0 0.5 1.3 0 1.34 3,157 3A W4 General 0.9 1.5 0 0 0 1.49 1,729 1B W4 & W7 General 1 1.3 0 0.5 2.0 0 3.33 6,699 1A, 3A W4 School 0.9 13.8 0 0 0 13.85 11,137 1B W4 School 0.9 12.3 0 0 0 12.34 20,697 1B W4 School 0.9 17.8 0 0 0 17.80 68,707 1B W4 School 0.9 2.0 0 0 0 1.98 6,204 1B W4 General 0.9 4.6 0 0.5 1.9 0 6.50 4,458 1B, 3A W4 General 0.9 1.1 0 0 0 1.14 1,322 1B W4 General 0.9 1.6 0 0 0 1.56 2,746 1B W4 & W7 General 1 1.9 0 0 0 1.87 3,051 1A W4 General 0.9 1.2 0 0 0 1.17 966 1B W4 & W7 General 1 1.1 0 0 0 1.12 1,808 1A W4 General 0.9 1.6 0 0 0 1.58 1,932 1B W4 & W7 General 1 5.4 0 0 0 5.35 9,040 1A W4 & W7 General 1 4.0 0 0 0 4.01 9,379 1A W4 General 0.9 2.1 0 0 0 2.11 3,661 1B W4 & W7 General 1 3.8 0 0 0 3.83 8,136 1A W4 General 0.9 4.5 0 0 0 4.54 3,865 1B W4 General 0.9 4.1 0 0 0 4.14 8,441 1B W4 General 0.9 1.1 0 0 0 1.08 3,763 1B W7 General 1 8.6 0 0 0 8.64 13,673 1A W4 & W7 General 1 3.9 0 0 0 3.92 8,814 1A W4 & W7 General 1 1.8 0 0 0 1.82 4,746 1A W4 & W7 General 1 1.7 0 0 0 1.70 3,390 1A W4 & W7 General 1 0.9 0 0 0 0.91 2,260 1A W4 General 0.9 0.0 0 0.5 1.1 0 1.08 2,542 1B, 3A W4 & W7 General 1 1.1 0 0 0 1.08 1,695 1A W4 & W7 General 1 2.5 0 0 0 2.45 3,955 1A W4 & W7 General 1 1.6 0 0 0 1.59 3,842 1A W4 General 0.9 2.3 0 0 0 2.28 2,492 1B W4 & W7 General 1 1.4 0 0 0 1.37 2,825 1A W4 & W7 General 1 0.4 0 0 0 0.39 226 1A Meter T ypes Customer Type RW Factor of Use for Irrigation Estimated Irrigation Use Including Rebound (AFY) RW Factor of Use for Industrial Process W ater Use RW Estimated for Industrial Process W ater (AFY) RW Factor of Use for Cooling Tower RW Estimate for Cooling Tower (AFY) RW Factor of Use for Dual Plumbing RW Estimate for Dual Plumbing (AFY) Total Annual Demand (AFY)1 Total Max Day Demand (gal) Customer Classification W4 & W7 General 1 1.9 0 0 0 1.95 4,407 1A W7 General 1 0.1 0 0 0 0.05 113 1A W4 General 0.9 5.0 0 0.5 2.6 0 7.63 13,065 1B, 3B W4 & W7 General 1 7.7 0 0 0 7.69 12,769 1A W4 & W7 General 1 10.7 0 0 0 10.66 11,187 1A 617.9 4.1 33.1 0.5 655.7 1,158,551 W4 & W7 General 1 0.3 0 0 0 0.32 452 1A W4 General 0.9 3.1 0 0 0 3.07 4,882 1B W7 General 1 3.5 0 0 0 3.47 6,893 1A W4 General 0.9 2.8 0 0 0 2.80 4,729 1B W4 General 0.9 8.4 0 0 0 8.43 12,560 1B W4 General 0.9 0.0 0 0.5 5.4 0 5.36 25,344 1B, 3B W4 General 0.9 11.0 0 0.25 8.1 0 19.06 61,978 1B, 3B W4 & W7 General 1 16.1 0 0 0 16.13 33,675 1C W4 & W7 General 1 0.8 0 0 0 0.78 339 1A W4 & W7 General 1 63.2 0 0.5 6.1 0 69.26 138,726 1A, 3A W4 General 0.9 1.6 0 0 0 1.62 3,000 1B W4 & W7 General 1 3.1 0 0 0 3.10 5,311 1A W4 & W7 General 1 5.4 0 0 0 5.44 10,735 1A W4 & W7 General 1 7.4 0 0 0 7.44 30,285 1A W4 General 0.9 6.6 0 0.5 1.7 0 8.28 15,293 1B, 3A Appendix B - Preliminary Rate Analysis Results Cnty RWSP Rev&Costs 5/16/2018 Page 1 of 8 Rate Analysis - Phase 3 + Embarcadero Road (including service to existing groundwater pumpers) 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Projected Rates SFPUC (1) [per AF $ 1,949 $ 1,951 $ 1,952 $ 2,115 $ 2,373 $ 2,492 $ 2,650 $ 2,772 $ 2,911 $ 3,057 $ 3,148 CPA Potable Water $ 4,356 $ 4,574 $ 4,757 $ 5,042 $ 5,345 $ 5,505 $ 5,725 $ 5,840 $ 5,957 $ 6,135 $ 6,319 Delta of CPA-SFPU $ 2,407 $ 2,623 $ 2,805 $ 2,927 $ 2,972 $ 3,013 $ 3,075 $ 3,068 $ 3,046 $ 3,078 $ 3,171 Annual Cost of Mon $ 761 $ 776 $ 792 $ 807 $ 824 $ 840 $ 857 $ 874 $ 891 $ 909 $ 927 Revenue - Consumptive Enter % here: 60% Rate (% of CPA Po $ 2,614 $ 2,744 $ 2,854 $ 3,025 $ 3,207 $ 3,303 $ 3,435 $ 3,504 $ 3,574 $ 3,681 $ 3,791 Recycled Water Us 924 924 924 924 924 924 924 924 924 924 924 Revenue Subtotal $ 2,414,966 $ 2,535,826 $ 2,637,281 $ 2,795,285 $ 2,963,268 $ 3,051,972 $ 3,173,940 $ 3,237,696 $ 3,302,561 $ 3,401,244 $ 3,503,254 $ 134,637 $ 134,637 $ 134,637 $ 134,637 $ 134,637 $ 134,637 $ 134,637 $ 134,637 $ 134,637 $ 134,637 $ 134,637 Net Revenue Cons $ 2,280,329 $ 2,401,188 $ 2,502,643 $ 2,660,647 $ 2,828,631 $ 2,917,335 $ 3,039,303 $ 3,103,059 $ 3,167,923 $ 3,266,607 $ 3,368,616 Revenue - Fixed # of Connections 194 194 194 194 194 194 194 194 194 194 194 Net Revenue Fixed $ 147,595 $ 150,547 $ 153,558 $ 156,629 $ 159,762 $ 162,957 $ 166,216 $ 169,540 $ 172,931 $ 176,390 $ 179,918 Net Revenue Total $ 2,427,924 $ 2,551,735 $ 2,656,201 $ 2,817,277 $ 2,988,392 $ 3,080,292 $ 3,205,519 $ 3,272,599 $ 3,340,855 $ 3,442,996 $ 3,548,534 Annual Cost - Modified Design Capital Debt (5) $1,788,854 $1,788,854 $1,788,854 $1,788,854 $1,788,854 $1,788,854 $1,788,854 $1,788,854 $1,788,854 $1,788,854 $1,788,854 Energy (5) $46,661 $46,661 $47,128 $48,070 $48,551 $49,036 $49,527 $50,022 $50,522 $51,028 $51,538 Other O&M (5) $177,000 $180,540 $184,151 $187,834 $191,590 $195,422 $199,331 $203,317 $207,384 $211,531 $215,762 Lost Potable Water $1,822,099 $1,985,611 $2,123,385 $2,215,739 $2,249,804 $2,280,841 $2,327,775 $2,322,476 $2,305,822 $2,330,046 $2,400,447 Lost Fixed Revenu $147,595 $150,547 $153,558 $156,629 $159,762 $162,957 $166,216 $169,540 $172,931 $176,390 $179,918 Cost Total $3,982,209 $4,152,213 $4,297,075 $4,397,126 $4,438,561 $4,477,111 $4,531,703 $4,534,210 $4,525,513 $4,557,849 $4,636,518 Difference betwee -$1,554,285 -$1,600,478 -$1,640,874 -$1,579,850 -$1,450,169 -$1,396,819 -$1,326,184 -$1,261,611 -$1,184,658 -$1,114,852 -$1,087,984 Average Difference -$1,160,178 1 SFPUC water rate projections 2020-2027 provided by K. Dailey via email, February 20, 2018. FY28-30 extrapolated at 5% per year; FY31-40 extrapolated at 3% per year. 2 Per the FY 2018 Water Utility Financial Plan page, published February 2016. CPA 2017 W-7 Rate is $9.08; 2018 & 2019 increases are projected at 4% & 6%, resulting in a CPA 2020 W-7 Rate of $10/CCF. FY21-28 escalated based on percentages provided by E. Keniston via email, February 20, 2018. FY29-40 escalated at 3%. CPA 2020 Monthly Service Charge for a 1.5" meter is $63.40 which equates to $760.80 annually. Per the FY 2017 Water Utility Financial Plan Page 7, published 3 February 2016. Escalated forward at 2%. 4 See Worksheet "Cemetery Savings" for details. 5 See Worksheet "Inputs_Mod" for details. Lost Potable Water Sales Revenue = (Delta between CPA Potable Water Rate and the SFPUC Purchase Price) x (924-167 AF [which is the RW sales minus Cemetery 6 who is a GW pumper resulting in no loss of revenue to CPAU]) Cnty RWSP Rev&Costs 5/16/2018 Page 2 of 8 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 $ 3,243 $ 3,340 $ 3,440 $ 3,543 $ 3,650 $ 3,759 $ 3,872 $ 3,988 $ 4,108 $ 4,231 $ 6,509 $ 6,704 $ 6,905 $ 7,112 $ 7,326 $ 7,546 $ 7,772 $ 8,005 $ 8,245 $ 8,493 $ 3,266 $ 3,364 $ 3,465 $ 3,569 $ 3,676 $ 3,787 $ 3,900 $ 4,017 $ 4,137 $ 4,262 $ 946 $ 965 $ 984 $ 1,004 $ 1,024 $ 1,044 $ 1,065 $ 1,087 $ 1,108 $ 1,131 $ 3,905 $ 4,022 $ 4,143 $ 4,267 $ 4,396 $ 4,528 $ 4,663 $ 4,803 $ 4,947 $ 5,096 924 924 924 924 924 924 924 924 924 924 $ 3,608,590 $ 3,716,698 $ 3,828,132 $ 3,942,893 $ 4,061,534 $ 4,183,502 $ 4,308,797 $ 4,437,972 $ 4,571,028 $ 4,708,519 $ 134,637 $ 134,637 $ 134,637 $ 134,637 $ 134,637 $ 134,637 $ 134,637 $ 134,637 $ 134,637 $ 134,637 $ 3,473,952 $ 3,582,060 $ 3,693,495 $ 3,808,255 $ 3,926,897 $ 4,048,865 $ 4,174,159 $ 4,303,335 $ 4,436,391 $ 4,573,882 194 194 194 194 194 194 194 194 194 194 $ 183,516 $ 187,186 $ 190,930 $ 194,749 $ 198,644 $ 202,617 $ 206,669 $ 210,802 $ 215,018 $ 219,319 $ 3,657,468 $ 3,769,247 $ 3,884,425 $ 4,003,004 $ 4,125,541 $ 4,251,482 $ 4,380,828 $ 4,514,137 $ 4,651,409 $ 4,793,200 $1,788,854 $1,788,854 $1,788,854 $1,788,854 $1,788,854 $1,788,854 $1,788,854 $1,788,854 $1,788,854 $1,788,854 $52,053 $52,574 $53,099 $53,630 $54,167 $54,708 $55,256 $55,808 $56,366 $56,930 $220,077 $224,479 $228,968 $233,548 $238,219 $242,983 $247,843 $252,800 $257,856 $263,013 $2,472,362 $2,546,548 $2,623,005 $2,701,733 $2,782,732 $2,866,759 $2,952,300 $3,040,869 $3,131,709 $3,226,334 $183,516 $187,186 $190,930 $194,749 $198,644 $202,617 $206,669 $210,802 $215,018 $219,319 $4,716,862 $4,799,641 $4,884,857 $4,972,514 $5,062,615 $5,155,921 $5,250,921 $5,349,133 $5,449,803 $5,554,449 -$1,059,394 -$1,030,394 -$1,000,432 -$969,510 -$937,074 -$904,439 -$870,093 -$834,996 -$798,394 -$761,249 Cnty RWSP Cemetery Savings 5/16/2018 Page 3 of 8 Annual Cost - Original Design (1) Capital Debt 2020 $1,923,491 2021 $1,923,491 2022 $1,923,491 2023 $1,923,491 2024 $1,923,491 2025 $1,923,491 2026 $1,923,491 2027 $1,923,491 2028 $1,923,491 2029 $1,923,491 2030 $1,923,491 2031 $1,923,491 Energy $46,661 $46,661 $47,128 $48,070 $48,551 $49,036 $49,527 $50,022 $50,522 $51,028 $51,538 $52,053 Other O&M $177,000 $180,540 $184,151 $187,834 $191,590 $195,422 $199,331 $203,317 $207,384 $211,531 $215,762 $220,077 Subtotal $2,147,152 $2,150,692 $2,154,770 $2,159,395 $2,163,633 $2,167,950 $2,172,349 $2,176,831 $2,181,397 $2,186,050 $2,190,791 $2,195,622 Annual Cost - Modified Design (2) Capital Debt $1,788,854 $1,788,854 $1,788,854 $1,788,854 $1,788,854 $1,788,854 $1,788,854 $1,788,854 $1,788,854 $1,788,854 $1,788,854 $1,788,854 Energy $46,661 $46,661 $47,128 $48,070 $48,551 $49,036 $49,527 $50,022 $50,522 $51,028 $51,538 $52,053 Other O&M $177,000 $180,540 $184,151 $187,834 $191,590 $195,422 $199,331 $203,317 $207,384 $211,531 $215,762 $220,077 Subtotal $2,012,515 $2,016,055 $2,020,132 $2,024,758 $2,028,995 $2,033,313 $2,037,711 $2,042,193 $2,046,760 $2,051,413 $2,056,154 $2,060,984 Savings Attributed to Cemetery $ 134,637 $ 134,637 $ 134,637 $ 134,637 $ 134,637 $ 134,637 $ 134,637 $ 134,637 $ 134,637 $ 134,637 $ 134,637 $ 134,637 Cemetery Water Usage AF 167 167 167 167 167 167 167 167 167 167 167 167 Groundwater Pumping Charge (3) $ 1,413 $ 1,551 $ 1,702 $ 1,867 $ 2,048 $ 2,246 $ 2,442 $ 2,557 $ 2,677 $ 2,757 $ 2,840 $ 2,925 Annual Pumping Charge Cost to SCVWD $ 235,971 $ 259,017 $ 284,234 $ 311,789 $ 342,016 $ 375,082 $ 407,814 $ 427,019 $ 447,059 $ 460,419 $ 474,280 $ 488,475 Power Cost to Extract GW (Estimate) $ 16,700 $ 17,034 $ 17,034 $ 17,034 $ 17,034 $ 17,034 $ 17,034 $ 17,034 $ 17,034 $ 17,034 $ 17,034 $ 17,034 Total Cost to Cemetery $ 252,671 $ 276,051 $ 301,268 $ 328,823 $ 359,050 $ 392,116 $ 424,848 $ 444,053 $ 464,093 $ 477,453 $ 491,314 $ 505,509 RW - Consumptive $ 436,471 $ 458,315 $ 476,651 $ 505,208 $ 535,569 $ 551,601 $ 573,645 $ 585,168 $ 596,891 $ 614,727 $ 633,164 $ 652,202 RW - Fixed $ 761 $ 776 $ 792 $ 807 $ 824 $ 840 $ 857 $ 874 $ 891 $ 909 $ 927 $ 946 RW Cost to Cemetery $ 437,232 $ 459,091 $ 477,443 $ 506,016 $ 536,393 $ 552,441 $ 574,502 $ 586,042 $ 597,783 $ 615,636 $ 634,091 $ 653,148 Savings Credit $ 134,637 $ 134,637 $ 134,637 $ 134,637 $ 134,637 $ 134,637 $ 134,637 $ 134,637 $ 134,637 $ 134,637 $ 134,637 $ 134,637 Net RW Cost to Cemetery $ 302,595 $ 324,453 $ 342,805 $ 371,378 $ 401,755 $ 417,804 $ 439,864 $ 451,404 $ 463,145 $ 480,999 $ 499,454 $ 518,510 Cost as RW Customer - Costs as GW Pumper $ 49,924 $ 48,402 $ 41,537 $ 42,555 $ 42,705 $ 25,688 $ 15,016 $ 7,351 $ (948) $ 3,546 $ 8,140 $ 13,001 1 See Worksheet "Inputs_Orig" for details. 2 See Worksheet "Inputs_Mod" for details. 