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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 March 6, 2019
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.Utilities Advisory Commission Recommendation that the City Council Adopt a Resolution Action
Amending Utility Rule and Regulation 20 to Allow Neighborhood Funding of Certain
Subsurface Equipment
2.Electric Supply Portfolio Carbon Accounting Analysis Discussion
3.Staff Recommendation that the Utilities Advisory Commission Recommend that the City Action
Council Adopt: 1) a Resolution Approving the Fiscal Year 2020 Electric Financial Plan, and 2)
a Resolution Increasing Electric Rates by 8% by Amending the E-1, E-2, E-2-G, E-4, E-4-G, E-4
TOU, E-7, E-7-G, E-7 TOU, E-14, E-EEC and E-NSE Rate Schedules
4.Staff Recommendation that the Utilities Advisory Commission Recommend that the City Action
Council Adopt: (1) a Resolution Approving the Fiscal Year 2020 Water Utility Financial Plan;
and (2) a Resolution Increasing Water Rates by 1% by Amending Rate Schedules W-1
(General Residential Water Service), W-2 (Water Service from Fire Hydrants), W-3 (Fire
Service Connections),W-4 (Residential Master-Metered and General Non-Residential Water
Service), and W-7 (Non-Residential Irrigation Water Service)
5.Update and Discussion of Fiber and AMI Planning Discussion
NEXT SCHEDULED MEETING: May 1, 2019
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 Reports 12-Month Rolling Calendar Public Letter(s) to the UAC
FY20 Q1 & Q2 Utilities Quarterly Report
UTILITIES ADVISORY COMMISSION – SPECIAL MEETING
TUESDAY, April 9, 2019 – 7:00 P.M.
COMMUNITY MEETING ROOM
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: Tom DuBois
Utilities Advisory Commission Minutes Approved on: Page 1 of 8
UTILITIES ADVISORY COMMISSION MEETING
MINUTES OF MARCH 6, 2019 REGULAR MEETING
CALL TO ORDER
Vice Chair Schwartz called the meeting of the Utilities Advisory Commission (UAC) to order at 7:00 p.m.
Present: Vice Chair Schwartz, Commissioners Forssell, Johnston, Segal, and Trumbull
Absent: Chair Danaher, Commissioner Ballantine
ORAL COMMUNICATIONS
None.
APPROVAL OF THE MINUTES
Commissioner Trumbull moved to approve the minutes of the February 6, 2019 meeting as presented.
Commissioner Forssell seconded the motion. The motion carried 5-0 with Vice Chair Schwartz and
Commissioners Forssell, Johnston, Segal, and Trumbull voting yes, and Chair Danaher and Commissioner
Ballantine absent.
AGENDA REVIEW AND REVISIONS
None.
REPORTS FROM COMMISSIONER MEETINGS/EVENTS
Vice Chair Schwartz reported she attended the Water Advanced Metering Infrastructure (AMI) Norcal
meeting led by the City of Palo Alto Utilities (CPAU), where she learned that AMI technology for water is not
as developed as for electricity. CPAU has an opportunity to do some interesting and novel things with AMI
for water. The utilities participating in the meeting are willing to share information and to collaborate. Based
on comments from other utilities, Staff's approach to AMI implementation should prevent future problems.
The Electric Program Investment Charge (EPIC) Symposium showcased new clean energy technologies, many
of which are in the idea stage. Projects in the concept phase should be distinguished from projects that have
been implemented. In the State of the City address, the Mayor's approach to housing was analytical, which
could reflect his participation as Council liaison in UAC meetings. A webcast from the Smart Energy Consumer
Collaborative indicated basic approaches to energy literacy and community involvement work consistently.
During the webcast, a gentleman presented interesting information regarding data analytics, and he could
be a good resource for CPAU.
GENERAL MANAGER OF UTILITIES REPORT
Dean Batchelor, Utilities Director, delivered the General Manager’s Report.
SunShares – The final tallies are in and Palo Alto was the top outreach partner of all cities participating in the
2018 Bay Area SunShares solar group-buy program both in terms of the number of solar contracts signed and
the number of kilowatts of rooftop solar capacity that will be installed through the program. Palo Alto
residents signed 23 contracts for a total of 115 kilowatts of rooftop solar. Palo Alto was also the #1 city for
DRAFT
Utilities Advisory Commission Minutes Approved on: Page 2 of 8
purchases of electric vehicles through SunShares. Our residents purchased 40% - that’s about 5 out of 12 - of
the total number of EVs sold through the program Bay Area-wide.
Workforce Recruitment – Over the past six months, Utilities staff has been participating in job fairs and career
panels in an effort to recruit new employees to our organization. These activities are in line with the
Workforce Priority strategies adopted with the updated Utilities Strategic Plan. One specific event this past
month included the California Campus Career Day at the Northwest Lineman College in which staff was able
to meet graduates and alumni to talk about lineman opportunities with CPAU.
Spring Landscape Workshops – Our spring landscape workshop series begins this Saturday, March 9 with a
focus on rainwater harvesting to help residents conserve water in the landscape and reduce runoff. Please
feel free to join us from 9:00 to noon at the Mitchell Park Community Center. Attendees will also learn how
to take advantage of rebates for rain barrels, cisterns, green roofs and permeable paving. Register at
cityofpaloalto.org/workshops.
APPA Webinar on Thermal Microgrids – Next Wednesday, March 13, CPAU staff will participate in an
American Public Power Association (APPA) webinar on thermal microgrids. The webinar, titled “Improving
Economics, Sustainability, and Reliability in the Building Energy Sector with a Thermal Microgrid," shares
results of our thermal microgrid study conducted this past summer. Please let us know if you would like to
listen in and need any assistance with accessing the APPA webinar.
AMI Workshop – On March 27, the City is partnering with the Bay Area Water Supply and Conservation
Agency (BAWSCA) and Valley Water to host a workshop on AMI. The goals are to support member agency
efforts to advance the implementation of AMI within their respective service areas, provide guidance on how
to use AMI data to improve water use efficiency, and identify potential opportunities for regional
coordination. The workshop will be held at the Mitchell Park Community Center from 9:30 to 3:00.
Great Race for Saving Water & Earth Day Festival – Join us on Saturday, April 13 for the City’s 6th annual fun
run and walk plus Earth Day festival. Participants can walk, run, bike or stroll in the 5 kilometer or 10K
distances and let the kids dash to chase the “running toilet.” After the race, we host a free festival with
electric vehicle ride and drive, live music, nature activities, community booths and family-friendly educational
fun. The event is held at the Palo Alto Baylands Athletic Center from 9:00 to 1:00. There will be a special
ribbon-cutting ceremony for the San Francisquito creek flood control project at the starting line right before
the race. Find details and registration at cityofpaloalto.org/earthday.
Now Hiring Paid Internship Positions – Do you know a college student interested in gaining work experience
while in school? Please encourage them to apply for one of the City’s paid internship positions by March 24.
There are openings for work in Utilities Communications, Zero Waste, Urban Forestry, Community Services,
and more. Employment opportunities are available on the City’s website at cityofpaloalto.org.
In reply to Vice Chair Schwartz's request for a definition of thermal microgrid, Jonathan Abendschein,
Assistant Director of Resource Management, explained that a thermal microgrid is a district heating and
cooling system. Stanford University's system utilizes waste heat from cooling loads for other uses such as
water or space heating.
COMMISSIONER COMMENTS
None.
UNFINISHED BUSINESS
None.
Utilities Advisory Commission Minutes Approved on: Page 3 of 8
NEW BUSINESS
ITEM 1: DISCUSSION: Discussion and Status Update on the Electric Utility's Overhead to Ground Conversion
Program.
Debra Lloyd, Acting Assistant Director of Engineering, reported staff began undergrounding electric facilities
in Palo Alto in 1965. District 8 was formed but has not been undergrounded. Districts 47 and 46 are being
undergrounded and should be complete soon. Districts 42 and 43 will be undergrounded next. Staff has
proposed six additional districts for undergrounding. Staff anticipates a 30-year planning horizon for
undergrounding given the lack of staff resources. The City has 304 or 306 miles of primary distribution lines,
of which approximately 190 miles or 62% are underground. Including secondary distribution lines and service
drops reduces the amount of underground lines to approximately 50%.
In reply to Commissioner Segal's inquiry regarding the gray areas on the map of underground districts, Lloyd
advised that the gray areas have underground facilities but are not underground districts. Districts are formed
to convert overhead facilities to underground facilities.
Lloyd continued the presentation, stating slightly more than 52% of properties are served by underground
facilities, leaving approximately 14,000 residential properties being served by overhead facilities. In the six
proposed districts, a small number of properties will convert to underground service because many
properties are served by overhead facilities located behind the properties. Undergrounding facilities located
at the rear of properties may not be possible.
In answer to Vice Chair Schwartz's query regarding customers paying for undergrounding, Dean Batchelor,
Utilities Director, explained that 100% of customers in a district have to agree to undergrounding before
undergrounding can occur. The customer typically pays $3,000-$6,000 for the connection and upgrading his
electric panel. Lloyd related that if customers who are currently served by overhead facilities at the rear of
the property can be served by underground facilities at the front of the property, the cost to the customer
will be higher because the electric panel will have to be moved to the front of the property.
In response to Commissioner Forssell's inquiry regarding AT&T contributing to the cost to underground
facilities at the rear of the property, Batchelor reported AT&T has stated it will contribute to undergrounding
its equipment and wires but not to undergrounding infrastructure. Currently, AT&T and Comcast contribute
50% of undergrounding project costs. Lloyd added that staff would open negotiations with AT&T if the
Council directs staff to move more aggressively in residential areas. AT&T has agreed to the boundaries of
the six proposed districts.
In reply to Commissioner Johnston's question regarding properties shown in red on the map, Lloyd indicated
only the properties shown in red will be served by underground facilities. In answer to Commissioner
Johnston's question about the design life of overhead equipment, Batchelor advised that overhead wiring
can last 10-20 years longer than underground wiring because heat in underground facilities degrades the
insulation around wiring faster. In response to Commissioner Johnston's query regarding scheduling
undergrounding projects, Batchelor related that staff schedules undergrounding projects at the end of the
useful life of overhead facilities, unless an area has a higher than usual number of outages. In reply to
Commissioner Johnston's question of whether staff wanted a review the undergrounding program, Lloyd
responded no. Staff's intent in presenting the information is to update the UAC regarding the progress of
undergrounding facilities. In response to Commissioner Johnston's query regarding constraints on progress,
Lloyd reported the main constraints are AT&T and Comcast agreement to projects and the additional cost to
customers if a project provides only a local benefit.
In answer to Commissioner Forssell's question of whether hiring more engineering staff could reduce the 30-
year horizon, Lloyd advised that assistance from a consultant for engineering design could increase the pace
of projects, but larger and more urgent projects could continue to delay undergrounding projects. In reply to
Utilities Advisory Commission Minutes Approved on: Page 4 of 8
Commissioner Forssell's query about a best-case timeline, Lloyd replied under ideal conditions staff could
complete one underground district every 3-4 years with some overlap of projects.
In answer to Commissioner Segal's inquiry about properties that connect to underground facilities having to
pay a second time when facilities at the rear of the property are undergrounded, Lloyd advised that the
customers will not have a direct expense for the undergrounding at the rear. In reply to Commissioner Segal's
query regarding staff obtaining customer consent to underground, Batchelor indicated typically staff seeks
customer consent as soon as a district is formed.
Council Member DuBois stated that given the length of time since the Council reviewed the undergrounding
program, it may be worthwhile for staff to return to Council for a policy discussion. In response to his question
regarding the City's ability to force an underground district, Lloyd related that the City could pay 100% of the
costs for undergrounding. Staff can ask the City Attorney's Office about other methods to obtain AT&T's and
Comcast's participation in undergrounding projects.
Vice Chair Schwartz requested a comparison of overhead and underground districts in terms of frequency of
outages, length of service restoration times, and costs to support underground and overhead districts. She
inquired whether AMI will increase the cost of undergrounding and repairs to underground facilities; about
the consequences of implementing Fiber to the Premise (FTTP) after AT&T and Comcast have contributed to
undergrounding; and about financing arrangements extended to customers for undergrounding costs. Jimmy
Pachikara, Acting Engineering Manager, advised that underground facilities are more expensive to maintain
and require more time to restore an outage compared to overhead facilities. Batchelor reported customers
can pay undergrounding costs over 10 years. Staff will ask the City Attorney's Office about the consequences
of implementing FTTP.
Commissioner Forssell remarked that quantifying the safety and reliability of overhead versus underground
facilities could be worthwhile. Perhaps staff could include a question about a neighborhood's desire for
undergrounding in future surveys.
ACTION: None
ITEM 2: DISCUSSION: Discussion of New Online Customer Portal.
Robert Hinden requested more details about the security features for the portal.
Kevin Enderby, Principal Business Analyst, reported the My Utilities Account (MUA) was built in 2009 and
allows customers to view their invoices and usage, pay their bills, and elect electronic billing. MUA has been
modified to provide a move-out feature and to be more user-friendly. The SAP application has limited
upgrade options that do not meet requirements. Approximately 19,000 accounts have registered for MUA.
Approximately 5,400 one-time payments and 7,500 recurring payments are made through MUA each month.
Approximately 4,500 accounts receive electronic bills only, and approximately 1,200 accounts receive both
electronic and paper bills. A recent survey of customers found MUA provides good information, but it is busy
and not intuitive. The text size is small, and the font is not standard across pages. Objectives for the new
customer portal were to increase customer engagement through new functionality, features, and screens;
increase customer satisfaction and productivity by providing a mobile experience and a single sign-on; reduce
incoming phone calls; improve security features, including more password options, more stringent
requirements for passwords, and additional protection for payment information; and to encourage energy
efficiency and conservation through online tools. Two assessments of MUA have been performed, and the
results of the assessments contributed to the design of the new portal.
In response to Vice Chair Schwartz's query of whether staff intends to build a custom portal when many good
portals are available commercially, Enderby replied no.
Utilities Advisory Commission Minutes Approved on: Page 5 of 8
Enderby continued the presentation, stating 1,200 customers participated in a survey about MUA. The most
common customer comments concerned a better presentation and a more intuitive interface. Utilities staff
and staff from other municipalities provided input as well. Based on information obtained from the
assessments, survey, and staff input, a Request for Proposals (RFP) for a customer portal vendor was issued
in 2017. From the RFP responses, staff selected Smart Energy Water (SEW). The new portal will include a
mobile experience, a modern look and feel, enhanced security features, and information and features
requested by customers. In addition, a separate mobile app will be available for users. The portal dashboard
will contain movable tiles for billing, outages, notifications, comparisons, account information, usage, and
efficiency. Usage and cost data over the past 12 months for electric, water, and gas will be presented in bar
graphs.
In reply to Commissioner Forssell's inquiry about customizing the user interface for CPAU, Enderby explained
that SEW provided a template for the interface, and staff added features within the parameters of the
template.
Enderby further reported the browser view of the portal on a mobile device will have the eight tiles on the
left side of the screen with data for each tile on the right once the user clicks a tile. The mobile app will be
available for review in a few months.
Vice Chair Schwartz commented that SEW's mobile app is really nice.
Enderby continued the presentation, indicating a soft launch of the new portal is planned for 100-200
residential and commercial customers. Emails will be sent to customers advising them of their participation
in the soft launch. A survey of detailed questions will be sent to participants a few weeks after use, and
feedback will contribute to adjustments to the portal. A full launch of the new portal is planned for the end
of the summer. SEW wants to complete all revisions and enhancements to the portal prior to releasing a
mobile app. MUA will be phased out after a full launch of the new portal.
In answer to Commissioner Segal's question regarding multiple members of a household having access to the
app, Enderby explained that each account is associated with a single email address, but guests can be given
access to an account.
Enderby further reported any enhancements not included in the 2019 launch of the portal will be included in
2020. Text alerts and email notifications will be added in the future. Outreach includes announcement and
tutorial videos, print and digital ads, mailers, and social media.
Vice Chair Schwartz announced SEW is hosting an event in Redwood City and encouraged staff to attend the
event. Enderby reported staff has not received an invitation to the event; however, the event is shown on
SEW's list of upcoming events.
In answer to Council Member DuBois' query about CPAU appearing in financial institutions' electronic bill pay
systems, Enderby indicated that could occur during the Customer Information System (CIS) upgrade or
implementation. Staff attended an SEW event a few weeks ago and engaged with the City of Pleasanton
regarding SEW and CPAU's roadmap.
Vice Chair Schwartz assumed future AMI data could be incorporated into the portal.
Commissioner Forssell volunteered to participate in the soft launch. Dave Yuan, Strategic Business Manager,
indicated staff will send Commissioners invitations to participate in the soft launch.
ACTION: None
Utilities Advisory Commission Minutes Approved on: Page 6 of 8
ITEM 3: ACTION: Staff Recommendation that the Utilities Advisory Commission Recommend the City Council
Adopt Resolutions (1) Approving the Fiscal Year 2020 Wastewater Collection Financial Plan and (2) Increasing
Wastewater Rates by 7% by Amending Rate Schedules S-1 (Residential Wastewater Collection and Disposal),
S-2 (Commercial Wastewater Collection and Disposal), S-6 (Restaurant Wastewater Collection and Disposal),
and S-7 (Commercial Wastewater Collection and Disposal—Industrial Discharger).
Eric Keniston, Senior Resource Planner, reported staff recommends a 7% rate increase in wastewater
collection rates and projects 6-8% annual increases over the next four years. Consistent with the Utilities
Strategic Plan, staff reviews multiyear strategies, personnel actions, performance metrics, and expenditures
in an effort to contain costs and lower rate increases. The Wastewater Utility is comprised of a collection
system and a treatment system. The collection system funnels wastewater to the Regional Water Quality
Control Plant (RWQCP). The wastewater treatment plant treats effluent from Palo Alto, Stanford University,
East Palo Alto, Los Altos Hills, Los Altos, and Mountain View. CPAU operates the collection system while Public
Works operates the RWQCP. The Wastewater Utility's costs are split roughly 50% for wastewater collection
and 50% for wastewater treatment. Treatment costs have grown about 8% per year since 2016 and are
projected to grow approximately 6% annually in the future. Collection costs have grown about 4.5% per year
since 2016 and are projected to grow approximately 1% annually in the future. Within treatment costs,
operations costs have grown approximately 9% per year because of the maintenance needs of the aging
RWQCP. Because of capital improvements to the RWQCP, treatment operations costs should increase only
4% per year, but debt service costs for the treatment plant will increase about 17% annually.
In response to Vice Chair Schwartz's inquiry regarding retirement of the incinerator, Phil Bobel, Public Works
Assistant Director, advised that incineration of sewage sludge is being phased out, and sludge will be trucked
to other facilities for at least the next five years. Eliminating the incinerator will reduce CO2 emissions and
reduce costs. Debt service costs will increase due to capital projects to replace RWQCP components other
than the incinerator. Sewage sludge will always release CO2, but composting sludge will release CO2 more
slowly and create a product usable in agriculture.
Keniston further reported capital projects at the RWQCP will total approximately $100 million over the next
several years. Collection system costs are split approximately 50% to operations costs and 50% to capital
costs with debt service costs scheduled to be paid in full in 2023. Since 2016, capital costs have increased
approximately 8% per year while operations costs have increased approximately 1.5% per year. In the future,
operations costs should increase about 2.5%. Staff projects capital costs between 2019 and 2024 will be flat
because staff anticipates only small capital projects over the next few years. The main drivers for increases
in collection costs are overhead costs and underground construction costs. The median monthly residential
bill is approximately 29% less than the average of other cities' bills.
In reply to Commissioner Segal's question about the average wastewater bill for Los Altos Hills, Stanford
University, and East Palo Alto, Bobel indicated the average bill for neighboring communities served by the
RWQCP is similar to Palo Alto's average. The treatment plant serving cities in southern San Mateo County
(e.g. Redwood City) has already started capital improvements; therefore, the rates are higher for those cities.
The rates for cities further south are similar to Palo Alto's rates because the San Jose treatment plant has not
started capital improvements.
In answer to Commissioner Forssell's query regarding the inclusion of Hayward in the bill comparisons, Bobel
explained that the treatment plant serving Hayward has not started capital improvements. Jonathan
Abendschein, Assistant Director of Resource Management, added that staff utilizes the same comparison
cities for all utilities. Hayward is a comparison city because it is similar in size to Palo Alto, is located in the
East Bay, has a slightly lower median income, and often has slightly lower costs for its utilities.
Keniston continued his presentation, stating Palo Alto's rates have increased approximately 4.5% annually
while rates for comparison cities have increased approximately 6% annually. However, rate increases over
the past five years have been greater than the Consumer Price Index (CPI) for the Bay Area. Fiscal year (FY)
2020 total costs will increase approximately 1% over FY 2019 total costs due to increases in treatment costs
Utilities Advisory Commission Minutes Approved on: Page 7 of 8
and ongoing operations costs and a decrease in ongoing capital costs. Dean Batchelor, Utilities Director,
added the lack of staff is causing the reduction in capital projects and, consequently, capital spending in FY
2020. Historical spending levels will probably return in 2-3 years. Abendschein indicated the 2020
Wastewater Collection Financial Plan reflects a slightly higher rate trajectory than provided in the
presentation. After considering a realistic pace for capital improvement projects over the next few years,
staff determined rate increases would more likely be 7% and 6% rather than 7% and 8%.
Vice Chair Schwartz suggested staff draft an explanation of the rate increases in simple language and share
it with the community via social media and news releases. Abendschein related that staff routinely develops
talking points and will share them with the UAC. Catherine Elvert, Communications Manager, explained that
staff develops a comprehensive and proactive communications strategy for sharing the drivers for costs and
efforts to contain costs.
In answer to Commissioner Johnston's request for updated projections of reserve balances based on the
revised rates, Keniston reported the rate increases maintain the operations reserve fund within the minimum
and maximum guidelines. Commissioner Johnston remarked that the purpose of raising rates is to cover
costs, which can be depicted in a graph of reserve balances. Keniston added that the average of collection
capital expenses would be lower than stated in the prior projections. Bobel advised that the RWQCP reserve
fund is separate from the discussion. Because the RWQCP partners do not pay into the reserve fund, it has a
negative balance at the current time.
In response to Commissioner Segal's question regarding Palo Alto and Mountain View paying approximately
the same amounts for the RWQCP, Bobel clarified that Mountain View has a larger residential population
than Palo Alto; however, Palo Alto's population increases greatly during the workday.
ACTION: Commissioner Trumbull moved to recommend the City Council adopt resolutions (1) approving the
fiscal year 2020 Wastewater Collection Financial Plan and (2) increasing wastewater rates by 7% by amending
Rate Schedules S-1 (Residential Wastewater Collection and Disposal), S-2 (Commercial Wastewater Collection
and Disposal), S-6 (Restaurant Wastewater Collection and Disposal), and S-7 (Commercial Wastewater
Collection and Disposal—Industrial Discharger) with the revised projections proposed by staff. Commissioner
Johnston seconded the motion. The motion carried 5-0 with Vice Chair Schwartz and Commissioners Forssell,
Johnston, Segal, and Trumbull voting yes, and Chair Danaher and Commissioner Ballantine absent.
ITEM 4: DISCUSSION: Discussion and Staff Update on Fiber and AMI Planning.
Dave Yuan, Strategic Business Manager, reported staff proposes canceling the RFP for the Fiber to the Node
(FTTN) business case and reissuing an RFP with a focus on AMI, engineering design, and a construction cost
estimate. The RFP could be issued in May. Staff will provide the Council with an update in April.
In reply to Vice Chair Schwartz's question about the applications of fiber, Yuan indicated it would be a part of
the new RFP.
ACTION: None
ITEM 5: ACTION: Selection of Potential Topic(s) for Discussion at Future UAC Meeting.
Vice Chair Schwartz suggested a future item regarding retrofits for housing stock and best practices for new
construction with respect to climate change. Jonathan Abendschein, Assistant Director of Resource
Management, advised that the State has published codes for new construction, and staff is reviewing reach
codes for the City. Utility efficiency programs can benefit existing housing. Vice Chair Schwartz remarked that
the item could be compatible with the Council's direction and could excite the community to improve its
response to climate change.
Utilities Advisory Commission Minutes Approved on: Page 8 of 8
In answer to Commissioner Forssell's inquiry regarding the April Green Acres update, Dean Batchelor, Utilities
Director, indicated the item will likely be an action item. Vice Chair Schwartz requested a comparison of
underground and overhead facilities with respect to outages and restoration of service for the discussion.
ACTION: None
NEXT SCHEDULED MEETING: April 3, 2019
Meeting adjourned at 9:08 p.m.
Respectfully Submitted
Tabatha Boatwright
City of Palo Alto Utilities
Utilities Advisory Commission Minutes Approved on: May 1, 2019 Page 1 of 11
UTILITIES ADVISORY COMMISSION MEETING
MINUTES OF APRIL 9, 2019 SPECIAL MEETING
CALL TO ORDER
Chair Danaher called the meeting of the Utilities Advisory Commission (UAC) to order at 7:00 p.m.
Present: Chair Danaher, Vice Chair Schwartz, Commissioners Forssell, Johnston, and Segal
Absent: Commissioners Ballantine and Trumbull
ORAL COMMUNICATIONS
Esther Nigenda, Save Palo Alto's Groundwater, shared information regarding the effects of sea level rise on
groundwater level rise. Groundwater level rise has the potential to impact communities as much or more
than sea level rise. Solutions other than not building underground where the water table is high are unknown.
The public is invited to attend a lecture by Dr. Hill, an urban planner and climate mitigation expert.
APPROVAL OF THE MINUTES
Vice Chair Schwartz corrected her comments under Reports from Commissioner Meetings/Events in that
"staff's approach to AMI implementation should prevent future problems" should be "staff's approach to the
systemwide meter audit should reduce future problems."
Commissioner Segal moved to approve the minutes of the March 6, 2019 meeting as amended.
Commissioner Johnston seconded the motion. The motion carried 5-0 with Chair Danaher, Vice Chair
Schwartz, and Commissioners Forssell, Johnston, and Segal voting yes, and Commissioners Ballantine and
Trumbull absent.
AGENDA REVIEW AND REVISIONS
None
REPORTS FROM COMMISSIONER MEETINGS/EVENTS
Vice Chair Schwartz had attended the Western Energy Institute (WEI) consumer and corporate symposium
and Smart Energy Water (SEW) and Zpryme's WE3 conference, where she heard quite a bit of discussion
about problems utilities are having in recruiting staff. To attract experienced staff, City of Palo Alto Utilities
(CPAU) needs to review its compensation. Sacramento Municipal Utility District (SMUD) is willing to host a
team from CPAU to share information about SMUD activities.
Chair Danaher reported costs to store electric power continue to decrease such that pairing solar and storage
is becoming more economical. This could be a factor in CPAU's long-term planning.
FINAL
Utilities Advisory Commission Minutes Approved on: May 1, 2019 Page 2 of 11
GENERAL MANAGER OF UTILITIES REPORT
Dean Batchelor, Utilities General Manager, delivered the General Manager’s Report.
The Council will interview 13 applicants for the four open positions on the UAC on April 29. Commissioners
are invited to participate in the May Fete Parade on May 4.
Palo Alto Utilities Earns 5th Consecutive Tree Line USA Award - For the fifth year in a row, CPAU has been
recognized with the Tree Line USA award by the National Arbor Day Foundation. Tree Line USA promotes the
dual goals of delivering safe and reliable electricity while maintaining healthy community trees. Tree Line USA
recognizes CPAU for training employees in quality tree-care practices, educating the public about planting
trees for energy conservation and helping homeowners plant appropriate trees near utility lines. Palo Alto is
among an elite group of communities that are recognized as a Tree City USA, designated as a Tree Line USA
Utility, and also a Tree Campus USA with Stanford University. This trio of honors is testament to our
community's commitment to preserving the health of our urban canopy, as well as the collaborative
management approach that exists among City staff. Congratulations to our entire team working toward these
mutual goals!
Upgrade Downtown Project on the Home Stretch - The Upgrade Downtown project is near the final stages
of construction along University Avenue. Utility infrastructure work on the last block of University was
completed at the end of March. After all traffic signal, sidewalk and curb ramp work is complete, University
Avenue will be repaved. Stay tuned for a community appreciation event later this spring! We want to thank
everyone for their patience and cooperation as we replaced critical infrastructure as part of our goal to ensure
safe, reliable utility services. An updated paving schedule and map will be available at
upgradedowntownpa.com.
Visit from the Chinese Wuhan Environmental Protection Bureau - On March 13, a delegation from the
Wuhan Environmental Protection Bureau in China visited the City to learn about our climate action and
sustainability initiatives. Utilities staff met with the delegates for a couple of hours to share information on
past, current and future programs for energy and water efficiency services, renewable energy, carbon neutral
electric and gas portfolios, as well as long-term plans for sustainable utility resource management. The
delegates appreciated the opportunity to learn best practices for their region from a proactive agency such
as CPAU.
AMI Workshop - On March 27, CPAU hosted an advanced metering infrastructure (AMI) workshop in
partnership with BAWSCA and Valley Water. The goals of the workshop were to support member agency
efforts to advance the implementation of AMI within their respective service areas, provide guidance on
using AMI data to improve water use efficiency, and identify potential opportunities for regional coordination
on AMI planning and implementation. It was a very successful event by all measures. More than 70 people
were in attendance. There was great interest in collaborating moving forward.
Great Race for Saving Water and Earth Day Festival - This Saturday, April 13, join us for the City’s Great Race
for Saving Water and Earth Day Festival! This 6th annual event offers a 5K, 10K and Kids Dash fun run and walk
at the Palo Alto Baylands. We will host a special ribbon-cutting ceremony immediately before the race begins
to celebrate completion of a major flood control project with Valley Water and the San Francisquito Creek
JPA. After the race, enjoy a free festival with electric vehicle expo plus EV test drives, live music, “green living”
vendors, food, prizes, outdoor games, community booths with activities and demonstrations, environmental
and public safety resources. No ticket or entry fee is required to attend the Earth Day Festival itself. Come
join us for the fun from 9 am to 1 pm! Details at cityofpaloalto.org/earthday.
Utilities Advisory Commission Minutes Approved on: May 1, 2019 Page 3 of 11
In response to Commissioner Johnston's query regarding the recent power outage, Batchelor advised that
approximately 3,400 customers were without power between 12:30 and 4:30 p.m. and 51 customers were
without power until 7:30 p.m. The repair crew had difficulty locating the issue, which was moisture in an
elbow.
Vice Chair Schwartz noted Comcast suffered an outage the same day. Batchelor clarified that the outages
were separate in that a Comcast contractor damaged a cable line.
COMMISSIONER COMMENTS
None
UNFINISHED BUSINESS
None
NEW BUSINESS
ITEM 1: ACTION: Utilities Advisory Commission Recommendation that the City Council Adopt a Resolution
Amending Utility Rule and Regulation 20 to Allow Neighborhood Funding of Certain Subsurface Equipment.
Michael Maurier clarified that attorney Kent Mitchell is representing 35-40 residents of Green Acres. The
residents appreciate Commissioners' attentiveness and responsiveness to their concerns.
Chair Danaher advised that undergrounding issues deserve careful study and consideration because the
issues will affect all neighborhoods located within underground districts.
Debra Lloyd, Assistant Director of Utilities Engineering, reviewed the history of undergrounding in the Green
Acres neighborhood. Pad-mounted equipment in underground areas is an industry and CPAU standard. CPAU
grants an exception to the standard if a customer pays a special facilities fee and added construction costs.
The exception typically applies to a single customer rather than a community. Staff proposes amending Rule
and Regulation 20 to allow a community to request underground utilities if the community pays the
additional costs for undergrounding. Amendments to Rule and Regulation 20 will require staff to send a
notice to residents or property owners about CPAU's intention to replace equipment. A request for a petition
form, signed by at least five property owners, must be filed with CPAU. CPAU will prepare a petition form
describing the proposed project. Residents will have 45 days following receipt of the petition form to obtain
signatures from at least 60% of property owners and to submit it to CPAU. Residents must submit with the
petition form a payment sufficient to fund CPAU's costs of developing an engineering estimate for the project.
Gregory McKernan, Senior Engineer, added that the typical advance engineering fee is $5,000. Lloyd
continued, stating CPAU will develop the engineering estimate and provide it to the residents. Residents will
have 60 days to pay CPAU the full estimated cost difference between subsurface and standard installation.
In the future, CPAU may have to respond to new safety rules and regulations promulgated by the State and
Federal Government. Future capacity requirements in the underground districts may change with conversion
to all-electric homes, use of electric vehicles, and general neighborhood load increases.
In response to Chair Danaher's request for recent design changes to mitigate safety issues, Lloyd explained
that each vault will contain only one piece of equipment and the size of the vault is larger. Dean Batchelor,
Utilities General Manager, added that a second vault, which will likely be located in the sidewalk area, will
house secondary equipment.
In reply to Commissioner Johnston's query regarding adding secondary switches to isolate outages regardless
of whether equipment is underground or pad-mounted, Batchelor indicated secondary switches will be a part
of the redesign. The redesign will include predicted increases in load.
Utilities Advisory Commission Minutes Approved on: May 1, 2019 Page 4 of 11
In answer to Commissioner Johnston's request for information about the difference in reliability between
underground facilities and pad-mounted, Batchelor reported he could not find any information about the
difference in reliability.
Commissioner Johnston requested the number of districts with fully underground utilities and with pad-
mounted utilities. McKernan believed two districts have been rebuilt such that subsurface equipment was
changed to pad-mounted equipment. Approximately seven districts have fully underground equipment.
In response to Commissioner Segal's query about the differential between underground and pad-mounted
equipment in relation to locating the source of an outage, Batchelor related that including electronics in
equipment will make finding the source of an outage easier. McKernan clarified that access to equipment
determines the difficulty of locating an outage source. Underground vaults are sometimes filled with water
that has to be removed before the equipment can be checked for a fault. Pad-mounted equipment does not
fill with water.
Vice Chair Schwartz remarked that standards have evolved to increase safety. Putting people in small spaces
where they risk electrocution is no longer considered safe. In walking through many neighborhoods over the
weekend, she observed neighborhoods with and without pad-mounted equipment. Pad-mounted equipment
does not detract from the beauty of neighborhoods. In Capitola, the transformer boxes are painted. If pad-
mounted equipment is deemed necessary, perhaps neighborhoods could hold art competitions and select
artwork for the transformer boxes. Some residents do not object to pad-mounted equipment and, if
technically feasible, maybe the equipment could be located on those residents' properties.
Commissioner Johnston appreciated the desire for fully underground equipment; however, current safety
rules prevent CPAU from undergrounding utilities in the same manner utilized in the past. Fully underground
equipment is a benefit to the specific neighborhood in that all ratepayers do not share in the benefit.
Neighborhoods should pay the additional cost of undergrounding.
Commissioner Forssell commented that CPAU did not grant the Green Acres neighborhood a right to
underground utilities by installing the underground equipment in the 1970s. Equipment has a useful life, and
the useful life of underground equipment in Green Acres has passed. Given that the benefit of underground
equipment accrues to the particular neighborhood, it would be appropriate for the neighborhood to pay. Mr.
Mitchell's letter seems to imply that the entire underground system will be placed aboveground. Much of
the equipment will be underground, but the transformer boxes will be aboveground.
Commissioner Segal had not heard anything suggesting aboveground equipment does not meet CPAU's
mission to provide safe, reliable, and cost-effective utilities. Belowground equipment may meet the safe and
reliable components of the mission, but it does not meet the cost-effective component. An alternative design
does meet the cost-effective component.
Vice Chair Schwartz felt asking all ratepayers to pay for removal of transformer boxes in a few neighborhoods
is not reasonable. Staff proposes at least 60% of property owners must support the request to underground.
The remaining 40% of property owners may be unfairly burdened with paying their portion of the cost. She
did not wish to create divisiveness among neighbors.
Chair Danaher remarked that only a small portion of Palo Alto's population has access to fully underground
utilities. Imposing the cost of undergrounding on the entire population is unfair. Neighborhoods should have
the choice to pay for undergrounding utilities. If the majority of property owners want to underground
utilities, CPAU should provide ways to spread the cost over time.
Vice Chair Schwartz could not believe an aboveground transformer would result in a loss of property value,
give the high demand for property in Palo Alto.
Utilities Advisory Commission Minutes Approved on: May 1, 2019 Page 5 of 11
Commissioner Johnston expressed concern regarding residents receiving a mailed notice of the project. The
ten-day period for five property owners to submit a request for petition form seems short. The petition form
should state the cost of developing an engineering estimate. The 45-day period and requirement for 60%
support are fine. The 60-day period for full payment of the cost difference makes the proposal unworkable.
Property owners should be able to pay over time, perhaps with interest. He was unsure whether property
owners who want underground utilities or all property owners should pay the additional cost. Staff proposes
all property owners contribute to the additional cost. Lloyd explained that the requirements mirror those for
special facilities. When overhead facilities are undergrounded, each property owner pays for a service
connection. If undergrounding is determined to provide a general benefit, CPAU shares the cost of
undergrounding overhead wires and installing equipment with Comcast and AT&T. If undergrounding
provides a local benefit, up to 75% of the cost could be allocated to property owners.
Commissioner Segal agreed that the 60-day period is not long enough. In response to her question about
adding the cost to property owners' utility bills, Lloyd advised that would require a different process. To keep
the process simple and to mirror the special facilities process, a collection mechanism other than the utility
bill is needed. Batchelor clarified that the current billing system cannot process special charges. Staff would
have to add a charge for undergrounding to each bill by hand.