3 SCVWD groundwater charge projections 2020-2028 provided by K. Dailey via email, March 21, 2018. Projections for 2029-2040 extrapolated at 3% per year. 4 See "Rev& Costs" worksheet for RW rate by year. 5 See "Rev&Costs" worksheet for per RW meter cost by year. Cnty RWSP Cemetery Savings 5/16/2018 Page 4 of 8 2032 2033 2034 2035 2036 2037 2038 2039 2040 $1,923,491 $1,923,491 $1,923,491 $1,923,491 $1,923,491 $1,923,491 $1,923,491 $1,923,491 $1,923,491 $52,574 $53,099 $53,630 $54,167 $54,708 $55,256 $55,808 $56,366 $56,930 $224,479 $228,968 $233,548 $238,219 $242,983 $247,843 $252,800 $257,856 $263,013 $2,200,544 $2,205,559 $2,210,669 $2,215,877 $2,221,183 $2,226,589 $2,232,099 $2,237,713 $2,243,434 $1,788,854 $1,788,854 $1,788,854 $1,788,854 $1,788,854 $1,788,854 $1,788,854 $1,788,854 $1,788,854 $52,574 $53,099 $53,630 $54,167 $54,708 $55,256 $55,808 $56,366 $56,930 $224,479 $228,968 $233,548 $238,219 $242,983 $247,843 $252,800 $257,856 $263,013 $2,065,906 $2,070,922 $2,076,032 $2,081,239 $2,086,545 $2,091,952 $2,097,461 $2,103,076 $2,108,796 $ 134,637 $ 134,637 $ 134,637 $ 134,637 $ 134,637 $ 134,637 $ 134,637 $ 134,637 $ 134,637 167 167 167 167 167 167 167 167 167 $ 3,013 $ 3,103 $ 3,196 $ 3,292 $ 3,391 $ 3,493 $ 3,598 $ 3,706 $ 3,817 $ 503,171 $ 518,201 $ 533,732 $ 549,764 $ 566,297 $ 583,331 $ 600,866 $ 618,902 $ 637,439 $ 17,034 $ 17,034 $ 17,034 $ 17,034 $ 17,034 $ 17,034 $ 17,034 $ 17,034 $ 17,034 $ 520,205 $ 535,235 $ 550,766 $ 566,798 $ 583,331 $ 600,365 $ 617,900 $ 635,936 $ 654,473 $ 671,741 $ 691,881 $ 712,622 $ 734,065 $ 756,109 $ 778,754 $ 802,101 $ 826,149 $ 850,999 $ 965 $ 984 $ 1,004 $ 1,024 $ 1,044 $ 1,065 $ 1,087 $ 1,108 $ 1,131 $ 672,706 $ 692,865 $ 713,626 $ 735,089 $ 757,154 $ 779,820 $ 803,188 $ 827,257 $ 852,129 $ 134,637 $ 134,637 $ 134,637 $ 134,637 $ 134,637 $ 134,637 $ 134,637 $ 134,637 $ 134,637 $ 538,068 $ 558,228 $ 578,989 $ 600,452 $ 622,516 $ 645,182 $ 668,550 $ 692,620 $ 717,492 $ 17,863 $ 22,993 $ 28,223 $ 33,654 $ 39,185 $ 44,817 $ 50,650 $ 56,684 $ 63,019 Cnty RWSP Inputs_Orig 5/16/2018 Page 5 of 8 Original Capital Cost (2017$) (1) $ 44,288,000 Ph 3 + Emb Rd Borrowing Rate (2) 1.8% Borrowing Term (yrs) (2) 30 Capital Debt Service $1,923,491.22 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Energy Usage (1) kwh 444894 444894 444894 444894 444894 444894 444894 444894 444894 444894 444894 Energy Rate Increase (3) -- 0% 1% 2% 1% 1% 1% 1% 1% 1% 1% Unit Energy Cost (4) $/kwh $ 0.105 $ 0.105 $ 0.106 $ 0.108 $ 0.109 $ 0.110 $ 0.111 $ 0.112 $ 0.114 $ 0.115 $ 0.116 Annual Energy Cost $ $ 46,661 $ 46,661 $ 47,128 $ 48,070 $ 48,551 $ 49,036 $ 49,527 $ 50,022 $ 50,522 $ 51,028 $ 51,538 Other O&M Labor & Chem Increase (5) -- 2% 2% 2% 2% 2% 2% 2% 2% 2% 2% Annual Other O&M (1) $ 177,000 $ 180,540 $ 184,151 $ 187,834 $ 191,590 $ 195,422 $ 199,331 $ 203,317 $ 207,384 $ 211,531 $ 215,762 Capital Debt Service $ 1,923,491 $ 1,923,491 $ 1,923,491 $ 1,923,491 $ 1,923,491 $ 1,923,491 $ 1,923,491 $ 1,923,491 $ 1,923,491 $ 1,923,491 $ 1,923,491 Subtotal - Costs (Original) $ 2,147,152 $ 2,150,692 $ 2,154,770 $ 2,159,395 $ 2,163,633 $ 2,167,950 $ 2,172,349 $ 2,176,831 $ 2,181,397 $ 2,186,050 $ 2,190,791 1 Capital cost estimate includes construction plus soft costs. See Preliminary Design Report for detailed Capital Cost Estimate, Energy Usage estimate, O&M estimate. 2 Assuming SRF financing with 30 year term 3 Published planned Energy Rate Increases through FY2024; assuming 1% increase for years 2025-2040. Per FY 2018 Electric Utility Financial Plan, May 2017. 4 2020 Rate is Proposed E-7 Summer Rate effective 7/1/2017 including a 9% increase in FY 2019. Per FY 2018 Electric Utility Financial Plan, May 2017. 5 Assumed 2% increase for inflation on chemical and labor costs. Cnty RWSP Inputs_Orig 5/16/2018 Page 6 of 8 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 444894 444894 444894 444894 444894 444894 444894 444894 444894 444894 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% $ 0.117 $ 0.118 $ 0.119 $ 0.121 $ 0.122 $ 0.123 $ 0.124 $ 0.125 $ 0.127 $ 0.128 $ 52,053 $ 52,574 $ 53,099 $ 53,630 $ 54,167 $ 54,708 $ 55,256 $ 55,808 $ 56,366 $ 56,930 2% 2% 2% 2% 2% 2% 2% 2% 2% 2% $ 220,077 $ 224,479 $ 228,968 $ 233,548 $ 238,219 $ 242,983 $ 247,843 $ 252,800 $ 257,856 $ 263,013 $ 1,923,491 $ 1,923,491 $ 1,923,491 $ 1,923,491 $ 1,923,491 $ 1,923,491 $ 1,923,491 $ 1,923,491 $ 1,923,491 $ 1,923,491 $ 2,195,622 $ 2,200,544 $ 2,205,559 $ 2,210,669 $ 2,215,877 $ 2,221,183 $ 2,226,589 $ 2,232,099 $ 2,237,713 $ 2,243,434 Cnty RWSP Inputs_Mod 5/16/2018 Page 7 of 8 Original Capital Cost (2017$) (1) $ 41,188,000 Ph 3 + Emb Rd Borrowing Rate (2) 1.8% Borrowing Term (yrs) (2) 30 Capital Debt Service $1,788,853.78 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Energy Usage (1) kwh 444894 444894 444894 444894 444894 444894 444894 444894 444894 444894 444894 Energy Rate Increase (3) -- 0% 1% 2% 1% 1% 1% 1% 1% 1% 1% Unit Energy Cost (4) $/kwh $ 0.105 $ 0.105 $ 0.106 $ 0.108 $ 0.109 $ 0.110 $ 0.111 $ 0.112 $ 0.114 $ 0.115 $ 0.116 Annual Energy Cost $ $ 46,661 $ 46,661 $ 47,128 $ 48,070 $ 48,551 $ 49,036 $ 49,527 $ 50,022 $ 50,522 $ 51,028 $ 51,538 Other O&M Labor & Chem Increase (5) -- 2% 2% 2% 2% 2% 2% 2% 2% 2% 2% Annual Other O&M (1) $ 177,000 $ 180,540 $ 184,151 $ 187,834 $ 191,590 $ 195,422 $ 199,331 $ 203,317 $ 207,384 $ 211,531 $ 215,762 Capital Debt Service $ 1,788,854 $ 1,788,854 $ 1,788,854 $ 1,788,854 $ 1,788,854 $ 1,788,854 $ 1,788,854 $ 1,788,854 $ 1,788,854 $ 1,788,854 $ 1,788,854 Subtotal - Costs (Modified) $ 2,012,515 $ 2,016,055 $ 2,020,132 $ 2,024,758 $ 2,028,995 $ 2,033,313 $ 2,037,711 $ 2,042,193 $ 2,046,760 $ 2,051,413 $ 2,056,154 1 Capital cost estimate includes construction plus soft costs. See Preliminary Design Report for detailed Capital Cost Estimate, Energy Usage estimate, O&M estimate. The capital cost is modified to reduce pipe sizes leadin to reduce pump station capacity by 10% to reflect benefit of delivering recycled water to Cemetery offpeak. 2 Assuming SRF financing with 30 year term 3 Published planned Energy Rate Increases through FY2024; assuming 1% increase for years 2025-2040. Per FY 2018 Electric Utility Financial Plan, May 2017. 4 2020 Rate is Proposed E-7 Summer Rate effective 7/1/2017 including a 9% increase in FY 2019. Per FY 2018 Electric Utility Financial Plan, May 2017. 5 Assumed 2% increase for inflation on chemical and labor costs. Cnty RWSP Inputs_Mod 5/16/2018 Page 8 of 8 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 444894 444894 444894 444894 444894 444894 444894 444894 444894 444894 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% $ 0.117 $ 0.118 $ 0.119 $ 0.121 $ 0.122 $ 0.123 $ 0.124 $ 0.125 $ 0.127 $ 0.128 $ 52,053 $ 52,574 $ 53,099 $ 53,630 $ 54,167 $ 54,708 $ 55,256 $ 55,808 $ 56,366 $ 56,930 2% 2% 2% 2% 2% 2% 2% 2% 2% 2% $ 220,077 $ 224,479 $ 228,968 $ 233,548 $ 238,219 $ 242,983 $ 247,843 $ 252,800 $ 257,856 $ 263,013 $ 1,788,854 $ 1,788,854 $ 1,788,854 $ 1,788,854 $ 1,788,854 $ 1,788,854 $ 1,788,854 $ 1,788,854 $ 1,788,854 $ 1,788,854 $ 2,060,984 $ 2,065,906 $ 2,070,922 $ 2,076,032 $ 2,081,239 $ 2,086,545 $ 2,091,952 $ 2,097,461 $ 2,103,076 $ 2,108,796 g to Cemetery by one diameter and P11 Original 16 Modified 12 P15 16 12 P77 16 12 P43 16 12 2016_2 16 12 P27 16 12 2016 16 12 BP_EAST 16 12 BP_WEST 16 12 340 16 12 P55 16 12 P59 12 10 P33 12 10 P61 12 10 Cnty RWSP e 3 RW System Excluding Groundwater Pumpers Rev&Costs 4/18/2018 Page 1 of 4 Rate Analysis - Phase 3 + Embarcadero Road (excluding service to existing groundwater pumpers) 2020 2021 2022 2023 2024 2025 2026 2027 Projected Rates SFPUC (1) [per AF] $ 1,949 $ 1,951 $ 1,952 $ 2,115 $ 2,373 $ 2,492 $ 2,650 $ 2,772 CPA Potable Water Rate (W-7) (2) [per AF] $ 4,356 $ 4,574 $ 4,757 $ 5,042 $ 5,345 $ 5,505 $ 5,725 $ 5,840 Delta of CPA-SFPUC (Net Revenue of Potable Water Sale) [per AF] $ 2,407 $ 2,623 $ 2,805 $ 2,927 $ 2,972 $ 3,013 $ 3,075 $ 3,068 Annual Cost of Monthly Service Charge (1.5" meter) (3) [per connection] $ 761 $ 776 $ 792 $ 807 $ 824 $ 840 $ 857 $ 874 Revenue - Consumptive Enter % here: 95% Rate (% of CPA Potable) [per AF] $ 4,138 $ 4,345 $ 4,519 $ 4,790 $ 5,078 $ 5,230 $ 5,439 $ 5,548 Recycled Water Usage [AFY] 687 687 687 687 687 687 687 687 Revenue Subtotal $ 2,842,943 $ 2,985,221 $ 3,104,656 $ 3,290,661 $ 3,488,414 $ 3,592,838 $ 3,736,421 $ 3,811,476 Net Revenue Consumptive Subtotal $ 2,842,943 $ 2,985,221 $ 3,104,656 $ 3,290,661 $ 3,488,414 $ 3,592,838 $ 3,736,421 $ 3,811,476 Revenue - Fixed # of Connections 191 191 191 191 191 191 191 191 Net Revenue Fixed Subtotal $ 145,313 $ 148,219 $ 151,183 $ 154,207 $ 157,291 $ 160,437 $ 163,646 $ 166,919 Net Revenue Total (Consumptive + Fixed) $ 2,988,256 $ 3,133,440 $ 3,255,839 $ 3,444,868 $ 3,645,705 $ 3,753,275 $ 3,900,067 $ 3,978,395 Annual Cost - Modified Design Capital Debt (5) $1,671,589 $1,671,589 $1,671,589 $1,671,589 $1,671,589 $1,671,589 $1,671,589 $1,671,589 Energy (5) $46,661 $46,661 $47,128 $48,070 $48,551 $49,036 $49,527 $50,022 Other O&M (5) $177,000 $180,540 $184,151 $187,834 $191,590 $195,422 $199,331 $203,317 Lost Potable Water Sales Revenue (6) $1,653,609 $1,802,001 $1,927,035 $2,010,849 $2,041,764 $2,069,931 $2,112,525 $2,107,716 Lost Fixed Revenue $145,313 $148,219 $151,183 $154,207 $157,291 $160,437 $163,646 $166,919 Cost Total $3,694,172 $3,849,010 $3,981,086 $4,072,549 $4,110,786 $4,146,416 $4,196,617 $4,199,563 Difference between Net Revenue and Cost -$705,916 -$715,570 -$725,246 -$627,681 -$465,080 -$393,140 -$296,550 -$221,168 Average Difference over 2020-2040 -$48,449 1 SFPUC water rate projections 2020-2027 provided by K. Dailey via email, February 20, 2018. FY28-30 extrapolated at 5% per year; FY31-40 extrapolated at 3% per year. 2 Per the FY 2018 Water Utility Financial Plan page, published February 2016. CPA 2017 W-7 Rate is $9.08; 2018 & 2019 increases are projected at 4% & 6%, resulting in a CPA 2020 W-7 Rate of $10/CCF. 3 CPA 2020 Monthly Service Charge for a 1.5" meter is $63.40 which equates to $760.80 annually. Per the FY 2017 Water Utility Financial Plan Page 7, published February 2016. Escalated forward at 2%. 5 See Worksheet "Inputs_Mod" for details. 6 Lost Potable Water Sales Revenue = (Delta between CPA Potable Water Rate and the SFPUC Purchase Price) x (RW sales) Cnty RWSP e 3 RW System Excluding Groundwater Pumpers Rev&Costs 4/18/2018 Page 2 of 4 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 $ 2,911 $ 3,057 $ 3,148 $ 3,243 $ 3,340 $ 3,440 $ 3,543 $ 3,650 $ 3,759 $ 3,872 $ 3,988 $ 4,108 $ 4,231 $ 5,957 $ 6,135 $ 6,319 $ 6,509 $ 6,704 $ 6,905 $ 7,112 $ 7,326 $ 7,546 $ 7,772 $ 8,005 $ 8,245 $ 8,493 $ 3,046 $ 3,078 $ 3,171 $ 3,266 $ 3,364 $ 3,465 $ 3,569 $ 3,676 $ 3,787 $ 3,900 $ 4,017 $ 4,137 $ 4,262 $ 891 $ 909 $ 927 $ 946 $ 965 $ 984 $ 1,004 $ 1,024 $ 1,044 $ 1,065 $ 1,087 $ 1,108 $ 1,131 $ 5,659 $ 5,828 $ 6,003 $ 6,184 $ 6,369 $ 6,560 $ 6,756 $ 6,960 $ 7,169 $ 7,383 $ 7,605 $ 7,833 $ 8,068 687 687 687 687 687 687 687 687 687 687 687 687 687 $ 3,887,836 $ 4,004,008 $ 4,124,095 $ 4,248,099 $ 4,375,366 $ 4,506,548 $ 4,641,647 $ 4,781,314 $ 4,924,897 $ 5,072,396 $ 5,224,463 $ 5,381,099 $ 5,542,956 $ 3,887,836 $ 4,004,008 $ 4,124,095 $ 4,248,099 $ 4,375,366 $ 4,506,548 $ 4,641,647 $ 4,781,314 $ 4,924,897 $ 5,072,396 $ 5,224,463 $ 5,381,099 $ 5,542,956 191 191 191 191 191 191 191 191 191 191 191 191 191 $ 170,257 $ 173,662 $ 177,135 $ 180,678 $ 184,292 $ 187,978 $ 191,737 $ 195,572 $ 199,483 $ 203,473 $ 207,542 $ 211,693 $ 215,927 $ 4,058,093 $ 4,177,670 $ 4,301,231 $ 4,428,777 $ 4,559,657 $ 4,694,526 $ 4,833,384 $ 4,976,886 $ 5,124,380 $ 5,275,869 $ 5,432,006 $ 5,592,793 $ 5,758,884 $1,671,589 $1,671,589 $1,671,589 $1,671,589 $1,671,589 $1,671,589 $1,671,589 $1,671,589 $1,671,589 $1,671,589 $1,671,589 $1,671,589 $1,671,589 $50,522 $51,028 $51,538 $52,053 $52,574 $53,099 $53,630 $54,167 $54,708 $55,256 $55,808 $56,366 $56,930 $207,384 $211,531 $215,762 $220,077 $224,479 $228,968 $233,548 $238,219 $242,983 $247,843 $252,800 $257,856 $263,013 $2,092,602 $2,114,586 $2,178,477 $2,243,742 $2,311,068 $2,380,455 $2,451,903 $2,525,412 $2,601,669 $2,679,300 $2,759,679 $2,842,119 $2,927,994 $170,257 $173,662 $177,135 $180,678 $184,292 $187,978 $191,737 $195,572 $199,483 $203,473 $207,542 $211,693 $215,927 $4,192,354 $4,222,396 $4,294,501 $4,368,140 $4,444,001 $4,522,089 $4,602,407 $4,684,958 $4,770,433 $4,857,460 $4,947,418 $5,039,623 $5,135,453 -$134,261 -$44,726 $6,730 $60,637 $115,656 $172,436 $230,977 $291,927 $353,947 $418,409 $484,588 $553,170 $623,431 NW Cnty RWSP Phase 3 RW System Excluding Groundwater Pumpers Inputs_Mod 4/18/2018 Page 3 of 4 Original Capital Cost (2017$) (1) $ 38,488,000 Ph 3 + Emb Rd Borrowing Rate (2) 1.8% Borrowing Term (yrs) (2) 30 Capital Debt Service $1,671,588.92 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 Energy Usage (1) kwh 444894 444894 444894 444894 444894 444894 444894 444894 444894 444894 444894 444894 Energy Rate Increase (3) -- 0% 1% 2% 1% 1% 1% 1% 1% 1% 1% 1% Unit Energy Cost (4) $/kwh $ 0.105 $ 0.105 $ 0.106 $ 0.108 $ 0.109 $ 0.110 $ 0.111 $ 0.112 $ 0.114 $ 0.115 $ 0.116 $ 0.117 Annual Energy Cost $ $ 46,661 $ 46,661 $ 47,128 $ 48,070 $ 48,551 $ 49,036 $ 49,527 $ 50,022 $ 50,522 $ 51,028 $ 51,538 $ 52,053 Other O&M Labor & Chem Increase (5) -- 2% 2% 2% 2% 2% 2% 2% 2% 2% 2% 2% Annual Other O&M (1) $ 177,000 $ 180,540 $ 184,151 $ 187,834 $ 191,590 $ 195,422 $ 199,331 $ 203,317 $ 207,384 $ 211,531 $ 215,762 $ 220,077 Capital Debt Service $ 1,671,589 $ 1,671,589 $ 1,671,589 $ 1,671,589 $ 1,671,589 $ 1,671,589 $ 1,671,589 $ 1,671,589 $ 1,671,589 $ 1,671,589 $ 1,671,589 $ 1,671,589 Subtotal - Costs (Modified) $ 1,895,250 $ 1,898,790 $ 1,902,867 $ 1,907,493 $ 1,911,730 $ 1,916,048 $ 1,920,447 $ 1,924,928 $ 1,929,495 $ 1,934,148 $ 1,938,889 $ 1,943,719 1 Capital cost estimate includes construction plus soft costs. See Preliminary Design Report for detailed Capital Cost Estimate, Energy Usage estimate, O&M estimate. 