Commissioner Segal was struggling with the approach to amending Rule and Regulation 20 being driven by
the limitations of the billing system. The approach should be driven by what makes sense for a district.
Vice Chair Schwartz commented that allowing a neighborhood to determine the details of CPAU projects sets
a bad precedent. In answer to Commissioner Johnston's query of whether Vice Chair Schwartz felt pad-
mounted equipment should be required in all districts, Vice Chair Schwartz believed allowing neighborhoods
to make engineering decisions is problematic. Commissioner Johnston asked if Vice Chair Schwartz was saying
no neighborhood should have an option to underground. Vice Chair Schwartz replied no. Amending Rule and
Regulation 20 is a policy change that could be applied to any project in the City. Chair Danaher did not believe
the amendments to Rule and Regulation 20 have to be applied to other projects. Whether to apply the policy
direction to other projects would be a future decision. Vice Chair Schwartz stated meeting with residents and
discussing residents' preferences is appropriate, and staff should do that. That is not the same as changing
Rule and Regulation 20. Commissioner Johnston noted Rule and Regulation 20 is specific to replacement of
subsurface equipment. Any district in the same situation as Green Acres I would have the option to pay for
underground facilities. Vice Chair Schwartz reiterated that amending Rule and Regulation 20 would set a bad
precedent.
Chair Danaher believed the 10-day period should be at least 30 days. There should be an option for property
owners to host a staff presentation about the project. The main issue is distributing the cost among property
owners. Property owners could contribute based on household square footage or some property owners
could pay more than their share. The default position could be a pro rata distribution of the cost with an
option for property owners to voluntarily pay more than their portion of the cost. Property owners should
be allowed to pay over a five, eight, or ten-year period.
Commissioner Forssell suggested property owners be allowed to determine the distribution of the cost
among property owners. Property owners should be allowed to pay the special facilities fee over time but
the cost of materials and labor upfront. Lloyd advised that a special assessment district may be needed. To
provide property owners with the amount they need to pay would require another process.
Vice Chair Schwartz assumed the new billing system would support on-bill financing.
At Chair Danaher's request for a brief update regarding Computer Information System (CIS) implementation,
Batchelor reported the Information Technology (IT) Department wants to delay the CIS upgrade by two years
because of limitations on resources and the need to determine the desired features of a CIS. It appears SAP
will be upgraded to the most recent version.
Utilities Advisory Commission Minutes Approved on: May 1, 2019 Page 6 of 11
In answer to Commissioner Segal's inquiry regarding the Green Acres project being on hold, Batchelor
indicated it is on hold. Special fees are typically used for commercial accounts. CPAU does not have a rule
and regulation that allows it to charge a district for work and provide on-bill financing for the work.
Chair Danaher clarified the recommendation as the City Council permitting neighborhoods to elect to retain
underground transformers provided that the district absorbs the marginal cost. If the Council approves the
recommendation, staff will return with a proposed process for neighborhoods to request retention of
underground transformers.
Commissioner Johnston inquired whether staff prefers to present the Council with a concept that
neighborhoods can elect to retain their facilities completely underground or with a detailed draft regulation.
Batchelor preferred to present the Council with a proposed regulation.
Vice Chair Schwartz interpreted the attorney's letter as indicating Green Acres residents want fully
underground facilities but do not want to pay for them.
[Comments made off camera and off microphone by a member of the public are inaudible.]
Commissioner Johnston stated Vice Chair Schwartz wants to know if the neighborhood's position is CPAU
pays for the project or the neighborhood is not interested. In which case, Commissioners may not have to
agonize about a payment procedure.
Vice Chair Schwartz suggested staff determine alternative placements for pad-mounted devices and ask
property owners around the alternative placements if they are willing to host the devices.
Commissioner Segal noted the Council had not provided an opinion regarding undergrounding. The UAC
should recommend a district pay the differential cost of pad-mounted versus underground equipment. If the
Council approves the recommendation, the UAC can propose a mechanism for payment of the differential
cost.
In reply to Chair Danaher's request for the number of households in the Green Acres district, McKernan
indicated approximately 100 households.
Chair Danaher preferred to allow property owners to pay over time so that the charge would be less of a
burden for residents.
An unidentified member of the public remarked that property owners have no information about the
undergrounding project. Property owners are waiting for an opportunity to review alternative designs.
Chair Danaher suggested staff share alternative designs with residents so that residents can determine who
might agree to bear the cost and whether an upfront payment or payments over time are preferable.
Lloyd reported that she had attempted to find less visible locations for pad-mounted equipment and
presented information to the Green Acres Board. The Green Acres Board was not willing to discuss pad-
mounted equipment, only fully underground equipment. Staff needs to know where equipment can be
located in order to prepare an engineering study. Staff has prepared a design for a subsurface solution.
Commissioner Johnston believed the Council should determine before staff does further work whether CPAU
will pay 100% of costs for fully underground equipment; whether the neighborhood will have an option to
pay the cost of keeping equipment underground; or whether pad-mounted equipment will be required in all
districts.
Utilities Advisory Commission Minutes Approved on: May 1, 2019 Page 7 of 11
Batchelor concurred with presenting a concept to the Council and returning to the UAC to develop details as
directed by the Council.
Vice Chair Schwartz believed the Council should decide whether anybody pays for the additional costs.
Commissioner Forssell proposed Commissioners indicate their support for CPAU paying 100% of costs, the
district sharing in the costs, or CPAU requiring pad-mounted equipment in all districts.
Chair Danaher understood a number of Commissioners would support a choice for property owners with the
property owners bearing the additional cost. Vice Chair Schwartz appears to be less inclined to allow a choice.
Vice Chair Schwartz clarified that additional choices are available to property owners, such as finding eight
to ten households who are willing to host pad-mounted equipment.
Commissioner Segal proposed a recommendation that a utility district pay the differential in expense to
maintain transfers underground. Chair Danaher amended the recommendation to a utility district will have
the option by supermajority vote of the residences to maintain transformers underground provided that the
extra cost is borne by the district.
ACTION: Commissioner Segal moved to recommend to City Council that an underground utility district have
the option with a supermajority vote of district customers to pay the differential in expense to maintain
transformers underground. Commissioner Forssell seconded the motion. The motion carried 4-1 with Chair
Danaher and Commissioners Forssell, Johnston, and Segal voting yes, Vice Chair Schwartz voting no, and
Commissioners Ballantine and Trumbull absent.
Chair Danaher requested staff provide residents of Green Acres with the alternative designs for the
undergrounding project.
Mr. Maurier stated the residents' main concern is the lack of information about proposed designs. Without
information, residents cannot make any decisions.
Commissioner Johnston clarified that residents would receive information about the project along with the
notice.
ITEM 2: DISCUSSION: Electric Supply Portfolio Carbon Accounting Analysis.
Chair Danaher announced this item is continued to the May meeting, and the UAC will hear item 4 followed
by item 3.
ITEM 3: ACTION: Staff Recommendation that the Utilities Advisory Commission Recommend that the City
Council Adopt: 1) a Resolution Approving the Fiscal Year 2020 Electric Financial Plan, and 2) a Resolution
Increasing Electric Rates by 8% by Amending the E-1, E-2, E-2-G, E-4, E-4-G, E-4 TOU, E-7, E-7 TOU, E-14, E-
EEC and E-NSE Rate Schedules.
Eric Keniston, Senior Resource Planner, reported rates are generally updated every four or five years with
cost of service studies. Electricity generation and transmission and water supply from the Hetch Hetchy
system are the two largest supply-related costs. Construction costs have increased. Electric costs have
increased mainly due to rising transmission-related expenses. At this time, the San Francisco Public Utilities
Commission (SFPUC) does not anticipate a rate change for Fiscal Year (FY) 2020, but that could change with
SFPUC's final recommendation. Market prices and transmission costs for natural gas have increased slightly.
Wastewater costs are increasing due to extensive Capital Improvement Program (CIP) work at the Regional
Water Quality Control Plant. Operations and maintenance costs are increasing approximately 3-4% per year.
Salaries and benefits comprise 13-24% of CPAU's budget. Palo Alto's total utility bill continues to be lower
than bills for neighboring agencies. The balance of most operational reserve funds fall at the low end of the
guideline range. For FY 2020, electric and water rates will increase approximately 4% for residential
customers while wastewater rates will increase 7%, and gas rates will increase 9%. The overall bill impact will
Utilities Advisory Commission Minutes Approved on: May 1, 2019 Page 8 of 11
be approximately 5% or $15 per month. For FY 2020, electric rates will increase 5-9% for commercial
customers, water rates will increase between -1% to 3%, wastewater rates will increase 7%, and gas rates
will increase 9%. Electric costs are comprised of approximately 40% distribution costs and 60% supply costs.
Transmission costs are growing significantly. Approximately half of the electric rate increase can be attributed
to increases in electric supply costs. Expenses exceed revenues, and staff is attempting to balance the two.
Over the last several years, loads have been decreasing faster than expected. As usage decreases and fixed
costs increase, rates have to rise faster.
In response to Commissioner Segal's query regarding the reason for decreasing usage, Keniston indicated
commercial and industrial customers have increased energy efficiency and decreased their usage. Supply cost
drivers include decreasing overhead costs and dramatically increasing transmission costs.
In answer to Vice Chair Schwartz's inquiry about a decline in gas usage, Keniston indicated the decrease in
electric usage has been greater than the decrease in gas and water usage. He had not anticipated the extent
of the electric usage decrease.
Keniston further reported operations and capital cost drivers include medical and retirement benefit costs,
capital investment in the electric distribution system, and additional contract expenses for a line crew.
Residential customers will see a 4% rate increase. Commercial customers will see a 4-8% rate increase. With
the proposed rate increases, Palo Alto's bills are considerably lower than PG&E's bills. Operations Reserve
Funds are projected to reach or fall slightly below minimum guidelines. The balance of the Hydroelectric
Stabilization Reserve Fund is $7.4 million, which should be closer to $17 million. The Electric Special Projects
Reserve Fund balance is approximately $41 million. Staff plans to repay a loan from the Electric Special
Projects Reserve Fund by FY 2023. The 8% rate increase will not increase reserve fund balances, but it will
prevent further losses in the funds.
Vice Chair Schwartz believed CPAU should prepare for sea level rise by acquiring equipment that may be
needed in an emergency and that requires a long lead time to acquire. She asked if the budget could
accommodate the $3-$4 million needed to purchase this equipment. Keniston indicated purchasing all the
equipment at one time would be difficult. Purchasing the equipment over a four or five -year period could
raise problems with storing the equipment. He would need to analyze various scenarios. Staff could request
Council approval to purchase the equipment with monies from the Special Projects Reserve Fund as a
resiliency measure. Commissioner Johnston suggested other things could have a higher priority than spare
equipment in terms of resilience.
Chair Danaher requested a future agenda item for the topic so that staff could prepare information. Dean
Batchelor, Utilities General Manager, reported staff could explore the equipment needed for an emergency.
If equipment is needed immediately, staff with Council approval could utilize the Special Projects Reserve
Fund and plan to repay the monies.
In answer to Commissioner Forssell's questions regarding the large percentage increase in the summer
demand charges for nonresidential customers and the modest increase for Tier 2 residential customers,
Keniston explained that the cost of service study determined the amount of demand-related costs that should
be allocated to summer-related demand and winter-related demand. The model indicated most of the cost
should be allocated to summer-related charges. Much of the cost increase pertains to distribution costs, and
distribution costs affect Tier 1 customers more than Tier 2 customers. The non-residential customer usage of
2 gigawatt hours is provided for comparison. Two CPAU customers do consume that amount of energy.
Utilities Advisory Commission Minutes Approved on: May 1, 2019 Page 9 of 11
ACTION: Commissioner Johnston moved to recommend that the City Council adopt (1) a Resolution
approving the Fiscal Year 2020 Electric Financial Plan, and (2) a Resolution increasing electric rates by 8% by
amending the E-1, E-2, E-2-G, E-4, E-4-G, E-4 TOU, E-7, E-7 TOU, E-14, E-EEC and E-NSE Rate Schedules.
Commissioner Forssell seconded the motion. The motion passed 5-0 with Chair Danaher, Vice Chair Schwartz,
and Commissioners Forssell, Johnston, and Segal voting yes, and Commissioners Ballantine and Trumbull
absent.
ITEM 4: ACTION: Staff Recommendation that the Utilities Advisory Commission Recommend that the City
Council Adopt: (1) a Resolution Approving the Fiscal year 2020 Water Utility Financial Plan; and (2) a
Resolution Increasing Water Rates by 1% by Amending Rate Schedules W-1 (General Residential Water
Service), W-2 (Water Service from Fire Hydrants), W-3 (Fire Service Connections), W-4 (Residential Master-
Metered and General Non-Residential Water Service), and W-7 (Non-Residential Irrigation Water Service).
Lisa Bilir, Resource Planner, reported costs are divided approximately half to water supply and half to water
distribution. In FY 2019, approximately 30% of overall costs are attributed to operations, 13% to capital
investment, and 7% to debt service. Water supply costs are projected to remain stable over the next few
years; however, in FY 2023 and beyond, the primary driver of water supply costs will be the SFPUC Water
System Improvement Project. Drivers of operations and capital costs include the installation of backup
generators at pumping stations and seismic upgrades for emergency water supply and reservoir
rehabilitation. In FY 2020, rates and revenues are projected to remain fairly steady. The overall rate increase
is 1%. The 1% increase has an impact closer to 4-6% on residential bills. Staff is preparing a cost of service
analysis update, and it affirms that the methodology for allocating costs and calculating rate structures is
fundamentally sound. The analysis update recommends some rebalancing of rates in FY 2020. Rate design
changes will separate the commodity rate for SFPUC supply so that SFPUC rate changes are quickly and
accurately reflected in Palo Alto's water rates and standardize the 5/8", 3/4", and 1" residential meter charges
to ensure costs are allocated equitably and consistent with the cost of service analysis.
In reply to Vice Chair Schwartz's inquiry regarding the need for a larger meter, Eric Keniston, Senior Resource
Planner, explained that the customer may need a larger meter due to special circumstances or to increase
water pressure. The size of the meter is not based on water usage. Bilir added that standardizing to the 1"
meter size will reduce CPAU's cost for procuring meters.
Bilir further reported the bill impact for residential customers with a 5/8" meter and usage at the annual
median is 4%. As the usage level increases, the bill impact could be higher. The bill impacts for commercial
and irrigation customers range from -1% to 3%. Certain projects originally planned for FY 2019 are being
shifted to FY 2020. The Financial Plan will replenish the CIP Reserve Fund with a $5 million transfer in FY 2020.
The CIP numbers are higher in FY 2022 and 2024 because main replacement projects will be planned for every
other year and will be larger projects.
In answer to Commissioner Johnston's query about using reserve funds to have consistent rates, Bilir
indicated that is part of the plan. Keniston clarified that excess funds will be transferred to the CIP Reserve
Fund to smooth the flow of the Operations Reserve and to fund the following year's higher CIP costs.
In reply to Commissioner Segal's inquiry regarding the impact of a two-year cycle on the desired range for
reserve funds, Keniston explained that the CIP Reserve Fund balance will rise and fall, but the Operations
Reserve Fund balance should fall within the desired range each year.
Bilir continued the report, stating Palo Alto's residential bill is not the highest compared neighboring cities,
but Palo Alto's residential bill is higher than the average of residential bills. Staff will conduct a study to
understand why Palo Alto's rates are higher than neighboring cities.
In response to Vice Chair Schwartz's question about neighboring cities purchasing Hetch Hetchy water, Bilir
advised that Hetch Hetchy water comprises a portion of the water supplies for Redwood City, Menlo Park,
Mountain View, and Hayward.
Utilities Advisory Commission Minutes Approved on: May 1, 2019 Page 10 of 11
In reply to Commissioner Forssell's inquiry about the impact of the 1% average increase, Bilir indicated some
customers will see a 4-6% bill impact, and other customers will see a -1% impact.
In answer to Commissioner Johnston's request for an explanation of residential rates increasing and other
rates decreasing, Bilir advised that the rates are affected by the standardization of the meter charges and the
cost of service study analysis that recommends rebalancing the rates. The analysis is almost complete.
Herb Borock recalled that Palo Alto's rate structure at one time consisted of the commodity charge and a
pressure zone charge. If staff has a recent report concerning the pressure zone concept, they should present
it to the UAC or Council. Staff may want to review the past rate structure for pressure zones as well. The
effect of chloramine on the reservoirs should be factored into a decision regarding pressure zones.
In reply to Commissioner Forssell's query regarding some bills increasing by 10% and others decreasing as
much as 46%, Bilir reported the monthly service charge will change by those percentages. The total bills will
not change by those percentages.
In answer to Commissioner Segal's inquiry regarding 13.5 miles of water pipe replacement over ten years,
Silvia Santos, Senior Engineer, advised that the City's consultant recommends replacement of 13.5 miles of
water pipe over the next decade. The 13.5 miles of water pipe consists of 2 miles of pipe in deteriorated
condition, 10 miles of pipe within seismically sensitive areas, and 1.5 miles of pipe that will deteriorate over
the next ten years. The plan to replace water mains every other year will accomplish replacement of 13.5
miles of pipe within ten years. Staff will continue to assess the conditions of water mains and replace them
if necessary.
ACTION: Commissioner Johnston moved to recommend that the City Council adopt (1) a Resolution
approving the Fiscal Year 2020 Water Utility Financial Plan and transferring up to $5 million from the
Operations Reserve Fund to the CIP Reserve Fund and (2) a Resolution increasing water rates by 1% by
amending Rate Schedules W-1 (General Residential Water Service), W-2 (Water Service from Fire Hydrants),
W-3 (Fire Service Connections), W-4 (Residential Master-Metered and General Non-Residential Water
Service), and W-7 (Non-Residential Irrigation Water Service). Vice Chair Schwartz seconded the motion. The
motion carried 5-0 with Chair Danaher, Vice Chair Schwartz, and Commissioners Forssell, Johnston, and Segal
voting yes, and Commissioners Ballantine and Trumbull absent.
ITEM 5: DISCUSSION: Update and Discussion of Fiber and AMI Planning.
Dean Batchelor, Utilities General Manager, reported a Council update regarding fiber could occur in June or
July. Staff anticipates the UAC having a larger role in fiber discussions and the Community Advisory
Committee sunsetting.
In response to Commissioner Johnston's inquiry about issuing the Request for Proposals (RFP), Batchelor felt
the RFP could be issued in June.
ACTION: None
Chair Danaher noted Item 2 has been continued to the May meeting. A discussion of resiliency and purchasing
equipment should be scheduled. The UAC usually cancels one summer meeting. He requested an update of
the CIS upgrade.
Vice Chair Schwartz suggested scheduling the cancellation of one summer meeting wait until new
Commissioners join the UAC.
Utilities Advisory Commission Minutes Approved on: May 1, 2019 Page 11 of 11
Batchelor advised that staff is working on resiliency but has not determined a date to present it to the UAC.
A discussion of purchasing equipment could be scheduled for September or October.
Debra Lloyd, Assistant Director of Utilities Engineering, reported the repaving of University Avenue will not
be complete prior to the May Fete Parade. The work will occur on May 13, 14, and 15, and crews will work
both day and night.
NEXT SCHEDULED MEETING: May 1, 2019
Meeting adjourned at 10:00 p.m.
Respectfully Submitted as corrected:
- Vice Chair Schwartz requested the second paragraph on page 7 state "Commissioner Segal believed the
Council should decide whether anybody pays for the additional costs." In the next paragraph, "Vice Chair
Schwartz appears to be less inclined to allow a choice" should be deleted. The following sentence should be
"Vice Chair Schwartz clarified that while it is important to listen to community concerns, it would be a better
choice to find eight to ten households that are willing to host pad-mounted equipment."
Tabatha Boatwright
City of Palo Alto Utilities
Page 1 of 5
1
MEMORANDUM
TO: UTILITIES ADVISORY COMMISSION
FROM: UTILITIES DEPARTMENT
DATE: APRIL 9, 2019
SUBJECT: Utilities Advisory Commission Recommendation that the City Council Adopt a
Resolution Amending Utility Rule and Regulation 20 to Allow Neighborhood
Funding of Certain Subsurface Equipment
______________________________________________________________________________
REQUEST
Staff recommends the Utilities Advisory Commission (UAC) recommend that the City Council
adopt a resolution amending Utility Rule and Regulation 20 to allow Neighborhood Funding of
Certain Subsurface Equipment.
EXECUTIVE SUMMARY
City of Palo Alto Utilities (“CPAU”) endeavors to build and maintain a safe, reliable, and cost-
effective electric system that will minimize the risk of injuries and keep electric rates as low as
possible. In service of this goal, Utility Rules and Regulations currently require that transformers
and associated equipment (“equipment”) in underground utility districts be pad-mounted.
While it is possible to install this equipment in underground vaults, such an installation is
substantially more expensive than a standard pad-mounted installation, and—in the view of
CPAU staff—is likely to be less reliable and more costly to maintain and operate.
CPAU needs to replace the 45-year old transformers and cables in Green Acres I because that
equipment is at the end of its service life. CPAU would normally use electric funds to replace
the existing equipment with a standard pad-mounted installation. However, the existing Green
Acres I equipment is fully subsurface (i.e. mounted undergrounded in subsurface vaults), and a
number of residents have strongly opposed the installation of any new equipment that is not
subsurface.
Existing Rules and Regulations do not provide the residents of an underground utility district
with the option to have subsurface equipment that is at the end of its service life replaced with
a new subsurface installation In order to afford residents with an opportunity for such a
replacement project while not burdening other system ratepayers with the added costs of the
project, it has been suggested that Green Acres I property owners be given an opportunity to
request a subsurface installation if they are able to self-fund the added costs. To make this
option available in Green Acres I and other similar residential underground districts, staff
Page 2 of 5
requests that the UAC recommend amendments to Utility Rule and Regulation 20 as described
in Attachment A.
BACKGROUND
Underground Utility District 15 (“UUD 15”), the area bounded by Arastradero Road, Pomona
Avenue, Glenbrook Drive, and Los Palos Avenue (also known as Green Acres I), was constructed
and completed in 1973. To maintain reliability of the electric system, CPAU needs to replace the
45-year old transformers and cables and bring the system up to current design standards.
In 1973 UUD 15 was constructed using entirely subsurface equipment in concrete vaults.
CPAU‘s current standard for equipment in underground utility districts is to install pad-mounted
equipment (above ground equipment sitting on a concrete pad) with only the cables installed
below ground. This design aligns with CPAU’s responsibility to build a safe, reliable, and cost-
effective electric system that will minimize the risk of injuries and outages and keep electric
rates as low as possible. The proposed design using pad-mounted equipment met with
opposition from a significant number of residents in Green Acres I, who expressed concerns
over aesthetics, safety and property values. Staff presented a report at the August 1, 2018 UAC
meeting (report) explaining the safety, reliability and cost justifications for CPAU’s standard for
pad-mounted equipment. At that meeting the UAC also heard comments from Green Acres I
community members. The UAC requested that CPAU staff work with residents on design
alternatives to accommodate aesthetics and safety.
Subsequently, staff presented a design alternative to residents and attempted to answer
residents’ questions. The feedback staff received from community representatives was that any
pad-mount equipment was not an acceptable solution and they wanted to work with the Utility
on a fully undergrounded system. At the December 5, 2018 UAC (report) meeting staff
provided an update and sought the UAC’s opinion on preparation of a Utilities Rule and
Regulation governing community-requested fully undergrounded systems
DISCUSSION
As equipment standards have evolved since 1996, current functional and safety requirements
cannot be met by simply reusing existing vaults in the Green Acres I neighborhood. Putting
aside the safety and reliability justification for pad-mounted equipment, CPAU’s current
construction and safety standards require installing no more than one piece of equipment in a
vault; multiple pieces of equipment in a single vault results in reduced clearances and increases
the chances of disruption of the equipment. As a result, in the Green Acres I neighborhood,
simply maintaining the existing load serving capacity would still require extensive subsurface
construction to relocate transformers to separate vaults from secondary connections, hence
the cost component for new vaults. CPAU has engineering estimates for Green Acres I based
on recent quotes for equipment and labor costs shown in Attachment B. This is not the full
project cost as it only compares the components that would change between the two designs;
the replacement of electrical cables will be a similar scope under both designs. In the Fiscal
Year 2019 budget, the estimated construction budget for the UUD 15 rebuild was just over
$500,000, with the cable replacement component comprising about $180,000 of the total
Page 3 of 5
budget. Staff’s current estimate is that the additional costs associated with the non-standard
installation in Green Acres I would be approximately $475,000.
Neighborhood Request for and Funding of Subsurface Equipment
Section B(3) of City of Palo Alto Rule and Regulation 3 (Attachment C) requires that “all new
equipment in underground areas required to provide electric service to a Customer shall be
pad-mounted.”
However, Rule and Regulation 3 also provides that:
The Utilities Director, or his/her designee, may authorize…an exception to the
above provisions when, in his/her opinion, a pad-mounted equipment
installation in any particular instance would not be feasible or practical….
This sort of exceptional or non-standard installation is considered a “Special Facility” as defined
in Rule and Regulation 20 (Attachment D). Pursuant to Regulation 5 (Attachment E), the
applicant requesting service is responsible for costs associated with the non-standard
installation of a Special Facility.
The typical application of this exception occurs, for example, when (as occurs in downtown
University Avenue) a new development has zero lot line building construction and would
require pad-mounted equipment to be installed in alleys, sidewalks or streets obstructing
pedestrians and vehicles.
A full undergrounding in Green Acres I would not fall under the exception to Rule and
Regulation 3 because it is feasible and practical to install pad-mounted equipment in Green
Acres I. Furthermore, it is unlikely that 100% of the approximately 100 customers in Green
Acres I will support the fully undergrounded installation. Rule and Regulation 3 is not typically
used to impose a charge upon an existing customer to fund additional costs associated with a
non-standard installation that the City does not consider infeasible or impractical.
Consequently, for Green Acres I property owners be able to request a fully subsurface
installation of equipment it is necessary to amend the Rules and Regulations to provide a
procedure governing such a request and a means for funding the additional costs. Staff is
proposing the following procedure as described in Appendix A.
1. CPAU, per current practice, sends out “courtesy notice” to affected customers stating
CPAU’s intent to replace its installed equipment.
2. A request for a petition form, signed by owners of at least five parcels served by the
installation, is filed with CPAU.
3. CPAU prepares a petition form that describes the proposed project and contains certain
other information.
Page 4 of 5
4. Proponents have a 45-day window after receiving the petition form to return the form
to CPAU with the signature of the owners of at least 60% of affected parcels.
5. The form must be accompanied by a payment sufficient to fund CPAU’s costs of
developing a cost-estimate for a subsurface installation.
6. CPAU develops an estimate of the cost of a subsurface installation, including the net
present value of any unusual continuing ownership costs associated with such
installation.
7. Proponents have a 60-day window to pay CPAU the full estimated cost difference
between the subsurface and standard installation.
If proponents are unable to collect sufficient signatures during the 45-day window, or make full
payment during the 60-day window, CPAU will proceed with a standard installation.
The expectation here is that the proponents will collect the funding from interested neighbors.
CPAU does not intend to assist in the collection of funds, nor will the City or CPAU impose any
legal obligation upon any property owner or customer to pay a “fair share” of the cost.
Other Considerations
• This new policy will not preclude action the City may have to take in response to new
safety rules and regulations promulgated at State or Federal level.
• Consideration is required for later capacity requirements in the Districts given the less
flexible design and lower capacity of subsurface equipment.
NEXT STEPS
Staff will take the proposed amendments to Council, which could result in the adoption and
implementation of a rule governing community requests for fully undergrounded systems. A
revised schedule will be set once an approval process is determined.
RESOURCE IMPACT
The resource impact will depend on the allocation of the incremental installation and
maintenance costs, and the costs of creating a system to administer and allocate the expense of
proceeding with subsurface equipment in Green Acres I.
POLICY IMPLICATIONS
A Council decision to adopt a Rule governing community requests for fully undergrounded
systems will require changes to Rule and Regulation 20.
ATTACHMENTS:
A. Resolution of the Council of the City of Palo Alto Amending Utility Rule and Regulation 20 to
Allow Neighborhood Funding of Certain Vault -Mounted Equipment
B. Engineering Estimate for Green Acres I Rebuild
C. Rule 03 effective 6-27-2016
D. Rule 20 effective 6-27-2016
E. Rule 05 effective 2016-06-27
PREPARED BY:
DEPARTMENT HEAD:
Debbie Lloyd, Assistant Director, Utilities Engineering
Dean Batchelor, Utilities Director
Page 5 of 5
1
* NOT YET APPROVED *
Resolution No. ________
Resolution of the Council of the City of Palo Alto Amending Utility
Rule and Regulation 20 to Allow Neighborhood Funding of Certain
Subsurface Equipment
R E C I T A L S
A.Since 1965, Sections 12.16.020 and 12.16.040 of the Municipal Code have authorized the
City Council to designate Underground Utility Districts (“UUD”) within the City.
B.The purpose of this designation is to require the replacement of existing poles, overhead
lines and associated overhead structures within each designated UUD.
C.In areas served by underground lines, Utility Rule and Regulation 3 currently requires that,
with few exceptions, all new transformers and other new equipment required to provide electric
service to customers be pad-mounted.
D.Pad-mounted equipment is generally more reliable and substantially less expensive to
install and maintain than subsurface (vault-mounted) equipment.
E.In some early UUD’s, equipment was installed subsurface, rather than pad-mounted. As
these installations reach functional obsolescence, CPAU has been replacing these installations with
pad-mounted equipment at its expense.
F.Before replacing an installation that has reached functional obsolescence, CPAU generally
sends a “courtesy notice” to customers served by the installation.
G.The City Council desires to amend Rule and Regulation 20 to provide a mechanism by
which neighborhoods can fund the replacement of obsolete subsurface equipment with new
subsurface equipment.
H.Pursuant to Section 12.20.010 of the Municipal Code authorizes the City Council, by
resolution, to adopt rules and regulations relating to utility service.
The Council of the City of Palo Alto hereby RESOLVES as follows:
SECTION 1. Utility Rule and Regulation 20 (Special Electric Utility Regulations) is hereby
amended to add Section K thereto, to read as follows:
“K. NEIGHBORHOOD FUNDING OF SUBSURFACE EQUIPMENT
1.REPLACEMENT OF SUBSURFACE EQUIPMENT
a.Notwithstanding the provisions of Rule and Regulation 3(B)(3), in UUD’s in which the existing
equipment required to provide electric service to customers is subsurface, the Utilities Director,
Attachment A
2
or his/her designee, may, at the end of the service life of such equipment vaults or equipment,
authorize their replacement with new subsurface equipment if the following conditions are
met:
(i) The Utilities Director, or his/her designee, determines that the installation of subsurface
equipment is practicable; and
(ii) Such installation has been requested by property owners in the manner set forth in this
subdivision K; and
(iii) The City receives funding for the subsurface installation as set forth in this subdivision K.
b. For purposes of this subdivision K, “Neighborhood-Funded Subsurface Installation” shall mean
vaults and equipment the installation of which has been funded pursuant to this subdivision K.
c. CPAU operates its utilities in accordance with Prudent Utility Practice. As is always the case with
CPAU’s Electric Distribution System and any CPAU-operated equipment, CPAU reserves the right
to operate, maintain, rehabilitate, and replace equipment at such time and in such manner as it
determines is necessary or useful for the safe and effective operation of the Electric Distribution
System. Consequently, nothing in this subdivision K shall be interpreted to:
(i) Require that CPAU, at the end of the useful life of a Neighborhood-Funded Subsurface
Installation, replace that equipment with a subsurface installation; or
(ii) Prohibit CPAU, subsequent to the installation of a Neighborhood-Funded Subsurface
Installation, from installing pad-mounted equipment in the territory served by that
Neighborhood-Funded Subsurface Installation if the Utilities Director determines that such
installation is necessary or prudent; or
(iii) At any time prohibit CPAU from replacing all or part of a Neighborhood-Funded Subsurface
Installation with pad-mounted equipment if CPAU is required to do so by federal or state law
or regulation or if the Utilities Director determines that the continued operation of all or part
of the Neighborhood-Funded Subsurface Installation presents an unacceptable hazard to
public safety, employee safety, or system reliability, or is contrary to Prudent Utility Practice.
2. REQUEST FOR PETITION FORM
a. Upon receiving a timely written request signed by owners of at least five parcels of real
property in an area served by a subsurface installation, CPAU shall prepare the petition form
described in subdivision (3)(c) of this subdivision (K).
b. A request shall be considered timely only if (i) it is submitted to the Utilities Director, or his/her
designee no later than 10 days following the distribution of the first courtesy notice regarding
the planned replacement of a subsurface installation or (ii) the Utilities Director determines
that the work schedule for such replacement will permit the time necessary for the process
described in subdivisions (3) and (4) of this subdivision (K).
c. Nothing in this subdivision (K) shall be interpreted to require the preparation of a petition form
or the provision of time for circulation of a petition if the Utilities Director determines that
either the work schedule for a project or operational requirements will not make it practicable
3
to allow time for preparation and circulation of the petition and collection of funding by
proponents.
3. REQUEST FOR SUBSURFACE EQUIPMENT
a. The owners of real property located in a Utility Undergrounding District may request the
replacement of existing vaults and equipment with new subsurface equipment by submitting a
petition to the Utilities Director, or his/her designee.
b. The petition must be signed by the owners of not less than 60% of the parcels in the Utility
Undergrounding District.
c. The petition must be on the form prepared by CPAU pursuant to subdivision (2) of this
subdivision (K). The form shall include map or description of the area to be served by the
Neighborhood-Funded Subsurface Installation, a summary of this procedure for Neighborhood
Funding of Subsurface Equipment, as well as any additional information deemed necessary or
useful by the Utilities Director, or his/her designee.
d. The form must indicate the name and contact information of one property owner who will
serve as proponent for the project and must indicate the date on which the form was issued to
that proponent and the amount of the payment required by subdivision (f) of this subdivision
(3).
e. To be valid, the signed petition must be returned to the Utilities Director, or his/her designee,
no later than 45 days after the form is issued to the proponent.
f. The signed petition must be accompanied by a payment to cover the cost of developing a cost-
estimate for the proposed subsurface replacement. The amount of this payment shall be
indicated on the form and shall be determined by the Utilities Director or his/her designee.
4. FUNDING OF SUBSURFACE EQUIPMENT
a. Upon receipt of a valid petition, the Utilities Director, or his/her designee, shall provide the
proponent with either (i) a written estimate of the cost of a subsurface installation (including
the net present value of any unusual continuing ownership costs associated with such
installation) or (ii) a finding that such installation is not practicable. The proponent shall also
be provided with an estimate of the cost of a standard installation.
b. The City will proceed with the subsurface installation if and only if within 60 days of the date
upon which the Utilities Director, or his/her designee, provides a written estimate pursuant to
subdivision (a) of this subdivision (4), the City receives payment in full for the estimated cost
difference between the subsurface and the standard installation.
c. It is the responsibility of the proponent to raise the funding required by this Section and the
entire cost must be paid to the City at one time. The City will not collect funds from property
owners or community members nor will it require any person or property owner to pay any
portion of the costs.
4
d. The Utilities Director, or his/her designee, may extend the payment deadline set forth in this
subdivision.”
SECTION 2. The Council finds that the adoption of this resolution amending Rule and
Regulation 20 (Special Electric Utility Regulations) does not meet the California Environmental
Quality Act’s (CEQA) definition of a project under Public Resources Code Section 21065 and CEQA
Guidelines Section 15378(b)(5), because it is an administrative governmental activity which will
not cause a direct or indirect physical change in the environment, and therefore, no
environmental review is required. The installation of vaults, subsurface equipment and pad-
mounted equipment to replace existing equipment is categorically exempt from CEQA review
under Sections 15301 and 15302 of the CEQA Guidelines (repair, maintenance or minor alteration
of existing facilities, and replacement or reconstruction of existing facilities).