2 Assuming SRF financing with 30 year term 3 Published planned Energy Rate Increases through FY2024; assuming 1% increase for years 2025-2040. Per FY 2018 Electric Utility Financial Plan, May 2017. 4 2020 Rate is Proposed E-7 Summer Rate effective 7/1/2017 including a 9% increase in FY 2019. Per FY 2018 Electric Utility Financial Plan, May 2017. 5 Assumed 2% increase for inflation on chemical and labor costs. NW Cnty RWSP Phase 3 RW System Excluding Groundwater Pumpers Inputs_Mod 4/18/2018 Page 4 of 4 1808.5 2032 2033 2034 2035 2036 2037 2038 2039 2040 444894 444894 444894 444894 444894 444894 444894 444894 444894 1% 1% 1% 1% 1% 1% 1% 1% 1% $ 0.118 $ 0.119 $ 0.121 $ 0.122 $ 0.123 $ 0.124 $ 0.125 $ 0.127 $ 0.128 $ 52,574 $ 53,099 $ 53,630 $ 54,167 $ 54,708 $ 55,256 $ 55,808 $ 56,366 $ 56,930 2% 2% 2% 2% 2% 2% 2% 2% 2% $ 224,479 $ 228,968 $ 233,548 $ 238,219 $ 242,983 $ 247,843 $ 252,800 $ 257,856 $ 263,013 $ 1,671,589 $ 1,671,589 $ 1,671,589 $ 1,671,589 $ 1,671,589 $ 1,671,589 $ 1,671,589 $ 1,671,589 $ 1,671,589 $ 1,948,641 $ 1,953,657 $ 1,958,767 $ 1,963,974 $ 1,969,280 $ 1,974,687 $ 1,980,197 $ 1,985,811 $ 1,991,531 Original Modified LF P11 16 12 1316 P15 16 12 3084 P77 16 12 3112 P43 16 12 1760 2016_2 16 12 3369 P27 16 12 1979 2016 16 12 1493 BP_EAST 16 12 253 BP_WEST 16 12 689 340 16 8 4039 P55 16 8 1101 P59 12 8 842 P33 12 8 3617 P61 12 0 2415 Appendix C - Risk Assessment Modeling Results Palo Alto GoldSim Modeling Results – 4/2018 Probability of Annual Net Costs (2040) (2030) (2020) -1 0 1 2 3 Annual Net Costs ($ Million) Probability of Reliability Rate (2040) (2030) (2020) -100 0 100 200 300 Reliability Rate ($/AF) (2020) Exceedance Probability of Annual Net Costs (2040) (2030) (2020) 1.0 0.8 0.6 0.4 0.2 0.0 -1 0 1 2 3 Annual Net Costs ($ Million) Exceedance Probability of Reliability Rate (2040) (2030) (2020) 1.0 0.8 0.6 0.4 0.2 0.0 -100 0 100 200 300 Reliability Rate ($/AF) Pr o b a b i l i t y of Ex c e e d i n g Pr o b a b i l i t y of Ex c e e d i n g Probability of Reliability Rate (2020) (Federal Grant & Loan) (State Grant & Loan) (Loan) (No External Funding) -100 0 100 200 300 Reliability Rate ($/AF) Probability of Annual Net Costs (2020) (Federal Grant & Loan) (State Grant & Loan) (Loan) (No External Funding) -1 0 1 2 3 Annual Net Costs ($ Million) Exceedance Probability of Reliability Rate (2020) (Federal Grant & Loan) (State Grant & Loan) (Loan) (No External Funding) 1.0 0.8 0.6 0.4 0.2 0.0 -100 0 100 200 300 Reliability Rate ($/AF) Exceedance Probability of Annual Net Costs (2020) (Federal Grant & Loan) (State Grant & Loan) (Loan) (No External Funding) 1.0 0.8 0.6 0.4 0.2 0.0 -1 0 1 2 3 Annual Net Costs ($ Million) Pr o b a b i l i t y of Ex c e e d i n g Pr o b a b i l i t y of Ex c e e d i n g Probability of Reliability Rate (2030) (Federal Grant & Loan) (State Grant & Loan) (Loan) (No External Funding) -100 0 100 200 300 Reliability Rate ($/AF) Probability of Annual Net Costs (2030) (Federal Grant & Loan) (State Grant & Loan) (Loan) (No External Funding) -1 0 1 2 3 Annual Net Costs ($ Million) Exceedance Probability of Annual Net Costs (2030) (Federal Grant & Loan) (State Grant & Loan) (Loan) (No External Funding) 1.0 0.8 0.6 0.4 0.2 0.0 -1 0 1 2 3 Annual Net Costs ($ Million) Exceedance Probability of Reliability Rate (2030) (Federal Grant & Loan) (State Grant & Loan) (Loan) (No External Funding) 1.0 0.8 0.6 0.4 0.2 0.0 -100 0 100 200 300 Reliability Rate ($/AF) Pr o b a b i l i t y of Ex c e e d i n g Pr o b a b i l i t y of Ex c e e d i n g Probability of Reliability Rate (2040) (Federal Grant & Loan) (State Grant & Loan) (Loan) (No External Funding) -100 0 100 200 300 Reliability Rate ($/AF) Probability of Annual Net Costs (2040) (Federal Grant & Loan) (State Grant & Loan) (Loan) (No External Funding) -1 0 1 2 3 Annual Net Costs ($ Million) Exceedance Probability of Reliability Rate (2040) (Federal Grant & Loan) (State Grant & Loan) (Loan) (No External Funding) 1.0 0.8 0.6 0.4 0.2 0.0 -100 0 100 200 300 Reliability Rate ($/AF) Exceedance Probability of Annual Net Costs (2040) (Federal Grant & Loan) (State Grant & Loan) (Loan) (No External Funding) 1.0 0.8 0.6 0.4 0.2 0.0 -1 0 1 2 3 Annual Net Costs ($ Million) Pr o b a b i l i t y of Ex c e e d i n g Pr o b a b i l i t y of Ex c e e d i n g   RECYCLED WATER REFERENCE SHEET (last updated 9/7/2016) WATER REUSE OPTIONS NONPOTABLE REUSE is the beneficial reuse of recycled water for irrigation,  industrial uses, or other non‐drinking water purposes.   POTABLE REUSE is the use of recycled water for potable uses, such as  drinking. This recycled water is purified to meet or exceed federal and state  drinking water standards.  INDIRECT POTABLE REUSE (IPR) refers to the use of recycled water  that has been further treated and introduced into an environmental buffer such  as a surface water reservoir (through augmentation), or groundwater basin  (through recharge), before being used for potable purposes. IPR regulations are  specified in Title 22, Chapter 3, Division 4 of the California Code of Regulations  (CCR).   DIRECT POTABLE REUSE (DPR) refers to the use of purified recycled  water distributed directly into the raw water supply upstream of a drinking  water treatment plant. In California, DPR regulations have not been adopted or  specified in the CCR.  STATE REGULATIONS TITLE 22 STANDARDS are requirements established by the State Water  Resources Control Board Division of Drinking Water for the production,  distribution, and use of drinking water and recycled water. Recycled water  standards are covered under Chapter 3, Division 4 of the California Code of  Regulations, which outlines the different levels of treatment required for  allowable uses of recycled water.   GENERAL TREATMENT PROCESSES  STANDARD UNITS MGD – Million Gallons per Day  PPM – Parts Per Million  mg/L – Milligrams per Liter  ALLOWABLE USES  Irrigation of: o Parks, playgrounds, schools o Residential & commercial landscapes o Cemeteries o Golf courses o Food crops, orchard, vineyard, pastures o Ornamental nursery & sod farm Impoundments & fish hatcheries Flushing toilets & urinals Decorative fountains Commercial laundries Street cleaning, dust control, soil compaction Boiler feed and cooling towers Flushing sanitary sewers Other uses approved under Title 22 Standards All uses listed under Recycled Water Irrigation of salt‐sensitive species (e.g. Redwoods Trees) Sensitive industrial uses SALINITY TOTAL DISSOLVED SOLIDS (TDS) is a measurement of salinity:  the amount of salts, ions, and dissolved minerals per volume of  water. The RWQCP aims to produce recycled water with a TDS of  600 mg/L and is moving towards developing advanced treatment in  collaboration with the Santa Clara Valley Water District and the City  of Mountain View to produce enhanced water with a TDS of  approximately 450 mg/L for use on salt‐sensitive species.  All uses listed under Enhanced Water Indirect potable reuse Direct potable Reuse Purified Water TREATMENT TECHNOLOGY DUAL MEDIA FILTRATION (DMF) refers to the removal of particles in  the water using two different types of filter media, usually sand and finely  granulated anthracite (a type of coal). DMF can remove turbidity and  suspended solids as small as 10‐20 microns under high filtration rate  conditions.  GRANULAR ACTIVATED CARBON (GAC) is a form of carbon that is  processed to be porous, with large surface area for adsorption and used to  remove dissolved contaminants. GAC can remove halogenated compounds  containing chlorine and fluorine, organic contaminants, odor, and taste.  MICROFILTRATION (MF) is an advanced treatment process that  removes contaminants from water using semi‐permeable membranes. MF  membranes can remove contaminants as small as 0.08 microns such as  bacteria. Ultrafiltration (UF) membranes have smaller pore sizes and can  remove contaminants as small as 0.005 microns such as viruses and  proteins.   REVERSE OSMOSIS (RO) is an advanced treatment process that  removes dissolved salts and trace contaminants from water. High pressure  forces the water through a semi‐permeable membrane, while filtering most  contaminants. RO membranes have much smaller pore sizes than  microfiltration and ultrafiltration membranes and can remove contaminants  as small as 0.0001 microns.  RO PERMEATE is the treated water that passes through the RO  membrane.  RO CONCENTRATE is the by‐product from the RO process. It contains  a high concentration of salts and other contaminants from the source  water.  ADVANCED OXIDATION PROCESS (AOP) is a chemically reactive  process that breaks down trace organic contaminants as well as pathogens  in the water by oxidation. AOPs typically use hydrogen peroxide (H2O2) and  ultraviolet (UV) light.   SOIL AQUIFER TREATMENT (SAT) is the natural process that occurs  when water travels through the ground and is purified by the physical and  biological processes that naturally occur in the soil. WATER TYPES AND QUALITY EFFLUENT is the treated water leaving the wastewater treatment plant to be  discharged to the San Francisco Bay. At the RWQCP, only some of the effluent is  treated further to produce recycled water.  RECYCLED or RECLAIMED WATER is wastewater that has undergone  secondary or tertiary treatment to allow for beneficial reuse. Recycled water  produced at the RWQCP is treated to tertiary standards including disinfection.  SECONDARY TREATMENT is a process where dissolved and suspended  biological matter (including suspended solids) is removed so that the water may  be disinfected and discharged into a stream or river, or used for irrigation at  controlled locations.   TERTIARY TREATMENT is an additional treatment process beyond  secondary treatment, where water is further filtered and disinfected. It can also  include treatment processes to remove nitrogen and phosphorus in order to  allow discharge into a sensitive ecosystem.   ENHANCED RECYCLED WATER is recycled water blended with advanced  treated water to support additional uses and reduce total dissolved solids (TDS).  ADVANCED TREATED WATER is water that has undergone additional  treatment beyond tertiary treatment to reduce salts, nutrients, trace organics  and constituents of emerging concern (CECs). Common treatments include  microfiltration, reverse osmosis, and advanced oxidation.   PURIFIED WATER is recycled water that has undergone further treatment  processes and has been verified through monitoring to be safe for augmenting  drinking water supplies. Some of these processes include microfiltration, reverse  osmosis, and if needed advanced oxidation.  SURFACE WATER is water stored in a reservoir typically conveyed from  another surface water source via pipelines or aqueducts.  RAW WATER is surface or groundwater that has not gone through an  approved water treatment process.   GRAYWATER is water segregated from a domestic wastewater collection  system and reused on site for nonpotable uses, it can come from showers,  bathtubs, washing machines, and bathroom sinks, but not toilets or kitchen  sinks.  BLACKWATER  is untreated wastewater from kitchen sinks, toilets, and other polluting activities. Recycled Water Enhanced Recycled Water *Pending DDW Regulations Note: Palo Alto does not currently have a drinking water treatment plant. Current Recycled  Water Program Upgraded  Recycled Water  Program Blend  Tank Drinking Water  Distribution Wastewater  Treatment CURRENT  Enhanced  Recycled  Water Recycled Water Filtration Tertiary Treatment Chlorine Disinfection Effluent Advanced  Treated Water Purified  Water FUTURE Microfiltration (MF) Advanced Oxidation  Process (AOP) Reverse Osmosis (RO) Full  Advanced  Treatment Source  Water Drinking Water  Treatment Plant  Direct Potable Reuse*  Extraction  Wells Groundwater  Recharge Soil Aquifer  Treatment Indirect Potable Reuse GLOSSARY  ATTACHMENT C Palo Alto Recycled Water Delivery and Expansion MEMORANDUM TO: FROM: DATE: SUBJECT: UTILITIES ADVISORY COMMISSION UTILITIES DEPARTMENT AUGUST 1, 2018 Utilities Quarterly Update — 3"' Quarter of Fiscal Year 2018 This update, on water, gas, electric, wastewater collection and fiber utilities, efficiency programs, legislative/regulatory issues, utility -related capital improvement programs, operations reliability impact measures and a utility financial summary, is for the Council and Utilities Advisory Commission's (UAC's) information. This update has been prepared to keep the UAC and Council apprised of the major issues that are facing the water, gas, electric, wastewater collection and fiber utilities. Items of special interest this quarter include: • Low snowpack this year may cause hydro operators to attempt to conserve water in case of another dry year in 2019. This would impact Western and Calaveras energy production (page 3). • Staff expects to identify finalists in mid -July and recommend to the Council a contract award in mid to late August 2018 for the fiber to the node project (page 15) • VA Palo Alto Health Care System was awarded a $383K rebate check for implementing several energy efficiency measures resulting in savings equivalent of the electricity consumed by 475 average Palo Alto homes over one year (page 15). • The City began work on a multi -year infrastructure replacement and street improvement project along University Avenue and the downtown area, which we are calling Upgrade Downtown (page 17). • In April, the City co -sponsored an Electric Vehicle Expo and Ride & Drive in conjunction with the 2018 Earth Day Festival and Great Race for Saving Water (page 19). • A significant amount of legislation and regulation is in progress in 2018. Topics include efficient water use, renewable portfolio standards and energy data transparency (page 20). • Water sales were 14% above FY 2018 budget projections, with projected additional revenues of $4.9 million (page 24). • With Council approved transfers, the Operations Reserve funds for all Utilities are projected to be within guideline levels at the end of FY 2018 (page 26). Attachment: Attachment A: Utilities Fiscal Year 2018 Third Quarter Report `l� REVIEWED BY: ) JONATHAN AB DSCHEIN, Asst. Director, Utility Resource Mgmt. APPROVED BY: ED SHIKADA Utilities General Manager Utilities Quarterly Update Third Quarter of Fiscal Year 2018 August 2018 Quarterly Update for Third Quarter of FY 2018 August 2018 i Utilities Quarterly Update Table of Contents I. Electricity ........................................................................................................................ 3 Electric Supplies ............................................................................................................................................ 3 Electric Budget and Portfolio Performance Measures for FY2018 ............................................................... 6 II. Natural Gas ..................................................................................................................... 9 Gas Supply Retail Rates ................................................................................................................................. 9 Gas Budget and Portfolio Performance Measures ....................................................................................... 9 III. Water ............................................................................................................................ 11 Moccasin Reservoir ..................................................................................................................................... 11 Water Availability ........................................................................................................................................ 11 Water Use ................................................................................................................................................... 12 Recycled Water Strategic Plan .................................................................................................................... 13 Water Budget Performance Measures ....................................................................................................... 13 IV. Fiber Optics ................................................................................................................... 13 Commercial Dark Fiber Service ................................................................................................................... 13 Citizen Advisory Committee ........................................................................................................................ 15 V. Public Benefit, Demand Side Management Programs and Communications ................ 15 Energy Efficiency Program Achievements .................................................................................................. 15 VI. Research and Development and Innovation ................................................................. 18 Program for Emerging Technologies ........................................................................................................... 18 Electrification Activities .............................................................................................................................. 18 VII. Legislative and Regulatory Issues .................................................................................. 19 Summary ..................................................................................................................................................... 19 State Regulatory Proceedings ..................................................................................................................... 22 VIII. Utility Financial Summary ............................................................................................. 23 Electric Utility Overview .............................................................................................................................. 23 Gas Utility Overview.................................................................................................................................... 23 Water Utility Overview ............................................................................................................................... 24 Wastewater Collection Utility Overview ..................................................................................................... 24 Fiber Optic Utility Overview ........................................................................................................................ 24 Residential Bill Comparisons ....................................................................................................................... 26 Quarterly Update for Third Quarter of FY 2018 August 2018 ii List of Figures Figure 1: Electric Supply Resource Actual and Projection, 2017 to 2019 (as of July 3, 2018) ...................... 4 Figure 2: CY 2018 Monthly Electric Supply Resource Projection (as of July 3, 2018) ................................... 5 Figure 3: Northern California Peak Electric Prices (as of July 3, 2018) ......................................................... 6 Figure 4: Q3 FY 2018 Electric Load and Resource Balance ........................................................................... 7 Figure 5: FY 2018 Electric Market Prices ....................................................................................................... 8 Figure 6: CPAU’s Gas Commodity Rates—July 2010 through March 2018 .................................................. 9 Figure 7: Natural Gas – Budget vs. Actual ..................................................................................................... 9 Figure 8: Natural Gas Prices ($/MMBtu) – Forecast vs. Actual ................................................................... 10 Figure 9: Cumulative Redwood Pipeline Cost vs. Market Benchmarks ...................................................... 10 Figure 10: Moccasin Dam ............................................................................................................................ 11 Figure 11: Hetch Hetchy Precipitation as of June 1, 2018 .......................................................................... 11 Figure 12: Tuolumne Snow Pillow and Snow Course Indices ..................................................................... 12 Figure 13: Potable Water Use ..................................................................................................................... 12 Figure 14: Water Consumption and Cost – Budget vs. Actual .................................................................... 13 List of Tables Table 1: Q3 FY 2018 Electric Load and Generation Compared to Budget Projections ................................. 7 Table 2: Q3 FY 2018 Electric Utility Supply Cost Summary ........................................................................... 8 Table 3: Status to date of all applications to the Program for Emerging Technologies ............................. 18 Table 4: Financial Projections, Q3 FY 2018 ................................................................................................. 25 Table 5: Operations Reserves, Q3 FY2018 ($000) ....................................................................................... 26 Table 6: Residential Electric Bill Comparison ($/month) ............................................................................ 26 Table 7: Residential Natural Gas Bill Comparison ($/month) ..................................................................... 26 Table 8: Residential Water Bill Comparison ($/month) .............................................................................. 27 Table 9: Residential Wastewater Collection (Sewer) Bill Comparison ($/month) ...................................... 27 Table 10: Median Residential Overall Bill Comparison ($/month) ............................................................. 27 Table 11: FY 2018 Q3 Reserve Report from the City’s Financial System (‘000) .......................................... 