INTRODUCED AND PASSED:
AYES:
NOES:
ABSENT:
ABSTENTIONS:
ATTEST:
___________________________ ___________________________
City Clerk Mayor
APPROVED AS TO FORM: APPROVED:
___________________________ ___________________________
Assistant City Attorney City Manager
___________________________
Director of Utilities
___________________________
Director of Administrative Services
Attachment B Engineering Estimates for Green Acres I Rebuild
Figure 1: Cost Comparison for Green Acres Neighborhood
The calculation of the proposed Special Facilities Fee component is illustrated in Figure 2
Unit Cost Estimates for Above Vs. Below Ground Equipment and Installation
(A)
Above ground Pad-
mount Equipment
(Transformers &
Loadbreaks)
(B)
Above ground
Pad-mount Loop
Feed
Transformers
(No Loadbreaks)
(C)
Above ground
Pad-mount
Transformer
(D)
Above ground
Pad-mount
Loadbreak
(E)
Below ground
Submersible
Equipment
(Transformers &
Loadbreaks)
(F)
Below
ground
Submersible
Loadbreak
(G)
Below
ground
Submersible
Transformer
Transformer 1,854$ 4,170$ 1,854$ -$ 5,719$ -$ 5,719$
Load Break (Switch)1,277$ -$ -$ 1,277$ 536$ 536$ -$
Misc, Equipment 2,748$ 1,056$ 1,056$ 1,056$ 956$ 956$ 956$
Pads/ Vaults 5,312$ 1,075$ 1,075$ 775$ 12,552$ -$ 12,552$
Sub Total 11,190$ 6,301$ 3,985$ 3,108$ 19,763$ 1,492$ 19,227$
Substructure Instalation 20,861$ 11,909$ 11,909$ 11,909$ 24,632$ -$ 24,632$
Equipment 15,478$ 9,594$ 9,594$ 9,594$ 15,478$ 10,835$ 10,835$
Sub Total 36,339$ 21,503$ 21,503$ 21,503$ 40,110$ 10,835$ 35,466$
15% Incidental $ 7,129 $ 4,171 $ 3,823 $ 3,692 $ 8,981 $ 1,849 $ 8,204
Total Cost $ 54,658 $ 31,974 $ 29,311 $ 28,302 $ 68,854 $ 14,176 $ 62,898
Cost Differential Between the Two Green Acres Designs
Design Description Material Labor Total Cost
Utility Standard
(Above Ground)
2 transformers with
loadbreaks, 4 loop feed
transformers, 2
transformers only and 3
loadbreaks only
(2xA)+(4xB)+(2xC)+(3xD)
$ 74,608 $ 306,132 $ 380,741
6 transformers with
loadbreaks, 3
loadbreaks only and 2
transformers only
(6xE)+(3xF)+(2xG)
$ 185,740 $ 395,710
Special Facilities Fee*
Cost Differential between Padmount and Submersible Equipment 475,542$
* Special Facilities Fee is the present cost of ownership and energy losses
$ 274,833
Cost Components
Home-owner
Requested
(Below Ground)
$ 856,282
Utility Standard Pad-Mounted Requested Below-Ground
Material and Labor Unit Costs
Materials
Labor
Attachment B Engineering Estimates for Green Acres I Rebuild
Figure 2: Proposed Maintenance and Operations Fee Calculation
Description
Materials 111,131$
Labor 89,578$
Other -$
Estimated Job Cost Differential 200,709$
Annual Cost of Ownership Factor 0.067
Annual Cost of Ownership 13,448$
Term 30
Discount Rate 3%
Present Value of Annual Cost of Ownership $263,577
Present Value of Annual Energy Losses 11,255$
SPECIAL FACILITIES FEE (2+3)$274,833
DESCRIPTION OF UTILITY SERVICES
RULE AND REGULATION 3
CITY OF PALO ALTO
UTILITIES RULES AND REGULATIONS
Issued by the City Council
Effective 6-27-2016
Sheet No 1
A. GENERAL
Rule and Regulation 3 describes Services that are offered within the jurisdictional boundaries of
the City of Palo Alto. For Rules specific to each type of Service, please refer to the following
Rules and Regulations:
Rule and Regulation 20 – Special Electric Utility Regulations
Rule and Regulation 21 – Special Water Utility Regulations
Rule and Regulation 22 – Special Gas Utility Regulations
Rule and Regulation 23 – Special Wastewater Utility Regulations
Rule and Regulation 24 – Special Refuse Service Regulations
Rule and Regulation 25 – Special Storm and Surface Water Drainage Utility Regulations
Rule and Regulation 26 – Special Fiber Optics Utility Regulations
B. ELECTRIC SERVICE
1. BASIS OF SERVICE
a.Unless otherwise provided in a Rate Schedule or contract, CPAU’s Electric rates
are based upon the furnishing of Electric Service to Customer Premises at a single
Point of Delivery at a single voltage and phase classification. Unless specified
otherwise, each Point of Delivery shall be metered and billed separately under the
appropriate Rate Schedule. Any additional Service supplied to the same
Customer at other Points of Delivery or at a different voltage or phase
classification shall be separately metered and billed.
b.The type of distribution Service (voltage, Secondary, Primary) available at any
particular location may be determined by inquiry to a CPAU Engineering
representative.
c.If the Customer, for his or her convenience, requests Secondary or Primary
Services at an alternate Point of Delivery other than the normal Point of Delivery
as determined by CPAU, the Customer is responsible for all cost of providing
Secondary or Primary Services at such alternate location.
d.CPAU assumes no duty or liability for inspecting, validating or approving the safe
operating condition of the Customer’s Service, appliances, or equipment
downstream of the Utility Meter.
ATTACHMENT C
DESCRIPTION OF UTILITY SERVICES
RULE AND REGULATION 3
CITY OF PALO ALTO
UTILITIES RULES AND REGULATIONS
Issued by the City Council
Effective 6-27-2016
Sheet No 2
e. See Rule and Regulation 20. "Special Electric Utility Regulations" regarding
special Service requirements.
2. LOCATION OF POINT OF SERVICE
a. SECONDARY SERVICE
1. OVERHEAD SERVICE AT SECONDARY VOLTAGES
The Point of Service for Overhead Service at secondary voltages will normally be
located at a power pole on the perimeter of the parcel to be served, which is, in
CPAU’s judgment, most conveniently located and in compliance with CPAU
standards and specifications and applicable building and electrical codes.
2. UNDERGROUND SERVICE AT SECONDARY VOLTAGE
The Point of Service for Underground Service at secondary voltages will
normally be located at the Secondary connectors of the transformer serving the
Customer’s Load, or in the Secondary hand hole, if available.
b. PRIMARY SERVICE
The Point of Service for Primary Service will normally be at the point near the
property line of the premises to be served which is, in CPAU’s judgment, most
conveniently located with respect to CPAU’s transmission or distribution
facilities.
c. EXCEPTIONS
If several buildings are occupied and used by one Customer in a single business or
other activity, CPAU may, at its discretion, furnish Service for the entire group of
buildings through one Service connection at one Point of Service.
3. EQUIPMENT REQUIREMENTS
All new equipment in underground areas required to provide electric service to a
Customer shall be pad-mounted. In addition, any three-Phase electric service connection
DESCRIPTION OF UTILITY SERVICES
RULE AND REGULATION 3
CITY OF PALO ALTO
UTILITIES RULES AND REGULATIONS
Issued by the City Council
Effective 6-27-2016
Sheet No 3
and any electric service connection rated at 400 Amps or greater which is located either
in an underground or overhead area must be served from a pad-mounted transformer.
The Utilities Director, or his/her designee, may authorize: 1) an exception to the above
provisions when, in his/her opinion, a pad-mounted equipment installation in any
particular instance would not be feasible or practical or 2) installation of electric service
equipment in locations with limited access by utility equipment. Such installations will
be considered “Special Facilities” as defined in Rule and Regulation 20, and the
Applicant will be responsible for the costs described in that rule and outlined in the
Service Contract as described in Rule and Regulation 5.
If the Applicant wants a Point of Delivery other than at the location determined by
CPAU, CPAU will work with the Applicant to assist in the selection of the alternate Point
of Delivery location for the electric service equipment within the boundaries of the
Applicant’s property. When the Applicant chooses a Point of Delivery location other
than the location which has been determined by CPAU, the Applicant must acknowledge
that such an alternate Point of Delivery location will cause CPAU personnel to incur
delays when performing repairs or service restoration during emergencies. In addition to
being responsible to pay for the initial cost of installation of such electric service
equipment in an alternate location, the Applicant shall also be responsible to pay for any
future additional labor, equipment, and material costs incurred by CPAU necessary to
facilitate replacement, removal, or relocation of any electric service equipment which has
been installed in an alternate Point of Delivery location at the Applicant’s request.
Any installation intended to assist in “screening” of electric service equipment by
landscaping or structures must be constructed in a manner which meets all of CPAU’s
clearance standards. The plans for such screening must be approved by the City of Palo
Alto and CPAU prior to beginning work on the screening installation.
The Applicant shall provide a Public Utility Easement in recordable form for installation
of such facilities within the boundaries of the property. All pad-mounted equipment will
be subject to CPAU’s aesthetic guidelines.
4. EMERGENCY AND STANDBY SERVICES
CPAU may provide back up Emergency, and other Standby Service to Customers as
Special Facilities. See Rule and Regulation 20 "Special Electric Utility Regulations"
regarding special Service requirements.
DESCRIPTION OF UTILITY SERVICES
RULE AND REGULATION 3
CITY OF PALO ALTO
UTILITIES RULES AND REGULATIONS
Issued by the City Council
Effective 6-27-2016
Sheet No 4
5. SERVICE DELIVERY VOLTAGE
The following are the standard Service voltages normally available. Not all standard
Service voltages are available at each Point of Delivery. These Service voltages are
available in locations that already have this Service voltage and have sufficient capacity,
as determined by CPAU, to serve the new Load. Any equipment installed on 120/240, 3
wire or 240/120, 4-wire Services shall have the capability of converting to a 120/208, 3
wire or 208 Y/120, 4-Wire Service.
a. DISTRIBUTION OF VOLTAGE
Alternating-current Service will be regularly supplied at a nominal frequency of
approximately 60-Hertz (cycles per second).
Single-Phase Three-Phase Three-Phase
Secondary Secondary Primary
120/240, 3 -wire 240/120, 4-wire* 12,470, 3-wire
120/208, 3-wire 240, 3-wire*
208 Y/120, 4-wire
480 Y/277, 4-wire
*Only available in special conditions as determined by the Electric Engineering
Manager.
b. All voltages referred to in this Rule and appearing in some Rate Schedules are
nominal Service voltages at the Point of Delivery. CPAU’s facilities are designed
and operated to provide sustained Service voltage at the Point of Delivery, but the
voltage at a particular Point of Delivery will vary within satisfactory operating
range limits.
c. In areas where a certain standard Secondary voltage is being delivered to one or
more Customers, CPAU may require an Applicant for new Service in such areas
to receive the same standard voltage supplied to existing Customers.
d. CPAU may change the voltage at which Service is delivered, including converting
existing 4160 volt Primary Service to 12,470 volt Service. If CPAU notifies the
DESCRIPTION OF UTILITY SERVICES
RULE AND REGULATION 3
CITY OF PALO ALTO
UTILITIES RULES AND REGULATIONS
Issued by the City Council
Effective 6-27-2016
Sheet No 5
Customer that a Service voltage change is necessary, the Customer will be
required to provide Service equipment capable of accepting the new voltage and
meeting other CPAU requirements. Costs to provide suitable Customer’s Service
entrance equipment and any other associated equipment to receive Service at the
new voltage shall be borne by the Customer.
6. VOLTAGE AND FREQUENCY CONTROL
a. Under normal Load conditions, CPAU’s distribution circuits will be operated so
as to maintain Service voltage levels to Customers within plus or minus 5 percent
of the nominal Service voltage at the Point of Delivery. Subject to the limitations
above, CPAU will maintain the voltage balance between phases as close as
practicable to 2.5% maximum deviation from the average voltage between the
three phases.
b. Voltages may be outside the limits specified above when the variations:
1. arise from Service interruptions;
2. arise from temporary separation of parts of the system from the main
system;
3. are minor momentary fluctuations and transient voltage excursions of
short duration which may occur in the normal operation of CPAU system;
4. are beyond CPAU’s control.
c. Due to conditions beyond the control of CPAU, the Customer, or both, there will
be infrequent and limited periods when voltages will occur outside of the nominal
Service voltage ranges. Utilization equipment may not operate satisfactorily
under these conditions, and protective devices in the equipment may operate to
protect the equipment.
d. Where the operation of the Customer’s equipment requires stable voltage
regulation or other stringent voltage control beyond that supplied by CPAU in the
normal operation of its system, the Customer, at its own expense, is responsible
for installing, owning, operating, and maintaining any special or auxiliary
equipment on the Load side of the Service delivery point as deemed necessary by
the Customer.
e. The Customer shall be responsible for designing and operating its Service
DESCRIPTION OF UTILITY SERVICES
RULE AND REGULATION 3
CITY OF PALO ALTO
UTILITIES RULES AND REGULATIONS
Issued by the City Council
Effective 6-27-2016
Sheet No 6
facilities between the Point of Delivery and the utilization equipment to maintain
proper utilization voltage at the line terminals of the utilization equipment.
f. The Customer shall not impose a Load on CPAU’s system that will cause the
voltage limits in this section to be exceeded for an adjacent Service delivery point.
g. When there is reasonable indication of a problem, CPAU shall test for excessive
fluctuations at its own expense. Voltage checks requested by the Customer more
than once in any twelve month period shall be paid by the Customer, unless
CPAU determines that excessive voltage fluctuation exists.
h. CPAU may institute measures to prevent the continuous operation of equipment
detrimental to Service to other Customers or may discontinue Electric Service to
the offending Customer. (See Rule and Regulation 20, Special Electric Utility
Regulations).
i. Customers are responsible for protecting their connected Loads, audio, video, and
electronic equipment, including computers, from sudden voltage or frequency
fluctuations outside nominal Service and frequency ranges. Such protection may
include, but is not limited to, surge protectors.
7. GENERAL LOAD LIMITATIONS
a. SINGLE-PHASE SERVICE
1. Single-phase Service normally will be 3-wire, 120/240 volts (or 3-wire,
120/208 volts at certain locations as now or hereafter established by
CPAU) where the size of any single motor does not exceed 7-1/2
horsepower (10 horsepower at the option of CPAU). For any single-phase
Service, the maximum Service size shall be 400 ampere, unless approved
by the Utilities Director or his/her designee. If the Load exceeds the
capability of a 400 ampere single phase Service the Service shall be three-
phase.
2. In locations where CPAU maintains a 120/208 volt secondary system, 3-
wire single-phase Service normally shall be limited to that which can be
supplied by a main switch or Service entrance rating of 200 amperes.
Single-phase Loads in these locations in excess of that which can be
DESCRIPTION OF UTILITY SERVICES
RULE AND REGULATION 3
CITY OF PALO ALTO
UTILITIES RULES AND REGULATIONS
Issued by the City Council
Effective 6-27-2016
Sheet No 7
supplied by a 200 ampere main switch or Service entrance rating normally
will be supplied with a 208Y/120 volt, three-phase, 4-wire Service. b. THREE-PHASE SERVICE (480 VOLTS OR LESS) Minimum Load Maximum Demand
Normal Voltage Requirements Load Permitted
240/120 5 hp, 3-phase connected 400 Amperes
240 5 hp, 3-phase connected 400 Amperes
208Y/120 Demand Load 75 kVA 500 kVA
480Y/277 Demand Load 112 kVA 2,500 kVA (See Note 1)
Note 1. Applicants or existing Customers with a planned or existing single or
multiple building development having a maximum Demand in excess of 2500
kVA, as determined by CPAU, will be required to take delivery at the available
primary voltage and are required to provide their own primary switchgear and
transformer(s). Determination of maximum Demand and Service voltage will be
made by CPAU and the decision of the Electric Engineering Manager will be
final.
1. Where three-phase Service is supplied, CPAU reserves the right to use
single-phase transformers, connected open-delta or closed-delta, or three-
phase transformers.
2. Three-phase Service will be supplied on request for installations
aggregating less than the minimum listed above, but not less than 3
horsepower (hp), three-phase Service, where existing transformer capacity
is available. If three-phase Service is not readily available, or for Service
to Loads less than 3 hp, Service shall be provided in accordance with
CPAU’s applicable Rule 20 on Special Power Service requirements.
3. Residential customers requesting three-phase service shall be responsible
for all labor and material costs required to provide service, including the
cost of the transformer. These installations are not considered “Special
Facilities” as described in Rule and Regulation 20.
4. An Applicant or existing Customer requiring Service with a maximum
Demand in excess of 1000 kVA, as determined by CPAU, shall be served
by a padmount transformer. No submersible or vault-installed
DESCRIPTION OF UTILITY SERVICES
RULE AND REGULATION 3
CITY OF PALO ALTO
UTILITIES RULES AND REGULATIONS
Issued by the City Council
Effective 6-27-2016
Sheet No 8
transformers in excess of 1000 kVA will be installed by CPAU. Where an
existing underground Service must be upgraded beyond 1000 kVA, the
Customer shall be required to provide adequate space for installation of
the padmount transformer. In the event the Customer is unable to provide
adequate space for the padmount transformer, then the Customer shall
make arrangements at his or her expense to receive Service at primary
voltage.
c. THREE-PHASE SERVICE (OVER 2,000 VOLTS)
The following three-phase primary voltage may be available as an isolated
Service for a single Applicant; and where that Applicant’s Demand Load justifies
such voltage. The determination will be made by CPAU.
Minimum Demand Maximum Demand
Normal Voltage Bank Installed Load Permitted
4,160 500 kVA 3,600 kVA
12,470 1,000 kVA 11,000 kVA
Note: 4,160 volt Services will not be furnished for new Services.
8. TEMPORARY SERVICE
Temporary Service is Electric Service which, in CPAU’s opinion, is of an indefinite
duration at the same location, or for operations of a speculative character or of
questionable permanency, or any other Service which is estimated to last less than one
year. CPAU will furnish Temporary Service if the furnishing of such Service will not
create undue hardship for CPAU, or its Customers, and the following conditions are met:
a. The Applicant for such Temporary Service shall apply for Service on an
Application form provided by CPAU Engineering and shall pay to CPAU in
advance the cost of installing and removing any facilities necessary in connection
with the furnishing of such Service by CPAU.
b. Each Applicant for Temporary Service shall prepay a Temporary Service Fee in
accordance with Electric Service Connection Fees Rate Schedule E-15.
c. Nothing in this Rule and Regulation shall be construed as limiting or in any way
affecting the right of CPAU to collect from the Customer an additional sum of
DESCRIPTION OF UTILITY SERVICES
RULE AND REGULATION 3
CITY OF PALO ALTO
UTILITIES RULES AND REGULATIONS
Issued by the City Council
Effective 6-27-2016
Sheet No 9
money by reason of the Temporary Service furnished or to be furnished or
removed hereunder.
d. If the Temporary Service connection time exceeds one-year, the Applicant shall
apply for an extension of the Temporary Service. The Director of Utilities or
his/her designee will determine if the Service should be reclassified as a
permanent Service.
9. SERVICE DOWNSTREAM OF METER
CPAU assumes no duty or liability for inspecting, validating or approving the safe
operating condition of the Customer’s Service, appliances, or equipment downstream of
the Utility Meter.
C. FIBER OPTIC SERVICE
Fiber Optic Service includes the custom construction and licensing of single mode Fiber routes
between points within the City of Palo Alto. It is the Customer’s responsibility to establish all
electronic devices and networks required to pass data over their licensed CPAU Dark Fiber
routes.
1. LICENSING SERVICES
All Dark Fiber routes are licensed in accordance with the currently approved Dark Fiber
Rate Schedules, and in compliance with the Utilities Rules and Regulations. See Rule and
Regulation 26, “Special Fiber Optic Utility Regulation,” regarding special Service
requirements. All CPAU fibers terminate within the jurisdictional boundaries of the City
of Palo Alto.
2. OTHER SERVICES
CPAU offers custom Dark Fiber construction and ancillary Services such as Fiber Optic
cable splicing, engineering feasibility studies, and when specifically requested by the
Customer, multimode Fiber cable installations.
3. QUALITY
Dark Fiber routes in the City of Palo Alto comprised of single mode Fiber comply with
DESCRIPTION OF UTILITY SERVICES
RULE AND REGULATION 3
CITY OF PALO ALTO
UTILITIES RULES AND REGULATIONS
Issued by the City Council
Effective 6-27-2016
Sheet No 10
generally accepted industrial standards and specifications. All construction is done using
industry accepted techniques and procedures. All constructed routes are Performance
Tested to assure the industry quality standards are met.
D. WATER SERVICE
1. SOURCE OF SUPPLY
CPAU’s primary source of Water is the Hetch Hetchy aqueduct system, managed by the
San Francisco Public Utilities Commission (SFPUC). CPAU wells also provide
Emergency supply. See Rule and Regulation 21, “Special Water Utility Regulation”
regarding special Service requirements.
2. QUALITY
Hardness generally varies between 1 and 4 grains per gallon depending on the source.
An analysis of the mineral content of the Water is available upon request from CPAU
Engineering.
3. PRESSURE
Water pressure varies from 30 to 125 pounds per square inch. CPAU maintains an
average of 50 pounds per square inch, with the maximum and minimum pressures being
experienced at the lower and higher elevations of the Distribution System. CPAU
assumes no responsibility for loss or damage due to lack of Water pressure but agrees to
furnish such pressures as are available in its general Distribution System. If low Water
pressure occurs due to additional on-site development, it shall be the responsibility of the
property owner to replace the existing Water Service with a new Water Service designed
for the current site. All costs of the required new Service upgrade shall be borne by the
property owner.
4. TREATMENT
CPAU currently does not treat Water supplied by the SFPUC. The pH of the Water
supplied is adjusted by the SFPUC to reduce its corrosive action.
5. SERVICE DOWNSTREAM OF METER
CPAU assumes no duty or liability for inspecting, validating or approving the safe
operating condition of the Customer’s Service, appliances, or equipment downstream of
DESCRIPTION OF UTILITY SERVICES
RULE AND REGULATION 3
CITY OF PALO ALTO
UTILITIES RULES AND REGULATIONS
Issued by the City Council
Effective 6-27-2016
Sheet No 11
the Utility Meter.
E. GAS
1. TYPES OF SERVICES
CPAU provides Gas supply, transportation, and Distribution Services.
2. KIND AND HEATING VALUE
CPAU purchases Gas from several/various Gas suppliers. The heating value of Gas
supplied varies. The average monthly heating value in British Thermal Units (Btu)-dry
basis per cubic foot of the Gas served may vary within the limits of 750 to 1150 Btu.
This average heating value is converted to a Therm factor for use as one of the factors
used in calculating a composite multiplier for billing purposes. The Therm factor will be
based upon the heat factor used by CPAU’s supplier of Gas for the preceding month.
Gas is supplied by CPAU either at standard “low pressure” or at “medium pressure”.
Low pressure Service is available at all points where Gas is supplied. Where available
from existing high pressure mains, at the option of CPAU, high pressure Service may be
supplied. However, CPAU reserves the right to lower the pressure or to discontinue the
delivery of Gas at high pressure.
The standard pressure for low pressure is seven inches of Water Column (WC), which is
approximately 1/4 pound per square inch (psi) above atmospheric pressure. In limited
circumstances, increased pressure may be provided for domestic use at 14” Water
Column. This increased pressure will only be provided for domestic use if the houseline
size required is greater than 2” diameter, or CPAU determines, based upon satisfactory
information from the manufacturer, provided by the Customer, that an appliance to be
located in the residence requires increased pressure at the inlet that cannot be obtained by
resizing or relocating the houseline. Increased pressure may be provided for commercial
uses only if the use of the houseline size required is greater than 4” diameter, or evidence
as described above establishes that equipment on the site requires increased pressure at
the inlet that cannot be obtained by resizing or relocating the houseline. For commercial
uses, the available pressures are 7” WC, 14” WC (approximately 1/2 psi), 1 psi, 2 psi and
5 psi.
All increased pressure above 7”WC requires review and approval of the Engineering
Manager, a plumbing permit and testing of the existing Gas piping with a building
DESCRIPTION OF UTILITY SERVICES
RULE AND REGULATION 3
CITY OF PALO ALTO
UTILITIES RULES AND REGULATIONS
Issued by the City Council
Effective 6-27-2016
Sheet No 12
Inspector present in accordance with the latest adopted version of the California
Plumbing Code
See Rule and Regulation 22, “Special Gas Utility Regulations” regarding special Service
requirements.
3. DETERMINATION OF THERMS TO BE BILLED
The unit of measure for billing is the Therm. Gas Meters measure volume of Gas in ccf
at ambient temperature and pressure conditions. Therms are derived from the metered
data by subtracting the Meter reading for the previous reading cycle from the current
reading. The difference (uncorrected ccf) is multiplied by the pressure factor required to
convert the measured consumption volume to a standard volume (at standard temperature
and pressure conditions). This standard volume, in pressure-corrected ccf, is then
multiplied by the Therm factor (a variable determined by periodic analysis of CPAU’s
Gas supply) to produce the final number of Therms billed. The composite correction
factor (the product of the Therm factor and the pressure correction factor) is shown on
bills under the heading “multiplier.”
4. SERVICE DOWNSTREAM OF METER
CPAU assumes no duty or liability for inspecting, validating or approving the safe
operating condition of the Customer’s Service, appliances, or equipment downstream of
the Utility Meter.
F. WASTEWATER COLLECTION AND TREATMENT
1. COLLECTION
CPAU operates and maintains a Wastewater Collection System separate from the storm
and surface Water Collection System. A connection to the Wastewater Collection
System is required for all water users where wastewater service is available.
For the disposal of Wastewater from basements and floors below ground level, it will be
necessary for the Customer to provide pumps or ejectors for satisfactory drainage, as
approved by the Water-Gas-Wastewater Engineering Manager. If the elevation of the
basement floor is above the rim elevation of the next upstream manhole, Applicant shall
provide a survey by a licensed Civil Engineer indicating the elevations of the basement
floor and the rim elevation of the next upstream manhole. Submission of this survey and
DESCRIPTION OF UTILITY SERVICES
RULE AND REGULATION 3
CITY OF PALO ALTO
UTILITIES RULES AND REGULATIONS
Issued by the City Council
Effective 6-27-2016
Sheet No 13
approval by the Engineering Manager is required for exemption from the pump/ejector
requirement.
2. REGULATION
Chapter 16.09 of the Municipal Code regulates the discharge into the Wastewater
Collection System of substances other than domestic Wastewater. See Rule and
Regulation 23, “Special Wastewater Utility Regulations” regarding special Service
requirements.
3. TREATMENT
The collection system transports the Wastewater to the Palo Alto Regional Water Quality
Control Plant for treatment. At this tertiary treatment plant, the City of Palo Alto
processes the Wastewater from Mountain View, Los Altos, Los Alto Hills, Stanford
University, and East Palo Alto Sanitary District, as well as its own. The treatment is
performed in accordance with the National Pollution Discharge Elimination Permit issued
by the San Francisco Bay Area Regional Water Quality Control Board before the treated
water is discharged into the San Francisco Bay Estuary.
4. LIMITATION OF SERVICE
CPAU reserves the right to limit the size of connection and the quantity of wastes
disposed and to prohibit the use of the sewer for disposal of toxic or hazardous wastes
detrimental to the Wastewater system or treatment plant.
G. REFUSE SERVICE
1. REGULATION
All Refuse Services are governed by Chapter 5.20 of the Palo Alto Municipal Code,
regulations promulgated by the City Manager pursuant to Chapter 5.20, these Rules and
Regulations and the contract between the City and the City’s Collector. See Rule and
Regulation 24, “Special Refuse Service Regulations” regarding special service
requirements.
2. REFUSE COLLECTION
Refuse Service is provided to all Customers by the City’s Collector. Customers shall
subscribe and pay for Refuse Service and for a number of containers to hold all Solid
Waste created, produced or accumulated at or on their Premises during a one-week
period, unless a different frequency for a collection schedule has been approved or
DESCRIPTION OF UTILITY SERVICES
RULE AND REGULATION 3
CITY OF PALO ALTO
UTILITIES RULES AND REGULATIONS
Issued by the City Council
Effective 6-27-2016
Sheet No 14
directed by Public Works. Each Customer shall receive collection Services on a specified
day of each week and use the City Collector’s provided Containers for service.
Customers wanting to supply their own container must check with the City Collector to
ensure compatibility with the collection vehicles. The automatic standard service for
Solid Waste Service Charge is one 32-gallon container for Residential Service and one
64-gallon container for Commercial Service. All customers may change service levels to
meet their refuse needs as specified above.
Solid Waste in excess of the Service Charge subscribed by the Customer will be removed
by the City’s Collector for an additional Charge upon Customer request or notification.
Customers exceeding their subscribed Service are required to subscribe to additional
collection Services at the City-established rates.
H. STORM AND SURFACE WATER DRAINAGE
1. RESPONSIBILITY AND PURPOSE
The City of Palo Alto Public Works Department is responsible for all Drainage Facilities
in the street and public right of way that collect storm and surface Water and convey it to
the major channels and creeks within the jurisdictional boundaries of the City of Palo
Alto. Examples include curbs and gutters, catch basins, pipelines, culverts, street,
channels and pumping stations. The purpose of the Storm and Surface Water control
facilities is to improve the quality of control, or protect life or property from any storm,
flood or surplus waters. See Rule and Regulation 25, “Special Storm and Surface Water
Drainage Regulations,” regarding special Service requirements.
2. STORM DRAINAGE FEE
A Storm Drainage fee shall be payable to the City monthly by the owner or occupier of
each and every developed parcel in accordance with Rule and Regulation 25.
(END)
SPECIAL ELECTRIC UTILITY REGULATIONS
RULE AND REGULATION 20
CITY OF PALO ALTO
UTILITIES RULES AND REGULATIONS
Issued by the City Council
Effective 6-27-2016
Sheet No. 1
A. GENERAL
In addition to the general requirements outlined in Rule and Regulation 18 for Utility Service
Connections and Facilities on Customers’ Premises, the following is required:
B. ELECTRIC SERVICE CONNECTION REQUIREMENTS
1. FACILITIES ON CUSTOMER PREMISES
a.The Customer is responsible for installing and maintaining all substructures on the
Customer’s Premises for CPAU to provide Electric Service. This will be at the
Customer’s expense and in accordance with the requirements, standards, and
specifications of CPAU. This substructure shall be owned and maintained by the
Customer for exclusive use by CPAU. The Customer shall be responsible for
repairing or replacing the substructure for any reason, including deterioration to the
extent that the existing conductors/cables cannot be removed.
b.The Customer is required to provide all substructure between the Customer’s Service
entrance equipment and the nearest available Point of Service connection, as
determined by CPAU. This Point of Service is typically a splice box located near
the street and may be in the Public Right-of-Way. In the case of rear easements, this
point is typically at a splice box or at the base of a pole riser.
c.Upon approval by CPAU of the substructure installed on the Customer’s Premises,
CPAU will install Primary Electric Service conductors and a transformer, if needed.
The Applicant/Customer is responsible for the cost of installation in accordance with
the applicable sections of CPAU’s Electric Service Connection Fees (Rate Schedule
E-15). CPAU will determine the type and size of the conductors to be installed by
CPAU.
d.CPAU will assume ownership and responsibility for maintenance of the underground
Electric Service lateral conductors, as defined in the National Electric Code Article
100, installed by the Customer if the Service meets CPAU specifications and it has
been approved and accepted by the Electrical Engineering Manager or his or her
designee. Where bus duct or extra flexible cable is required and used, CPAU’s
maintenance responsibility for conductors ends at the transformer secondary
ATTACHMENT D
SPECIAL ELECTRIC UTILITY REGULATIONS
RULE AND REGULATION 20
CITY OF PALO ALTO
UTILITIES RULES AND REGULATIONS
Issued by the City Council
Effective 6-27-2016
Sheet No. 2
terminals. The bus duct or extra flexible cable is considered to be the Service
entrance conductor for which CPAU assumes no responsibility.
2. MISCELLANEOUS SERVICE EQUIPMENT
a. CUSTOMER’S EQUIPMENT
1. All service switches, fuses, Meter sockets, Meter and instrument transformer
housing and similar devices, irrespective of voltage, required in connection
with Service and Meter installation on the Customer’s Premises shall be
furnished, installed, owned and maintained by the Customer in accordance
with CPAU requirements.
2. The “service disconnect” is defined by the National Electric Code.
3. Applicant will provide a suitable means for CPAU to place its seal on covers
of service enclosures / troughs and instrument transformer enclosures which
protect un-metered live circuits installed by the Applicant. Such seals shall
be broken only by authorized CPAU representatives. Detailed information
will be furnished by CPAU on request.
b. CPAU’S EQUIPMENT
1. CPAU will furnish and install the necessary instrument transformers, test
facilities and Meters.
C. SERVICE CONFIGURATIONS
1. OVERHEAD OR UNDERGROUND
a. The standard Service to single family Residential homes in existing overhead areas
shall be overhead. The Director of Utilities or his/her designee can require an
underground Service for single family Residential Service in areas where system
design requires underground Service, or would otherwise require the addition of
poles to the system.
b. All new Electric Utility Services to Commercial/ Industrial
SPECIAL ELECTRIC UTILITY REGULATIONS
RULE AND REGULATION 20
CITY OF PALO ALTO
UTILITIES RULES AND REGULATIONS
Issued by the City Council
Effective 6-27-2016
Sheet No. 3
Customers and new subdivisions shall be provided by underground facilities on
the Customer’s Premises. The on-site underground Electric Utility lines shall be
provided by the Customer at their expense and shall meet CPAU specifications.
2. NUMBER OF SERVICES PER BUILDING
Only one Electric Service line is allowed for a building or other Premises, except for
commercial properties where:
a. Two or more Electric Service Drops or laterals may be extended to a single building
provided all wiring, other than metering conductors, supplied for each Service has no
common raceway, connection, or service area with wiring supplied by any other such
Service. Approval by the Utilities Director, or his/her designee, is required and
Special Facilities fees may apply.
b. Two or more sets of Electric Service entrance conductors may be extended to a single
switch gear for the purpose of providing additional capacity or for backup protection.
Special Facilities and/or reserve capacity fees may apply.
3. SERVICES FOR TWO OR MORE COMMERCIAL BUILDINGS ON ONE PARCEL
Only one Electric Service line is allowed on a parcel with multiple commercial buildings
except where the Applicant requests CPAU to install multiple Service Lines, and CPAU
agrees to make such an installation. The additional costs, as estimated by CPAU, shall be
borne by the Applicant, including such continuing ownership costs as may be applicable.
See Special Facilities section below.
4. NUMBER OF ELECTRIC SERVICE PERISCOPES PER SERVICE DROP
Not more than two service periscopes may be served from a single overhead Service Drop.
Overhead service connections will not be installed where the Applicants main switchboard is
larger than 400 amp.
D. PROTECTIVE DEVICES
1. 1. The Applicant is responsible for furnishing, installing, inspecting and keeping in
SPECIAL ELECTRIC UTILITY REGULATIONS
RULE AND REGULATION 20
CITY OF PALO ALTO
UTILITIES RULES AND REGULATIONS
Issued by the City Council
Effective 6-27-2016
Sheet No. 4
good and safe condition at Customer’s own risk and expense, all appropriate protective
devices of any kind or character, which may be required to properly protect the
Applicant’s facility. CPAU shall not be responsible for any loss or damage occasioned or
caused by the negligence, or wrongful act of the Applicant or any of the agents, employees
or licensees of the property owner in omitting, installing, maintaining, using, operating or
interfering with any such protective devices.
2. The Applicant is responsible for installing and maintaining approved protective devices as
may be necessary to coordinate properly with CPAU’s protective devices to avoid exposing
other Customers to unnecessary Service interruptions.
3. Applicants who request Primary voltage Service shall install, at a minimum, circuit breakers
with over-current and ground fault relays. Applicants must submit their planned protection
scheme to the City for approval prior to installing any equipment.
4. The Applicant is responsible for equipping three-phase motor installations with appropriate
protective devices, or using motors with inherent protective features, to completely
disconnect each motor from its power supply. Particular consideration must be given to the
following:
a. Protection in each set of phase conductors to prevent damage due to overheating in
the event of overload.
b. Protection to prevent automatic restarting of motors or motor-driven machinery
which has been subject to a service interruption and, because of the nature of the
machinery itself or the product it handles, cannot safely resume operation
automatically.
c. Open-phase protection to prevent damage in the event of loss of voltage on one
phase.
d. Reverse-phase protection where appropriate to prevent uncontrolled reversal of motor
rotation in the event of accidental phase reversal. Appropriate installations include,
but are not limited to, motors driving elevators, hoists, tramways, cranes, pumps, and
conveyors.
SPECIAL ELECTRIC UTILITY REGULATIONS
RULE AND REGULATION 20
CITY OF PALO ALTO
UTILITIES RULES AND REGULATIONS
Issued by the City Council
Effective 6-27-16
Sheet No. 5
5. The Applicant is responsible for installing and maintaining service equipment rated for the
available short-circuit current at the Point-of-Delivery. This value varies from one location to
another, and can change over time. The Customer shall consult CPAU for the short-circuit
current at each Point-of-Delivery.
6. Any non-CPAU-owned Emergency standby generation equipment shall be installed by the
Applicant with suitable protective devices to prevent Parallel Operation with CPAU’s
system. The design must be fail-safe, such as with the use of a double-throw switch to
disconnect all conductors. Any exception must include a written agreement or service
contract with CPAU permitting such parallel operation.
7. Unprotected Service entrance conductors within a building must terminate at a disconnect
switch immediately after entering the building. Installation must comply with the National
Electrical Code section 230-70 concerning the location of the disconnect switch and section
230-6 for the definition of conductors considered outside a building.
E. INTERFERENCE WITH SERVICE
1. GENERAL
CPAU reserves the right to refuse to serve new Loads or refuse to continue to supply existing
Loads of a size or character that may be detrimental to CPAU’s operation or to the Service of
its Customers. Any Customer who operates or plans to operate any equipment such as, but
not limited to pumps, welders, saw mill apparatus, furnaces, compressors or other equipment
where the use of Electricity is intermittent, causes intolerable voltage fluctuations, or may
otherwise cause intolerable Service interference, must reasonably limit such interference or
restrict the use of such equipment upon request by CPAU. The Customer is required to
provide and pay for whatever corrective measures are necessary to limit the interference to a
level established by CPAU as reasonable, or avoid the use of such equipment, whether or not
the equipment has previously caused interference.
2. HARMFUL WAVEFORM
Customers shall not operate equipment that superimposes a current of any frequency or
waveform onto CPAU’s system, or draws current from CPAU’s system of a harmful
waveform, which causes interference with CPAU’s operations, or the service to other
SPECIAL ELECTRIC UTILITY REGULATIONS
RULE AND REGULATION 20
CITY OF PALO ALTO
UTILITIES RULES AND REGULATIONS
Issued by the City Council
Effective 6-27-16
Sheet No. 6
Customers, or inductive interference to communication facilities. Examples of harmful
waveform include, but are not limited to:
a. Current drawn with high harmonic currents causing transformer or conductor
overheating, even if root-mean-square (RMS) loading is within normal limits.
b. Current drawn causing voltage distortion adversely affecting CPAU or other CPAU
Customers.
c. Harmonic currents which exceed the harmonic current distortion limits set in the
most recent IEEE Standard 519. In most cases, this equates to a maximum limit of
4% harmonic current on any individual odd harmonic or 5% total harmonic current.