28 Quarterly Update for Third Quarter of FY 2018 August 2018 3 I. Electricity Electric Supplies Western Area Power Administration (Western) Issues 2017 was a historically wet year that resulted in very high reservoir levels across the state. Although the current water year has been drier than average, a series of storms in March and early April was enough to raise reservoir storage levels to slightly above long-term average levels for this time of year. But with minimal snowpack levels this year, hydro operators may nonetheless attempt to conserve water in case of another dry year in 2019. For the first three quarters of FY 2018, Western delivered 229 GWh to the City (8 GWh above long-term average levels for this period, but 76 GWh lower than the same period in FY 2017). For FY 2018 as a whole, Western is projected to supply 367 GWh (approximately equal to long-term average supply levels, but 26% below FY 2017 levels). This projection also represents a decline of 88 GWh from the projection provided in the last quarterly report. Calaveras Hydroelectric Project Issues Although storage levels at New Spicer Meadow Reservoir remain slightly above the long-term average level as of the end of May, the low snowpack levels seen this year mean that generation levels for the year are projected to be slightly below long-term average. For the first three quarters of FY 2018, Palo Alto’s share of the Calaveras project’s generation was 81 GWh (6% below the long-term average level). For FY 2018 as a whole, Calaveras is projected to supply 116 GWh (12% below long-term average levels, and 45% below FY 2017 supply levels). This projection, however, is an 8% improvement over the projection provided in the last quarterly report. Electric Load and Resource Balance The size of the committed and planned market purchases over the last calendar year (CY) (shown in Figure 1 below) reflects a historically high level of hydroelectric output, which led to large quantities of market energy sales. For CY 2017, due to hydroelectric conditions and new solar projects coming online, the City was a net seller of 100 GWh of energy on a fixed-price forward basis, and a net seller of 269 GWh of energy on a short- term (spot market) basis. For CY 2018, somewhat below average levels of hydro output are projected, and for CY 2019, approximately average levels are projected. In addition, long-term renewable resources (landfill gas, wind and solar) are projected to provide about 56% of the City’s total load. Overall electric supply resources were surplus to load by about 28% for CY 2017, while for CY 2018 they are projected to be 1% deficit to load and for CY 2019 9% surplus to load. However, some periods are expected to see significant surplus positions while other periods see deficit positions (see Figure 2 below). Some of the surplus positions will be sold as generic energy ahead of the prompt month while the rest will be settled in the spot market through the California Independent System Operator, thus allowing the City to retain full credit for the environmental attributes of our renewable and hydroelectric generation. Quarterly Update for Third Quarter of FY 2018 August 2018 4 Figure 1: Electric Supply Resource Actual and Projection, 2017 to 2019 (as of July 3, 2018) Quarterly Update for Third Quarter of FY 2018 August 2018 5 Figure 2: CY 2018 Monthly Electric Supply Resource Projection (as of July 3, 2018) Electric Market Price History and Projections As of July 3, 2018, the price for on-peak energy for August 2018 in Northern California was $53.38 per megawatt-hour (MWh)1, while the prices for September and October 2018 were $46.47/MWh and $41.71/MWh, respectively. These values are approximately $6/MWh higher than they were at the time of the last quarterly report.2 On-peak prices for calendar year strips are in the range of $35 to $42/MWh for 2019 through 2021. These prices are approximately $0.80/MWh higher than they were at the time of the last quarterly report. Figure 3: Northern California Peak Electric Prices (as of July 3, 2018) below illustrates historical monthly on-peak prices and projected monthly forward prices for Northern California from 2005 through 2023. 1 Note that $53 per megawatt-hour is equal to 5.3 cents per kilowatt-hour. 2 Market prices for the previous quarterly report were from March 9, 2018. Quarterly Update for Third Quarter of FY 2018 August 2018 6 Figure 3: Northern California Peak Electric Prices (as of July 3, 2018) Electric Budget and Portfolio Performance Measures for FY2018 Electric Load, Generation, and Supply Cost Summary Compared to Budget Estimates Table 1 and Figure 4 below summarize the City’s electric supply sources through the third quarter of FY 2018. Load was about 2.7% lower than budget. Solar generation (+8.3%) was above budget, however, hydro generation (-20.1%) from Calaveras and Western was below budget. CPAU had to purchase power on the spot market due to lower than expected hydro generation. Quarterly Update for Third Quarter of FY 2018 August 2018 7 Table 1: Q3 FY 2018 Electric Load and Generation Compared to Budget Projections Figure 4: Q3 FY 2018 Electric Load and Resource Balance Quarterly Update for Third Quarter of FY 2018 August 2018 8 Table 2 below shows the City of Palo Alto Utilities’ (CPAU’s) supply cost by cost category through the third quarter of FY 2018. Supply costs were $1.48 million (-2.3%) under budget primarily due to higher than expected market sales. Table 2: Q3 FY 2018 Electric Utility Supply Cost Summary Electric Market Prices Figure 5 shows monthly market prices. Electric market prices experienced fluctuations around the first quarter of FY 2018. Figure 5: FY 2018 Electric Market Prices Quarterly Update for Third Quarter of FY 2018 August 2018 9 II. Natural Gas Gas Supply Retail Rates Since July 1, 2012, the commodity portion of CPAU’s retail gas rates for all customers varies every month depending on the market price of natural gas. Figure 6 below shows the actual commodity rates charged from July 2010 through March 2018. Gas commodity rates have been fairly steady for the past few years. Figure 6: CPAU’s Gas Commodity Rates—July 2010 through March 2018 These rates can also be found on the web at: http://www.cityofpaloalto.org/civicax/filebank/documents/30399. Gas Budget and Portfolio Performance Measures Supply Volumes and Costs: Budget vs. Actual Figure 7 compares actual natural gas supply volumes and costs with the FY 2018 budget. Natural gas use through the third quarter of FY 2018 was 2% higher than the budget forecast, but costs were 14% lower than budgeted amounts. Figure 7: Natural Gas – Budget vs. Actual Quarterly Update for Third Quarter of FY 2018 August 2018 10 Figure 8 shows actual gas prices at Malin and PG&E Citygate versus forecasted gas prices. During FY 2018, gas prices have been significantly lower than forecast. Figure 8: Natural Gas Prices ($/MMBtu) – Forecast vs. Actual Value of CPAU’s Share of Redwood Pipeline Capacity Figure 9 shows the value of the Redwood gas transmission line at month-ahead market prices and the volumetric cost of using that transmission line. The Redwood pipeline allows the City to buy gas at the receipt point of Malin, Oregon and transport the gas to “PG&E Citygate”, which is normally a higher priced receipt point. The City’s share of the Redwood pipeline was a net benefit to the Gas Utility of $114,666 through the third quarter of FY 2018. This is the difference between the cumulative value of Redwood capacity of $709,618 (the difference of the monthly index prices at the ends of the Redwood pipeline in Malin, Oregon and PG&E Citygate) and the cumulative transportation cost of using the Redwood pipeline of $594,952. Figure 9: Cumulative Redwood Pipeline Cost vs. Market Benchmarks Quarterly Update for Third Quarter of FY 2018 August 2018 11 III. Water Moccasin Reservoir On March 22, 2018, five inches of rain in one day caused the SFPUC to activate its emergency action plan at crews observed water leaking on the downstream face of Moccasin dam. In coordination with local officials, the SFPUC ordered an evacuation for all people who were potentially in harm’s way. The dam itself never overtopped and remain intact although it has since been drained and is out of operation. Clean-up of debris is underway and will be followed by interim repairs. The SFPUC is working with the Division of Safety of Dams to assess longer-term improvements to the facilities. Figure 10: Moccasin Dam Water Availability The SFPUC does not anticipate a water supply shortage this year due to above normal precipitation and water available on Tuolumne River last year. Figure 10 shows the precipitation at Hetch Hetchy which ended on the median mark. Figure 11: Hetch Hetchy Precipitation as of June 1, 2018 Quarterly Update for Third Quarter of FY 2018 August 2018 12 The Sierra snowpack has melted and system storage is on target at 89% of capacity. Consistent with the expected impacts of climate change, snowpack was below normal even though precipitation was average. Figure 11 shows the accumation and then the melt of the snowpack. Figure 12: Tuolumne Snow Pillow and Snow Course Indices Water Use Palo Alto’s state-mandated water conservation target remains at zero. Water use in July through March was greater than in 2017 but has not rebounded to 2013 levels. Water use this summer will reveal more about the extent to which Palo Altans invested in permanent water use reductions during the drought. Figure 11 shows the City’s monthly water purchases from the SFPUC. Figure 13: Potable Water Use Quarterly Update for Third Quarter of FY 2018 August 2018 13 Recycled Water Strategic Plan Work continues on the Northwest County Recycled Water Strategic Plan (see Staff Report 6700). Ninety percent is being funded by the SCVWD (not to exceed $1.8 million) and the remaining ten percent is being paid by all the partners of the Regional Water Quality Control Plant. The feasibility study and risk assessment of expanding the existing recycled water distribution system to the Stanford Research Park will be presented to the UAC on August 1, 2018. Water Budget Performance Measures Figure 12 below compares actual water supply volumes and costs to the FY 2018 budget projections. Actual water use through the third quarter of FY 2018 was 11.9% higher than budget estimates. Actual supply costs through the third quarter of FY 2018 were 5.7% above budget. Figure 14: Water Consumption and Cost – Budget vs. Actual IV. Fiber Optics Commercial Dark Fiber Service The total number of commercial dark fiber customers at the end of FY 2018 Q3 decreased from 108 to 94 (93 commercial accounts and 1 City account). The total number of active dark fiber service connections serving commercial and City customers decreased from 201 at the end of the second quarter of FY 2018 to 195 at the end of the third quarter (some customers have multiple connections). The reason for these reductions is due to the expiration of some older contracts with no active connections. Commercial customers generate approximately 81% of the dark fiber license revenues. Fiber Optic Network Rebuild Project The rebuild project will install new aerial duct or substructure (conduit and boxes), in addition to fiber backbone cable to increase capacity for sections of the dark fiber ring that are at or near capacity. This project will allow CPAU to meet customer requests for services. The project areas primarily cover the Stanford Research Park, Palo Alto Internet Exchange/Equinix at 529 Bryant, and Downtown areas. This project basically “overlays” new fiber over existing fiber routes in the network. Existing fiber will continue to serve City facilities and commercial dark fiber customers. Quarterly Update for Third Quarter of FY 2018 August 2018 14 2017-2021 Capital Improvement Projects The budget for the fiber rebuild project was reduced by the City Council during the Fiscal Year 2016 budget process. The Fiscal Year 2018 budget reflects this adjustment from $2.4 million to $1.2 million. Rebuild Work Completed The route from PAIX at 529 Bryant to the Park Boulevard Substation has been completed. This phase of the project included substructure work, fiber pulling and cabinet installation. The new fiber installed for the backbone rebuild is 312-count single-mode fiber (2 x 144-count single-mode fiber, plus 24-count single-mode fiber). Upcoming work scheduled over the next 12 months: • Route from Park Substation to Hansen Substation • Route from Hansen Substation to Stanford Research Park • Additional phases/routes to be determined. The estimated cost for the rebuild is between $500,000 and up to $1,000,000 for substructure work. Another $250,000 for the overhead portion of the work is allocated for the project. CPAU crews will perform the equipment installation, cable pulling and terminations. CPAU’s substructure contractor will install the conduit and boxes. Fiber-to-the-Node Request for Proposal Staff is currently working on the following tasks related to fiber expansion: On August 21, 2017, the City Council directed staff to develop a business case for a municipal-provided Fiber- to-the-Node (FTTN) network. The directive asked staff to: • Engage a Management Consultant (“Consultant”) to develop the business case, funding plans, identify potential partners and/or service providers; • Prepare a high level network design; • Engage an engineering firm to design a FTTN network including an expansion option to build a citywide Fiber-to-the-Premises (FTTP) network. Note: Engagement of an engineering firm is dependent on the outcome of the business case, identification of potential public-private partnership opportunities, and other findings and recommendations developed by the consultant. Another RFP may be issued to engage an engineering firm to prepare a detailed design and cost estimate for an FTTN network, including an expansion option to build a citywide FTTP network. Issuance of such an RFP would be contingent on the outcome of the business case and City Council approval to proceed. • Draft ordinances that will lower the City's fiber construction costs, such as a Dig Once, String Once (a.k.a. One Touch Make Ready), Microtrenching and Multi-unit housing access. An RFP to retain a consultant was issued on May 24, 2018. The FTTN network scope of work includes the development of the business case, funding plans and regulatory assessment; identification of potential partners and/or service providers; preparation of a high-level network design; market assessment and community interest survey, and identification of draft ordinances that may incentivize private builders/operators to build in Palo Alto. Contingent on the outcome of the business case, a second RFP may Quarterly Update for Third Quarter of FY 2018 August 2018 15 be issued to engage an engineering firm to design a FTTN network, including an expansion option to build a citywide FTTP network. The RFP vendor response submittal deadline was June 28, 2018. Staff expects to identify finalists in mid-July and recommend to the Council a contract award in late August 2018. Citizen Advisory Committee Staff continues to meet on a regular basis with the committee regarding fiber and wireless initiatives. The most recent meeting of the committee occurred on April 26, 2018. The meeting included a presentation by Comcast representatives about their network upgrades in Palo Alto, in addition to new products and market development initiatives and the availability of gigabit-speed broadband and pricing. Other discussion topics with the committee included: status of the above-noted RFP; AT&T Fiber; proposed small cell projects by Verizon Wireless, Crown Castle and AT&T Mobility; Wi-Fi expansion to unserved City facilities; status of the Public Safety Point-to-Multi-Point RFQ; status of the Public Safety Mobile Network RFP, and the status of the downtown infrastructure and street improvement project. The next scheduled meeting with the committee is July 19, 2018. V. Public Benefit, Demand Side Management Programs and Communications Energy Efficiency Program Achievements Energy Efficiency Contracts Extensions On June 25, Council approved six contract amendments that will allow energy savings to continue to accrue without interruption. These six contracts are divided as one contract for the Residential sector, one for the Low Income sector, one for the Multifamily sector and three contracts for our Large Commercial and Industrial (C&I) customers. These amendments will help the City to continue on its path to meet its aggressive energy efficiency savings and sustainability goals. The City relies on partnerships with third party contractors to deliver energy efficiency programs. Such targeted third-party programs have played an important role in meeting mandated state and local energy efficiency goals and objectives. They are also popular with customers, since they often provide turn-key service and require minimal effort to participate. Vice Mayor Eric Filseth Presents the VA Palo Alto Health Care System with Big Rebate Check At a recent Palo Alto Facilities Managers Meeting held at HP Inc., Vice Mayor Eric Filseth presented Dan Kulenich, the Deputy Director of the VA Palo Alto Health Care System with rebate check for work done at the Palo Alto VA Hospital. The VA Hospital implemented several energy efficiency measures including a campus- wide lighting retrofit and installing two large high efficiency chillers with an optimized sequence of operations. The resulting savings were 35,240 therms and 3.4 megawatt-hours of electricity. This is the equivalent of the electricity consumed by 475 average Palo Alto homes over one year! Quarterly Update for Third Quarter of FY 2018 August 2018 16 From left to right: Vice Mayor Eric Filseth, Key Account Reps Brian Ward and Josh Wallace, VA Deputy Director Dan Kulenich AB 802 Benchmarking Website As of January 1, 2017, owners of buildings in California that are greater than 50,000 square feet must comply with Assembly Bill 802: Building Energy Use Benchmarking and Public Disclosure Program. To assist Palo Alto business owners with compliance of this bill, a webpage was created on the Palo Alto website to answer questions about the bill and make it easy for building owners to request utility usage data which is needed to benchmark their buildings. The site also provides a link to the California Energy Commission website which will be updated on regular basis with more information for the building owners. Sunshares Solar Group-Buy Program - The final program results revealed that Palo Alto was the top “Outreach Partner” in the 2017 Bay Area SunShares solar group-buy program, both in terms of the number of solar contracts signed and kilowatts (kW) of rooftop solar capacity that will be installed through the program. In Palo Alto, 29 residents signed contracts for a total of 156.94 kW of rooftop solar. Customers in all nine Bay Area counties participating in the 2017 SunShares program contracted for a total of over 1 MW solar capacity. Of that total, Palo Alto’s share accounts for 14.5% of the solar capacity volume. Communications Highlights This section summarizes communications highlights, updates on major campaigns and noteworthy events. Copies of all current and past ads and bill inserts are available online at cityofpaloalto.org/UTLbillinsert Utilities 2018 Strategic Plan – An update to the Utilities Strategic Plan was completed this quarter with City Council approval on March 19. The Department is now moving into the implementation phase of the Strategic Plan. Our management team and core planning group will remain involved in the execution of the Strategic Direction and Priorities, engaging staff within the Department, as well as other stakeholders, for our collective success. A public-facing webpage is now available at cityofpaloalto.org/UTLstrategicplan Quarterly Update for Third Quarter of FY 2018 August 2018 17 with information on the plan, and staff is setting up an intranet website to share documents and resources internally for implementation in the Priority areas. HP Management and Staff, Mayor Kniss, Staff from Ecology Action (CPAU Empower Program) and Master Gardeners Utilities Rebate for HP Energy Efficiency Pays Back with New Sustainable Garden – In February, HP unveiled a new sustainable garden at its global headquarters in Palo Alto, partly funded by a rebate from the City of Palo Alto Utilities for an energy efficiency project at the campus. By participating in the City’s Empower Program, the company received a rebate for the energy savings and used the funds for a number of employee sustainability engagement projects, including the garden which employees will be able to tend. Mayor Liz Kniss attended the ribbon-cutting event and planted the first ceremonial plant. Upgrade Downtown - Construction Underway – The City began work on a multi-year infrastructure replacement and street improvement project along University Avenue and the downtown area, which we are calling Upgrade Downtown. Staff has developed a dedicated website for the project at upgradedowntownpa.com, as well as email newsletter for weekly project updates, phone line (650-329-2DIG) and email inbox (UpgradeDowntown@cityofpaloalto.org) to communicate updates on construction work, maps, road closures, parking, etc. Scam Utility Calls Strike Again – Phone calls from scam artists claiming to be from the Utilities Department were on the rise this quarter. Scammers targeted Palo Alto residents and businesses, demanding immediate payment for an overdue account and threatening to shut off power if a victim did not comply. Staff posted warning messages on the City’s website, social media accounts, and among the neighborhood and business community groups. New Year Reminders – Go Green in 2018 and Update Account Info – The start of a new year is always a good time to ensure account information is up-to-date and consider ways to “go green” by connecting with Utilities online and reduce paper usage. Staff distributed bill inserts with tips on how to enroll in paperless billing, follow us in social media, find helpful information on outages, safety, utility construction projects and customer service. Staff are also promoting enrollment in the Utilities e-newsletter at cityofpaloalto.org/utilitynews Quarterly Update for Third Quarter of FY 2018 August 2018 18 Event Promotion – With spring around the corner, staff ramped up promotion of Earth Day events, such as the 5th Annual Great Race for Saving Water and Earth Day Festival, workshops, rebates and programs for irrigation efficiency and sustainable landscape maintenance, including the Landscape Rebate Program. Events - Details and registration for all events are at cityofpaloalto.org/workshops • Graywater: Laundry to Landscape Workshop – Mar 10 • Silicon Valley Water Conservation Awards Ceremony – Mar 22 • Designing Native Gardens Workshop – Mar 24 • Great Race for Saving Water and Earth Day Festival – Apr 14 o Lawn Replacement 101 – mini workshop at Earth Day Festival o Permaculture Principles, Design and Application – mini workshop at Earth Day Festival o Easy-to-Grow Native Plants – mini workshop at Earth Day Festival VI. Research and Development and Innovation Program for Emerging Technologies CPAU’s Program for Emerging Technologies, or PET, (www.cityofpaloalto.org/UTLInnovation) provides the opportunity for local businesses and organizations to submit proposals for innovative and impactful products to CPAU for review as a prospective partner. The goal is to find and nurture creative products and services that will manage and better use electricity, gas, water and fiber optic services. From the program’s inception in June 2012 through the third quarter of FY 2018, the program has received a total of 77 applications. Table 3 below summarizes the status of all applications through the third quarter of FY 2018. Table 3: Status to date of all applications to the Program for Emerging Technologies Deadline Total Received Under Review Declined/Closed Active Completed FY 2013 13 0 11 0 2 FY 2014 15 0 11 1 3 FY 2015 15 0 11 2 2 FY 2016 14 0 9 0 5 FY 2017 10 4 3 2 2 FY 2018 10 4 4 0 1 TOTAL 77 8 49 5 15 Electrification Activities Heat Pump