3. CUSTOMER’S RESPONSIBILITY
Any Customer causing service interference to others must take timely corrective action.
Otherwise, CPAU, without liability and after giving five (5) days written notice to Customer,
will take corrective action. Corrective action could include discontinuing Electric Service
until a suitable permanent and operational solution is provided by the Customer, at
Customer’s expense.
4. MOTOR STARTING CURRENT LIMITATIONS
a. The starting of motors shall be controlled by the Customer as necessary to avoid
causing voltage fluctuations that will be detrimental to the operation of CPAU’s
distribution or transmission system, or to the Service of any of CPAU Customers.
b. If motor starting causes or is expected to cause detrimental Service to others, a
suitable means must be employed, at the Customer’s expense, to limit voltage
fluctuations to a tolerable level.
F. PHASE BALANCING
It is the Customer’s responsibility to maintain a balanced Load, as nearly as practical, between
supplied circuit phases. In no case shall the Load on one side of a three-wire single-phase service be
greater than twice that on the other. In no case shall the Load on any one phase of a polyphase
service be greater than twice that of any other.
SPECIAL ELECTRIC UTILITY REGULATIONS
RULE AND REGULATION 20
CITY OF PALO ALTO
UTILITIES RULES AND REGULATIONS
Issued by the City Council
Effective 6-27-16
Sheet No. 7
G. POWER FACTOR CORRECTION
The Customer is required to provide, at Customer’s own expense, Power Factor correction
equipment. This equipment must be sized to improve the average Power Factor to at least the level
set forth in the applicable Rate Schedule with respect to avoiding a Power Factor penalty.
H. SERVICE DISCONNECT AND METER TEST DEVICES
1. All service disconnects and similar devices, irrespective of voltage, required by Law in
connection with a Service and Meter installation on Customer’s Premises must be furnished,
installed and maintained by the Customer. A “Service-disconnecting means”, as defined in
the NEC, must be installed adjacent to the meter(s). Metering equipment must be located on
the exterior of the building, unless approved by the Electric Engineering Manager.
2. When instrument transformers are required by CPAU as part of the Meter installation, CPAU
will install a Meter test bypass block on a mounting plate that must be furnished by the
Customer. When instrument transformers are not required by CPAU, the Customer is
responsible for providing the Meter test bypass block. Meter test bypass blocks furnished by
the Customer must be approved by CPAU in conjunction with Applicant’s plan submittal.
I. SPECIAL POWER SERVICE REQUIREMENTS
1. GENERAL
Where a Customer requires voltage control with less variance than what is specified in Rule
and Regulation 3, the Customer must reimburse CPAU for its cost to provide any special or
additional equipment to meet the Customer’s special needs.
2. NONSTANDARD OR EXCESSIVE CUSTOMER REQUIREMENTS
a. In order to prevent damage to CPAU’s equipment and impairment of its service, the
Customer shall give CPAU notice before making any additions to the connected Load
so that CPAU, at its option, may provide such facilities as may be necessary for
SPECIAL ELECTRIC UTILITY REGULATIONS
RULE AND REGULATION 20
CITY OF PALO ALTO
UTILITIES RULES AND REGULATIONS
Issued by the City Council
Effective 6-27-16
Sheet No. 8
furnishing the increased service.
b. If a Customer’s Load is of sufficient magnitude that it exceeds the capacity of
CPAU’s Distribution System, the Customer may be required to shift peak loading to off-peak periods and/or
receive service from CPAU’s 60 kilovolt sub-transmission system.
J. SPECIAL FACILITIES
1. Special Facilities are facilities requested by an Applicant in addition to or in substitution for
standard facilities which CPAU would normally provide. Standard facilities are for delivery
of Service at one point, through one Meter, at one voltage class under its Rate Schedules.
2. CPAU normally installs only those standard facilities which it deems are necessary to
provide regular service in accordance with the Rate Schedules. Where the Applicant requests
CPAU to install Special Facilities and CPAU agrees to make such an installation, the
additional costs thereof, as estimated by CPAU, shall be borne by the Applicant, including
such continuing ownership costs as may be applicable. These costs will be calculated by
CPAU based on the net present value, and shall be paid by the Applicant in advance of
installation unless alternative payment arrangements are approved by the Director of
Utilities.
3. Unless otherwise provided by CPAU’s Rate Schedules, Special Facilities will be installed,
owned and maintained by CPAU as an accommodation to the Applicant only if acceptable
for operation by CPAU and the reliability of service to CPAU’s other Customers is not
impaired.
4. Installation of Special Facilities will require a contract between the Applicant and the City of
Palo Alto.
(END)
SERVICE CONTRACTS
RULE AND REGULATION 5
CITY OF PALO ALTO
UTILITIES RULES AND REGULATIONS
Issued by the City Council
Effective 6-27-2016
Sheet No 1
A. TYPES OF SERVICE CONTRACTS
For all Utility Services provided, the City may require a written agreement for new or existing
Customers. Contracts may apply to standard, custom, or special Service offerings. The
following is an illustrative list of special Services that may be the subject(s) of a contract.
Additional Services may require contracts not listed here, at the discretion of the Director of
Utilities.
1.Line Extensions
2.Temporary Service
3.Special Facilities
4.Utility Service to special districts and institutions
5.Work performed for other agencies at their expense
6.Special Metering and/or Billing Services
7.Special Energy Services
8.Long-term Service agreements greater than 3 years
9.Loans and leases to finance efficiency improvements at a Customer’s site
10.Loans and leases to improve power quality or reliability at a Customers’ site
11.Standby Service
12.Purchase, lease, installation, connection or maintenance of on-site or distributed
generation
13.All Fiber Optic Services
14.Reserve Electric Capacity
B. CONTRACT APPLICATION PROCEDURES
1.Customers shall complete and execute applicable form(s) or letter(s), as necessary.
2.Depending on the type of Service contract and at the request of CPAU, Customers shall
request consideration for a special contractual agreement in writing to the Director of
Utilities and/or the Director of Public Works specifying their objectives, including the
desired terms and conditions of the contract.
3.Customers shall pay all applicable fees and deposits in accordance with the terms of the
contract.
4.Customers shall comply with the City’s insurance requirements.
(END)
ATTACHMENT E
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2
MEMORANDUM
TO: UTILITIES ADVISORY COMMISSION
FROM: UTILITIES DEPARTMENT
DATE: April 9, 2019
SUBJECT: Discussion of Carbon Emissions Accounting Options for the City’s Electric Supply
Portfolio
______________________________________________________________________________
REQUEST
Staff seeks UAC feedback on the accounting methodology to use in assessing the electric supply
portfolio’s annual carbon emissions. No action is required at this time. A follow-up report will
be presented in the next few months, and an action will be requested at that time.
EXECUTIVE SUMMARY
In the City’s 2018 Electric Integrated Resource Plan (EIRP), approved by Council in December
2018, Initiative #4 of the Work Plan called for staff to evaluate the carbon content of the electric
supply portfolio using hourly grid emissions intensity data, to consider the merits of buying
carbon offsets to ensure the carbon content of the cumulative hourly portfolio is zero on an
annual basis, and to reevaluate the manner in which the City communicates with customers
about the carbon content of the electric portfolio. This report satisfies the first objective of
Initiative #4, while beginning a discussion of the second and third objectives that will continue
in the coming months.
This report calculates the carbon content of the City’s actual 2018 electric portfolio under a
total of six different carbon accounting methodologies: two different annual accounting
methodologies (which differ in the way they treat unbundled renewable energy certificate (REC)
purchases), and four different hourly accounting methodologies (which employ two different
types of hourly carbon emissions intensity values, and again, two different treatments of
unbundled REC purchases).
For 2018, although the City’s portfolio had significant surpluses of carbon neutral power (from
long-term contracts) in some hours and significant deficits of carbon neutral power in others,
staff’s analysis shows that the City’s electric portfolio was 99.6% covered by carbon neutral
resources: out of a net load of 906,251 MWh the City had net purchases of short-term (and
carbon emitting) market power of 3,638 MWh. Despite this, depending on the emissions
accounting approach chosen, the City’s electric portfolio can be found to contribute anywhere
from -2,038 mT to +17,675 mT of net CO2 emissions over the course of the year.
BACKGROUND
In 2013, City Council approved the Carbon Neutral Electric Supply Plan (Staff Report 3550,
Resolution 9322). The accounting methodology adopted in that Plan simply required that the
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City’s annual net purchases of carbon neutral supply resources equal its annual load at Citygate.
At the time, this was a fair and reasonable approach—since the carbon emissions intensity of
the overall electric grid didn’t vary significantly at the time, it didn’t matter very much whether
(or when) the City had periodic surpluses or deficits of carbon neutral power, so long as the
City’s portfolio was balanced on an annual basis. But more recently, with the surge of solar PV
installations in the state, it has become apparent that the emissions intensity of grid power
varies significantly on both an hourly and a seasonal basis. See Figure 1 below for a
representative graph of the emissions associated with energy delivered across the California
Independent System Operator (CAISO) footprint for one recent day.
Figure 1: Hourly Average Carbon Emissions Rates of CAISO Electricity for March 6, 2019
Given that the City receives a significant fraction of its electricity supplies from solar and other
summer-peaking resources, it routinely has excess power (during the middle of the day and in
the summer months) as well as periods with large deficits of power (at night and in the winter
months). (See Attachment A for more details on the City’s daily and monthly load and resource
balances.) Given this seasonal imbalance and the changing emissions profile of grid electricity
(as shown in Figure 1), it is a good time to re-evaluate the City’s assessment of the carbon
impact of its electricity supply, as the UAC has noted several times over the past few years.
Most recently this issue was discussed in June and September 2018, when staff presented
reports related to the EIRP. Those discussions occurred in the context of considering whether to
rebalance the City’s portfolio of long-term electric supply resources in order to better match
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the City’s electric supplies with its load.1 At these meetings, UAC Commissioners also touched
on the need for staff to be clear and accurate in public messaging related to the carbon content
of the electric supply portfolio.
Another relevant discussion on this topic occurred in December 2017, when staff delivered a
report to the UAC on potential changes the City could make to its strategy for complying with
its Renewable Portfolio Standard (RPS) and Carbon Neutral Plan objectives. In that discussion,
UAC Commissioners made clear that they feel the City should focus on minimizing the cost and
the carbon content associated with the electric supply portfolio, and not to focus on its RPS
level.
DISCUSSION
Carbon Accounting Methodologies
This report will assess the total carbon content of the City’s actual electricity supplies over the
past two calendar years under six different accounting methodologies. Two of these are annual
accounting methodologies, and two utilize hourly carbon accounting. In addition, the two
hourly accounting methodologies can utilize two different types of carbon emissions intensity
data—a distinction that will be discussed further below. The four major carbon accounting
methodologies are the following:
1. The City’s Current Method (Method A) – This approach, which is based on The Climate
Registry’s (TCR’s) Electric Power Sector (EPS) protocol, entails a comparison of annual
electric supplies and load. If the annual quantity of carbon neutral resources is at least
as great as the annual load, then the portfolio is deemed carbon neutral for the year. In
addition, unbundled Renewable Energy Certificates (RECs) can be purchased in order to
make generic market energy purchases effectively carbon neutral.
2. The Proposed Power Content Label (PCL) Method (Method B) – The California Energy
Commission (CEC) has proposed an accounting methodology, in order to implement
Assembly Bill (AB) 1110,2 that is similar to the City’s current method (it involves an
annual summation of resource supplies and load). Except under the CEC’s proposal,
unbundled REC purchases would not be allowed to neutralize the carbon content of
generic market energy purchases.
3. Hourly Accounting Method #1 (Method C) – This approach entails an hourly comparison
of the City’s supplies and load, rather than an annual one. Each hourly net energy value
would be assigned an hourly carbon emissions intensity (in metric tonnes of CO2 per
megawatt-hour, mT CO2/MWh) to convert it to an hourly emissions total. These hourly
emissions totals would then be summed across the hours in a year. In addition,
1 This topic has been a focus for others in the electricity sector recently as well. Google, for example, announced its
intentions in October 2018 to match its global data center load with carbon-free energy supplies on a 24x7 basis.
https://www.blog.google/outreach-initiatives/sustainability/internet-24x7-carbon-free-energy-should-be-too/
2 AB 1110 (2016) requires that every load-serving entity (LSE) include an annual average carbon emissions intensity
factor associated with its electricity supplies on its Power Content Label, starting with the 2019 PCL (which will be
published in 2020). For details on the CEC’s proposed accounting methodology, see the latest draft regulations and
rulemaking documents here: https://www.energy.ca.gov/power_source_disclosure/16-OIR-05/.
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unbundled REC purchases would be allowed to neutralize the carbon content of generic
market energy purchases.
4. Hourly Accounting Method #2 (Method D) – This approach is the same as Hourly
Accounting Method #1, except that unbundled REC purchases would not be allowed to
neutralize the carbon content of generic market energy purchases. This is essentially the
hourly accounting analog of the Proposed Power Content Label Method discussed
above.
5. Hourly Accounting Method #1a (Method E) – Identical to Method C, except that it uses
marginal instead of average hourly emissions factors, as discussed below.
6. Hourly Accounting Method #2a (Method F) – Identical to Method D, except that it uses
marginal instead of average hourly emissions factors, as discussed below.
Marginal versus Average Hourly Emissions Factors
In addition to deciding whether to use annual or hourly accounting approach, another
important consideration in this discussion (if the City opts for the hourly approach) is whether
to use hourly average or hourly marginal emissions factors. Average emissions factors look at
the total carbon emissions occurring in an entire system (in this case, the CAISO balancing area)
in an hour, and the total amount of electricity generated in that time—the ratio of the two is
the hourly average emissions rate. Marginal emissions factors are a measurement of how the
grid’s emissions change with a small change in electricity load. In other words, if one were to
add one MWh of load to the grid during a given hour, the marginal emissions factor would be
the emissions factor of the power plant whose output would increase to serve that one MWh.
Marginal emissions rates take into account the operating cost of different types of power
plants, telling you that when total demand is low the units with the lowest operating costs
(which are typically the most efficient and least polluting units) are the ones that stay online;
and as demand ramps up, the grid operator calls on increasingly costly (and higher polluting)
units to meet the incremental demand.
Although the distinction may appear inconsequential, the two values often differ greatly and
therefore the choice of which one to use has a large effect on the total emissions calculation.
Figure 2 below depicts the hourly marginal CO2 emissions rates3 in CAISO for 2018 (with each
line representing the average value for a given quarter), while Figure 3 depicts the hourly
average values.4 Clearly, both the shape and the overall emissions levels differ significantly
between the two sets of data. The hourly marginal emissions rates, shown in Figure 2, are not
only higher overall than the average rates, but much flatter as well. (Although, this being an
average of all emissions rates in a given hour for each quarter, this representation masks a
significant amount of variability in the dataset.) This indicates that, no matter the month or the
3 Marginal emissions data was obtained from WattTime, a nonprofit that uses software to track marginal emission
rates across the US power grid every five minutes. They have developed an Automated Emissions Reduction (AER)
tool that allows utilities and other end users to reduce emissions from energy by shifting the timing of flexible
electricity use to sync with times of cleaner energy and avoid times of dirtier energy.
4 Average emissions data was obtained, also on a five-minute basis, directly from CAISO:
http://www.caiso.com/TodaysOutlook/Pages/emissions.aspx.
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time of day, for the most part combined-cycle natural gas units tend to be the marginal
resources in CAISO, being turned up or down depending on fluctuations in overall demand.5
Figure 2: Hourly Marginal CO2 Emissions Rates for CAISO in 2018
The hourly average emissions rates shown in Figure 3, on the other hand, more clearly
demonstrate the impact of all of the solar generation on the grid—resulting in a lower overall
value, and a huge dip in the middle of the day when the sun is out.
5 The middle-of-the-day dip in the lines for Q1 and Q2 in Figure 2 indicates that once in a while during these
quarters it is the solar units that are the marginal units on the grid. In these instances, demand is likely so low that
market prices across the grid are negative, resulting in some solar units voluntarily curtailing their output, even
though they have zero marginal cost to operate. Similarly, the hump in the Q3 line for the evening hours indicates
that this tends to be a time of stress on the grid—when demand is rather high and solar production is in decline—
and therefore less efficient “peaking” generators are brought online.
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Figure 3: Hourly Average CO2 Emissions Rates for CAISO in 2018
For the purpose of calculating the City’s total emissions over the course of a year, staff
recommends that average CO2 emissions rates should be used. Although marginal emissions
values are a useful indicator for an individual to use in deciding when to use electricity—say,
when to charge their electric vehicle or turn on their air conditioner—or for regional energy
planning purposes, they are less useful in this situation. The City cannot simply switch its entire
load on or off, and it certainly cannot do so for periods in the past; therefore staff will primarily
use hourly average emissions data throughout the remainder of this report. For determining
the contribution of a portion of the grid to the overall emission occurring on the grid—
particularly for a period of time in the past—average emissions intensities are a much more
appropriate indicator.
Carbon Accounting Analysis Results
The City’s current electric supply portfolio is comprised of the following major types of
resources:
• Hydroelectric resources (both federal hydro and City-owned hydro);
• RPS-eligible resources (solar, wind, and landfill-gas resources);
• Distributed energy resources (DERs), including energy efficiency and rooftop solar; and
• Market power purchases, matched with RECs, for monthly/hourly portfolio balancing.
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For purposes of this analysis, DERs will not be explicitly considered. The analysis focuses on
resources that are delivered to the Citygate meter; DERs are considered behind-the-meter and
simply reduce the City’s load as measured at Citygate. The 2017 and 2018 net annual volumes
(in MWh) of each of these types of resources are summarized in Table 1 below.
Table 1: Palo Alto Electric Supply Resources in MWh (2017-2018)
CY 2017 CY 2018
Hydroelectric 667,772 342,419
Solar 329,938 342,640
Wind 97,239 107,414
Landfill Gas 107,495 110,140
Net Market Power (255,795) 3,638
Total Load 946,649 906,251
Carbon Neutral Supplies
(% of Total Load) 127.0% 99.6%
2017 was an extremely wet year, with hydroelectric generation totals far above average levels.
As a result, the City sold 255,795 MWh of surplus electricity in the market. 2018 saw much
closer to average hydroelectric conditions, so this analysis will focus primarily on data from that
year. In 2018 the City bought 3,638 MWh (net) in the market over the course of the year, and
needed to buy 3,638 MWh in unbundled RECs to meet the requirements of the Carbon Neutral
Plan.
Table 2 below summarizes the total emissions (and emissions intensities) calculated for the
City’s 2018 electric portfolio (including a hypothetical purchase of 3,638 additional unbundled
RECs to neutralize the net market power purchases) under each of these different approaches.
Depending on the accounting approach taken, the City’s portfolio can be found to contribute
anywhere from -2,038 mT to +17,675 mT of net CO2 emissions over the course of the year.
Table 2: Annual Net CO2 Emissions and Emissions Intensity for the Electric Portfolio in 2018
under Six Accounting Methodologies, with Purchase of 3,638 Unbundled RECs Unbundled RECs
= Carbon Neutral
Unbundled RECs
= Market Power
Method
Net
Emissions
(mT)
Emissions
Intensity
(lb/MWh)
Method
Net
Emissions
(mT)
Emissions
Intensity
(lb/MWh)
Annual Accounting A 0 0 B 1,557 3.8
Hourly Accounting
(Average Emissions Factors) C 16,118 39.2 D 17,675 43.0
Hourly Accounting
(Marginal Emissions Factors) E (2,038) (5.1) F (526) (1.3)
For 2018, based on the generation and load data in Table 1, under the City’s current carbon
accounting method, the supply portfolio would be considered carbon neutral if 3,638 RECs (a
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volume equal to the number of MWh of net market power purchased that year) are procured.
This corresponds to “Method A” in Table 2 above. However, under the CEC’s proposed PCL
methodology—which does not permit unbundled RECs to be counted as carbon-neutral
resources—the City’s portfolio would not be considered carbon neutral (“Method B”). Under
the CEC’s current draft regulations, an emissions factor of 0.428 mT CO2/MWh would be applied
to the City’s net market power purchases for this year, resulting in an annual average emissions
intensity of 3.8 lb CO2/MWh (and total emissions of 1,557 mT CO2) for the overall supply
portfolio.
Using hourly metered generation and load data for 2017 and 2018, along with the five-minute
interval emissions data described above, staff also calculated the City’s total annual emissions
under the hourly accounting approaches. Staff first acquired hourly load data at Citygate and
subtracted from that the hourly generation data for all resources in the City’s portfolio. The
result—the net load at Citygate—is plotted in Figure 4 below for 2018, with each line
representing the average hourly net load profile for a given quarter of the calendar year.
Figure 4: Average Hourly Net Load Profile at Citygate in 2018 (MW)
In this data, a positive value reflects an energy deficit, with the City being a net purchaser of
market power from the CAISO grid; conversely, a negative value represents the City have a
surplus of carbon neutral energy that is sold into the CAISO grid. Here one can clearly see the
distinct mid-day dip in net load created by the generation from the City’s solar resources, as
well as a second, sharper dip in the evening hours. The latter is the product of the City’s
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dispatchable hydroelectric generation being shaped into these high-value hours, when market
prices tend to surge with the decline in daily solar output and the rise of system-wide net
demand.
Each of these hourly net position values—whether deficit (positive net load) or surplus
(negative net load)—was then weighted by the average CAISO emissions intensity factor
(graphed in Figure 3 above) for that particular hour. The result—the hourly carbon emissions
impact of the City’s electric supply and load profiles—is shown below in Figure 5 for 2018. For
the most part, the net emissions profiles in this graph closely mirror the profiles of the City’s
net load, in Figure 4 above. The primary difference is that in the summer months when the bulk
of the City’s solar generation occurs (Q2 and Q3), the major mid-day dip is blunted significantly
due to the much lower average emissions intensities in this period. This means that the City’s
portfolio is not receiving as much of an emissions reduction benefit from this excess generation
as it would during other periods, because the overall grid is so much cleaner during this period
when the City’s major surpluses of energy are occurring.
Figure 5: Average Hourly Emissions Profile at Citygate in 2018 (mT CO2)
For the year as a whole, Figure 6 below presents a combination of the two datasets discussed
above (net Citygate load, in MW, and net CO2 emissions, in mT CO2), for the “average day” in
2018.
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Figure 6: Annual Average Hourly Net Load and Net CO2 Emissions for 2018
Summing across all hours in the year, this calculation shows that under this accounting
approach the City’s electric supply portfolio is responsible for 17,675 mT of CO2 emissions for
2018 (which translates to 43 lb of CO2 emissions per MWh consumed). This corresponds to
“Method D” in Table 3 above. For comparison, Table 3 below shows that if marginal hourly
emission factors were used in this calculation, rather than average emissions factors, the City’s
electric supply portfolio was responsible for slightly reducing emissions across the grid—despite
the fact that the City was a net purchaser of market power for the year. This corresponds to
“Method F” in Table 3 above. This reflects the fact that hourly marginal emissions factors
(shown in Figure 2 above) are much flatter, and therefore do not discount the emissions
benefits of the City’s excess solar generation. Marginal emissions factors also peak in the
summer evening hours, when a significant amount of the City’s hydroelectric generation occurs.
So under this accounting treatment, the City’s hydroelectric generation is credited with
displacing dirtier grid power, while the City on average uses more energy in somewhat lower
carbon hours.
Table 3: Hourly Total Emissions and Emissions Intensities under Average and Marginal
Emissions Factors for 2018 (mT CO2 and lb CO2/MWh) Average Marginal
Total CO2 Emissions
(mT CO2) 17,675 (526)
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CO2 Emissions Intensity
(lb/MWh) 43.0 (1.3)
Treatment of Unbundled RECs
The final issue to address in selecting a carbon accounting methodology is how to treat
purchases of unbundled RECs in the calculation. As discussed above, the City’s current
accounting framework treats purchases of generic market power, when matched with an equal
volume of unbundled RECs, as equivalent to a purchase of carbon-free renewable energy.
However, the approach proposed by CEC staff for calculating a utility’s average annual
emissions intensity would not credit these REC purchases with any emissions benefit at all.
Staff firmly believes that the CEC’s proposed approach of discounting the emissions benefits of
unbundled RECs is flawed and will create confusion for customers—and staff has submitted
formal comments (through the Northern California Power Agency) to the CEC expounding on
this argument.6 Among other reasons, the CEC’s proposed approach is problematic because it
fails to recognize that the state legislature has specifically authorized utilities to use RECs and
imported renewable energy to meet their renewable energy compliance mandates. This
approach also ignores industry practices that recognize that unbundled RECs represent all of
the environmental attributes—including the emissions profile—of the underlying resource that
produced them, and are acquired at a premium for that reason.
Still, staff recognizes that if the CEC formally adopts their proposed accounting methodology
when the AB 1110 implementation regulations are finalized later this year, it could present
customer communications challenges if the City adopts a different accounting approach that
recognizes the full environmental benefits of unbundled RECs.
The alternatives to treating purchases of unbundled RECs as carbon neutral resources in a
carbon accounting framework are: (1) authorize the purchase of an alternative type of
resource, such as carbon offsets, for neutralizing whatever net positive emissions the City’s
resources are found to be responsible for, (2) purchase bundled RECs and energy, on a short-
term basis, to offset any net market power purchases, or (3) simply accept that in some years,
particularly dry hydro years, the City’s electric supply portfolio will not be carbon neutral.
However, using the carbon offset approach—just as the City’s natural gas utility currently
does—would lead to the same types of communications challenges as the unbundled REC
approach does. For example, in a dry hydro year a customer would likely receive a Power
Content Label informing them that their electricity supply for the prior year had a net positive
emissions profile, even though the utility’s public messaging indicated that the electricity supply
was carbon neutral.7 And the bundled REC purchase approach would be logistically challenging,
6 “NCPA Comments re: Revised Staff Proposal on AB 1110 Implementation,” submitted February 23, 2018.
https://efiling.energy.ca.gov/GetDocument.aspx?tn=222716&DocumentContentId=25474.
7 Additionally, the CEC has strict guidelines on the language that may be included on Power Content Labels, and
would likely prevent the City from displaying any messaging on the PCL that attempted to provide context for the
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because the precise volume of bundled energy and RECs that would be needed to eliminate the
portfolio’s carbon emissions would not be known until a couple of months after the end of the
year, while bundled energy and REC purchases need to be executed during the year. As a result,
the City would almost certainly over- or under-buy on these purchases. This method would also
be rather expensive, as bundled energy and REC purchases carry a large premium (about
$18/MWh) compared to unbundled RECs and generic power.
With the City’s existing electric supply portfolio, the issue of how to treat unbundled RECs in
carbon accounting is of relatively low importance, except in very dry hydro years. As shown in
this analysis, in a normal year the City has enough generation from renewable and hydroelectric
resources under long-term control to achieve carbon neutrality (or get very close to it) without
the use of unbundled RECs. However, if the City elects to change its current RPS compliance
strategy—for example, by selling off some of its surplus renewable resources, and/or swapping
some of its more valuable in-state renewable resources for less costly unbundled RECs—this
issue will become much more important.
CONCLUSION
Based on the analysis results, it is clear that in the era of the Duck Curve, the choice of carbon
accounting methodology makes a significant difference in whether the City’s electric supply
portfolio can be considered carbon neutral or not. Altogether staff evaluated six different
carbon accounting methodologies in this report—an annual accounting approach and two
hourly accounting approaches, each with two different ways of treating unbundled REC
purchases.
Staff’s preferred carbon accounting approach is Method C—hourly carbon accounting using
average emissions factors and allowing unbundled REC purchases to count as carbon neutral—
because it is more accurate than an annual approach, given the current grid power mix, and
therefore bestows greater validity on the City’s carbon neutral supply claims. This method also
treats unbundled RECs in a manner that conforms to both logic and standard industry practice.
However, staff recognizes that, depending on the direction ultimately taken by the CEC in the
AB 1110 rulemaking process (which we may not know until early 2020), adopting this
accounting methodology could lead to messaging consistency issues and customer confusion.
And finally, all of these issues may become much more apparent and take on greater import if
the City alters its RPS compliance strategy, selling excess renewable supplies and relying more
on unbundled RECs in order to reduce costs.
NEXT STEPS
Staff is seeking feedback from the UAC on the carbon accounting analysis presented in this
report. Staff anticipates returning to the UAC this summer to present a follow-up report that
provides more detail on the options for mitigating any emissions associated with the City’s
electric portfolio, and that addresses the financial impacts to the utility associated with the
non-zero emissions intensity figure.
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various carbon accounting methodologies and emissions mitigation options. This follow-up
report will also look in more detail at the impact of changing the City’s RPS compliance strategy
on the carbon accounting results, and present a forecast of CAISO emissions intensities in 2030
prepared for the City by WattTime.
Staff will also continue to closely follow (and comment upon) the CEC’s AB 1110 rulemaking
process. Depending on the accounting methodology the CEC finally adopts, staff will work to
understand how the City’s methodology can be aligned with the CEC approach, and, to the
degree that it cannot, determine how to explain this difference to customers.
RESOURCE IMPACT
Staff will develop a full assessment of the resource impact of changing the City’s carbon
accounting methodology in a subsequent report to the UAC. Preliminary indications are that
switching to an hourly carbon accounting methodology, using average hourly emissions
intensity factors, could result in an increase in supply costs on the order of $5,000 to $10,000 in
an average hydrological year, if the City chooses to recognize the emissions reduction benefits
of unbundled RECs. If the City were to choose to use carbon offsets rather than unbundled RECs
to neutralize its net emissions, the increase in annual supply costs would likely be on the order
of $25,000 to $50,000.
POLICY IMPLICATIONS
This report satisfies Initiative #4 of the EIRP Work Plan. This report is also in line with the
Sustainability and Climate Action Plan goals of continuing to lower the carbon footprint of the
community.
ENVIRONMENTAL REVIEW
The Utilities Advisory Commission’s discussion of the City’s carbon accounting methodology
does not meet the definition of a project under Public Resources Code 21065 and therefore
California Environmental Quality Act (CEQA) review is not required.
ATTACHMENTS
A. Details of the City’s Load and Supply Resource Balance
PREPARED BY: JIM STACK, Senior Resource Planner
LENA PERKINS, Acting Senior Resource Planner
REVIEWED BY: JONATHAN ABENDSCHEIN, Assistant Director, Resource Management
APPROVED BY: ___________________________
DEAN BATCHELOR
Interim Director of Utilities
Page 14 of 17
APPENDIX A: Details of the City’s Load and Supply Resource Balance
Figure A-1 below presents the City’s load and supply resources on a monthly basis for a year
with average hydrological conditions, demonstrating the significant net deficit positions that
exist in the winter months and the significant surplus positions that exist in the summer
months.
Figure A-1: Monthly Total Load and Supply Resource Balance for an Average Hydro Year
And for a more granular look at this data, shown below are two daily/hourly load and resource
balance graphs from an average hydro year—for a typical day in January (Figure A-1), when
hydro and solar output are both minimal, and for a typical day in July (Figure A-2), when hydro
and solar are both in abundance.8
8 These graphs include only the City’s hydro and long-term PPA resources; not shown are DERs (which reduce the
City’s load) and market purchases (which make up the differences, positive or negative, between the City’s total
purchases and its load).
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Figure A-2: Daily Load and Hydro/PPA Supplies for a Typical January Day in an Average Year
Page 16 of 17
Figure A-3: Daily Load and Hydro/PPA Supplies for a Typical July Day in an Average Year
Note that as hydro is a dispatchable resource, it is currently dispatched to optimize the financial
value of the resource, rather than to balance the City’s load and supply resources. This explains
the odd shape of the July supply profile: market prices tend to peak in the evening hours (when
solar output is declining and evening loads are increasing), so the bulk of the hydro generation
is concentrated in this period. However, this dispatch pattern could be modified if the City
wanted to reduce its reliance on the greater electric grid; for example, the hydro resources
could be scheduled like “baseload” resources, which have a steady output level across the day.
(However, this output level would still vary seasonally, based on snowpack levels, runoff
conditions, and streamflow requirements.) Figure A-3 presents a daily load and resource
balance graph for a typical July day where the hydro resources are dispatched in a
baseload/load-following manner.
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Figure A-4: Load and Resources for a Typical July Day with Hydro as a Baseload Resource
However, it should be noted that although dispatching the City’s hydro resources in this
manner will likely result in lower net GHG emissions, it would likely result in higher cost to the
electric rate payer – preliminarily estimated at a retail rate increase of 1 to 2 percent, or an
annual supply cost increase of $1 to $2 M.
Page 1 of 9
3
MEMORANDUM
TO: UTILITIES ADVISORY COMMISSION
FROM: UTILITIES DEPARTMENT
DATE: April 9, 2019
SUBJECT: Staff Recommendation that the Utilities Advisory Commission Recommend
that the City Council Adopt: 1) a Resolution Approving the Fiscal Year 2020
Electric Financial Plan, and 2) a Resolution Increasing Electric Rates by 8% by
Amending the E-1, E-2, E-2-G, E-4, E-4-G, E-4 TOU, E-7, E-7-G, E-7 TOU, E-14, E-
EEC and E-NSE Rate Schedules
REQUEST
Staff requests that the Utilities Advisory Commission (UAC) recommend that the Council:
1. Adopt a resolution (Attachment A) approving the fiscal year (FY) 2020 Electric Financial
Plan (Attachment B); and
2. Adopt a resolution (Attachment C) amending Rate Schedules E-1 (Residential Electric
Service), E-2 (Small Non-Residential Electric Service), E-2-G (Small Non-Residential
Green Power Electric Service), E-4 (Medium Non-Residential Electric Service), E-4-G
(Medium Non-Residential Green Power Electric Service), E-4 TOU (Medium Non-
Residential Time of Use Electric Service), E-7 (Large Non-Residential Electric Service), E-
7-G (Large Non-Residential Green Power Electric Service), E-7 TOU (Large Non-
Residential Time of Use Electric Service), E-14 (Street Lights), E-NSE (Net Metering Net
Surplus Electricity Compensation), and E-EEC (Export Electricity Compensation).
EXECUTIVE SUMMARY
The FY 2020 Electric Utility Financial Plan includes projections of the utility’s costs and revenues
through FY 2024. Costs are projected to rise substantially for the next several years for several
reasons. Costs for electric supply purchases are increasing as a result of increases in
transmission costs and the last of the City’s renewable energy projects coming online.
Substantial additional capital investment in the electric distribution system is planned for FY
2019 through FY 2023, and operational costs are increasing. There has been some decrease in
the City’s electric load. Lastly, revenues are below costs as of FY 2019.
Because of these rising costs and other factors, an increase in sales revenues is required. An 8%
rate increase is proposed for July 1, 2019, with 4% increases in the following years. While 8%
would be the overall increase in average rates, different customer classes will see slightly
Page 2 of 9
different increases ranging from 4% to 9%, as shown in Tables 3 and 4. Actual rate increases are
calculated using the 2016 cost of service analysis (COSA) model created for the City by EES
Consulting, which was implemented on July 1, 2016.
This proposed rate increase is slightly lower than the 9% July 1, 2019 rate increase in staff’s
preliminary rate projections.
BACKGROUND
Every year staff presents the UAC with Financial Plans for its Electric, Gas, Water, and
Wastewater Collection Utilities and recommends any rate adjustments required to maintain
their financial health. These Financial Plans include a comprehensive overview of the utility’s
operations, both retrospective and prospective, and are intended to be a reference for UAC and
Council members as they review the budget and staff’s rate recommendations. Each Financial
Plan also contains a set of Reserves Management Practices describing the reserves for each
utility and the management practices for those reserves.
DISCUSSION
Summary of Proposed Actions
The two resolutions recommended for Council adoption will accomplish the following:
1. Increase overall electric rates by 8% effective July 1, 2019;
2. Approve the FY 2020 Electric Financial Plan
Proposed and Projected Sales Revenue Requirement, FY 2020 through FY 2024
The proposed July 1, 2019 rate increase would be the fourth and last projected increase in a
series of substantial rate increases starting in FY 2017 and continuing into the foreseeable
future. Prior to the first increase on July 1, 2016, rates had not been increased since July 1, 2009
because costs had been low over that period. Table 1 shows the sales revenue increases
needed to recover costs of operation over the forecast period in the FY 2020 Electric Financial
Plan.
Table 1: Electric Rate Adjustments, FY 2017 to FY 2024
FY 2017
Approved
FY 2018
Approved
FY 2019
Approved
FY 2020
Projected
FY 2021
Projected
FY 2022
Projected
FY 2023
Projected
FY 2024
Projected
11% 14% 6% 8% 4% 4% 4% 3%
These retail rate increases are for the utility as a whole, but the rate changes will differ for
individual customer classes. Proposed rate increases for each customer class are discussed
below.
Changes from Prior Financial Forecasts
This projection has changed since the FY 2019 Electric Utility Financial Plan presented last year.
Table 2 compares current rate projections to those projected in the last two year’s Financial
Plans.