Water Heater Pilot Program The City launched a Heat Pump Water Heater (HPWH) pilot program in late Spring 2016 to encourage residents replace their gas water heaters with efficient HPWHs. The pilot program website provides information such as rebate levels (up to $1,500), qualifying models that meet the minimum efficiency standard required by the California Energy Commission and installation considerations. With Development Center and Utilities collaboration, the City developed a permit submittal check list for installing a HPWH. In May 2017, the program was expanded to include rebates (at a lower rate) for new construction projects as well. As of June 2018, 58 residents have signed up for the program and the City has paid a rebate to 27 households, including Quarterly Update for Third Quarter of FY 2018 August 2018 19 13 rebates paid to a new, all electric multi-family building. In April 2018 the City also co-hosted its second HPWH workshop with Passive House California, attracting over 70 participants. The City also hosted a roundtable with 20 other key stakeholders, including HPWH manufacturers, other cities, non-profits focusing on decarbonization, CCAs, and installers. The goal of this session was to understand barriers to entry from the perspective of each group, as well as to brainstorm ways to work collaboratively to achieve market transformation. This spurred the City to work with Bayren to apply for a BAAQMD grant to design and implement a mid-stream HPWH program to help transform the market on a regional scale. This grant application, received letters of support from multiple cities, agencies and non-profits, also hoping to participate in a program to encourage regional market transformation. EV Charger Rebate Program The City began offering rebates in March 2017 for Electric Vehicle Charging Stations installed at schools, multi- family complexes, and non-profit buildings with common area charging accommodations using funds from Low Carbon Fuel Standard (LCFS) Credits. Rebates up to $30,000 are available for schools and non-profits and up to $18,000 are available for multi-family and mixed use buildings. As of June 2018, we have paid EV charger rebates out to 5 organizations. However, staff has been working with a number of multifamily complexes and non-profits and expects participation to be much more robust in the months ahead. We currently have active applications from 7 multifamily complexes and 6 non-profits. Utilities has been working closely with the Development Center to understand, communicate and streamline the permit process as much as possible. In April, the City co-sponsored an Electric Vehicle Expo and Ride & Drive in conjunction with the 2018 Earth Day Festival and Great Race for Saving Water. A total of 23 vehicles representing 10 different makes/models provided 164 demo rides/drives and viewing opportunities for over 200 festival attendees. Survey results indicate that the percentage of people who had a "very positive" perception of EVs jumped from 65% to 88% after the test drives, and 74% of participants indicated that their test drive helped accelerate the timing of their future EV purchase/lease. In May, we co-hosted our second EV workshop with Stanford’s Health Improvement Program in which attracted 110 attendees. In coming months we plan to update information on our webpages as well as plan more educational and outreach events for our customers. The latest ICCT (International Council On Clean Transportation) white paper on EV markets, reports that EV adoption rates in Palo Alto are still the most aggressive in the country. In 2017 the EV adoption rate in Palo Alto went from 1 in 5 new vehicles in 2016, to 1 in 3 new vehicles being EVs. VII. Legislative and Regulatory Issues While the City operates on the Fiscal Year (July through June), the State legislature and Congress operate on the Calendar Year, and federal agencies follow the Federal Fiscal Year (October to September). In order to provide accurate information in this report, staff notes here current issues, regardless of each entity’s operating year. Summary The State legislature is nearing the end of its two-year session, and we’ve already seen some bills passed and signed into law. Additionally, wildfires are a topic of importance to the legislature this year, particularly as they concern electric lines. A legislative hearing was held earlier in the year with IOUs and fire personnel to discuss Quarterly Update for Third Quarter of FY 2018 August 2018 20 electric lines possibly igniting fires, and we’ve seen some bills related to reliance to wildfires as well. These are summarized below, as are other bills tracked by CPAU. State bills Water Efficient water use bills become law SB 606 (Hertzberg) and AB 1668 (Friedman) were both passed by the legislature and signed by the Governor. Together, they set forth guidelines for efficient water use and create a framework for implementation of new efficiency standards beginning in 2022. These bills are separate from, but operate in conjunction with, the Governor’ efforts to “Make Conservation a Way of Life.” The two bills strengthen water resiliency through various provisions, including: • Establishing an indoor, per person water use goal of 55 gallons per day until 2025, 52.5 gallons until 2030, then 50 gallons beginning in 2030 and thereon • Providing incentives for water suppliers to recycle water • Requiring water suppliers to set annual water budgets and prepare for drought AB 2370 (Holden) Lead exposure: child day care facilities: family day care homes. Requires the State to adopt regulations for the testing of drinking water at licensed child care centers to ensure that the drinking water is lead free. AB 3206 (Friedman): Water conservation: water meters: accuracy and performance standards. Requires the Energy Commission to set accuracy standards for water meters by 2020. Requires the State Water Board to adopt water meter sampling and testing protocols. Through CMUA, the Utilities Department is supporting this bill. SB 623 (Monning): Water quality: Safe and Affordable Drinking Water Fund. Holdover from 2017. Imposes a two year fee on the utility bills of every water customer to fund a new state program. Money is distributed to communities lacking safe drinking water. The fee amount depends on the size of the water meter. Through CMUA, the Utilities Department is opposing this bill. SB 998 (Dodd): Discontinuation of residential water service: urban and community water systems. Prohibits water systems from shutting off water for non-payment until certain steps are taken, some of which require involvement from outside entities. Through CMUA, the Utilities Department is opposing this bill. SB 1422 (Portantino): California Safe Drinking Water Act: microplastics. Requires the State Water Board to adopt regulations for the annual testing and reporting of microplastics in drinking water, regulations presumably applicable to CPAU. Electricity SB 100 (de León). California Renewables Portfolio Standard Program: emissions of greenhouse gases. Holdover from 2017 that was revived in July. Quarterly Update for Third Quarter of FY 2018 August 2018 21 Increases the 2030 Renewables Portfolio Standard target from 50% to 60%. Creates the policy of planning to meet all of the state's retail electricity supply with a mix of RPS-eligible and zero-carbon resources by December 31, 2045, for a total of 100% clean energy. AB 2450 (Quirk). Electrically conductive balloons. Requires manufactures of Mylar balloons to place a warning on the balloons about the dangerous risk of fires from balloon contact with an electrical power line. Twice in June 2018, Mylar balloons have caused a power outage in Palo Alto. Through CMUA, the Utilities Department is supporting this bill. AB 813 (Holden): Multistate regional transmission system organization: membership. Provides for the formation of a multistate regional transmission organization. (AKA regionalization). The bill does not address concerns surrounding benefits to the State, transmission charges, federal preemption, final governance approval, and so on. Through CMUA and NCPA, the Utilities Department is opposing this bill. AB 893 (E. Garcia): California Renewables Portfolio Standard Program. Imposes a new geothermal resource procurement mandate. Through CMUA and NCPA, the Utilities Department is opposing this bill. SB 1369 (Skinner): Energy: electrolytic hydrogen Requires the CEC to develop up to three pilot projects by January 1, 2021 to produce "green electrolytic hydrogen." Requires the CEC and CPUC to consider the existing and potential uses for electrolytic hydrogen when evaluating an integrated resource plan (IRP). In doing so, the bill creates new obligations before data may be available and before the first IRP is even due. Through CMUA, the Utilities Department is opposing this bill. Other AB 3232 (Friedman): Zero-emissions buildings and sources of heat energy. By January 2021, requires the CEC to assess the potential for the state to reduce GHG emissions from residential and commercial buildings by at least 40% below 1990 levels by January 1, 2030. AB 821 (Jackson): Emergency notification: county jurisdictions. Allows localities to develop a mechanism to access the contact information of utility accountholders for the sole purpose of enrolling residents in a county-operated public emergency warning system. Any mechanism developed would include procedures to enable any resident to opt out. Contact information a person’s name, address, phone number(s), and email address. SB 782 (Skinner): Energy data transparency. Requires utilities to assign a global unique identifier to buildings for purposes of implementing the AB 802 building benchmarking program. Legislative committee analysis notes that "developing a program of this scale is a large undertaking for electric utilities... especially for small publically owned utilities. At the end of the day the ratepayers will be paying the cost of creating a system to track and collect building specific electricity usage." Through CMUA, the Utilities Department is opposing this bill. Quarterly Update for Third Quarter of FY 2018 August 2018 22 SB 901 (Dodd): Wildfire mitigation plans and measures. Mandates POUs modify wildfire mitigation measures to include a description of the factors used to determine when it’s necessary to reenergize lines and deactivate reclosers. Measures must include notification procedures. Through CMUA, the Utilities Department is supporting this bill. Federal bills H.R. 2371 (Goser R-AZ): Western Area Power Administration Transparency Act. Requires the Western Area Power Administration (WAPA) to establish a 7 year pilot project to provide increased transparency for customers. H.R. 4858 (Eshoo D-CA): Clearing Local Impediments Makes Broadband Open to New Competition and Enhancements Act (CLIMB ONCE Act). Clarifies that the federal Pole Attachment Act does not limit the ability of a State to adopt a “one touch make ready” policy for pole attachments. H.R. 5127 (Napolitano D-CA): Water Recycling Investment and Improvement Act. Would provide financial assistance for building water recycling plants and modernizing water infrastructure. Through the Western Recycled Water Coalition, the Utilities Department is supporting this bill. S. 3157 (Thune R-SD): The STREAMLINE Small Cell Deployment Act Attempts to streamline the citing of pole attachments (small cells). State Regulatory Proceedings Below, staff notes the issues we are currently tracking or engaging in with various agencies. California Air Resources Board GHG planning targets, the Low Carbon Fuel Standard, Cap-and-Trade California Energy Commission IRP, Power Source Disclosure State Water Resources Control Board Water Loss Audits/Water Loss Control Reporting, a framework for direct potable reuse, wasteful water use The California System Operator TAC structure proposal California Public Utilities Commission While the CPUC maintains jurisdiction over IOUs and not POUs such as Palo Alto, we engage in some of their efforts. These include: IRP requirements, a GHG accounting methodology, General Order 95 (relating to overhead electric lines), utility physical security PG&E Rate Case Quarterly Update for Third Quarter of FY 2018 August 2018 23 On November 17, 2017 PG&E filed its 2019 Gas Transmission and Storage (GT&S) application, requesting a rate increase. If adopted without changes, PG&E’s rate proposal would increase Palo Alto’s costs by $1.8M per year or 13%. The proposed cost increases are largely due to the 2015 Aliso Canyon storage leak and the resulting storage field regulations effective in the near future. Additionally, PG&E’s storage facilities will require significant upgrades. Part of PG&E’s plan involves retiring older storage fields that will be too expensive to operate under the new rules and relying heavily on Independent Storage Providers (ISPs) to provide the needed storage services on the system. Palo Alto is a party to the proceeding and has joined a coalition of other parties with similar interests. Intervenor testimony was due July 20; the hearing will begin in September. VIII. Utility Financial Summary This section describes the unaudited actual financial results for FY 2018 for all Utilities funds. The Council- adopted long-term Financial Plans for the Electric, Gas, Wastewater Collection, and Water Funds have been updated for FY 2019 during the budget review process. Electric Utility Overview Sales for FY 2018 are currently projected to be 0.1% higher than budgeted, with sales revenues consequently higher than budget by about $1.5 million. Deliveries from Western and Calaveras hydroelectric resources have been higher than projected, with projected energy revenues being greater by $5 million. Other revenues, including transfers in and interest income, have been revised based upon FY 2018 actuals. Purchased electricity cost projections for FY2018 are anticipated to be $9.5 million higher than in last year’s financial plan. Other higher cost projections have stemmed from greater capital improvement costs of $5.4 million, as well as higher operations costs of $3.8 million. The net effect on reserves is currently projected to be an additional withdrawal from reserves of $2.2 million. Both the Electric Distribution and Electric Supply Operations Reserves were below the FY 2018 reserve minimum guideline levels based on these figures. In the FY18 and FY19 Financial Plans, several proposed transfers from the Hydro Rate Stabilization (up to $9 million) and Rate Stabilization reserves (up to $9 million) were proposed and approved, as well as an additional $10 million from the Electric Special Projects reserve as a short term loan. The City did not execute the transfers, but had they been performed, reserves would be above minimum levels. Based upon recent activity, current transfer projections are for the $9 million in RSR funds, but only $1 million will be needed from the Hydro Rate Stabilization reserve, and a $6 million loan from the ESP reserve. Necessary transfers will be performed at the end of FY 2018 to bring these reserves back above minimum levels. The Electric Utility CIP Re-appropriation and Commitment Reserves totaled $20.9 million at the end of Q3 FY 2018. Gas Utility Overview Current projections for Gas Utility sales in FY 2018 are slightly higher than last year’s forecast, with sales through Q3 being 1.6% above projections. However, depressed gas market prices mean than overall sales Quarterly Update for Third Quarter of FY 2018 August 2018 24 revenue will still likely match budget estimates. Capital investment cost related to the Upgrade Downtown project will substantially increase in FY 2018 with the approval of $6.7 million in additional project funding. The gas main replacement (GMR) program is in the final stages of completing a major milestone with the replacement of gas mains made from Acrylonitrile-Butadiene-Styrene (ABS) plastic. The current budget for the gas main replacement program takes into account the recent rise in construction costs. Several factors are contributing to the increase in construction costs and include economic recovery in the Bay Area, a greater focus on infrastructure improvement by many municipal agencies, and the higher demand for utility contractors within these fields. CPAU has seen the replacement cost per linear foot increase by 25% to 50% over the last couple of years. In operations costs there is a short run addition of $1 million, starting in FY 2019 for cross-bore inspections as well as general inflationary increases of around 2-3% per year. Staff projects the Gas Operations Reserve to be within guideline levels throughout the forecast period and for the Rate Stabilization Reserve to be exhausted by the end of 2019 to help smooth rate increases over several years. The Gas Utility CIP Reappropriation and Commitment Reserves totaled $12.1 million at the end of Q3 FY 2018. Water Utility Overview Water usage has continued its relatively rapid post-drought recovery, and is currently 14% above projections made in the FY 2018 Financial Plan, with additional revenues projected at $4.9 million. While water usage is projected to plateau and possibly decline somewhat in the future, as seen in previous drought instances, the place at where that leveling off occurs is difficult to predict. Increased usage has increased purchases as well, although the costs will be more than offset by the higher than expected revenues. Staff anticipates the effort to rehabilitate mains along University Avenue will need $3 million in additional funding. The Water Operations Reserve is currently expected to be at the maximum guideline range. The Water Utility CIP Reappropriation and Commitment Reserves totaled nearly $16 million at the end of Q3 FY 2018. Wastewater Collection Utility Overview Staff estimates higher costs in FY 2018 than forecast. Capital improvement costs increased by around $0.8 million for main replacement project design costs not included in last year’s projections. Another contributing factor is that staff projects higher treatment costs due to increasing capital and operations costs at the RWQCP. Additionally, staff projects less revenue from connection and capacity fees and interest because actual revenues from these sources were lower than projected in FY 2017. Staff projects the Wastewater Collection Operations Reserve to be within the guideline levels for FY 2018. Should it be needed, the CIP reserve has an additional $0.98 million that could be utilized in case of emergency. The Wastewater Collection Utility CIP Reappropriation and Commitment Reserves totaled $2.9 million at the end of Q3 FY 2018. Fiber Optic Utility Overview Staff projects Fiber sales and expenses through the end of FY 2018 to be $4.7 million and $4.1 million respectively. Expenses have increased over the past few years, primarily due to the Fiber Optic System Rebuild Quarterly Update for Third Quarter of FY 2018 August 2018 25 and Upgrade Downtown CIP projects. The dark fiber network was constructed in the early 1990s. The Fiber Rebuild project is addressing several sections of the dark fiber system that have either reached capacity or are in need of repair, thus limiting the City’s ability to add new customer connections. As part of the Upgrade Downtown project, fiber conduits will be included in the joint trench on University Avenue to minimize future excavation on a congested thoroughfare, thereby decreasing future construction-related inconvenience to businesses, and reducing costs by installing multiple utilities with a single project, minimizing overhead and mobilization costs. In addition, staff completed installation of fiber optic service connection for Public Works Department to monitor pump stations and creek levels at 17 locations. As shown in Table 11, the Fiber Optics Distribution Reserve and CIP Reappropriation was $24.1 million and $3.6 million respectively as of the end of Q3 FY 2018. Table 4: Financial Projections, Q3 FY 2018 Sales Volumes Revenue ($000) Expense ($000) Net Reserve Change ($000) Electric Utility Financial Plan 908,459 MWh 158,675 (158,360) 315 Current Forecast 909,595 MWh 161,151 (170,886) (9,735) Change from Financial Plan 1,136 MWh 2,476 (12,526) (10,050) 0.1% 1.5% 8.0% Gas Utility Financial Plan 27,434,000 therms 38,225 (40,098) (1,873) Current Forecast 28,091,628 therms 37,112 (42,243) (5,131) Change from Financial Plan 657,628 therms (1,113) (2,145) (3,258) 2.4% (2.9%) 5.3% Water Utility Financial Plan 4,037,731 CCF 42,391 (43,493) (1,102) Current Forecast 4,581,619 CCF 47,892 (48,956) (1,064) Change from Financial Plan 543,888 CCF 5,501 (5,463) 38 13.5% 13.0% 12.6% Wastewater Collection Utility Financial Plan 19,170 (17,613) 1,557 Current Forecast 18,692 (19,296) (605) Change from Financial Plan (478) (1,683) (2,162) (2.5%) 9.6% Fiber Optic Utility Financial Plan 4,891 (4,144) 747 Current Forecast 4,661 (4,144) 517 Change from Financial Plan (230) (4.7%) 0 0% (230) Quarterly Update for Third Quarter of FY 2018 August 2018 26 Table 5: Operations Reserves, Q3 FY2018 ($000) Electric Supply Electric Distribution Gas Water Wastewater Collection Fiber Optic * Beginning 12,891 7,022 13,549 12,735 6,393 25,420 Projected Change 3,298 3,659 (5,002) 1,006 (605) 517 FY 2018 Ending Projected 16,189 10,681 8,547 13,741 5,788 25,937 Reserve Minimum 16,164 10,091 5,698 7,016 2,686 896 Reserve Maximum 32,328 14,618 11,396 13,741 6,715 1,793 * For Fiber Optics, the Reserve is the Rate Stabilization (not the Operations) Reserve Residential Bill Comparisons Table 6: Residential Electric Bill Comparison ($/month) As of May 1, 2018 Season Usage (KWh/mo) Palo Alto PG&E Santa Clara Roseville Summer (May -Oct) 300 36.48 63.51 34.21 63.51 365 (Median) 46.78 81.50 43.08 77.27 650 100.93 161.28 75.58 153.70 1200 205.45 315.24 140.59 307.66 Table 7: Residential Natural Gas Bill Comparison ($/month) As of May 1, 2018 Season Usage (therms) Palo Alto Menlo Park, Redwood City, Mountain View, Los Altos, and Santa Clara (PG&E Zone X) Roseville (PG&E Zone S) Summer (Jun-Oct) 15 23.13 19.15 19.56 18 (Median) 25.70 22.98 25.04 30 40.97 44.75 46.97 45 61.87 72.17 74.39 Quarterly Update for Third Quarter of FY 2018 August 2018 27 Table 8: Residential Water Bill Comparison ($/month) As of May 1, 2018 Usage CCF/month Palo Alto Menlo Park Redwood City Mountain View Santa Clara Hayward 4 43.41 50.51 50.10 37.10 22.76 33.20 (Winter median) 7 65.91 73.36 70.56 57.50 39.83 54.62 (Annual median) 9 84.27 88.60 84.20 71.10 51.21 68.90 (Summer median) 14 130.17 126.70 128.86 105.10 79.66 106.51 25 231.15 210.50 247.97 220.70 142.25 199.02 Based on the FY 2013 BAWSCA survey, the fraction of SFPUC as the source of potable water supply was 100% for Palo Alto, 95% for Menlo Park, 100% for Redwood City, 87% for Mountain View, 10% for Santa Clara and 100% for Hayward. Table 9: Residential Wastewater Collection (Sewer) Bill Comparison ($/month) As of May 1, 2018 Palo Alto Menlo Park Redwood City Mountain View Los Altos Santa Clara Hayward 34.83 89.33 76.68 37.75 36.27 41.65 31.29 Table 10: Median Residential Overall Bill Comparison ($/month) As of May 1, 2018 Utility and Usage Palo Alto Menlo Park Redwood City Mountain View Santa Clara Hayward Electricity (365 kWh/mo) $ 46.78 $ 81.50 $ 81.50 $ 81.50 $ 43.08 $ 81.50 Gas (18 th/mo) 25.45 22.98 22.98 22.98 22.98 22.98 Wastewater 34.83 89.33 76.68 37.75 41.65 31.29 Water (9 CCF/mo) 84.27 88.60 84.20 71.10 51.21 68.90 TOTAL $191.33 $279.38 $262.33 $210.30 $159.35 $201.64 Quarterly Update for Third Quarter of FY 2018 August 2018 28 Table 11: FY 2018 Q3 Reserve Report from the City’s Financial System (‘000)