Page 3 of 9
Table 2: Projected Electric Rate Trajectory for FY 2019 to FY 2025
Projection FY 2020 FY 2021 FY 2022 FY 2023 FY 2024
Current
(FY 2020 Financial Plan) 8% 4% 4% 4% 3%
Last year
(FY 2019 Financial Plan) 3% 2% 0% 1% 1%
Two years ago
(FY 2018 Financial Plan) 0% 0% 1% 2% 1%
The rate increases are related to several factors: increasing transmission costs and the cost of
renewable projects coming online, substantial additional capital investment in the electric
distribution system is planned through FY 2023, and operations costs are increasing due to
larger contracting needs. Revenues have also declined as customer usage has decreased,
requiring larger than projected rate increases.
Historically, total electric utility costs (excluding short-term drought impacts) were roughly
$120 million per year, allowing the electric utility to go without a rate increase from July 1, 2009
to July 1, 2016. Over the period from FY 2016 to FY 2018, though, annual costs (net of energy
supply related revenue, like surplus energy sales) increased to roughly $146 million per year
(costs are unusually low in FY 2019 due to some one time savings). Costs are projected to
increase to over $160 million by FY 2024. Figure 1 shows the overall utility’s costs (net of
surplus sales revenues) in FY 2014, FY 2019, and FY 2024. Costs for the supply portfolio
increased by about 3.5% per year on average in the past, but are projected to increase at a
slower pace (about 1%) in the future. Costs for managing the distribution system (e.g.
maintenance, capital investment, customer service, billing, etc.) have increased as well, growing
by 3.2% per year on average in the past, but projected to grow by nearly 4% per year going
forward. Overall, costs are projected to increase by 2.2% per year over the forecast horizon
Figure 1: Electric Utility Costs, FY 2014 Actual vs. FY 2019 and FY 2024 Projections
Page 4 of 9
Figure 2 shows electric distribution costs more specifically. Capital costs increased significantly,
increasing by about 7.5% per year on average over the last five years. Increased costs are
related to increased capital investment in the distribution system (e.g. underground district
rebuilds, as well as substation and upgrades). Distribution system operational spending is
projected to increase by about 3 to 4% annually. Some of this is due to projected increases in
costs of labor and materials, but also due to the fact that in FY 2014 operational costs were
unusually low due to higher than anticipated staff vacancies and other factors.
Figure 2: Electric Distribution Costs, FY 2014 vs. FY 2019 and FY 2024
The electric supply portfolio cost increases from FY 2014 to FY 2019 are related primarily to
transmission cost increases and, to a lesser extent, to renewable energy projects coming online,
as shown in Figure 3. In the future, staff forecasts that increased costs will largely be due to
transmission cost increases. These are due to rehabilitation and replacement of the existing
statewide electric transmission system as well as expansion of that system to accommodate
new generation, mostly renewable. Staff works to contain transmission costs through partner
agencies, including the Transmission Agency of Northern California (TANC) and Northern
California Power Agency (NCPA), and through direct partnerships with other local utilities (the
Bay Area Municipal Transmission group, BAMx). All of these groups intervene in transmission
proceedings at the Federal Energy Regulatory Commission (FERC) and the California
Independent System Operator (CAISO) and have achieved some reductions in long-term
transmission costs. Staff is beginning to look at strategies to achieve cost savings in electric
supply, and will discuss these strategies in greater detail through the ongoing Integrated
Resource Planning (IRP) process.
Page 5 of 9
Figure 3: Electric Supply Costs, FY 2014 Actual vs. FY 2019 and FY 2024 Projections
With an 8% rate increase, this Financial Plan will prevent any further reductions in reserves,
which are already low. The Supply and Distribution Operations Reserves are at their minimums,
the Hydroelectric Stabilization Reserve is at $7.4 million, below the target of $17 million that
enables the City to implement its strategy for managing the financial impacts of a multi-year
drought, and the electric utility has already taken a loan of $10 million from its Electric Special
Projects reserve, which is intended to fund projects like smart grid and a second transmission
line. More information on reserve transfers can be found in the FY 2020 Electric Financial Plan
(Attachment B).
Staff also recognizes the importance of managing operating costs and maximizing efficiency in
order to minimize rate increases. As discussed above, staff is working on cost containment
measures related to transmission and renewable energy costs. Utility consumers also see some
long-term cost savings from City-wide efforts to manage personnel costs. As reflected in the
Utilities Strategic Plan, staff is exploring additional ways to effectively use available resources,
particularly across Divisions.
Rate Changes by Customer Class
Table 3 shows the rates that will be used to recover sale revenues for each customer class. The
Street Lighting (E-14) class and the E-4 and E-7 Time of Use (TOU) rates are not shown in the
table, but can be seen in the attached rate schedules (Attachment E). These schedules are
omitted for various reasons: the E-14 rate schedule is not easy to summarize, E-7 TOU rate is
not easy to summarize and is only used by one customer, and the E-4 TOU rate schedule is both
difficult to summarize and not utilized by any customers at this time.
Page 6 of 9
Table 3: Electric Rates (Current and Proposed)
Current Rates
Proposed Rates
(7/1/19)
Change
$ %
E-1 (Residential)
Tier 1 Energy ($/kWh) 0.12871 0.13757 0.00886 6.9%
Tier 2 Energy ($/kWh) 0.19279 0.19367 0.00088 0.5%
Minimum Bill ($/day) 0.3040 0.3283 0.0243 8.0%
E-2 & E-2-G (Small Non-Residential)
Summer Energy ($/kWh) 0.20090 0.20853 0.00763 3.8%
Winter Energy ($/kWh) 0.13861 0.14624 0.00763 5.5%
Minimum Bill ($/day) 0.7740 0.8359 0.0619 8.0%
E-4 & E-4-G (Medium Non-Residential)
Summer Energy ($/kWh) 0.12081 0.12848 0.00767 6.3%
Winter Energy ($/kWh) 0.09297 0.09946 0.00649 7.0%
Summer Demand ($/kW) 24.11 28.91 4.80 19.9%
Winter Demand ($/kW) 18.52 18.97 0.45 2.4%
Minimum Bill ($/day) 15.9946 17.2742 1.2796 8.0%
E-7 & E-7-G (Large Non-Residential)
Summer Energy ($/kWh) 0.10507 0.11432 0.00925 8.8%
Winter Energy ($/kWh) 0.07449 0.07738 0.00289 3.9%
Summer Demand ($/kW) 26.77 30.69 3.92 14.6%
Winter Demand ($/kW) 17.01 17.05 0.04 0.2%
Minimum Bill ($/day) 45.4758 49.1139 3.6381 8.0%
Table 4 shows the impact of the proposed July 1, 2019 rate changes on the residential and non-
residential bills for various consumption levels. The overall rate change for the residential class
is roughly 4%.
Page 7 of 9
Table 4: Impact of Proposed Electric Rate Changes on Customer Bills
Rate
Schedule
Usage (kwh/mo)
Bill under
Current Rates
($/mo)
Bill Under Rates
Proposed 7/1/19
($/mo)
Change
$/mo %
E-1 300 38.61 41.27 2.66 6.9
(Summer Median) 365 49.22 45.40 2.92 6.9
(Winter Median) 453 66.19 69.22 3.03 4.6
650 104.17 107.37 3.21 3.1
1200 210.20 213.89 3.69 1.8
E-2 1,000 170 178 8 4.5
E-4 160,000 26,347 28,661 2,313 8.8
E-7 500,000 75,758 81,337 5,579 7.4
E-7 2,000,000 303,030 325,346 22,316 7.4
Cost of Service Analysis and Rate Study
The rates discussed in the previous section are based on the cost of service methodology
established in the “City of Palo Alto Electric Cost of Service and Rate Study”1 drafted by EES
Consulting, Inc. in 2016. Staff provided EES with updated sales and budget projections,
including projected transmission and distribution costs, power supply costs and billing data, in
order for EES to update individual cost of service model components and determine the
proposed rates.
Electric Bill Comparison with Surrounding Cities
Table 6 compares electric bills under current rates as of March 1, 2019 for residential customers
to those in surrounding communities. Under current rates, CPAU’s customer bills are far below
PG&E’s and are lower than others for non-residential customers, but slightly higher than Santa
Clara’s for higher using residential customers.
1 Staff Report 6857 http://www.cityofpaloalto.org/civicax/filebank/documents/52274
Page 8 of 9
Table 5: Average Electric Bill Comparison ($/month)
As of March 1, 2019
Customers
Usage
(KWh/mo)
Palo Alto
(Current)
Palo Alto
(Proposed) PG&E Santa Clara
Residential
Customers
300 $ 38.61 $ 41.27 $ 65.33 $ 35.89
365 (Summer
Median) 49.22 45.40 85.16 43.95
453 (Winter
Median) 66.19 69.22 98.64 54.86
650 104.17 107.37 150.77 79.29
1200 210.20 213.89 301.48 147.48
Non-
Residential
Customers
1,000 170 178 253 184
160,000 25,628 28,661 30,936 21,243
500,000 66,780 81,337 86,341 64,155
2,000,000 289,010 325,346 372,799 261,360
NEXT STEPS
The Finance Committee is scheduled to review the FY 2020 Electric Financial Plan in May 2019.
The City Council will consider the recommendations with the FY 2020 budget.
RESOURCE IMPACT
The proposed July 1, 2020 rate changes are projected to increase sales revenues by $9 million
per year over the forecast period.
POLICY IMPLICATIONS
The proposed electric rate adjustments were developed using the 2016 cost of service study
and methodology, and are consistent with the Council adopted Reserve Management Practices
that are part of the Financial Plan.
ENVIRONMENTAL REVIEW
The UAC’s review and recommendation to Council on the FY 2020 Electric Financial Plans and
rate adjustments does not meet the California Environmental Quality Act’s definition of a
project, pursuant to Public Resources Code Section 21065, thus no environmental review is
required.
ATTACHMENTS
A. Resolution of the Council of the City of Palo Alto Approving the FY 2020 Electric Utility
Financial Plan
B. Proposed FY 2020 Electric Utility Financial Plan
https://cityofpaloalto.org/civicax/filebank/blobdload.aspx?t=42439.07&BlobID=70058
C. Resolution of the Council of the City of Palo Alto Adopting an Electric Rate Increase and
Amending Rate Schedules E-1, E-2, E -2-G, E-4, E -4-G, E-4 TOU, E-7, E -7-G, E-7 TOU, E-14,
E-NSE and E -EEC
D. Proposed Amendments to Rate Schedules E-1, E-2, E -2-G, E-4, E -4-G, E-4 TOU, E-7, E -7-
G, E-7 TOU, E-14, E-NSE and E -EEC
https://cityofpaloalto.orgf civicax/filebank/blobdload.aspx?t=42673.19&BIobID=70059
PREPARED BY:
REVIEWED BY:
APPROVED BY:
ERIC KENISTON, Senior Resource Planner (T
JONATHAN ABENDSCHEIN, Assistant Director, Resource Mg
N BATCHELOR
Utilities General Manager
Page 9 of 9
Attachment A
* NOT YET APPROVED *
6055193
Resolution No. _________
Resolution of the Council of the City of Palo Alto Approving the Fiscal
Year 2020 Electric Utility Financial Plan
R E C I T A L S
A. Each year the City of Palo Alto (“City”) regularly assesses the financial position of
its utilities with the goal of ensuring adequate revenue to fund operations. This includes
making long-term projections of market conditions, the physical condition of the system, and
other factors that could affect utility costs, and setting rates adequate to recover these costs.
This is done with the goal of providing safe, reliable, and sustainable utility services at
competitive rates. The City adopts Financial Plans to summarize these projections.
B. The City uses reserves to protect against contingencies and to manage other
aspects of its operations, and regularly assesses the adequacy of these reserves and the
management practices governing their operation. The status of utility reserves and their
management practices are included in Reserves Management Practices attached to and made
part of the Financial Plans.
The Council of the City of Palo Alto does hereby RESOLVE as follows:
SECTION 1. The Council hereby approves the FY 2020 Electric Utility Financial Plan.
SECTION 2. The following transfers that were previously approved by resolution 9692
to take place in FY 2017, but which were not performed due to staff error, are hereby
reauthorized in FY 2019: 1) transfer up to $9.0 million from the Hydroelectric Stabilization
Reserve to the Supply Operations Reserve, 2) transfer up to $9.011 million from the Supply Rate
Stabilization Reserve to the Supply Operations Reserve, and 3) transfer up to $4.5 million from
the Supply Operations Reserve to the Distribution Operations Reserve.
SECTION 3. The Council finds that the adoption of this resolution does not meet the
California Environmental Quality Act’s (CEQA) definition of a project under Public Resources
Code Section 21065 and CEQA Guidelines Section 15378(b)(5), because it is an administrative
governmental activity which will not cause a direct or indirect physical change in the
environment, and therefore, no environmental review is required.
INTRODUCED AND PASSED:
AYES:
NOES:
ABSENT:
ABSTENTIONS:
Attachment A
* NOT YET APPROVED *
6055193
ATTEST:
___________________________ ___________________________
City Clerk Mayor
APPROVED AS TO FORM: APPROVED:
___________________________ ___________________________
Assistant City Attorney City Manager
___________________________
Director of Utilities
___________________________
Director of Administrative Services
Attachment C
* NOT YET APPROVED *
6055196 1
Resolution No. _________
Resolution of the Council of the City of Palo Alto Adopting an Electric
Rate Increase and Amending Rate Schedules E-1 (Residential Electric
Service), E-2 (Residential Master-Metered and Small Non-Residential
Electric Service), E-2-G (Residential Master-Metered and Small Non-
Residential Green Power Electric Service), E-4 (Medium Non-
Residential Electric Service), E-4-G (Medium Non-Residential Green
Power Electric Service), E-4 TOU (Medium Non-Residential Time of
Use Electric Service), E 7 (Large Non-Residential Electric Service), E-7-
G (Large Non-Residential Green Power Electric Service), E-7 TOU
(Large Non-Residential Time of Use Electric Service), E-14 (Street
Lights), E-NSE (Net Metering Net Surplus Electricity Compensation),
and E-EEC (Export Electricity Compensation).
R E C I T A L S
A. Pursuant to Chapter 12.20.010 of the Palo Alto Municipal Code, the Council of
the City of Palo Alto may by resolution adopt rules and regulations governing utility services,
fees and charges.
The Council of the City of Palo Alto does hereby RESOLVE as follows:
SECTION 1. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility
Rate Schedule E-1 (Residential Electric Service) is hereby amended to read as attached and
incorporated. Utility Rate Schedule E-1, as amended, shall become effective July 1, 2019.
SECTION 2. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility
Rate Schedule E-2 (Residential Master-Metered and Small Non-Residential Electric Service) is
hereby amended to read as attached and incorporated. Utility Rate Schedule E-2, as amended,
shall become effective July 1, 2019.
SECTION 3. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility
Rate Schedule E-2-G (Residential Master-Metered and Small Non-Residential Green Power
Electric Service) is hereby amended to read as attached and incorporated. Utility Rate Schedule
E-2-G, as amended, shall become effective July 1, 2019.
SECTION 4. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility
Rate Schedule E-4 (Medium Non-Residential Electric Service) is hereby amended to read as
attached and incorporated. Utility Rate Schedule E-4, as amended, shall become effective July
1, 2019.
SECTION 5. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility
Rate Schedule E-4-G (Medium Non-Residential Green Power Electric Service) is hereby
Attachment C
* NOT YET APPROVED *
6055196 2
amended to read as attached and incorporated. Utility Rate Schedule E-4-G, as amended, shall
become effective July 1, 2019.
SECTION 6. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility
Rate Schedule E-4 TOU (Medium Non-Residential Time of Use Electric Service) is hereby
amended to read as attached and incorporated. Utility Rate Schedule E-4 TOU, as amended,
shall become effective July 1, 2019.
SECTION 7. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility
Rate Schedule E-7 (Large Non-Residential Electric Service) is hereby amended to read as
attached and incorporated. Utility Rate Schedule E-7, as amended, shall become effective
July 1, 2019.
SECTION 8. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility
Rate Schedule E-7-G (Large Non-Residential Green Power Electric Service) is hereby amended to
read as attached and incorporated. Utility Rate Schedule E-7-G, as amended, shall become
effective July 1, 2019.
SECTION 9. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility
Rate Schedule E-7 TOU (Large Non-Residential Time of Use Electric Service) is hereby amended
to read as attached and incorporated. Utility Rate Schedule E-7 TOU, as amended, shall become
effective July 1, 2019.
SECTION 10. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility
Rate Schedule E-14 (Street Lights) is hereby amended to read as attached and incorporated.
Utility Rate Schedule E-14, as amended, shall become effective July 1, 2019.
SECTION 11. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility
Rate Schedule E-NSE (Net Metering Net Surplus Electricity Compensation) is hereby amended
to read as attached and incorporated. Utility Rate Schedule E-NSE, as amended, shall become
effective July 1, 2019.
SECTION 12. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility
Rate Schedule E-EEC (Export Electricity Compensation) is hereby amended to read as attached
and incorporated. Utility Rate Schedule E-EEC, as amended, shall become effective July 1, 2019.
SECTION 13. The Council makes the following findings:
a. The revenue derived from the adoption of this resolution shall be used only for the
purpose set forth in Article VII, Section 2, of the Charter of the City of Palo Alto.
b. The fees and charges adopted by this resolution are charges imposed for a specific
government service or product provided directly to the payor that are not provided
Attachment C
* NOT YET APPROVED *
6055196 3
to those not charged, and do not exceed the reasonable costs to the City of
providing the service or product.
c. The adoption of this resolution changing electric rates to meet operating expenses,
purchase supplies and materials, meet financial reserve needs and obtain funds for
capital improvements necessary to maintain service is not subject to the California
Environmental Quality Act (CEQA), pursuant to California Public Resources Code Sec.
21080(b)(8) and Title 14 of the California Code of Regulations Sec. 15273(a). After
reviewing the staff report and all attachments presented to Council, the Council
incorporates these documents herein and finds that sufficient evidence has been
presented setting forth with specificity the basis for this claim of CEQA exemption.
INTRODUCED AND PASSED:
AYES:
NOES:
ABSENT:
ABSTENTIONS:
ATTEST:
___________________________ ___________________________
City Clerk Mayor
APPROVED AS TO FORM: APPROVED:
___________________________ ___________________________
Assistant City Attorney City Manager
___________________________
Director of Utilities
___________________________
Director of Administrative Services
6054071 Page 1 of 13
4
MEMORANDUM
TO: UTILITIES ADVISORY COMMISSION
FROM: UTILITIES DEPARTMENT
DATE: April 9, 2019
SUBJECT: Staff Recommendation that the Utilities Advisory Commission Recommend
that the City Council Adopt: (1) a Resolution Approving the Fiscal Year 2020
Water Utility Financial Plan; and (2) a Resolution Increasing Water Rates by 1%
by Amending Rate Schedules W-1 (General Residential Water Service), W-2
(Water Service from Fire Hydrants), W-3 (Fire Service Connections),W-4
(Residential Master-Metered and General Non-Residential Water Service), and
W-7 (Non-Residential Irrigation Water Service)
RECOMMENDATION
Staff requests that the Utilities Advisory Commission (UAC) recommend that the Council:
1. Adopt a resolution (Attachment A) approving:
a. The fiscal year (FY) 2020 Water Utility Financial Plan (Attachment B); and
b. A $5 million transfer from the Operations Reserve to the CIP Reserve; and
2. Adopt a resolution (Attachment C) increasing water rates by amending Rate Schedules
W-1 (General Residential Water Service), W-2 (Water Service from Fire Hydrants), W-3
(Fire Service Connections), W-4 (Residential Master-Metered and General Non-
Residential Water Service), and W-7 (Non-Residential Irrigation Water Service)
(Attachment D)
EXECUTIVE SUMMARY
The FY 2020 Water Utility Financial Plan includes projections of the utility’s costs and revenues
for FY 2019 through FY 2024. Costs are projected to rise by about 3 to 4% per year over the next
several years. As a result, staff projects the need for a 1% water rate increase on July 1, 2019
and 2% to 6% rate increases in later years. The 1% increase in FY 2020 is needed to raise
revenue for rising capital and operations expenses. Over the longer term, increases are
primarily associated with increasing water supply costs, with some of the increase related to
rising capital costs.
BACKGROUND
Every year staff presents the UAC with Financial Plans for its Electric, Gas, Water, and
Wastewater Collection Utilities and recommends any rate adjustments required to maintain
their financial health. These Financial Plans include a comprehensive overview of the utility’s
operations, both retrospective and prospective, and are intended to be a reference for UAC and
6054071 Page 2 of 13
Council members as they review the budget and staff’s rate recommendations. Each Financial
Plan also contains a set of Reserves Management Practices describing the reserves for each
utility and the management practices for those reserves.
Most of the City’s water comes from the San Francisco Public Utilities Commission (SFPUC)’s
Hetch Hetchy water system. This same system serves San Francisco and a number of other Bay
Area cities as well. The system is run by San Francisco, but as much as two thirds of the water is
used outside of San Francisco by 26 cities, water districts, and private utilities. These agencies
are frequently referred to as the “wholesale customers” (as compared to the SFPUC’s “retail
customers,” residents of San Francisco). The wholesale customers are represented by the Bay
Area Water Supply and Conservation Agency (BAWSCA), which negotiates with the SFPUC on
their behalf and ensures contract compliance through regular review of the SFPUC’s accounting
and capital expenditures.1
The Water Utility has two main costs: water supply costs (primarily the cost of water delivered
to Palo Alto from the Hetch Hetchy system) and the costs of operating the distribution system
(the system of pipes, pumps, reservoirs, and other infrastructure that carries water to Palo Alto
customers). As discussed in previous years, both cost components have been increasing and are
expected to continue to increase. For many years the largest cost increases have been on the
water supply side. This is due primarily to major capital investments the SFPUC has made since
2010, partly due to pressure from wholesale customers. The Water System Improvement
Project (WSIP) is a $4.8 billion capital improvement program, one of the largest in the country,
to rehabilitate and seismically strengthen the lower portions of the Hetch Hetchy system. The
goal was to achieve the capability to return to service within 24 hours after a major earthquake.
The project was 96% complete as of January 2019. The project has greatly improved the
resiliency of the Hetch Hetchy system, but has also led water supply costs to double over the
course of the project.
By contrast, capital and operational costs have increased roughly at inflation for the last five
years. But this year’s forecasts take place in the context of rising construction and operations
costs that may change that trend.
The UAC reviewed preliminary financial forecasts at its February 6, 2019 meeting.
DISCUSSION
Staff’s annual assessment of the financial position of the City’s water utility is completed to
ensure adequate revenue to fund operations, in compliance with the cost of service
requirements set forth in the California Constitution (Proposition 218). This includes making
long-term projections of market conditions, the physical condition of the system, and other
factors that could affect utility costs, and setting rates adequate to recover these costs. The
current rate proposals are also based on the cost of service (COS) methodology described in the
2012 Palo Alto Water Cost of Service & Rate Study, and updated in the 2015 Study update, the
1 For a video summary of BAWSCA’s activities, see https://vimeo.com/283596665/5619ce2c11
6054071 Page 3 of 13
2015 Drought Rate memorandum completed by Raftelis Financial Consultants, and, lastly, as
updated this year as memorialized in the attached memo by Raftelis Financial Consultants titled
“Proposed FY 2020 Water Rates” (Attachment E).2
Staff proposes to adjust water rates, effective July 1, 2019, to recover costs related to growing
capital improvement, operations and maintenance, and general administrative costs, as
discussed below. These changes are projected to increase the system average water rate by
roughly 1%.
The overall proposed change in customer bills is between -2% to 2%, depending on customer
class, though the change may be higher (up to 5%) depending on usage. As noted above, staff
has updated the 2015 COS study according to the attached memo. It was updated to reflect the
most current customer consumption patterns, which have normalized several years after the
drought. It also reflects changes to the utility’s cost structure. The updated COS study
generated some shifts in the way costs should be allocated across customer classes. Over the
past several years, customer usage patterns have changed. This may be because of customer
experiences and changes that occurred during the recent drought of 2014 – 2017. These
changes create different peak usage levels, or peaking factors, that each customer class
imposes on the water system. Peaking factors are the rate of use compared to the average rate
of use of any class or of the water system as a whole. These changed usage patterns and
peaking factors, together with the updated costs, reflect the current cost of water service.
Based on the analysis, the relative changes to customer class groups are shown in Table 1
below:
Table 1: Revenue Allocation by Customer Class in FY 2020
Customer Class Customer Class Revenue Difference Customer Class
Percentage of Total
Revenue at Current
Rates
Customer Class
Percentage of Total
Revenue at Cost of
Service
At Current
Rates
At Cost of
Service
Residential – W1 $21,269,490 $21,770,016 2% 47% 48%
Master MFR/Commercial – W4 $17,477,323 $17,187,130 (2%) 39% 38%
Irrigation – W7 $5,744,331 $5,877,794 2% 13% 13%
Construction – W2 $52,010 $51,546 (1%) 0% 0%
Fire Service – W3 $611,593 $606,922 (1%) 1% 1%
TOTAL $45,154,747 $45,493,408 1% 100% 100%
As a result of the COS update, residential customers (W1) will see a 2% increase (on average),
Commercial Irrigation (W7) a 2% increase, and the other customer classes (W2, W3, W4) will
see between a -1 to -2% decrease.
Concurrently, staff also evaluated whether it would be appropriate to apply a single fixed
charge to residential meter sizes 1” and smaller. In general, a customer’s meter is sized based
2 A cost of service study (COS) is a study using industry-standard techniques to determine how the costs of running
the utility should be recovered from its customers; charges to each customer are set in proportion to the cost of
serving that customer.
6054071 Page 4 of 13
upon the required load of the dwelling. However, there may be cases where a customer could
be adequately served with a smaller meter; but a larger meter is required because of special
equipment or circumstances. Two such scenarios involve homes with domestic fire sprinklers,
which are required for new homes or when older homes go through a specific degree of
upgrade, and pressure-related issues resulting from longer than normal service lengths. These
types of issues raised the question of whether differentiating meter sizes smaller than 1” was
appropriate for Palo Alto. The various reasons for increasing meter size to 3/4” or 1” do not
impact the City’s infrastructure or the on-going maintenance requirements, since lines and
infrastructure are already sized to provide fire flow requirements. There is no need to increase
main size to meet supply requirements and therefore no additional cost to the utility.
Additionally, new residential developments in general are connected with at least 1” meters.
To ensure uniform administration and equitable cost allocation, staff proposes to charge all
residential customers with 5/8”, 3/4”, and 1” meters, which include fire flow, a uniform
monthly service fee. This means that residential customers with 3/4” and 1” meters will see a
decrease in their uniform monthly service fee and residential customers with 5/8” meters will
see an increase in their uniform monthly service fee in order to fully recover the cost of
providing service to residential customers with these different meter sizes. Raftelis’s 2019
memo titled “Proposed FY 2020 Water Rates” (Attachment E) contains greater detail on this
change.
Unlike residential customers who typically have only one meter for all water uses (domestic,
irrigation and fire suppression), commercial customers are required to have a separate fire
service meter. This means that small commercial customers are not oversized up to 1” in order
to meet fire flow requirements. Commercial customers have meter sizes that are based on
water demands that are reflective of the customer’s actual daily and seasonal usage impact on
the City’s water system. For this reason, it is appropriate to continue to set small commercial
customer meter charges according to meter flow capacity as is the case under the current rates.
The analysis and discussion on meters is deliberated in more detail within the FY 2020 Water
Financial Plan (Attachment B), as well as in the 2019 memorandum from Raftelis Financial
Consultants (Attachment E). Based on the analysis, staff is recommending combining the meter
charges for residential services smaller than 1”, and this proposal is shown in Table 3 below.
The proposed rates and meter charges for commercial customers are shown in Tables 4 and 5,
respectively. The overall impact on the customer bill for the average customer with a 5/8”
meter is roughly 2%, but with more and more customers expected to upgrade to 1” services
over time, more customers will have the larger meters and so they will pay less in meter
charges than the 2018 rates would have required. Approximately 83% of residential customers
have 5/8” meters, 3% have 3/4” meters, and 13% have 1” meters (the rest have meter size
greater than 1”).
Finally, Staff is proposing to separate the commodity cost of purchased water from SFPUC from
the distribution-related portion of the volumetric rates to facilitate passing through future
SFPUC rate increases. This is a revenue neutral change. All customers will pay this separate
commodity cost for each unit of water in addition to the volumetric rate that is applicable for
6054071 Page 5 of 13
their customer class. Raftelis’s 2019 memo, “Proposed FY 2020 Water Rates”, contains greater
detail on this change. With Council’s approval, the commodity portion of the City’s water rates
will be passed-through automatically via periodic rate adjustments to account for increases in
wholesale water charges or wastewater treatment charges, as well as inflation. Pass-through
rate changes are expected to be annual, however there may be times when the pass-through is
implemented on a periodic basis depending upon how SFPUC sets its rates. This automatic
adjustment will be authorized for five years from Council’s adoption of the proposed water
rates, and customers will be provided notice of any adjustments via their billing statements.
The rate changes proposed for July 1, 2019 are included in the proposed amended rate
schedules in Attachment D, and outlined here in Tables 2 through 5.
Table 2: Water Consumption Charges in $/CCF (Current and Proposed)
Current (7/1/18)* Proposed
(7/1/19)
Change
($/CCF)^
W-1 (Residential), W-2(Construction), W-3(Commercial) and W-7 (Irrigation)
Volumetric Rate ($/CCF)
Commodity
Rate - 4.10 4.10 -
W-1 (Residential) Volumetric Rates ($/CCF)
Tier 1 Rates 6.64 2.54 2.56 0.02
Tier 2 Rates 9.44 5.34 5.97 0.63
W-2 (Construction) Volumetric Rates ($/CCF)
Uniform Rate 7.77 3.67 3.61 (0.06)
W-4 (Commercial) Volumetric Rates ($/CCF)
Uniform Rate 7.77 3.67 3.61 (0.06)
W-7 (Irrigation) Volumetric Rates ($/CCF)
Uniform Rate 9.33 5.23 5.50 0.27
*Rates effective 7/1/18 did not list the $4.10 commodity rate
separately, as the proposal for the 2019 rates does.
^Change percentages not included because the rates effective
7/1/18 did not list the $4.10 commodity rate separately while
the proposal for the 2019 rates does.
6054071 Page 6 of 13
Table 3: Current and Proposed Monthly Service Charges for W-1
Meter
Size
Monthly Service Charge
($/month based on meter size)
Change
Current (7/1/18)
Residential (W-1)
Proposed (7/1/19)
Residential (W-1)
$ %
5/8” $18.43 $20.25 $1.82 10%
3/4” $24.83 $20.25 ($4.58) (18%)
1” $37.64 $20.25 ($17.39) (46%)
1 ½” $69.66 $65.40 ($4.26) (6%)
2” $108.08 $101.17 ($6.91) (6%)
3” $229.75 $214.44 ($15.31) (7%)
4” $409.05 $381.37 ($27.68) (7%)
6” $838.09 $780.79 ($57.30) (7%)
8” $1,542.50 $1,436.57 ($105.93) (7%)
10” $2,439.01 $2,271.20 ($167.81) (7%)
Table 4: Current and Proposed Monthly Service Charges for Fire Services (W-3)
Meter
Size
Monthly Service Charge
($/month based on meter size)
Change
Current (7/1/18) Proposed (7/1/19) $ %
2” $4.16 $4.17 $0.01 0%
4” $25.73 $25.81 $0.08 0%
6” $74.74 $74.96 $0.22 0%
8” $159.28 $159.74 $0.46 0%
10” $286.43 $287.27 $0.84 0%
12” $462.67 $464.02 $1.35 0%
6054071 Page 7 of 13
Table 5: Current and Proposed Monthly Service Charges for W-4, and W-7
Meter
Size
Monthly Service Charge
($/month based on meter size)
Change
Current (7/1/18)
Commercial (W-4)
Irrigation (W-7)
Proposed (7/1/19)
Commercial (W-4)
Irrigation (W-7)
$ %
5/8” $18.43 $17.71 ($0.72) (4%)
3/4” $24.83 $23.67 ($1.16) (5%)
1” $37.64 $35.59 ($2.05) (5%)
1 ½” $69.66 $65.40 ($4.26) (6%)
2” $108.08 $101.17 ($6.91) (6%)
3” $229.75 $214.44 ($15.31) (7%)
4” $409.05 $381.37 ($27.68) (7%)
6” $838.09 $780.79 ($57.30) (7%)
8” $1,542.50 $1,436.57 ($105.93) (7%)
10” $2,439.01 $2,271.20 ($167.81) (7%)
12” $3,207.45 $2,986.60 ($220.85) (7%)
Bill Impact of Proposed Rate Changes
The average increase in overall revenue is projected to be about one percent, but some
customers may see higher or lower increases in their bill due to changes in the level at which
customer classes utilize the water system. As California is no longer under drought restrictions,
customers have started using more water (although overall usage has not resumed at pre-
drought levels and is not predicted to, based upon history from previous droughts). The peak
usage month is in August, indicating irrigation as a main driver. This change in usage, mainly by
the residential and irrigation-only classes of customers, has also shifted their relative allocations
of distribution system cost due to the fact these customers are having a greater impact on the
water distribution system. The result is seen in Table 1 above, with the larger share of increase
going to the Residential Tier 2 group and Irrigation customers. The methodology used in this
update the same as the methodology as was used in Raftelis’ 2015 study update.
Because water consumption increased as the Bay Area exited the drought and the SFPUC took
in greater than expected revenues, the current estimate of the FY 2020 SFPUC W-25 rate
(Wholesale Use with Long-Term Contract) is $4.10/ccf, and this is currently projected to stay
the same until FY 2023. While the SFPUC will not determine its final wholesale rate until May or
June, the probability of their changing this rate is considered low. However, in order to have the
City’s water rates in place for July 1, staff must provide notice to CPAU customers by the end of
April under Proposition 218. Should the SFPUC increase rates beyond $4.10/ccf after the City’s
July 1 water rates are adopted, current Operations Reserves should provide sufficient funds
until an adjustment to Palo Alto’s rates can be made next year.
Table 6 shows the impact of the proposed July 1, 2019 rate changes on residential bills
including proposed change to monthly service charge.
6054071 Page 8 of 13
Table 6: Impact of Proposed Rate Changes on Residential Bills
Usage
(CCF/month)
Bill under
Existing Rates
(7/1/18)
Bill under
Proposed Rates
(7/1/19)
Change
$/mo. %
4 $44.99 $46.89 $1.90 4%
(Winter median) 7 $67.71 $70.28 $2.57 4%
(Annual median) 9 $86.59 $90.42 $3.83 4%
(Summer median) 14 $133.79 $140.77 $6.98 5%
25 $237.63 $251.54 $13.91 6%
Table 7 shows the impact of the proposed July 1, 2019 rate changes on various representative
commercial customer bills.
Table 7: Impact of Proposed Rate Changes on Commercial Bills
Usage
(CCF/month)
Bill under
Current Rates
(7/1/18)
Bill under
Proposed Rates
(7/1/19)
Change
$/mo. %
Commercial (W-4) (5/8” meters)
(Annual median) 12 $111.67 $110.23 ($1.44) (1%)
(Annual average) 64 $515.71 $511.15 ($4.56) (1%)
Irrigation (W-7) (1 ½” meters)
(Winter median) 9 $ 153.63 $151.80 ($1.83) (1%)
(Summer median) 37 $ 414.87 $420.60 $5.73 1%
(Winter average) 56 $ 592.14 $603.00 $10.86 2%
(Summer average) 199 $ 1,926.33 $1,975.80 $49.47 3%
FY 2020 Financial Plan’s Projected Rate Adjustments for the Next Five Fiscal Years
Table 8 shows the projected rate adjustments over the next five years and their impact on the
annual median residential water bill for 5/8” customers.
Table 8: Projected Rate Adjustments, FY 2020 to FY 2024 (5/8” meter)
FY 2020 FY 2021 FY 2022 FY 2023 FY 2024
Water Utility 4%2 2% 3% 6% 6%
Estimated Bill Impact ($/mo)1 $3.83 $1.81 $2.77 $5.70 $6.04
1) estimated impact on median residential water bill for customers with 5/8” meter, which is
currently $86.59.
2) 1% system average rate increase. Residential bill impact for a customer with median
consumption is 4% for a 5/8” meter.
Figures 1 and 2 below illustrate the projected increases in the Water Utility’s costs between FY
2019 and FY 2024:
6054071 Page 9 of 13
Figure 1: FY 2019 and FY 2024 costs
Figure 2: Percentage of Total Cost Increase From FY 2019 to FY 2024
Attributed to Supply, Ongoing Capital, and Operations Costs
A major driver for the increase in the water utility’s costs (and therefore rates) over the next
several years is operations cost. Inflationary increases of 2 to 3% per year are factored into
these changes, and also larger benefit cost increases to reflect a 6.2% discount rate for pension
liabilities. Salaries and benefits account for less than 20% of the water fund’s overall costs, so
while these benefits assumption changes do create larger expense projections, they are not
6054071 Page 10 of 13
significantly higher than they would have been under prior assumptions. Operations costs are
projected to increase by around 4% overall over the forecast period.
The cost of water is also a major driver. Wholesale water costs are adopted by the SFPUC, and
generally have changed on an annual basis. Costs are projected to increase annually on average
by 2.5% per year from FY 2019 to FY 2024. The SFPUC is currently engaged in a $4.8 billion
Water System Improvement Project (WSIP). As of December 31, 2018, nearly 96% of the WSIP
regional projects are complete.3 This has resulted and will continue to result in large increases
in the annual debt service costs assigned to wholesale customers like Palo Alto. After each WSIP
project is completed, wholesale customers must start paying the debt service costs within 3 to
4 years. The currently estimated WSIP completion date is December 30, 2021, as adopted by
the SFPUC in March of 2018. Current major projects underway are replacement of Calaveras
dam, restoration work to the Alameda Creek Watershed, and work on regional groundwater
storage and recovery project. The SFPUC is forecasting the need for additional Transmission,
Supply & Storage and Treatment system upgrade projects, starting after the WSIP is complete.
Future and in-progress construction work will require bond funding, and the SFPUC’s financial
plans show debt service cost growing by 77% between FY 2018 and FY 2024, and nearly
doubling by FY 2028. Initial wholesale rate increase projections range from 4% to 5% per year
on average through FY 2024 to cover increases in debt service cost.
Changes in usage due to drought, or recovery from drought, can also make the magnitude of
future increases difficult to predict. The SFPUC’s costs to operate the Regional Water System
are primarily fixed costs, so the water rate charged to wholesale customers like the City of Palo
Alto is highly dependent on usage by all users of the Regional Water System. The City’s FY 2020
Water Utility Financial Plan assumes that, while the drought has ended and usage has
increased, based on CPAU’s experience, consumption is not anticipated to return to pre-
drought levels. The SFPUC is currently working on its budget for FY 2020, and the long-range
changes to wholesale costs are subject to change. Staff will reflect those increases in future
financial forecasts, as they become available. In the short term, because sales of water by the
SFPUC were higher than they projected during the drought, they have collected a reserve of
funds in their Balancing Account. They are obliged to utilize these funds to offset rate increases,
and based upon their current estimate of sales, they are not anticipating a need to raise rates
to wholesale customers until FY 2023.
There remains some uncertainty in the forecasts of capital costs for the water utility in coming
years. Water main replacement costs have risen substantially in recent years. The regional and
even national focus on infrastructure improvement has created labor shortages, leading to
higher bids than were seen in the past. Several factors go into main replacement cost, such as
location as well as the length of main segments. The projects in FY 2019 and FY 2020, although
of smaller segment size than in latter years, are also located in higher traffic areas and are
much harder to coordinate (such as University Avenue). This financial plan includes larger main
replacement construction projects every other year instead of smaller projects annually. This
3 Second Quarter FY 2018-19 WSIP Regional Quarterly Report, http://www.sfwater.org/index.aspx?page=307
6054071 Page 11 of 13
revised main replacement schedule will allow CPAU to meet its main replacement needs while
addressing challenges in the current construction market while optimizing current staffing
resources. This shift to larger main replacement construction projects every other year is
anticipated to attract more contractors to bid on the larger projects. Additionally, this main
replacement project schedule for water will be staggered with wastewater and gas (water and
wastewater construction every even year and gas construction every odd year), which will ease
scheduling difficulties for inspection coverage due to shared inspection staff across water,
wastewater, gas, and large development services projects. Beyond this, there are large one-
time capital costs in FY 2019 through 2021 related to reservoir rehabilitation which are not
currently projected in FY 2024.
Due to delays in construction, it is anticipated that several projects budgeted for FY 2019 will be
delayed until FY 2020, thus the lower than normal values for FY2019 in Figure 1 above. For
purposes of comparison, the on-going capital improvement cost, outside of one-time projects,
would be estimated at around $10.5 million in FY 2019.
Higher bid costs and delays in project schedules resulted in a deferment of main replacement
projects in FY 2017, temporarily lowering costs, and greater than anticipated sales post-drought
resulted in higher revenues. These have resulted in the Operations Reserve being filled to the
maximum guideline level, with surplus reserves available to phase in rate increases more slowly
over the forecast period by drawing down reserves. It has also been the intention of Staff to
fund individual CIP reserves for each of the utility funds, as can be prudently planned without
undue impact on rates. As distribution related costs are projected to decline in the short term
next year and supply costs are anticipated to remain relatively flat, staff is taking this
opportunity to recommend transferring $5 million to the CIP reserve and bring it above its
minimum guideline value. Having this reserve in place will enable staff to smooth out uneven
annual funding associated with ongoing CIP projects, and will be a source for one-time or
immediately needed projects.
Water Bill Comparison with Surrounding Cities
Table 9 compares water bills for residential customers to those in surrounding communities as
of February 2019 (under current the City’s current water rates). Palo Alto customers have some
of the highest monthly bills of the group, although bills for smaller water users are lower than
in some surrounding communities. It is unclear at this time what water rate changes may be
implemented in these communities for FY 2020.
6054071 Page 12 of 13
Table 9: Residential Monthly Water Bill Comparison
Usage
(CCF/month)
Residential monthly bill comparison ($/month)*
As of February 2019
Palo
Alto
Menlo
Park
Mountain
View Hayward
Redwood
City
Santa
Clara
4 44.99 52.84 37.47 35.20 54.04 23.92
(Winter median) 7 67.71 76.44 58.08 56.62 76.09 41.86
(Annual median) 9 86.59 92.17 71.82 70.90 90.79 53.82
(Summer median) 14 133.79 133.34 106.17 108.51 138.94 83.72
25 237.63 224.91 222.94 201.02 267.39 149.50
*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.
Changes from Last Year’s Financial Forecast
Table 10 compares current rate projections to those projected in the last two year’s Financial
Plans. As shown, the FY 2020 rate projections are somewhat lower than projected last year.
Table 10: Projected Water Rate Trajectory for FY 2020 to FY 2024
Projection FY
2020
FY
2021
FY
2022
FY
2023
FY
2024
Current
(FY 2020 Financial Plan) 1% 2% 3% 6% 6%
Last year
(FY 2019 Financial Plan) 7% 7% 6% 4% 4%
Two years ago
(FY 2018 Financial Plan) 6% 6% 6% 6% 2%
NEXT STEPS
The Finance Committee is scheduled to review the FY 2020 Water Financial Plan in April 2019.
Assuming the Finance Committee supports staff’s recommendation, notification of the rate
increases will be sent to customers as required by Article XIIID of the State Constitution (added
by Proposition 218). The Financial Plans and rate schedules will then go to the City Council with
the FY 2019 budget for adoption, at which time the public hearing required by Article XIIID of
the State Constitution will be held. Assuming the rate changes are approved, they will become
effective July 1, 2019.
RESOURCE IMPACT
Normal year sales revenues for the Water Utility are projected to increase by roughly 1% ($340
thousand) as a result of these rate increases when compared to what the FY 2020 projected
sales revenues would be under current rates. The FY 2020 Budget is being developed
concurrent with these rates and, depending on the final rates, adjustments to the budget may
6054071 Page 13 of 13
be necessary at a later time. See the attached FY 2020 Water Financial Plan for a more
comprehensive overview of projected cost and revenue changes for the next five years.
POLICY IMPLICATIONS
The proposed water rate adjustments are consistent with Council-adopted Reserve
Management Practices that are part of the Financial Plans, and were developed using a cost of
service study and methodology consistent with the cost of service requirements of Proposition
218.
ENVIRONMENTAL REVIEW
The UAC’s review and recommendation to Council on the FY 2020 Water Financial Plan and rate
adjustments does not meet the definition of a project requiring California Environmental
Quality Act (CEQA) review under Public Resources Code Section 21065 thus no
environmental review is required.
ATTACHMENTS
A. Resolution of the Council of the City of Palo Alto Approving the FY 2020 Water Utility
Financial Plan
B. Proposed FY 2020 Water Utility Financial Plan
C. Resolution of the Council of the City of Palo Alto Adopting a Water Rate Increase and
Amending Rate Schedules W-1, W-2, W-3, W-4, and W-7
D. Amended Rate Schedules W-1, W-2, W-3, W-4, and W-7
E. Proposed FY 2020 Water Rates, cost of service memorandum by Raftelis Financial
Consultants
PREPARED BY: ERIC KENISTON, Senior Resource Planner
REVIEWED BY: JONATHAN ABENDSCHEIN, Assistant Director, Resource Mgmt
APPROVED BY: ___________________________
DEAN BATCHELOR
Interim Director of Utilities
Attachment A
* NOT YET APPROVED *
6055182
Resolution No.
Resolution of the Council of the City of Palo Alto Approving the
FY 2020 Water Utility Financial Plan
R E C I T A L S
A. Each year the City of Palo Alto (“City”) regularly assesses the financial position of
its utilities with the goal of ensuring adequate revenue to fund operations. This includes making
long-term projections of market conditions, the physical condition of the system, and other
factors that could affect utility costs, and setting rates adequate to recover these costs. The City
does this with the goal of providing safe, reliable, and sustainable utility services at competitive
rates. The City adopts Financial Plans to summarize these projections.
B. The City uses reserves to protect against contingencies and to manage other
aspects of its operations, and regularly assesses the adequacy of these reserves and the
management practices governing their operation. The status of utility reserves and their
management practices are included in Reserves Management Practices attached to and made
part of the Financial Plans.
The Council of the City of Palo Alto does hereby RESOLVE as follows:
SECTION 1. The Council hereby adopts the FY 2020 Water Utility Financial Plan.
SECTION 2. The Council hereby approves the transfer of up to $5,000,000 in FY 2020
from the Operations Reserve to the Capital Improvement Projects Reserve, as described in the
FY 2020 Water Utility Financial Plan and approved via this resolution.
.
SECTION 3. The Council finds that the adoption of this resolution does not meet the
California Environmental Quality Act’s (CEQA) definition of a project under Public Resources
Code Section 21065 and CEQA Guidelines Section 15378(b)(5), because it is an administrative
governmental activity which will not cause a direct or indirect physical change in the
environment, and therefore, no environmental review is required.
INTRODUCED AND PASSED:
AYES:
NOES:
ABSENT:
ABSTENTIONS:
ATTEST:
Attachment A
* NOT YET APPROVED *
6055182
City Clerk Mayor
APPROVED AS TO FORM: APPROVED:
Assistant City Attorney City Manager
Director of Utilities
Director of Administrative Services
ATTACHMENT B
FY 2020 WATER
UTILITY
FINANCIAL PLAN
FY 2020 TO FY 2024
WATER UTILITY FINANCIAL PLAN
March 2019 2 | Page
FY 2020 WATER UTILITY
FINANCIAL PLAN
FY 2020 TO FY 202 4
TABLE OF CONTENTS
Section 1: Definitions and Abbreviations................................................................................ 4
Section 2: Executive Summary and Recommendations ........................................................... 4
Section 2A: Overview of Financial Position .................................................................................. 4
Section 2B: Summary of Proposed Actions .................................................................................. 6
Section 3: Detail of FY 2020 Rate and Reserves Proposals ....................................................... 6
Section 3A: Rate Design ............................................................................................................... 6
Section 3B: Current and Proposed Rates ..................................................................................... 6
Section 3C: Bill Impact of Proposed Rate Changes .................................................................... 10
Section 3D: Proposed Reserve Transfers ................................................................................... 11
Section 4: Utility Overview .................................................................................................. 11
Section 4A: Water Utility History ............................................................................................... 11
Section 4B: Customer Base ........................................................................................................ 12
Section 4C: Distribution System ................................................................................................. 12
Section 4D: Cost Structure and Revenue Sources ...................................................................... 12
Section 4E: Reserves Structure ................................................................................................... 13
Section 4F: Competitiveness ...................................................................................................... 14
Section 5: Utility Financial Projections ................................................................................. 14
Section 5A: Load Forecast .......................................................................................................... 14
Section 5B: FY 2014 to FY 2018 Cost and Revenue Trends ........................................................ 16
Section 5C: FY 2018 Results ....................................................................................................... 17
Section 5D: FY 2019 Projections ................................................................................................ 17
Section 5E: FY 2020 – FY 2024 Projections ................................................................................ 18
Section 5F: Risk Assessment and Reserves Adequacy ............................................................... 19
Section 5G: Long-Term Outlook ................................................................................................. 20
WATER UTILITY FINANCIAL PLAN
March 2019 3 | Page
Section 6: Details and Assumptions ..................................................................................... 21
Section 6A: Water Purchase Costs ............................................................................................. 21
Section 6B: Operations .............................................................................................................. 23
Section 6C: Capital Improvement Program (CIP) ....................................................................... 24
Section 6D: Debt Service ............................................................................................................ 27
Section 6E: Other Revenues ....................................................................................................... 28
Section 6F: Sales Revenues ........................................................................................................ 28
Section 7: Communications Plan .......................................................................................... 29
Appendices ......................................................................................................................... 30
Appendix A: Water Utility Financial Forecast Detail ................................................................. 31
Appendix B: Water Utility Capital Improvement Program (CIP) Detail ..................................... 33
Appendix C: Water Utility Reserves Management Practices ..................................................... 34
Appendix D: Description of Water Utility Operational Activities ............................................... 37
Appendix E: Sample of Water Utility Outreach Communications ............................................. 38
WATER UTILITY FINANCIAL PLAN
March 2019 4 | Page
SECTION 1 : DEFINITIONS AND ABBREVIATIONS
BAWSCA Bay Area Water Supply and Conservation Agency
CCF The standard unit of measurement for water delivered to water customers, equal to
one hundred cubic feet, or roughly 748 gallons.
CIP Capital Improvement Program
CPAU City of Palo Alto Utilities Department
O&M Operations and Maintenance
RFC Raftelis Financial Consultants, Inc.
SFPUC San Francisco Public Utilities Commission
SFWD San Francisco Water Department
UAC Utilities Advisory Commission
WSIP The SFPUC’s Water System Improvement Program to seismically strengthen the
transmission lines of the Hetch Hetchy Regional Water System.
SECTION 2 : EXECUTIVE SUMMARY AND RECOMMENDATIONS
This document presents a Financial Plan for the City’s Water Utility for the next five years. This
Financial Plan provides revenues to cover the costs of operating the utility safely over that time
while adequately investing for the future. It also addresses the financial risks facing the utility
over the short term and long term, and includes measures to mitigate and manage those risks.
SECTION 2 A : OVERVIEW OF FINANCIAL POSITION
Based on staff’s most recent analysis, staff expects overall costs in the Water Utility to rise on
average by about 3 to 4% per year from fiscal year (FY) 2019 to 2024. Operations cost
projections rise on average by about 4% annually through the projection period. Water supply
costs, the largest individual component of the utility’s costs, are projected to remain relatively
flat through FY 2022, based on current SFPUC projections, and then rise steeply thereafter due
to a series of major capital projects on the Hetch Hetchy Regional Water System. See Section
6A: Water Purchase Costs for more information. Capital costs were lower than budgeted in FY
2018 and will be lower than originally budgeted in staff’s projection for FY 2019 as some capital
projects will be shifted to FY 2020 and beyond. For FY 2021 through 2024, staff anticipates
annual capital expenditures will include several reservoir and tank rehabilitation projects and
will fluctuate due to planning for larger main replacement construction projects every other
year instead of smaller projects annually. This revised main replacement schedule will allow
CPAU to meet its main replacement needs while addressing challenges in the current
construction market and optimizing current staffing resources. Section 6C: Capital
Improvement Program (CIP) provides more detail on CIP costs. Table 1 below shows the costs
for the Water Utility from FY 2018 through FY 2024.
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Table 1: Expenses for FY 2018 to FY 2024 (Thousand $’s)
Expenses
($000)
FY
2018
(act.)
FY
2019
(est.)
FY
2020
FY
2021
FY
2022
FY
2023
FY
2024
Water
Purchases 21,958 22,482 22,178 21,878 21,582 23,012 25,409
Operations 16,829 16,815 18,610 19,066 19,481 20,507 20,875
Capital
Projects 8,169 5,575 16,944 5,882 13,136 4,253 13,350
TOTAL 46,956 44,872 57,732 46,825 54,199 47,771 59,634
This proposed financial plan projects that the Water Utility needs the rate increases shown in
Table 2 to ensure that revenues cover costs and reserves remain healthy. Staff projects a need
for sales revenue increases averaging roughly 3% per year through FY 2024. This is due to the
fact that revenue is currently below costs, water sales are projected to decline somewhat and
also little or no increase is expected in non-sales revenue (e.g. interest, connection fees).
The table also shows rate projections from last year’s Financial Plan. Last year’s plan projected
slightly higher rate increases. The table also shows rate projections from the Financial Plan from
two years ago, which included higher increase projections. However, delays in water main
replacement projects as well as post-drought sales revenues resulted in an increase in reserves,
which enabled the more gradual increases projected in the current plan. The FY 2018 financial
plan assumed that the Rate Stabilization Reserve would be drawn down faster and the
Operations Reserve run closer to the minimum guideline level for the next several years, in
accordance with the Finance Committee’s direction on April 17, 2018.
Table 2: Proposed and Projected Water Rate Changes for FY 2020 to FY 2024
Projection FY
2020
FY
2021
FY
2022
FY
2023
FY
2024
Current 1% 2% 3% 6% 6%
Last year 7% 7% 6% 4% 4%
2 years 6% 6% 6% 6% 2%
The Water Utility has a Rate Stabilization Reserve that can be used to smooth rate increases
over several years. This Financial Plan projects that these reserves will be utilized by the end of
FY 2024. The Water Utility also has a Capital Improvement Program (CIP) Reserve that can be
used to offset one-time unanticipated capital costs. The CIP Reserve balance of $2.726 million is
currently below the minimum guideline of 12 months of budgeted CIP expense (see Appendix
C, section 5). This Financial Plan replenishes that reserve by $5 million in FY 2020 to bring it
closer to the minimum guideline. The Water Utility Operations Reserve was above the
maximum guideline level at the end of FY 2018. However, these funds will be needed to fund
the Water Utility in FY 2019 and FY 2020, bringing the Operations Reserve within guidelines by
FY 2021. Table 3 shows the projected reserve transfers over the forecast period.
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Table 3: Transfers To/(From) Reserves for FY 2020 to FY 2024 ($000)
Reserve FY 2020 FY 2021 to FY 2024
Capital Improvement 5,000 4,000
Rate Stabilization - (4,069)
Operations (5,000) 69
SECTION 2 B : SUMMARY OF PROPOSED ACTIONS
Staff proposes the following actions for the Water Utility in FY 2020:
1. Increase rates to raise an additional 1% in revenue to fund increases to operations costs.
Section 3B: Current and Proposed Rates describes this increase in more detail.
2. Transfer $5 million from the Operations Reserve to the Capital Improvement Reserve.
See Section 3D: Proposed Reserve Transfers for more details.
SECTION 3 : DETAIL OF FY 2020 RATE AND RESERVES PROPOSALS
SECTION 3 A : RATE DESIGN
The Water Utility’s rates are evaluated and implemented in compliance with the cost of service
requirements and procedural rules set forth in the California Constitution under Article 13 (per
Proposition 218). The City structured current rates based on staff’s assessment of the financial
position of the Water Utility, and updated current rates using the methodology from the March
2012 Palo Alto Water Cost of Service & Rate Study by Raftelis Financial Consultants, Inc. (RFC)
(Staff Report 2676), RFC’s 2015 Memorandum: Proposed Water Rates updating the 2012 Study
and analyzing drought rates (Staff Report 5951), as well as RFC’s 2019 Memorandum updating
the 2012 study. Staff plans to update the cost of service study in 1 to 2 years, unless any major
changes occur to the utility’s operations or customer base that would necessitate an earlier
study. Before conducting any new cost of service study, staff will review current rates and the
scope of the study with the Utilities Advisory Commission (UAC) and Council to determine the
City’s policy priorities.
SECTION 3 B : CURRENT AND PROPOSED RATES
The current rates and surcharges were effective on July 1, 2018. Current rates reflect
adjustments in accordance with the results of an updated cost of service study performed by
RFC in 2015. The 2015 study developed the drought surcharges and evaluated the City’s water
rate methodology and structure in light of court decisions interpreting provisions of the State
Constitution applicable to water rates. In FY 2019, RFC again validated the City’s rate structure,
recommending only minor adjustments to ensure that costs were equitably allocated to each
customer class and residential rate tier. Raftelis’s 2019 memo titled “Proposed FY 2020 Water
Rates” (Attachment E) contains greater detail on this change.
CPAU has five rate schedules: separately metered residential customers (W-1), commercial and
master-metered multi-family residential customers (W-4), irrigation-only services (W-7),
WATER UTILITY FINANCIAL PLAN
March 2019 7 | Page
services to fire sprinkler systems in buildings and private hydrants (W-3), and service to fire
hydrant rental meters used for construction (W-2). All customers pay a monthly service charge
based on the size of their inlet meter. This charge represents meter reading, billing, and other
customer service costs, but also the cost of maintaining the capability to deliver a peak flow for
that customer corresponding to their meter size.
For small residential customers there may be different reasons for the meters to be oversized
to 1”, either to meet fire flow requirements for fire suppression purposes or to maintain water
pressure due to long service runs or their location within the system. This increase in meter
size does not impact the City’s infrastructure or the on-going maintenance requirements, since
lines and infrastructure are already sized to provide fire flow requirements. There is no need to
increase main size to meet supply requirements and therefore no additional cost to the utility.
Additionally, new residential developments in general are connected with at least 1” meters.
To ensure uniform administration and equitable cost allocation, staff proposes to charge all
residential customers with 5/8”, 3/4”, and 1” meters, which include fire flow, a uniform
monthly service fee. Residential customers with 3/4” and 1” meters will see a decrease in their
uniform monthly service fee and residential customers with 5/8” meters will see an increase in
their uniform monthly service fee. The cost to the City of providing service to these different
residential meter sizes are similar and therefore the City must fully recover the costs from these
customers in order to reflect the cost of providing service to residential customers with these
different meter sizes. Raftelis’s 2019 memo titled “Proposed FY 2020 Water Rates”
(Attachment E) contains greater detail on this change.
Unlike residential customers who typically have only one meter for all water uses (domestic,
irrigation and fire suppression), commercial customers are required to have a separate fire
service meter. This means that small commercial customers are not oversized up to 1” in order
to meet fire flow requirements. Commercial customers have meter sizes that are based on
water demands that are reflective of the customer’s actual daily and seasonal usage impact on
the City’s water system. For this reason, it is appropriate to continue to set small commercial
customer meter charges according to meter flow capacity as is the case under the current rates.
All customers are also charged for each CCF (one hundred cubic feet) of water used. Separately
metered residential customers are charged on a tiered basis, with the first 0.2 CCF per day (6
CCF for a 30 day billing period) charged at the first tier price per CCF, and all additional units
charged a higher tier price per CCF. Commercial customers pay a uniform price for each CCF
used, and a higher price for separately metered irrigation service.
For July 1, 2019, staff is proposing an overall increase in revenues of approximately one
percent. Water rates are composed of two general types of costs: commodity and distribution.
Commodity costs are mainly volumetric in nature and charged by the San Francisco Public
Utilities Commission (SFPUC). In April 2018, the SFPUC provided a preliminary estimate that
their W-25 wholesale rate for agencies with long-term contracts would remain at $4.10/CCF in
FY 2020. The SFPUC will not determine its final rate until May or June, 2019. However, in order
to have the City’s water rates in place for July 1, 2019 staff must notify customers by the end of
April, 2019. Staff is using the SFPUC’s April 2018 estimate in this forecast.
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Distribution rates cover all the costs to deliver water within the City, such as operations,
maintenance, metering and billing, and capital improvement. Staff is reflecting changes in
Capital improvement costs in distribution costs; these costs are projected to remain fairly
constant over the next five years. Operations costs are discussed in Section 6B: Operations,
below.
Staff is proposing to separate the commodity cost of purchased water from SFPUC from the
distribution-related portion of the volumetric rates to facilitate passing through future SFPUC
rate increases. All customers will pay this separate commodity cost for each unit of water in
addition to the volumetric rate that is applicable for their customer class. Raftelis’s 2019 memo,
“Proposed FY 2020 Water Rates”, contains greater detail on this change. California Government
Code Section 53756 (established by AB-3030) became effective January 1, 2009. This section of
the Code authorizes public agencies providing water, sewer, and garbage services to adopt
automatic pass-through rate adjustments to account for increases in wholesale water charges
or wastewater treatment charges, as well as inflation. Pass-throughs must be adopted via the
Proposition 218 process and can be effective for up to five years without additional Prop 218
authorization.
Table 4 shows the current and proposed consumption charges.
Table 4: Current and Proposed Water Consumption Charges
Current (7/1/18)* Proposed
(7/1/19)
Change
($/CCF)^
W-1 (Residential), W-2(Construction), W-3(Commercial) and W-7 (Irrigation)
Volumetric Rate ($/CCF)
Commodity
Rate - 4.10 4.10 -
W-1 (Residential) Volumetric Rates ($/CCF)
Tier 1 Rates 6.64 2.54 2.56 0.02
Tier 2 Rates 9.44 5.34 5.97 0.63
W-2 (Construction) Volumetric Rates ($/CCF)
Uniform Rate 7.77 3.67 3.61 (0.06)
W-4 (Commercial) Volumetric Rates ($/CCF)
Uniform Rate 7.77 3.67 3.61 (0.06)
W-7 (Irrigation) Volumetric Rates ($/CCF)
Uniform Rate 9.33 5.23 5.50 0.27
*Rates effective 7/1/18 did not list the $4.10 commodity rate
separately, as the proposal for the 2019 rates does.
^Change percentages not included because the rates effective
7/1/18 did not list the $4.10 commodity rate separately while
the proposal for the 2019 rates does.
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Table 5 shows the current and proposed monthly service charges for rate schedules W-1.
Table 5: Current and Proposed Monthly Service Charges for W-1
Meter
Size
Monthly Service Charge
($/month based on meter size)
Change
Current (7/1/18)
Residential (W-1)
Proposed (7/1/19)
Residential (W-1)
$ %
5/8” $18.43 $20.25 $1.82 10%
3/4” $24.83 $20.25 ($4.58) (18%)
1” $37.64 $20.25 ($17.39) (46%)
1 ½” $69.66 $65.40 ($4.26) (6%)
2” $108.08 $101.17 ($6.91) (6%)
3” $229.75 $214.44 ($15.31) (7%)
4” $409.05 $381.37 ($27.68) (7%)
6” $838.09 $780.79 ($57.30) (7%)
8” $1,542.50 $1,436.57 ($105.93) (7%)
10” $2,439.01 $2,271.20 ($167.81) (7%)
Table 6: Current and Proposed Monthly Service Charges for W-4 and W-7
Meter
Size
Monthly Service Charge
($/month based on meter size)
Change
Current (7/1/18)
Commercial (W-4)
Irrigation (W-7)
Proposed (7/1/19)
Commercial (W-4)
Irrigation (W-7)
$ %
5/8” $18.43 $17.71 ($0.72) (4%)
3/4” $24.83 $23.67 ($1.16) (5%)
1” $37.64 $35.59 ($2.05) (5%)
1 ½” $69.66 $65.40 ($4.26) (6%)
2” $108.08 $101.17 ($6.91) (6%)
3” $229.75 $214.44 ($15.31) (7%)
4” $409.05 $381.37 ($27.68) (7%)
6” $838.09 $780.79 ($57.30) (7%)
8” $1,542.50 $1,436.57 ($105.93) (7%)
10” $2,439.01 $2,271.20 ($167.81) (7%)
12” $3,207.45 $2,986.60 ($220.85) (7%)
Table 7 shows the current and proposed monthly service charges for rate schedule W-3
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Table 7: Current and Proposed Monthly Service Charges for Fire Services (W-3)
Meter
Size
Monthly Service Charge
($/month based on meter size)
Change
Current (7/1/18) Proposed (7/1/19) $ %
2” $4.16 $4.17 $0.01 0%
4” $25.73 $25.81 $0.08 0%
6” $74.74 $74.96 $0.22 0%
8” $159.28 $159.74 $0.46 0%
10” $286.43 $287.27 $0.84 0%
12” $462.67 $464.02 $1.35 0%
SECTION 3 C : BILL IMPACT OF PROPOSED RATE CHANGES
Table 8 shows the impact of the proposed July 1, 2019 rate changes on the median residential
bill. The system average increase is projected to be about one percent, but some customers will
see higher or lower increases due to slight changes in the composition of customer’s utilization
of the system over time, as well as changes to the utility’s costs.
Table 8: Impact of Proposed Water Rate Changes on Residential Bills
Usage
(CCF/month)
Bill under
Current Rates
(7/1/18)
Bill under
Proposed
Rates (7/1/19)
Change
$/mo. %
4 $44.99 $46.89 $1.90 4%
(Winter median) 7 $67.71 $70.28 $2.57 4%
(Annual median) 9 $86.59 $90.42 $3.83 4%
(Summer median) 14 $133.79 $140.77 $6.98 5%
25 $237.63 $251.54 $13.91 6%
Table 9 shows the impact of the proposed July 1, 2019 rate changes on various representative
commercial customer bills.
Table 9: Impact of Proposed Water Rate Changes on Commercial Bills
Usage
(CCF/month)
Bill under
Current Rates
(7/1/18)
Bill under
Proposed
Rates
(7/1/19)
Change
$/mo. %
Commercial (W-4) (5/8” meters)
(Annual median) 12 $111.67 $110.23 ($1.44) (1%)
(Annual average) 64 $515.71 $511.15 ($4.56) (1%)
Irrigation (W-7) (1 ½” meters)
(Winter median) 9 $ 153.63 $151.80 ($1.83) (1%)
(Summer median) 37 $ 414.87 $420.60 $5.73 1%
(Winter average) 56 $ 592.14 $603.00 $10.86 2%
(Summer average) 199 $ 1,926.33 $1,975.80 $49.47 3%
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March 2019 11 | Page
SECTION 3 D : PROPOSED RESERVE TRANSFERS
In the FY 2018 Financial Plan, staff proposed transferring $1.87 million from the Rate
Stabilization Reserve to the Operations Reserve in FY 2018. This transfer was not necessary as
increased sales during FY 2017 resulted in larger than expected revenues, largely from the
drought surcharge. The drought surcharge was discontinued at the start of FY 2018. Customer
sales recovery after the drought continues to be more robust than staff’s initial projections, and
the Operations Reserve has remained healthy.
Based upon current reserve levels and the deferral of new main replacement spending in FY
2020, staff is recommending that $5 million be transferred to the CIP reserve, which currently
has $2.7 million and is below the minimum level of 12 months of budgeted CIP expense. In FY
2021, an additional transfer of $2.069 million to the CIP reserve from the Rate Stabilization
Reserve is projected as well as a transfer of $1.931 million from the Operations Reserve to the
CIP reserve.
Section 4E: Reserves Structure and Appendix A: Water Utility Financial Forecast Detail shows
details of reserves levels.
SECTION 4 : UTILITY OVERVIEW
This section provides an overview of the utility and its operations. It provides general
background information and helps readers better understand the forecasts in Section 5: Utility
Financial Projections and Section 6: Details and Assumptions.
SECTION 4 A : WATER UTILITY HISTORY
The Water Utility was established on May 9, 1896, two years after the city was incorporated.
Voters of the 750 person community approved a $40,000 bond to buy local, private water
companies who operated one or more shallow wells to serve the nearby residents. The city
grew and the well system expanded until nine wells were in operation in 1932. Palo Alto began
receiving water from the San Francisco Water Department (SFWD) in 1937 to supplement these
sources.
A 1950 engineering report noted, “the capricious alternation of well waters and the San
Francisco Water Department water…has made satisfactory service to the average customer
practically impossible”. By 1950, only eight wells were still in operation. Despite this,
groundwater production increased in the 1950’s leading to lower groundwater tables and water
quality concerns. In 1962, a survey of water softening costs to CPAU customers determined that
CPAU should purchase 100% of its water supply needs from the SFWD. CPAU signed a 20-year
contract with SFWD, and CPAU’s wells were placed in standby condition. The SFWD later
became known as the SFPUC. Since 1962 (except for some very short periods) CPAU’s entire
supply of potable water has come from the SFPUC.
As the city grew, so did the number of mains in the water system. The system of mains
expanded along with the city, while existing sections of the system continued to age. In the
mid-1980s, the number of breaks in cast iron mains installed during the 1940s and earlier
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started to accelerate. In FY 1994, to combat deterioration of older sections of the system, CPAU
performed an analysis of cost effective system improvements and increased the rate of main
replacement from one mile per year to three. CPAU began a plan to replace 75 miles of
deficient mains within 25 years.
In 1999, a study of system reliability concluded that the distribution system needed major
upgrades to provide adequate water supply during a natural disaster. This ultimately resulted in
the $40 million Emergency Water Supply and Storage Project, completed in 2013, which
involved a new underground reservoir in El Camino Park, the siting and construction of several
emergency supply wells, and the upgrade of several existing wells and the Mayfield pump
station. Upon completion, the city began to focus reliability efforts on its system of water
storage reservoirs and transmission lines in the Foothills.
At the same time that CPAU was evaluating the reliability of its own system, the SFPUC, in
consultation with BAWSCA members, was evaluating the reliability of the Hetch Hetchy
Regional Water System, which crosses two major fault lines between the Sierras and the Bay
Area. That evaluation concluded that major upgrades to the system were required. This
planning process culminated in the SFPUC’s $4.8 billion Water System Improvement Project
(WSIP), which is ongoing. The SFPUC continues to evaluate its aging system for other needed
infrastructure improvements.
SECTION 4 B : CUSTOMER BASE
CPAU’s Water Utility provides water service to the residents and businesses of Palo Alto, plus a
handful of residential customers not in Palo Alto (Los Altos Hills, primarily). Nearly 20,300
customers are connected to the water system, approximately 16,500 (81%) of which are
separately metered residential customers and 3,800 (19%) of which are commercial, master-
metered residential, irrigation and fire service customers.
Judging from seasonal consumption patterns, between 35% and 50% of Palo Alto’s water is
used for irrigation, and that consumption is heavily weather dependent. It also varies
significantly by season. As a result of these two factors, there is significant variability in the
amount of water that is demanded from the system month to month and year to year.
SECTION 4 C : DISTRIBUTION SYSTEM
To deliver water to its customers, CPAU owns roughly 233 miles of mains (which transport the
water from the SFPUC meters at the city’s borders to the customer’s service laterals and
meters), eight wells (to be used in emergencies), five water storage reservoirs (also for
emergency purposes) and several tanks used to moderate pressure and deal with peaks in flow
and demand (due to fire suppression, heavy usage times, etc.). These represent the vast
majority of the infrastructure used to distribute water in Palo Alto.
SECTION 4 D : COST STRUCTURE AND REVENUE SOURCES
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Figure 1: Cost Structure (FY 2018)
47%
36%
17%
Water Purchases
Operations
Capital
Figure 2: Revenue Structure (FY 2018)
97%
3%
Sales of Water
Other Revenue
As shown in Figure 1, water purchase
costs accounted for 47% of the Water
Utility’s costs in FY 2018 Operational
costs represented 36%, and capital
investment was responsible for the
remaining 17%. Staff projects these
percentage distributions to remain
similar over the forecast period with the
capital investment increasing to
approximately 19% of the Water Utility’s
costs.
The Water Utility receives nearly all of its
revenue from sales of water and the
remainder from capacity and connection
fees, interest on reserves, and other
sources. Appendix A: Water Utility
Financial Forecast Detail shows more
detail on the utility’s cost and revenue
structures. Approximately 16% of the
utility’s revenues come from fixed
service charges, though most of its costs
are fixed.
SECTION 4 E : RESERVES STRUCTURE
CPAU maintains six reserves for its Water Utility to manage various types of contingencies. The
descriptions below summarize these reserves; see Appendix C: Water Utility Reserves
Management Practices for more detailed definitions and guidelines for reserve management:
• Reserve for Commitments: A reserve equal to the utility’s outstanding contract
liabilities for the current fiscal year. Most City funds, including the General Fund, have a
Commitments Reserve.
• Reserve for Reappropriations: A reserve for funds dedicated to projects reappropriated
by the City Council, nearly all of which are capital projects. Most City funds, including
the General Fund, have a Reappropriations Reserve.
• Capital Improvement Program (CIP) Reserve: The CIP reserve can be used to
accumulate funds for future expenditure on CIP projects, as well as to manage cash flow
for ongoing capital projects. This CIP can also act as a contingency reserve for the CIP.
This type of reserve is used in other utility funds (Electric, Gas, and Wastewater
Collection) as well.
• Rate Stabilization Reserve: This reserve is intended to be empty unless the city
anticipates one or more large rate increases in the forecast period. In that case, funds
can be accumulated to spread the impact of those future rate increases across multiple
years. This type of reserve is used in other utility funds (Electric, Gas, and Wastewater
Collection) as well.
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• Operations Reserve: This is the primary contingency reserve for the Water Utility, and is
used to manage yearly variances from the budget for operational water supply costs.
This type of reserve is used in other utility funds (Electric, Gas, and Wastewater
Collection) as well.
• Unassigned Reserve: This reserve is for any funds not assigned to the other reserves
and is normally empty.
SECTION 4 F : COMPETITIVENESS
Table 9 shows the current water bills for residential customers compared to what they would
be under surrounding communities’ rate schedules. CPAU has the highest monthly bills of the
group, although bills for smaller water users are less than in some surrounding communities.
Table 10: Residential Monthly Water Bill Comparison
Usage
(CCF/month)
Residential monthly bill comparison ($/month)*
As of February 2019
Palo
Alto
Menlo
Park
Mountain
View Hayward
Redwood
City
Santa
Clara
4 44.99 52.84 37.47 35.20 54.04 23.92
(Winter median) 7 67.71 76.44 58.08 56.62 76.09 41.86
(Annual median) 9 86.59 92.17 71.82 70.90 90.79 53.82
(Summer median) 14 133.79 133.34 106.17 108.51 138.94 83.72
25 237.63 224.91 222.94 201.02 267.39 149.50
* 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.
SECTION 5 : UTILITY FINANCIAL PROJECTIONS
SECTION 5 A : LOAD FORECAST
Figure 3 shows 40 years of water consumption history. Average water use has trended
downward over time even as Palo Alto’s population has grown. Significant water use reductions
over the 40-year history were in response to requests to reduce water use in the 1976-77 and
1988-92 drought periods. During these periods, customers invested in efficient equipment and
modified behavior to achieve water reduction goals. Reductions in usage achieved during these
drought periods endured even after those periods. More recently, water sales decreased
substantially during the 2007-2009 recession and during the 2014-2017 drought. Usage has
started to return to pre-drought levels, though the level at which usage will finally plateau is
unknown.
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Figure 3: Historical Water Consumption
Figure 4 shows the forecast of water consumption through FY 2024 and beyond, as denoted by
the dotted line.
Figure 4: Forecast Water Consumption
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During the recent drought, the State mandated a 24% water use restriction for Palo Alto until
May 2016. Customers continue to conserve, but water usage has been increasing. Based on
patterns experienced in previous droughts, this forecast assumes consumption will only
rebound by 50% of the difference between pre-drought and drought levels, then resume with
the previous trend of decreasing usage over time.
SECTION 5 B : FY 201 4 TO FY 2018 COST AND REVENUE TRENDS
Figure 5 and the tables in Appendix A: Water Utility Financial Forecast Detail show how costs
have changed during the last five years as well as how staff projects they will change over the
next decade.
The annual expenses for the water utility rose substantially between 2014 and 2018. The
increases were primarily related to water purchase costs, which increased 40% from $15.7
million in FY 2014 to $21.9 million in FY 2018. Section 6A: Water Purchase Costs contains a
more in-depth discussion of water purchase costs. Operations costs have remained fairly steady
since FY 2014, increasing by about 7%, while CIP costs have generally increased but fluctuated
down in certain years. For example, in FY 2017, delays were in part due to the rising CIP costs;
during that year a water main replacement project that was put out for bid resulted in very few
contractors competing, and project bids that were higher than budgeted.
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Figure 5: Water Utility Expenses, Revenues, and Rate Changes:
Actual Costs through FY 2018 and Projections through FY 2024
SECTION 5 C : FY 2018 RESULTS
Actual revenues for FY 2018 were slightly higher than projected ($48.2 million vs. $47.9 million).
Operating costs were lower during FY 2018, mainly due to savings in rent, operations and
maintenance and customer service expenses. Table 11 summarizes the variances from forecast.
Table 11: FY 2018, Actual Results vs. Financial Plan Forecast Net Cost/
(Benefit) (000)
Type of
change
Higher net sales and other revenues $ (303) Revenue increase
Water purchase cost lower than expected $ (104) Cost savings
Rent savings $ (1,156) Cost savings
Operations and maintenance costs lower than expected $ (740) Cost savings
Net Cost / (Benefit) of Variances $ (2,303)
SECTION 5 D : FY 2019 PROJECTIONS
Estimated sales revenues are expected to decrease slightly by about $0.8 million. On the
expense side, the most notable change from the FY 2019 budget identified at this time is
changes to CIP expenditures. Approximately $11.2 million in projects budgeted in FY19 or
earlier are slated to be re-appropriated to FY2020, the largest being main replacement project
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27, estimated at $6.5 million, and some seismic water system upgrades, estimated at $2
million. The net effect on FY19 CIP budget is estimated at about $8 million. Operations expense
decreases are anticipated from lower than expected operations budgets. Table 12 summarizes
the changes from last year’s forecast.
Table 12: FY 2019 Change in Projected Results, 2019 Forecast vs 2020 Forecast Net Cost/
(Benefit)
Type of
Change
Lower net revenues from sales and other income $786 Revenue decrease
Deferral of capital project spending ($8,120) Cost decrease
Lower estimated rent costs ($1,264) Cost decrease
Lower operations budget estimates $(1,193) Cost decrease
Net Cost / (Benefit) of Variances ( $9,790)
SECTION 5 E : FY 2020 – FY 2024 PROJECTIONS
Figure 5 above shows that on average the costs for the Water Utility are increasing through the
rest of the forecast period, though mainly after FY 2022 based on current estimates from the
SFPUC. Water supply costs are the largest component, and are generally projected to grow by
about 2.5 percent on average over the forecast period. Operations and capital investment costs
are also expected to increase at the same rate of inflation used in the City’s long-term financial
plans (3% to 5% per year), which also take into account higher estimated pension costs. While
future CIP costs have been revised upwards to reflect the higher construction costs seen in
recent projects, there is still uncertainty with regard to the utility’s future costs for main
replacement. See Section 6: Details and Assumptions for more detail on the costs that make up
these projections, as well as the various assumptions underlying the projections.
As shown in Figure 5, above, staff currently projects revenues to be below expenses for FY
2020. Revenues are expected to exceed expenses in FY 2019 due to delays in water main
replacement projects. As main replacement work resumes, the Water Utility requires rate
increases of between 1% and 6% per year through FY 2024 to bring revenues up to match
annual expenses. This forecast assumes the use of the Rate Stabilization Reserve to spread the
increases over multiple years. In addition, the Capital Improvement Reserve is available to assist
in funding Capital Improvements going forward.
Figure 6 below shows reserves trends based on these revenue projections. Staff projects the
Rate Stabilization Reserve to have a zero balance by the end of FY 2024, and based upon a
surplus of funds above the Operations Reserve maximum guideline level, the CIP Reserve is
recommended to have an additional $5 million infusion in FY 2020. Assuming the projected
increases in revenue, staff expects the Operations Reserve, the main contingency reserve, to be
within the target range during the forecast period, and that this reserve will be adequate to
meet all identified risks, as discussed in Section 5F: Risk Assessment and Reserves Adequacy. In
addition, the Unassigned reserve reflects reserve funds in the Operations reserve above the
maximum guideline level. With the expected increase in costs in FY 2020 and FY 2021, these
excess reserves will be utilized quickly and moderate the pace of increases going forward, but
must be used before Rate Stabilization Reserve funds are utilized.
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Figure 6: Water Utility Reserves
Actual Reserve Levels for FY 2018 and Projections through FY 2024
SECTION 5 F : RISK ASSESSMENT AND RESERVES ADEQUACY
The Water Utility currently has one contingency reserve, the Operations Reserve, and this
Financial Plan proposes using funds and raising rates slowly such that reserves remain well
within the guideline levels throughout the forecast period, as shown in Figure 7. Funds in excess
of the maximum as of the end of FY 2019 will be recommended to be moved to the Unassigned
Reserve. While the Operations Reserve not projected to drop below the minimum reserve level
during this forecast period, it is expected to exceed the short term risk assessment for the
utility.
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Figure 7: Operations Reserve Adequacy
Table 13 summarizes the risk assessment calculation for the Water Utility through FY 2024. The
risk assessment includes the revenue shortfall that could accrue due to:
1. Lower than forecasted sales revenue; and
2. An increase of 10% of planned system improvement CIP expenditures for the budget
year.
Table 13: Water Risk Assessment ($000)
FY 2020 FY 2021 FY 2022 FY 2023 FY 2024
Total non-commodity revenue $19,343 $20,232 $21,042 $21,673 $21,424
Max. revenue variance, previous ten years 13% 13% 13% 13% 13%
Risk of revenue loss $1,795 $1,877 $1,952 $2,011 $1,988
CIP Budget $16,944 $5,882 $13,136 $4,253 $13,350
CIP Contingency @10% $1,694 $588 $1,314 $425 $1,335
Total Risk Assessment value $3,489 $2,465 $3,266 $2,436 $3,323
SECTION 5 G : LONG-TERM OUTLOOK
CPAU has put its Water Utility on strong footing by investing in its distribution system
infrastructure and emergency water facilities over the last 20 years. The Water System Master
Plan, recently completed and under review, will give CPAU a better picture of the long-term
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outlook for its infrastructure and will result in a plan for an appropriate schedule for
infrastructure replacement and upgrades. In addition, CPAU’s water supplier, the SFPUC, has
replaced and seismically strengthened its water transmission infrastructure, which will benefit
Palo Alto and all Hetch Hetchy customers over the long term.
The opportunities for CPAU’s Water Utility to obtain additional supplies over the long term may
be in alternative water supplies such as recycled water, groundwater, and water from the Santa
Clara Valley Water District. These alternatives have been analyzed in the past, and were
analyzed again most recently in the 2017 Water Integrated Resource Plan1. Some of these
alternatives may provide cost savings or increased drought protection.
Climate change may begin to present challenges for the Water Utility over the next 20 to 40
years. Availability of water from SFPUC’s Regional Water System may change with changing
seasonal precipitation patterns. Water consumption patterns may change. Consumption could
increase due to drier weather or decrease as customers become even more focused on water
conservation. Droughts may become more frequent. The risk of wildfire in the foothills could
increase, possibly threatening utility infrastructure or placing greater demands on it. Sea level
rise could result in greater exposure of utility infrastructure to inundation, possibly resulting in
higher maintenance and replacement costs. As part of the Sustainability/Climate Action Plan,
CPAU is currently working on a Climate Change Adaptation Roadmap that will begin to assess
some of these risks.
SECTION 6 : DETAILS AND ASSUMPTIONS
SECTION 6 A : WATER P URCHASE COSTS
CPAU purchases all of the potable water supplies from the SFPUC, which owns and operates the
Hetch Hetchy Regional Water System. CPAU is one of several agencies that purchase water
from the SFPUC, all of whom are members of the Bay Area Water Supply and Conservation
Agency (BAWSCA). Palo Alto uses roughly 7% of the water delivered by the SFPUC to BAWSCA
member agencies.
The Hetch Hetchy Regional Water System begins with a system of reservoirs and tunnels in the
high Sierra in Yosemite County and water is transported by a gravity-fed pipeline to the Bay
Area. Currently, the SFPUC is in the midst of a $4.8 billion bond-financed capital improvement
program (the Water System Improvement Program, or WSIP) to seismically retrofit the facilities
that transport water to the Bay Area. As of December 31, 2018, nearly 96% of the WSIP regional
projects are complete.2 This has resulted and will continue to result in large increases in the
annual debt service costs assigned to wholesale customers like Palo Alto. After each WSIP
project is completed, wholesale customers must start paying the debt service costs within 3 to
4 years. The currently estimated WSIP completion date is December 30, 2021, as adopted by
the SFPUC in March of 2018. In large part because of these WSIP-related debt service costs, the
1 2017 Water Integrated Resource Plan: https://www.cityofpaloalto.org/civicax/filebank/documents/56088
2 Second Quarter FY 2018-19 WSIP Regional Quarterly Report, http://www.sfwater.org/index.aspx?page=307
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SFPUC’s wholesale water rate has already increased from $1.43 per CCF in FY 2009 to $4.10 per
CCF in FY 2019, and is forecast to increase to slightly more than $5 per CCF by FY 2024 (these
projections are subject to change based on future SFPUC budget estimates). Figure 8 shows the
SFPUC’s actual wholesale water rate since FY 2009 and a projection through FY 2024 and
beyond. Note that the wholesale water rate decreased in FY 2014, but the apparent rate
decrease is due to a part of the debt being directly paid by the BAWSCA agencies. This cost is
paid in addition to the wholesale water rate and adds about $0.35 to $0.45 per CCF to the
wholesale rate.
Parts of SFPUC’s system not included in the WSIP will also need rehabilitation after the WSIP is
completed, and some of these projects are already included in the SFPUC’s rate projections,
such as additional Transmission, Supply & Storage and Treatment system upgrade projects,
slated to start after the WSIP ends. The SFPUC is also conducting condition assessments of
other “up-country” facilities, located in the Sierras, in the coming years. Current estimates are
that $1.8 billion will be needed between FY 2019 and FY 2028 primarily for these non-WSIP
projects, but if these assessments identify other facilities that need replacement, it may result
in additional rate increases as new debt is issued to finance the projects.
In April 2018, the SFPUC provided an estimate for FY 2020 wholesale water rates to remain at
$4.10 per CCF. However, there is much uncertainty surrounding the level of continued water
usage by the BAWSCA agencies as the drought effects continue.
Sales have been increasing since the end of the drought in 2017. If that trend continues in
upcoming years, rate projections may level out. However, if snow and rain do not materialize in
future years further calls for restricted usage may reoccur.
Figure 8: Historical and Projected SFPUC Wholesale Water Rate
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During FY 2017 through FY 2019, the balancing account for SFPUC’s wholesale customers built
up an over-collection of revenue due to wholesale customer revenues exceeding costs. This is
because SFPUC sold more wholesale water than its sales projection used for rate setting.
Additional reasons for the balancing account balance are the cost savings in the wholesale
revenue requirement due to the SFPUC’s debt refinancing, and credits applied to the balancing
account due to BAWSCA’s annual review of the wholesale revenue requirement calculations.
These balancing account funds will be refunded approximately between 2020 and 2023, which
allows some rate stabilization of SFPUC’s wholesale rates. If it weren’t for this rate stabilization
effect of the balancing account, Palo Alto would pay higher rates in FY 2020 for water
purchased from SFPUC.
SECTION 6 B : OPERATIONS
CPAU’s Water Utility operations include the following activities:
• Administration, a category that includes charges allocated to the Water Utility for
administrative services provided by the General Fund and for Utilities Department
administration, as well as debt service and other transfers. Additional detail on Water
Utility debt service is provided in Section 6D: Debt Service
• Customer Service
• Engineering work for maintenance activities (as opposed to capital activities)
• Operations and Maintenance of the distribution system; and
• Resource Management
Appendix D: Description of Water Utility Operational Activities includes detailed descriptions of
the work associated with each of these activities.
From FY 2014 to FY 2018, overall Operations costs increased 1.7% per year on average (see
Figure 9). Operations and Maintenance costs were the main driver, followed by Administration
and Resource Management costs. Transfers have varied from year to year, but are expected to
remain relatively low and stable through the forecast period.
Staff project inflationary increases for all operations costs with underlying assumptions for
salary and benefit costs, consumer price index, and other cost projections that match the City’s
long-range financial forecast.
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Figure 9: Historical and Projected Operational Costs
SECTION 6 C : CAPITAL IMPROVEMENT PROGRAM (CIP)
The Water Utility’s CIP consists of the following types of projects:
• One time projects, or large, non-recurring replacement of system assets (such as
reservoir rehabilitation).
• Water main replacement, which represents the ongoing replacement of aging water
mains, and sometimes the services associated with those mains.
• Ongoing projects, which represent the cost of replacing aging and under-recording
meters and degraded boxes and covers, minor replacements of various types of
distribution system equipment, and the cost of capitalized tools and equipment.
• Customer connections, which represents the cost when the Water Utility installs new
services or upgrades existing services at a customer’s request in response to
development or redevelopment. CPAU charges a fee to these customers to cover the
cost of these projects.
Table 14 shows the FY 2019 projected budget and the five year CIP spending plan, although
these figures are preliminary pending budget discussions starting in May. The ‘committed’
column represents funds committed to contracts for which work has not yet been completed or
invoices paid. As mentioned earlier in this report, $11.2 million of funds in the Current Budget
column will be carried over to FY 2020.
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Table 14: Budgeted Water Utility CIP Spending ($000)
The water main replacement program funds the replacement of deteriorating water mains. The
water system consists of over 236 miles of mains, approximately 2,000 fire hydrants, and over
20,000 metered service connections spanning 9 pressure zones over a 26 square mile service
area. CPAU utilizes an asset management database in conjunction with hydraulic modeling
software to prioritize capital improvements. CPAU selects mains for replacement by
researching the maintenance history of the system and identifying those that are undersized,
corroded, and subject to recurring breaks. CPAU uses a scoring system based on criticality in
order to prioritize which mains to replace first, and coordinates with the Public Works street
maintenance program to avoid cutting into newly repaved streets. In recent years, CPAU has
already replaced many of the most leak-prone and deteriorated pipes. CPAU is currently
pursuing a pipe replacement program of 13.5 miles of mains within the next decade. The main
replacement schedule in this financial plan will allow CPAU to replace these mains on schedule.
Costs for the water main replacement program are increasing for a variety of reasons:
• Fire Code regulations now mandate fire sprinklers for new residential units. To
accommodate increased fire flows, new main replacement projects require larger
diameter pipe.
• CPAU has switched to high-density polyethylene (HDPE) for its mains. Installation costs
for this material are slightly higher, though lifecycle costs are lower, and the material
performs better. Joints in distribution mains are the most likely place for failure, and
sections of HDPE pipe can be fused together rather than connected with fittings. In the
long run, this will reduce losses and maintenance costs.
• To take full advantage of HDPE’s fusibility, CPAU is now replacing the services along
with the water mains with new HDPE services. In the past, the existing services were
reconnected, regardless of the material. This new practice costs more in the short run,
but will provide long term benefits.
• Lastly, costs have escalated after the recession. The regional and even national focus
on infrastructure improvement has created labor shortages in the construction market,
leading to higher bids than were seen in the past.
These factors have created some uncertainty in future water main replacement costs. As bids
for new projects, such as upgrades to University Avenue, have consistently come in higher over
the last few years, future main replacement project budgets have been increased from prior
year’s estimates to reflect expected bid estimates. If the cost of water main replacement
continues to rise at its current levels, budgets may need to be revised further. Construction
Project Category
Current
Budget*
Spending,
Curr. Yr
Remain.
Budget**Committed FY 2020 FY 2021 FY 2022 FY 2023 FY 2024
One Time Projects 7,195 (561) 6,634 2,729 2,000 2,000 - - -
Water Main Replacement 13,768 (3,473) 10,295 2,243 - - 9,350 - 9,350
Ongoing Projects 3,250 (331) 2,919 532 2,182 2,239 2,099 2,161 2,224
Customer Connections 766 (419) 347 46 754 777 800 824 849
TOTAL 24,979 (4,784) 20,195 5,549 4,935 5,016 12,249 2,985 12,423
*Includes unspent funds from previous years carried forward or reappropriated into the current fiscal year
**Equal to CIP Reserves (Reserve for Reappropriations + Reserve for Commitments).
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costs continue to rise and keeping and maintaining qualified staff to design and work on
projects is an ongoing challenge. Currently, there are engineering and field inspector vacancies.
However, CPAU is nearing the end of a long term water main replacement program initiated in
1993 to replace the oldest and most degraded parts of the system. Roughly 25% of the system
has been replaced, and the rate of water leaks has decreased 50%. CPAU initiated a master
planning process in FY 2015 that was completed in 2016 to evaluate the current state of the
distribution system and determine the necessary rate of main replacement in future years.
This financial plan addresses these challenges in a way that will allow CPAU to meet its main
replacement needs. This financial plan includes approximately $8.5 million every other year for
main replacement construction instead of $5.7 million annually. This shift to larger main
replacement construction projects every other year will allow CPAU to meet its main
replacement needs (replace 13.5 miles of mains within the next decade) while attracting more
contractors to bid on the larger projects. Additionally, this main replacement project schedule
for water will be staggered with wastewater and gas (water and wastewater construction every
even year and gas construction every odd year), which will ease scheduling difficulties for
inspection coverage due to shared inspection staff across water, wastewater, gas, and large
development services projects.
There is no new main replacement budgeted in FY 2020 or FY 2021. However, work will
continue on ongoing main replacement projects in FY 2020 and FY 2021. This staggered
schedule for water main replacement will allow staff to focus on current priorities such as the
Upgrade Downtown project, and water reservoir upgrades. As the staff vacancies become filled
and construction costs stabilize, staff can re-evaluate the need to return to an annual
replacement program.
Included in the one-time project budget are seismic water system upgrades and/or
replacement for the Corte Madera, Park, Boronda and Dahl reservoirs to improve earthquake
resistance. This work will improve protection from water loss at these reservoirs in a seismic
event. If an earthquake caused a significant water leak, this could lead to loss of water for
firefighting, loss of water storage for drinking, property damage from flooding or mudslides,
and environmental damages. Work has begun on this project in 2019 and staff estimates this
work will cost an additional $2 million each year in FY 2020 and FY 2021. AMI projects are now
planned to begin in 2024 and will be included as an inter-fund transfer to the electric fund, or a
loan payment to the Electric Special Projects Reserve.
One project not included in this forecast is the seismic strengthening of a large water
transmission line in the foothills. Staff has engaged a consultant to investigate alternatives for
this project. The consultant is analyzing an alternative that involves installing a valve and hose
system that could be used to bypass breaks in the line while they are repaired after an
earthquake. This is a relatively low cost alternative that would not substantially affect the
financial forecast. The study is not finalized yet, however, and if it is determined that the entire
pipeline needs to be replaced, it could cost between $15 million and $20 million, which would
likely require bond financing and would substantially affect the financial forecast.
Ongoing Projects and Customer Connections are projected to cost approximately $2.9 million in
FY 2020 and increase to approximately $3 million per year through the end of the forecast
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period. Actual expenses for these projects fluctuate annually depending on how many defective
meters are discovered and replaced during routine maintenance, as well as how much
development and redevelopment is going on that prompts the replacement or upgrade of
water services. It is worth noting that property owners pay a fee for water service replacement
or expansion during redevelopment, so when the number of projects go up (meaning higher
costs for this activity), so does fee revenue.
Aside from customer connections, the CIP plan for FY 2020 to FY 2024 is funded by revenue
from utility rates and capacity fees. Appendix B: Water Utility Capital Improvement Program
(CIP) Detail shows the details of the plan.
SECTION 6 D : DEBT SERVICE
The Water Utility’s annual debt service is roughly $3.2 million per year. This is related to two
bond issuances, one requiring payments through 2026, the other through 2035. CPAU is in
compliance with all covenants on both bonds.
The first bond is the 2009 Water Revenue Bond, Series A, issued for $35 million to finance
construction of the Emergency Water Supply and Storage project (the El Camino Reservoir, new
wells, rehabilitation of existing wells and tanks, etc.) and to be retired by 2035. As part of the
‘Build America’ bond program, there is an interest payment subsidy from the Federal
Government of 35%. There is always the possibility that the federal government will choose to
stop offering this subsidy. The automatic federal spending cuts under the Budget Control Act
(BCA) of 2011 have already reduced the subsidy by $50,000 per year, and if planned cuts
through 2021 proceed without amendment, staff estimates that the subsidy would be reduced
by over $200,000 per year by 2021. The Bipartisan Budget Act of 2013, which relieved some of
the discretionary spending cuts in the 2011 BCA, did not affect automatic cuts to the subsidy,
and actually extended the automatic cuts through 2023.
The second bond issuance is the 2011 Utility Revenue Refunding Bond, Series A, which is to be
retired in 2026. This $17.2 million issuance refinanced an earlier Water and Gas Utility bond
issuance, the 2002 Utility Revenue Bonds, Series A, which was issued to finance various capital
improvements for both systems. The Water Utility’s share of the issuance was roughly $7.8
million.
Table 15 shows the cost of debt service for the Water Utility’s share of these bond issuances for
the financial forecast period:
Table 15: Water Utility Debt Service ($000)
FY 2020 FY 2021 FY 2022 FY 2023 FY 2024
2009 Water Revenue Bonds,
Series A (net of grants)
2,097 2,114 2,132 2,151 2,151
2011 Utility Revenue Bonds,
Series A
654 656 657 658 658
Both the 2009 and 2011 Bonds include the following covenants: 1) net revenues plus Available
Reserves shall at least equal 125% of the maximum annual debt service, and 2) Available
Reserves shall be at least 5 times the maximum annual debt service. Note that “Available
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Reserves,” as defined for both bonds, include the reserves for the Gas and Electric systems, not
just the Water system. This Financial Plan maintains compliance with these covenants
throughout the forecast period, as shown in Appendix A: Water Utility Financial Forecast Detail.
The net revenues (but not the reserves) of the Water Utility are also pledged for one other
bond as shown in Table 16 below, even though the Water Utility is not responsible for the debt
service payments. The Water Utility’s reserves or net revenues would only be called upon if the
responsible utilities are unable to make their debt service payments. Staff does not currently
foresee this occurring. Amounts advanced from one utility to pay debt service for another
utility would be repaid by the borrowing fund.
Table 16: Other Issuances Secured by the Water Utility’s Revenues or Reserves
Bond Issuance Responsible
Utilities
Annual Debt
Service ($000)
Secured by Water Utility’s:
Net Revenues Reserves
1995 Series A Utility
Revenue Bonds Storm Drain $680 Yes No
SECTION 6 E : OTHER REVENUES
The Water Utility receives most of its revenues from sales of water. The next largest source is
connection and capacity fees, which in FY 2018 represented 55% of revenue from sources other
than water sales. The remainder consisted of a variety of miscellaneous charges, transfers,
grants, and interest income.
Revenues from connection and capacity fees have more than doubled since FY 2009.
Connection fees are charged to new developments that need new or replacement service
connections, while capacity fees are charged to development that put additional demands on
the water distribution system. Revenue from these sources decreased slightly during the
recession, but has increased substantially since then. Staff is forecasting revenue from these
sources to increase at an average of 2% per year in subsequent years.
Other revenue sources are projected to stay stable through the forecast period, though interest
income always fluctuates depending on changes in interest rates. Some uncertainty also exists
related to the Federal government’s commitment to continuing to pay the interest subsidy on
the Build America Bonds.
SECTION 6 F : SALES REVENUES
Staff based the sales revenue projections on the load forecast in Section 5A: Load Forecast and
the projected rate changes shown in Figure 5. Except where stated otherwise, these load
forecasts are based on normal precipitation. Precipitation can vary substantially, and this can
affect revenues substantially. In dry years customers use more water, increasing revenues, and
in wet years they use less. One factor that is difficult to predict is customer usage recovery
post-drought. It appears that customer irrigation usage has resumed, although as predicted,
total usage has not reached pre-drought levels. What is uncertain is whether the ongoing
pattern of ongoing usage declines will continue at the same levels seen before the drought
occurred. Staff will continue to monitor these patterns and adjust projections accordingly.
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SECTION 7 : COMMUNICATIONS PLAN
In FY 2020, the focus of communications surrounding rates will continue to be on the cost
drivers for water utility rate increases and what CPAU is doing to keep costs down. One of the
main reasons for water utility rate increases are the infrastructure costs from the Water System
Improvement Project (WSIP), which has raised rates for all San Francisco Public Utilities
Commission (SFPUC) customers. Rising costs from our wholesale water supplier increases CPAU
costs which must be recovered through rates. Staff have set up a dedicated webpage at
cityofpaloalto.org/ratesoverview to provide an overview about rates, including the value of
what customers get for what they pay, information on utilities resources and infrastructure
projects.
CPAU will continue its outreach on continuing to make water conservation a way of life, regardless of
drought or rain conditions, which is also in line with the State of California’s current outreach
campaign. Messaging will reinforce the importance of water use efficiency, and that although rates are
increasing, efficient usage can help prevent a customer should not see a significant increase in water
utility costs on their bills. Through our water conservation outreach, CPAU promotes water use
efficiency rebates, incentives and easy water-saving behaviors through bill inserts, web content, email
newsletters, online videos, print and digital ads, presentations to customer groups and the use of
social media.
To keep customers apprised of the status and accomplishments of CIP projects, a network of project
webpages are maintained at www.cityofpaloalto.org/utilityprojects Safety topics are also
emphasized year-round. For all utility outreach, while print materials and website pages still feature
prominently, CPAU is placing more emphasis on digital advertising content, direct mail, and in-person
attendance at community safety and emergency preparedness events.
Staff will provide rates information to internal and external stakeholders including Utilities staff
across all divisions who may interact with the public, the City Manager’s Office and other
departments, Utilities Advisory Commission (UAC), City Council, business and residential
customers. Rates communications will include a substantial update to the web, addition of a
“breaking news” page on the Utilities home website, discussion in the Proposition 218 rate
adjustment notice, utility bill inserts and educational updates to Customer Service staff. Other
communication methods will involve updates to financial plans, presentations to UAC, Finance
Committee, City Council and any media coverage as a result of the rate increases.
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APPENDICES
Appendix A: Water Utility Financial Forecast Detail
Appendix B: Water Utility Capital Improvement Program (CIP) Detail
Appendix C: Water Utility Reserves Management Practices
Appendix D: Description of Water Utility Operational Activities
Appendix E: Sample of Water Utility Outreach Communications
APPENDIX A : WATER UTILITY FINANCIAL FORECAST DETAIL
FISCAL YEAR FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 FY 2021 FY 2022 FY 2023 FY 2024
WATER SUPPLY
Purchases 5,507,153 4,671,433 4,127,085 4,172,038 4,859,576 4,954,697 4,880,376 4,807,171 4,735,063 4,664,037 4,594,077
Sales 5,047,148 4,433,016 3,858,825 3,852,185 4,609,000 4,706,305 4,607,075 4,537,969 4,469,900 4,402,851 4,336,808
BILL AND RATE CHANGES
Variable Charge (Supply)-16%25%22%9%7%-6%0%0%0%9%13%
Variable Charge (Distribution)30%-16%13%5%-1%1%8%1%5%4%0%
Service Charge (Distribution)9%0%-15%3%0%43%-4%4%4%3%0%
Change in System Average Rate 8%0%11%7%3%4%1%2%3%6%6%
Change in Average Residential Bill 7%-1%17%4%-2%4%2%0%2%4%4%
STARTING RESERVES
Reappropriations (Non-CIP)- - - - - - - - - - -
Commitments (Non-CIP)2,000 347,000 347,000 177,273 177,273 284,034 284,034 284,034 284,034 284,034 284,034
Restricted for Debt Service 3,225,000 3,331,000 3,316,000 3,299,194 3,260,000 3,260,000 3,260,000 3,260,000 3,260,000 3,260,000 3,260,000
Emergency Plant Replacement 1,000,000 1,000,000 - - - - - - - - -
Capital Reserve - - 4,000,000 2,726,096 2,726,096 2,726,096 2,726,096 7,726,096 11,726,096 11,726,096 11,726,096
Rate Stabilization Reserve 17,272,000 20,133,000 6,567,000 1,877,437 4,069,437 4,069,437 4,069,437 4,069,437 2,000,437 2,000,437 2,000,437
Operations Reserve - - 11,663,836 14,606,828 12,734,948 13,741,000 13,977,857 11,647,202 12,105,439 7,809,544 12,124,586
Unassigned - - - - 7,056,052 7,182,707 11,544,515 - - - -
TOTAL STARTING RESERVES 21,499,000 24,811,000 25,893,836 22,686,828 30,023,806 31,263,274 35,861,939 26,986,769 29,376,006 25,080,111 29,395,153
REVENUES
Net Sales 39,029,262 33,654,549 36,136,644 41,657,382 44,078,960 46,147,823 45,493,408 45,807,704 46,454,121 48,591,809 50,574,618
Other Revenues and Transfers In 4,053,920 7,504,848 3,258,936 5,829,851 4,116,200 3,322,654 3,363,878 3,406,255 3,449,103 3,494,311 3,561,380
TOTAL REVENUES 43,083,182 41,159,397 39,395,579 47,487,233 48,195,160 49,470,477 48,857,286 49,213,959 49,903,224 52,086,120 54,135,997
EXPENSES
Water Purchases 15,705,288 15,669,935 17,626,020 20,075,322 21,957,711 22,482,357 22,177,643 21,877,500 21,581,859 23,011,682 25,409,111
Operating Expenses 679.9%2.9%5.8%-54.7%
Administration
Allocated Charges 2,366,077 2,342,985 2,953,291 3,151,373 2,809,112 2,868,555 3,013,532 3,094,114 3,171,529 3,246,694 3,315,978
Rent 2,192,454 2,249,457 1,803,087 1,720,711 1,775,774 1,829,047 1,883,919 1,940,436 1,998,649 2,058,609 2,120,367
Debt Service 3,220,208 3,218,869 3,222,606 3,219,316 3,222,669 3,220,858 3,220,638 3,222,843 3,223,563 3,834,553 3,834,553
Transfers and Other Adjustments 335,808 63,612 (377,200) (256,608) 393,607 438,322 407,111 415,253 423,558 432,030 432,030
Subtotal, Administration 8,114,546 7,874,923 7,601,785 7,834,792 8,201,161 8,356,782 8,525,199 8,672,646 8,817,299 9,571,885 9,702,928
Resource Management 570,040 488,331 592,744 868,038 922,558 949,971 1,023,375 1,054,455 1,081,881 1,109,307 1,133,345
Operations and Mtc 4,986,274 5,283,426 5,038,570 5,290,549 5,725,236 5,900,269 7,351,404 7,573,857 7,770,626 7,967,223 8,139,793
Engineering (Operating)381,502 358,128 282,472 355,852 354,597 367,008 389,421 400,391 410,565 420,563 429,592
Customer Service 1,677,926 1,821,447 2,076,559 1,616,008 1,625,332 1,676,088 1,824,606 1,882,829 1,932,593 1,982,937 2,026,185
Allowance for Unspent Budget - - - - - (435,425) (503,559) (518,489) (531,874) (545,183) (556,962)
Subtotal, Operating Expenses 15,730,288 15,826,254 15,592,128 15,965,239 16,828,885 16,814,693 18,610,447 19,065,690 19,481,091 20,506,731 20,874,881
Capital Program Contribution 8,335,605 8,580,372 9,082,021 4,110,131 8,169,097 5,574,762 16,944,366 5,881,532 13,136,168 4,252,665 13,350,080
TOTAL EXPENSES 39,771,182 40,076,561 42,300,170 40,150,692 46,955,693 44,871,813 57,732,456 46,824,722 54,199,118 47,771,078 59,634,072
9.04
ENDING RESERVES
Reappropriations (Non-CIP)- - - - - - - - - - -
Commitments (Non-CIP)347,000 347,000 177,273 177,273 284,034 284,034 284,034 284,034 284,034 284,034 284,034
Restricted for Debt Service 3,331,000 3,316,000 3,299,194 3,260,000 3,260,000 3,260,000 3,260,000 3,260,000 3,260,000 3,260,000 3,260,000
Emergency Plant Replacement 1,000,000 - - - - - - - - - -
Capital Reserve - 4,000,000 2,726,096 2,726,096 2,726,096 2,726,096 7,726,096 11,726,096 11,726,096 11,726,096 11,726,096
Rate Stabilization Reserve 20,133,000 6,567,000 1,877,437 4,069,000 4,069,437 4,069,437 4,069,437 2,000,437 2,000,437 2,000,437 -
Operations Reserve - 11,663,836 14,606,828 12,734,948 13,741,000 13,977,857 11,647,202 12,105,439 7,809,544 12,124,586 8,626,948
Unassigned - - - 7,056,052 7,182,707 11,544,515 - - - - -
TOTAL ENDING RESERVES 24,811,000 25,893,836 22,686,828 30,023,369 31,263,274 35,861,939 26,986,769 29,376,006 25,080,111 29,395,153 23,897,078
OPERATIONS RESERVE
Min (60 days of non-capital expenses)- 5,230,611 5,145,323 6,320,551 6,704,783 6,826,058 7,045,080 7,077,380 7,104,006 7,514,723 7,969,338
Target (90 days of non-capital expenses)- 9,395,240 8,698,557 9,527,750 10,222,892 10,401,957 10,581,978 10,633,555 10,676,017 11,294,133 11,985,746
Max (120 days of non-capital expenses)- 13,559,870 12,251,790 12,734,948 13,741,000 13,977,857 14,118,875 14,189,730 14,248,027 15,073,543 16,002,154
Risk Assessment Value 2,494,338 2,698,795 2,251,743 2,657,639 2,251,587 3,489,206 2,465,403 3,265,957 2,436,177 3,322,840
DEBT SERVICE COVERAGE RATIO
Net Revenues (125% of Debt Service)876%878%931%1020%1104%1120%1166%1170%1174%1035%1107%
Available Reserves (5x Debt Service)*6.6 6.9 6.0 8.3 8.6 10.0 7.3 8.0 6.7 6.7 5.3
*For the purposes of debt covenants, the unrestricted reserves of other utilities may be counted toward the available reserves for meeting this measure. A ratio below 5x means that this utility is relying on the
reserves of other utilities to meet its debt covenants.
Appendix A (continued)
FISCAL YEAR FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 FY 2021 FY 2022 FY 2023 FY 2024
REVENUES
Net Sales 91%82%92%88%91%93%93%93%93%93%93%
Other Revenues and Transfers In 9%18%8%12%9%7%7%7%7%7%7%
TOTAL REVENUES 100%100%100%100%100%100%100%100%100%100%100%
EXPENSES
Water Purchases 39%39%42%50%47%50%38%47%40%48%43%
Operating Expenses
Administration
Allocated Charges 6%6%7%8%6%6%5%7%6%7%6%
Rent 6%6%4%4%4%4%3%4%4%4%4%
Debt Service 8%8%8%8%7%7%6%7%6%8%6%
Transfers and Other Adjustments 1%0%-1%-1%1%1%1%1%1%1%1%
Subtotal, Administration 20%20%18%20%17%19%15%19%16%20%16%
Resource Management 1%1%1%2%2%2%2%2%2%2%2%
Operations and Mtc 13%13%12%13%12%13%13%16%14%17%14%
Engineering (Operating)1%1%1%1%1%1%1%1%1%1%1%
Customer Service 4%5%5%4%3%4%3%4%4%4%3%
Allowance for Unspent Budget 0%0%0%0%0%-1%-1%-1%-1%-1%-1%
Subtotal, Operating Expenses 40%39%37%40%36%37%32%41%36%43%35%
Capital Program Contribution 21%21%21%10%17%12%29%13%24%9%22%
TOTAL EXPENSES 100%100%100%100%100%100%100%100%100%100%100%
RISK ASSESSMENT DETAIL
Distribution Revenue Variance 1,636,301 1,790,593 1,840,729 1,840,729 1,694,110 1,794,769 1,877,250 1,952,340 2,010,910 1,987,832
10% CIP Program Contingency 858,037 908,202 411,013 816,910 557,476 1,694,437 588,153 1,313,617 425,267 1,335,008
Total Risk Asssessment Value 2,494,338 2,698,795 2,251,743 2,657,639 2,251,587 3,489,206 2,465,403 3,265,957 2,436,177 3,322,840
Projected Operations Reserve 11,663,836 14,606,828 12,734,948 13,741,000 13,977,857 11,647,202 12,105,439 7,809,544 12,124,586 8,626,948
Operations Reserve, % of Risk Value 468%541%566%517%621%334%491%239%498%260%
OPERATIONS RESERVE
Min (60 days of non-capital expenses)- 5,230,611 5,145,323 6,320,551 6,704,783 6,826,058 7,045,080 7,077,380 7,104,006 7,514,723 7,969,338
Target (90 days of non-capital expenses)- 9,395,240 8,698,557 9,527,750 10,222,892 10,401,957 10,581,978 10,633,555 10,676,017 11,294,133 11,985,746
Max (120 days of non-capital expenses)- 13,559,870 12,251,790 12,734,948 13,741,000 13,977,857 14,118,875 14,189,730 14,248,027 15,073,543 16,002,154
Risk Assessment Value 2,494,338 2,698,795 2,251,743 2,657,639 2,251,587 3,489,206 2,465,403 3,265,957 2,436,177 3,322,840
DEBT SERVICE COVERAGE RATIO
Net Revenues (125% of Debt Service)876%878%931%1020%1104%1120%1166%1170%1174%1035%1107%
Available Reserves (5x Debt Service)*6.6 6.9 6.0 8.3 8.6 10.0 7.3 8.0 6.7 6.7 5.3
*For the purposes of debt covenants, the unrestricted reserves of other utilities may be counted toward the available reserves for meeting this measure. A ratio below 5x means that this utility is relying on the reserves of
other utilities to meet its debt covenants.
WATER UTILITY FINANCIAL PLAN
March, 2019 33 | Page
APPENDIX B : WATER UTILITY CAPITAL IMPROVEMENT PROGRAM (CIP) DETAIL
Project #Project Name
Reappropriated / Carried
Forward from Previous
Years
Current Year
Funding
Proposed Budget
Amendments
Spending, Current
Year
Remaining in CIP
Reserve Fund Commitments FY 2020 FY 2021 FY 2022 FY 2023 FY 2024
ONE TIME PROJECTS
WS-07000 Regulation Station Imp.526,578 345,000 - (34,418) 837,160 526,578 - - - - -
WS-07001 Water Recycling Facilities - 395,649 - - 395,649 - - - - - -
WS-08001 Water Reservoir Coating 576,303 330,000 - (50,687) 855,616 581,589 - - - - -
WS-09000 Seismic Water System 2,021,107 3,000,000 - (475,455) 4,545,652 1,621,102 2,000,000 2,000,000 - - -
WS-13003 GPS Equipment Upgrade - - - - - - - - - - -
WS-13004 Asset Mgmt. Mobile Sys.- - - - - - - - - - -
WS-13006 Meter Shop Renovations - - - - - - - - - - -
WS-15004 Water System Master Plan - - - - - - - - - - -
WS-08002 Emergency Water Supply - - - - - - - - - - -
Subtotal, One-time Projects 3,123,988 4,070,649 - (560,560) 6,634,077 2,729,269 2,000,000 2,000,000 - - -
WATER MAIN REPLACEMENT PROGRAM
WS-20000 WMR - Project 32 - - - - - - - - - - -
WS-11000 WMR-Project 25 381,939 - - - 381,939 - - - - - -
WS-12001 WMR- Project 26 5,026,718 600,000 - (3,465,115) 2,161,603 2,242,505 - - - - -
WS-13001 WMR - Project 27 (862) 7,175,000 - (8,136) 7,166,002 - - - - - -
WS-14001 WMR - Project 28 - 585,107 - - 585,107 - - - 8,500,000 - -
WS-15002 WMR - Project 29 - - - - - - - - 850,000 - 8,500,000
WS-16001 WMR - Project 30 - - - - - - - - 850,000
WS-19001 WMR - Project 31 - - - - - - - - - -
Subtotal, Water Main Replacement Prog.5,407,795 8,360,107 - (3,473,251) 10,294,651 2,242,505 - - 9,350,000 - 9,350,000
ONGOING PROJECTS
WS-80014 Services/Hydrants 6,770 424,360 - (45,448) 385,682 27,819 437,091 450,204 463,710 477,621 491,950
WS-80015 Water Meters - 900,000 - (60,939) 839,061 - 515,000 530,450 546,364 562,755 579,638
WS-02014 W-G-W Utility GIS Data 351,720 442,890 - (92,744) 701,866 420,645 456,177 469,862 483,958 498,477 513,431
WS-13002 Equipment/Tools - 50,000 - - 50,000 - 50,000 50,000 50,000 50,000 50,000
WS-11003 Dist. Sys. Improvements 85,000 500,000 - (87,318) 497,682 81,332 261,620 269,469 277,553 285,880 294,456
WS-11004 Supply Sys. Improvements 35,744 254,000 - (44,632) 245,112 1,707 261,620 269,469 277,553 285,880 294,456
WS-19000 Mayfield Reservoir - 200,000 - 200,000 200,000
Subtotal, Ongoing Projects 479,234 2,771,250 - (331,081) 2,919,403 531,503 2,181,508 2,239,454 2,099,138 2,160,613 2,223,931
CUSTOMER CONNECTIONS (FEE FUNDED)
WS-80013 Water System Extensions 33,974 732,021 - (418,656) 347,339 46,184 753,981 776,601 799,899 823,896 848,613
Subtotal, Customer Connections 33,974 732,021 - (418,656) 347,339 46,184 753,981 776,601 799,899 823,896 848,613
GRAND TOTAL 9,044,991 15,934,027 - (4,783,548)20,195,470 5,549,461 4,935,489 5,016,055 12,249,037 2,984,509 12,422,544
Funding Sources
Connection/Capacity Fees 929,348 - 902,280 929,348 957,228 985,946 1,015,524
Other Utility Funds (Asset Mgmt, GIS Systems)295,260 - 268,418 295,260 304,118 313,242 322,640
Utility Rates 15,934,027 - 3,764,791 3,791,447 10,987,691 1,685,321 11,084,380
CIP-RELATED RESERVES DETAIL
6/30/2018
(Actual)
6/30/2019
(Unaudited)
Reappropriations (excl. Bond Funded)1,616,991 14,646,009
Commitments (excl. Bond Funded)7,428,000 5,549,461
WATER UTILITY FINANCIAL PLAN
March, 2019 34 | Page
APPENDIX C : WATER UTILITY RESERVES MANAGEMENT PRACTICES
The following reserves management practices shall be used when developing the Water Utility
Financial Plan:
Section 1. Definitions
a) “Financial Planning Period” – The Financial Planning Period is the range of future fiscal
years covered by the Financial Plan. For example, for the Water Utility Financial Plan
delivered in conjunction with the FY 2015 budget, FY 2015 to FY 2021 is the Financial
Planning Period.
b) “Fund Balance” – As used in these Reserves Management Practices, Fund Balance refers
to the Utility’s Unrestricted Net Assets.
c) “Net Assets” - The Government Accounting Standards Board defines a Utility’s Net
Assets as the difference between its assets and liabilities.
d) “Unrestricted Net Assets” - The portion of the Utility’s Net Assets not invested in capital
assets (net of related debt) or restricted for debt service or other restricted purposes.
Section 2. Reserves
The Water Utility’s Fund Balance is reserved for the following purposes:
a) For existing contracts, as described in Section 3 (Reserve for Commitments)
b) For operating and capital budgets re-appropriated from previous years, as described in
Section 4 (Reserve for Re-appropriations)
c) For cash flow management and contingencies related to the Water Utility’s Capital
Improvement Program (CIP), as described in Section 5 (CIP Reserve)
d) For rate stabilization, as described in Section 6 (Rate Stabilization Reserve)
e) For operating contingencies, as described in Section 7 (Operations Reserve)
f) Any funds not included in the other reserves will be considered Unassigned Reserves
and shall be returned to ratepayers or assigned a specific purpose as described in
Section 8 (Unassigned Reserves).
Section 3. Reserve for Commitments
At the end of each fiscal year the Reserve for Commitments will be set to an amount equal
to the total remaining spending authority for all contracts in force for the Water Utility at
that time.
Section 4. Reserve for Re-appropriations
At the end of each fiscal year the Reserve for Re-appropriations will be set to an amount
equal to the amount of all remaining capital and non-capital budgets, if any, that will be re-
appropriated to the following fiscal year in accordance with Palo Alto Municipal Code
Section 2.28.090.
WATER UTILITY FINANCIAL PLAN
March, 2019 35 | Page
Section 5. CIP Reserve
The CIP Reserve is used to manage cash flow for capital projects and acts as a reserve for
capital contingencies. Staff will manage the CIP Reserve according to the following
practices:
a) The following guideline levels are set forth for the CIP Reserve. These guideline levels
are calculated for each fiscal year of the Financial Planning Period based on the levels of
CIP expense budgeted for that year.
Minimum Level 12 months of budgeted CIP expense
Maximum Level 24 months of budgeted CIP expense
b) Changes in Reserves: Staff is authorized to transfer funds between the CIP Reserve and
the Reserve for Commitments when funds are added or removed from to that reserve
as a result of a change in contractual commitments related to CIP projects. Any other
additions to or withdrawals from the CIP reserve require Council action.
c) Minimum Level:
i) Funds held in the Reserve for Commitments may be counted as part of the CIP
Reserve for the purpose of determining compliance with the CIP Reserve minimum
guideline level.
ii) If, at the end of any fiscal year, the minimum guideline is not met, staff shall present
a plan to the City Council to replenish the reserve. The plan shall be delivered by the
end of the following fiscal year, and shall, at a minimum, result in the reserve
reaching its minimum level by the end of the next fiscal year. For example, if the CIP
Reserve is below its minimum level at the end of FY 2017, staff must present a plan
by June 30, 2018 to return the reserve to its minimum level by June 30, 2019. In
addition, staff may present, and the Council may adopt, an alternative plan that
takes longer than one year to replenish the reserve, or that does so in a shorter
period of time.
d) Maximum Level: If, at any time, the CIP Reserve reaches its maximum level, no funds
may be added to this reserve. If there are funds in this reserve in excess of the
maximum level staff must propose to transfer these funds to another reserve or return
them to ratepayers in the next Financial Plan. Staff may also seek City Council to
approve holding funds in this reserve in excess of the maximum level if they are held for
a specific future purpose related to the CIP.
Section 6. Rate Stabilization Reserve
Funds may be added to the Rate Stabilization Reserve by action of the City Council and
held to manage the trajectory of future year rate increases. Withdrawal of funds from
the Rate Stabilization Reserve requires Council action. If there are funds in the Rate
Stabilization Reserve at the end of any fiscal year, any subsequent Water Utility
Financial Plan must result in the withdrawal of all funds from this Reserve by the end of
the next Financial Planning Period.
WATER UTILITY FINANCIAL PLAN
March, 2019 36 | Page
Section 7. Operations Reserve
The Operations Reserve is used to manage normal variations in costs and as a reserve for
contingencies. Any portion of the Water Utility’s Fund Balance not included in the reserves
described in Section 3-Section 6 above will be included in the Operations Reserve unless this
reserve has reached its maximum level as set forth in Section 7(d) below. Staff will manage
the Operations Reserve according to the following practices:
a) The following guideline levels are set forth for the Operations Reserve. These guideline
levels are calculated for each fiscal year of the Financial Planning Period based on the
levels of Operations and Maintenance (O&M) and commodity expense forecasted for
that year in the Financial Plan.
Minimum Level 60 days of O&M and commodity expense
Target Level 90 days of O&M and commodity expense
Maximum Level 120 days of O&M and commodity expense
b) Minimum Level: If, at the end of any fiscal year, the funds remaining in the Operations
Reserve are lower than the minimum level set forth above, staff shall present a plan to
the City Council to replenish the reserve. The plan shall be delivered within six months
of the end of the fiscal year, and shall, at a minimum, result in the reserve reaching its
minimum level by the end of the following fiscal year. For example, if the Operations
Reserve is below its minimum level at the end of FY 2014, staff must present a plan by
December 31, 2014 to return the reserve to its minimum level by June 30, 2015. In
addition, staff may present, and the Council may adopt, an alternative plan that takes
longer than one year to replenish the reserve.
c) Target Level: If, at the end of any fiscal year, the Operations Reserve is higher or lower
than the target level, any Financial Plan created for the Water Utility shall be designed
to return the Operations Reserve to its target level within four years.
d) Maximum Level: If, at any time, the Operations Reserve reaches its maximum level, no
funds may be added to this reserve. Any further increase in the Water Utility’s Fund
Balance shall be automatically included in the Unassigned Reserve described in Section
8, below.
Section 8. Unassigned Reserve
If the Operations Reserve reaches its maximum level, any further additions to the Water
Utility’s Fund Balance will be held in the Unassigned Reserve. If there are any funds in the
Unassigned Reserve at the end of any fiscal year, the next Financial Plan presented to the
City Council must include a plan to assign them to a specific purpose or return them to the
Water Utility ratepayers by the end of the first fiscal year of the next Financial Planning
Period. For example, if there were funds in the Unassigned Reserves at the end of FY 2015,
and the next Financial Planning Period is FY 2016 through FY 2021, the Financial Plan shall
include a plan to return or assign any funds in the Unassigned Reserve by the end of
FY 2016. Staff may present an alternative plan that retains these funds or returns them over
a longer period of time.
WATER UTILITY FINANCIAL PLAN
March, 2019 37 | Page
APPENDIX D : DESCRIPTION OF WATER UTILITY OPERATIONAL ACTIVITIES
This appendix describes the activities associated with the various operational activities referred
to in Section 6B: Operations of this Financial Plan.
Administration: Accounting, purchasing, legal, and other administrative functions provided by
the City’s General Fund staff, as well as shared communications services, CPAU administrative
overhead, and billing system maintenance costs. This category also includes Water Utility debt
service and rent paid to the General Fund for the land associated with reservoirs and various
other facilities.
Customer Service: This category includes the Water Utility’s share of the call center, meter
reading, collections, and billing support functions. Billing support encompasses staff time
associated with bill investigations and quality control on certain aspects of the billing process. It
does not include maintenance of the billing system itself, which is included in Administration.
This category also includes CPAU’s key account representatives, who work with large
commercial customers who have more complex requirements for their water services.
Engineering (Operating): The Water Utility’s engineers focus primarily on the CIP, but a small
portion of their time is spent assisting with distribution system maintenance.
Operations and Maintenance: This category includes the costs of a variety of distribution
system maintenance activities, including:
• investigating reports of damaged mains or services and performing emergency repairs;
• testing and operating valves;
• monitoring water quality and reservoir levels;
• monitoring the status of the different pressure zones;
• flushing water at hydrants and other closed end points of the system;
• building and replacing water services for new or redeveloped buildings; and
• testing and replacing meters to ensure accurate sales metering.
This category also includes a variety of functions the utility shares with other City utilities,
including:
• the Field Services team (which does field research of various customer service issues);
• the Cathodic Protection team (which monitors and maintains the systems that prevent
corrosion in metal tanks and reservoirs); and
• the General Services team (which manages and maintains equipment, paves and
restores streets after gas, water, or sewer main replacements, and provides welding
services)
Resource Management: This category includes water procurement, contract management,
water resource planning, interaction with BAWSCA, the SFPUC, and the SCVWD, and tracking of
legislation and regulation related to the water industry.
March, 2019 38 | Page
APPENDIX E : SAMPLE OF WATER UTILITY OUTREACH COMMUNICATIONS
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Attachment C
* NOT YET APPROVED *
6055179
Resolution No.
Resolution of the Council of the City of Palo Alto Increasing Water
Rates by Amending Rate Schedules W-1 (General Residential Water
Service), W-2 (Water Service from Fire Hydrants), W-3 (Fire Service
Connections), W-4 (Residential Master-Metered and General Non-
Residential Water Service), and W-7 (Non-Residential Irrigation
Water Service)
R E C I T A L S
A. Pursuant to Chapter 12.20.010 of the Palo Alto Municipal Code, the Council of
the City of Palo Alto may by resolution adopt rules and regulations governing utility services,
fees and charges.
B. On , 2019, the City Council held a full and fair public hearing regarding the
proposed rate increase and considered all protests against the proposals.
C. As required by Article XIII D, Section 6 of the California Constitution and
applicable law, notice of the 2019 public hearing was mailed to all City of Palo Alto
Utilities water customers by , 2019.
D. The City Clerk has tabulated the total number of written protests presented by
the close of the public hearing, and determined that it was less than fifty percent (50%) of the
total number of customers and property owners subject to the proposed water rate
amendments, therefore a majority protest does not exist against the proposal.
The Council of the City of Palo Alto does hereby RESOLVE as follows:
SECTION 1. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility
Rate Schedule W-1 (General Residential Water Service) is hereby amended to read as attached
and incorporated. Utility Rate Schedule W-1, as amended, shall become effective July 1, 2019.
SECTION 2. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility
Rate Schedule W-2 (Water Service from Fire Hydrants) is hereby amended to read as attached
and incorporated. Utility Rate Schedule W-2, as amended, shall become effective July 1, 2019.
SECTION 3. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility
Rate Schedule W-3 (Fire Service Connections) is hereby amended to read as attached and
incorporated. Utility Rate Schedule W-3, as amended, shall become effective July 1, 2019.
SECTION 4. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility
Rate Schedule W-4 (Residential Master-Metered and General Non-Residential Water Service) is
hereby amended to read as attached and incorporated. Utility Rate Schedule W-4, as amended,
shall become effective July 1, 2019.
Attachment C
* NOT YET APPROVED *
6055179
SECTION 5. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility
Rate Schedule W-7 (Non-Residential Irrigation Water Service) is hereby amended to read as
attached and incorporated. Utility Rate Schedule W-7, as amended, shall become effective
July 1, 2019.
SECTION 6. The City Council finds as follows:
a. Revenues derived from the water rates approved by this resolution do not exceed
the funds required to provide water service.
b. Revenues derived from the water rates approved by this resolution shall not be used
for any purpose other than providing water service, and the purposes set forth in
Article VII, Section 2, of the Charter of the City of Palo Alto.
c. The amount of the water rates imposed upon any parcel or person as an incident of
property ownership shall not exceed the proportional cost of the water service
attributable to the parcel.
SECTION 7. The Council finds that the fees and charges adopted by this resolution are
charges imposed for a specific government service or product provided directly to the payor
that are not provided to those not charged, and do not exceed the reasonable costs to the City
of providing the service or product.
SECTION 8. The Council finds that the adoption of this resolution changing water
rates to meet operating expenses, purchase supplies and materials, meet financial reserve
needs and obtain funds for capital improvements necessary to maintain service is not subject to
the California Environmental Quality Act (CEQA), pursuant to California Public Resources Code
Sec. 21080(b)(8) and Title 14 of the California Code of Regulations Sec. 15273(a). After
reviewing the staff report and all attachments presented to Council, the Council incorporates
these documents herein and finds that sufficient evidence has been presented setting forth with
specificity the basis for this claim of CEQA exemption.
Attachment C
* NOT YET APPROVED *
6055179
INTRODUCED AND PASSED:
AYES:
NOES:
ABSENT:
ABSTENTIONS:
ATTEST:
City Clerk Mayor
APPROVED AS TO FORM: APPROVED:
Assistant City Attorney City Manager
Director of Utilities
Director of Administrative Services
GENERAL RESIDENTIAL WATER SERVICE
UTILITY RATE SCHEDULE W-1
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No W-1-1 Effective 7-1-20189
dated 7-1-20178 Sheet No W-1-1
A. APPLICABILITY:
This schedule applies to separately metered single-family residential dwellings receiving Water
Service from the City of Palo Alto Utilities.
B. TERRITORY:
This schedule applies everywhere the City of Palo Alto provides Water Services.
C. RATES:
Per Meter
Monthly Service Charge: Per Month
For meters 5/8-inch to 1 inchmeter .......................................................................... $ 18.4320.25
For 3/4 inch meter ..................................................................................................... 24.83
For 1 inch meter ........................................................................................................ 37.64
For 1 1/2 inch meter .................................................................................................. 69.6665.40
For 2-inch meter ........................................................................................................ 108.08101.17
For 3-inch meter ........................................................................................................ 229.75214.44
For 4-inch meter ........................................................................................................ 409.05381.37
For 6-inch meter ........................................................................................................ 838.09780.79
For 8-inch meter ........................................................................................................1,542.501,436.57
For 10-inch meter ......................................................................................................2,439.012,271.20
For 12-inch meter .......................................................................................................3,207.452,986.60
Per Hundred
Cubic Feet
VolumetricCommodity Rates: (To be added to Service Charge, and applicable to all pressure zones.)
Per Month
Per Hundred Cubic Feet (ccf)
Per Month All Pressure Zones
Commodity Rate:
Water Delivery Charge from SFPUC .................................................................................... $4.10
Attachment D
GENERAL RESIDENTIAL WATER SERVICE
UTILITY RATE SCHEDULE W-1
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No W-1-2 Effective 7-1-20189
dated 7-1-20178 Sheet No W-1-2
Distribution Rate:
Tier 1 usage ........................................................................................................................$6.642.56
Tier 2 usage (All usage over 100% of Tier 1) ........................................................................9.445.97
Drought Surcharges (deactivated):
A drought surcharge will be added to the Customer’s applicable commodity rate for Tier 1 and Tier 2
Water usage when the City Council has determined that a Water reduction level is in effect for the
City as described in Section D.3. The drought surcharges in the table below are measured in dollars
per hundred cubic feet (ccf).
Water Usage
Reduction level Level 1 (10/15%) Level 2 (20%) Level 3 (25%)
Tier 1 0.20 0.43 0.64
Tier 2 0.58 1.21 1.85
Temporary Service – Developers
Temporary unmetered service to residential
subdivision developers, per connection ........................................................................ $6.00
D. SPECIAL NOTES:
1. Calculation of Cost Components
The actual bill amount is calculated based on the applicable rates in Section C above and
adjusted for any applicable discounts, surcharges and/or taxes. On a Customer’s bill
statement, the bill amount may be broken down into appropriate components as
calculated under Section C.
2. Commodity Rate
The Commodity Charge is based on the water delivery rate per the San Francisco Public
Utility Commission (SFPUC) Water Rate Schedule W-25: Wholesale Use with Long-Term
GENERAL RESIDENTIAL WATER SERVICE
UTILITY RATE SCHEDULE W-1
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No W-1-3 Effective 7-1-20189
dated 7-1-20178 Sheet No W-1-3
Contract. The Commodity Charge will be passed through automatically via periodic rate
adjustments to account for increases in wholesale water charges, as well as inflation. The
pass-through period will be effective for fiscal years 2020 through 2024, inclusive.
Customers will be provided notice of any adjustments via their billing statements.
2.3. Calculation of Usage Tiers
Tier 1 Water usage shall be calculated and billed based upon a level of 0.2 ccf per day
rounded to the nearest whole ccf, based on Meter reading days of Service. As an
example, for a 30 day bill, the Tier 1 level would be 0 through 6 ccf. For further
discussion of bill calculation and proration, refer to Rule and Regulation 11.
3.4. Drought Surcharge
During period of Water shortage or restrictions on local Water use, the City Council may,
by resolution, declare the need for citywide Water conservation at the 10/15%, 20% or
25% level. While such a resolution is in effect, a drought surcharge will apply. The
purpose of the drought surcharge is to recover revenues lost as a result of reduced
consumption.
{End}
WATER SERVICE FROM FIRE HYDRANTS
UTILITY RATE SCHEDULE W-2
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No W-2-1 Effective 7-1-20198
dated 7-1-20187 Sheet No W-2-1
A. APPLICABILITY:
This schedule applies to all Water taken from fire hydrants for construction, maintenance, and
other uses in conformance with provisions of a Hydrant Meter Permit.
B. TERRITORY:
This schedule applies everywhere the City of Palo Alto provides Water Service.
C. RATES:
1. Monthly Service Charge.
METER SIZE
5/8 inch ........................................................................................................................... 50.00
3 inch ........................................................................................................................... 125.00
2. CVolumetricommodity Rate: (per hundred cubic feet) ................................................... $7.77
Commodity Rate:
Water Delivery Charge from SFPUC ........................................................................ $4.10
Distribution Rate: ................................................................................................................. $3.61
3.
4. Drought Surcharges (deactivated):
A drought surcharge will be added to the Customer’s applicable Commodity rate when the City
Council has determined that a Water reduction level is in effect for the City as described in
Section D.5. The drought surcharges in the table below are measured in dollars per hundred
cubic feet (ccf).
Water Usage
Reduction level Level 1 (10/15%) Level 2 (20%) Level 3 (25%)
Surcharge 0.26 0.53 0.77
D. SPECIAL NOTES:
WATER SERVICE FROM FIRE HYDRANTS
UTILITY RATE SCHEDULE W-2
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No W-2-2 Effective 7-1-20198
dated 7-1-20187 Sheet No W-2-2
1. 1. Monthly charges shall include the applicable monthly Service Charge in addition to usage
billed at the commodity rate.
1.2. The Commodity Charge is based on the water delivery rate per the San Francisco Public Utility
Commission (SFPUC) Water Rate Schedule W-25: Wholesale Use with Long-Term Contract. The
Commodity Charge will be passed through automatically via periodic rate adjustments to account
for increases in wholesale water charges, as well as inflation. The pass-through period will be
effective for fiscal years 2020 through 2024, inclusive. Customers will be provided notice of any
adjustments via their billing statements.
2.3. 2. Any person or company using a hydrant without first obtaining a valid Hydrant Meter Permit
shall pay a fee of $50.00 for each day of such use in addition to all other costs and fees provided in
this schedule. A hydrant permit may be denied or revoked for failure to pay such fee.
3.4. 3.A Meter deposit of $750.00 may be charged any applicant for a Hydrant Meter Permit as a
prerequisite to the issuance of a permit and Meter(s). A charge of $50.00 per day will be added for
delinquent return of hydrant Meters. A fee will be charged for any Meter returned with missing or
damaged parts.
4.5. 4.Any person or company using a fire hydrant improperly or without a permit, or who draws Water
from a hydrant without a Meter installed and properly recording usage shall, in addition to all other
applicable charges be subject to criminal prosecution pursuant to the Palo Alto Municipal Code.
5.6. 5.During period of Water shortage or restrictions on local Water use, the City Council may, by
resolution, declare the need for citywide Water conservation at the 10/15%, 20% or 25% level.
While such a resolution is in effect, a drought surcharge will apply. The purpose of the drought
surcharge is to recover revenues lost as a result of reduced consumption.
{End}
FIRE SERVICE CONNECTIONS
UTILITY RATE SCHEDULE W-3
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No W-3-1 Effective 7-1-20189
dated 7-1-20168 Sheet No W-3-1
A. APPLICABILITY:
This schedule applies to all public fire hydrants and private fire Service connections.
B. TERRITORY:
This schedule applies everywhere the City of Palo Alto provides Water Service.
C. RATES:
1. Monthly Service Charges
Public Fire Hydrant .................................................................................................... $5.00
Private Fire Service:
2-inch connection .......................................................................................................$4.164.17
4-inch connection .......................................................................................................25.7325.81
6-inch connection ....................................................................................................... 74.7474.96
8-inch connection .......................................................................................................159.28159.74
10-inch connection .....................................................................................................286.43287.27
12-inch connection .....................................................................................................462.67464.02
2. Commodity (To be added to Service Charge unless Water is used for fire extinguishing or
testing purposes.)
Per Hundred Cubic Feet
All water usage........................................................................................................... $10.00
D. SPECIAL NOTES:
1. Service under this schedule may be discontinued if Water is used for any purpose other
than fire extinguishing or testing and repairing the fire extinguishing facilities. Using
hydrants and fire Services for other purposes is illegal and will be subject to the
commodity charge as noted above, fines, and criminal prosecution pursuant to the Palo
Alto Municipal Code.
2. For a combination Water and fire Service, the Water Service schedule shall apply.
FIRE SERVICE CONNECTIONS
UTILITY RATE SCHEDULE W-3
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No W-3-2 Effective 7-1-20189
dated 7-1-20168 Sheet No W-3-2
3. Utilities Rule and Regulation No. 21 provides additional information on Automatic Fire
Services.
4. Repairs and testing of fire extinguishing facilities are not considered unauthorized use of
Water if records and documentation are supplied by the Customer.
{End}
RESIDENTIAL MASTER-METERED AND
GENERAL NON-RESIDENTIAL WATER SERVICE
UTILITY RATE SCHEDULE W-4
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No W-4-1 Effective 7-1-20198
dated 7-1-20187 Sheet No W-4-1
A. APPLICABILITY:
This schedule applies to Water Services to non-residential buildings, and multi-family residential
dwellings served through a Master-Meter.
B. TERRITORY:
This schedule applies everywhere the City of Palo Alto provides Water Service.
C. RATES:
Per Meter
Monthly Service Charge Per Month
For 5/8-inch meter .................................................................................... $ 18.4317.71
For 3/4-inch meter .................................................................................... 24.8323.67
For 1-inch meter .................................................................................... 37.6435.59
For 1 ½-inch meter .................................................................................... 69.6665.40
For 2-inch meter .................................................................................... 108.08101.17
For 3-inch meter .................................................................................... 229.75214.44
For 4-inch meter .................................................................................... 409.05381.37
For 6-inch meter .................................................................................... 838.09780.79
For 8-inch meter ....................................................................................1,542.501,436.57
For 10-inch meter ....................................................................................2,439.012,271.20
For 12-inch meter ....................................................................................3,207.452,986.60
Per Hundred
Cubic FeetC
Volumetricommodity Rates: (to be added to Service Charge, applicable to all pressure zones) Per
Month
Per Hundred Cubic Feet (ccf)
Per Month All Pressure Zones
Commodity Rate:
Water Delivery Charge from SFPUCPer ccf ...........................................
..................................................................................................................$ 7.774.10
RESIDENTIAL MASTER-METERED AND
GENERAL NON-RESIDENTIAL WATER SERVICE
UTILITY RATE SCHEDULE W-4
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No W-4-2 Effective 7-1-20198
dated 7-1-20187 Sheet No W-4-2
Distribution Rate: ........................................................................................... 3.61
Drought Surcharges (deactivated):
A drought surcharge will be added to the Customer’s applicable commodity rate when the City
Council has determined that a Water reduction level is in effect for the City as described in Section
D.2. The drought surcharges in the table below are measured in dollars per hundred cubic feet
(ccf).
Water Usage
Reduction level Level 1 (10/15%) Level 2 (20%) Level 3 (25%)
Surcharge 0.26 0.53 0.77
D. SPECIAL NOTES:
1. Calculation of Cost Components
The actual bill amount is calculated based on the applicable rates in Section C above and
adjusted for any applicable discounts, surcharges and/or taxes. On a Customer’s bill
statement, the bill amount may be broken down into appropriate components as
calculated under Section C.
2. Commodity Rate
The Commodity Charge is based on the water delivery rate per the San Francisco Public
Utility Commission (SFPUC) Water Rate Schedule W-25: Wholesale Use with Long-Term
Contract. The Commodity Charge will be passed through automatically via periodic rate
adjustments to account for increases in wholesale water charges, as well as inflation. The
pass-through period will be effective for fiscal years 2020 through 2024, inclusive.
Customers will be provided notice of any adjustments via their billing statements.
RESIDENTIAL MASTER-METERED AND
GENERAL NON-RESIDENTIAL WATER SERVICE
UTILITY RATE SCHEDULE W-4
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No W-4-3 Effective 7-1-20198
dated 7-1-20187 Sheet No W-4-3
2.3. Drought Surcharge
During period of Water shortage or restrictions on local Water use, the City Council may,
by resolution, declare the need for citywide Water conservation at the 10/15%, 20% or
25% level. While such a resolution is in effect, a drought surcharge will apply. The
purpose of the drought surcharge is to recover revenues lost as a result of reduced
consumption.
{End}
NON-RESIDENTIAL IRRIGATION WATER SERVICE
UTILITY RATE SCHEDULE W-7
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No W-7-1 Effective 7-1-20198
dated 7-1-20187 Sheet No W-7-1
A. APPLICABILITY:
This schedule applies to non-residential Water Service supplying dedicated irrigation Meters.
B. TERRITORY:
This schedule applies everywhere the City of Palo Alto provides Water Services.
C. RATES:
Per Meter
Monthly Service Charge Per Month
For 5/8-inch meter .................................................................................... $ 18.4317.71
For 3/4-inch meter .................................................................................... 24.8323.67
For 1-inch meter .................................................................................... 37.6435.59
For 1 1/2 inch meter .................................................................................... 69.6665.40
For 2-inch meter .................................................................................... 108.08101.17
For 3-inch meter .................................................................................... 229.75214.44
For 4-inch meter .................................................................................... 409.05381.37
For 6-inch meter .................................................................................... 838.09780.79
For 8-inch meter ....................................................................................1,542.501,436.57
For 10-inch meter ....................................................................................2,439.012,271.20
For 12-inch meter ....................................................................................3,207.452,986.60
Per Hundred
Cubic Feet
CVolumetricommodity Rates: (to be added to Service Charge, applicable to all pressure zones)Per
Month
Commodity Rate:
Per Hundred Cubic Feet (ccf)
Per Month All Pressure Zones
Water Delivery Charge from SFPUCPer ccf ....................................
..........................................................................................................$ 9.334.10
NON-RESIDENTIAL IRRIGATION WATER SERVICE
UTILITY RATE SCHEDULE W-7
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No W-7-2 Effective 7-1-20198
dated 7-1-20187 Sheet No W-7-2
Distribution Rate: ........................................................................................... 5.50
Drought Surcharges (deactivated):
A drought surcharge will be added to the Customer’s applicable commodity rate when the City
Council has determined that a Water reduction level is in effect for the City as described in Section
D.2. The drought surcharges in the table below are measured in dollars per hundred cubic feet (ccf).
Water Usage
Reduction level Level 1 (10/15%) Level 2 (20%) Level 3 (25%)
Surcharge 0.53 1.25 2.02
D. SPECIAL NOTES:
1. Calculation of Cost Components
The actual bill amount is calculated based on the applicable rates in Section C above and
adjusted for any applicable discounts, surcharges and/or taxes. On a Customer’s bill
statement, the bill amount may be broken down into appropriate components as
calculated under Section C.
2. Commodity Rate
The Commodity Charge is based on the water delivery rate per the San Francisco Public
Utility Commission (SFPUC) Water Rate Schedule W-25: Wholesale Use with Long-Term
Contract. The Commodity Charge will be passed through automatically via periodic rate
adjustments to account for increases in wholesale water charges, as well as inflation. The
pass-through period will be effective for fiscal years 2020 through 2024, inclusive.
Customers will be provided notice of any adjustments via their billing statements.
2.3. Drought Surcharge
During period of Water shortage or restrictions on local Water use, the City Council may,
by resolution, declare the need for citywide Water conservation at the 10/15%, 20% or
25% level. While such a resolution is in effect, a drought surcharge will apply. The
purpose of the drought surcharge is to recover revenues lost as a result of reduced
consumption. {End}
445 S. Figueroa Street, Suite 2270
Los Angeles, CA 90071
www.raftelis.com
MEMO
To: Lisa Bilir, Resource Planner
From: Sudhir Pardiwala/Hannah Phan
Date: March 21, 2019
Re: Proposed FY 2020 Water Rates
The City of Palo Alto (City) engaged Raftelis Financial Consultants, Inc. (Raftelis) to update the
cost of service (COS) methodology and water rate structure described in our 20151 rate study to
ensure its continued compliance with Proposition 218. This memorandum summarizes the
methodology and development of the proposed water rate methodology and tiered rate
structure. Proposed Water Rates
The calculations in this memo show the changes in the rate structure resulting from the cost of
service adjustments without considering any revenue adjustments. The proposed rates consider
a 0.75 percent revenue adjustment to ensure adequate cost recovery and reserves balance.
The following subsections detail the methodology and calculation related to the proposed water
rates for fiscal year (FY) 2020. Cost of Service Analysis Adjustments
At the City’s request, Raftelis reviewed the COS analysis methodology used in its 2015 rate
update study, to ensure its continued compliance with Proposition 218’s substantive
requirements for water rates. The methodology and rate structure described in the 2015 COS
update study remains fundamentally sound. We have reviewed and updated the data based on
current characteristics and refined our analysis to recommend the following adjustments to
ensure that the rates proposed continue to equitably recover the City’s costs of providing water
service:
1.Raftelis updated the revenue requirements, customer data, and customer class peaking
factors using FY 2018 actual and FY 2019 budget data. Peaking costs are used to
differentiate rates amongst different classes of customers since different customers
impose different demands on the system, and the portion of the costs related to peaking
are applied to the customer classes in proportion to the peaking factors. As discussed
below, peaking factors for the customer classes have shifted since the last study, and
the new peaking factors should be reflected in the proposed rates.
2.Per City’s request, the cost of purchased water from San Francisco Public Utilities
Commission (SFPUC) is separated from the commodity rate to facilitate passing through
1 Memorandum dated May 20, 2015 titled “Proposed Water Rates”
DRAFT
Attachment E
CITY OF PALO ALTO: WATER RATE STUDY UPDATE 2
future SFPUC rate increases. The remaining water rate components: base (delivery) and
peaking costs remain unchanged.
3. Many Residential – W1 meters are oversized either to meet fire flow requirements for fire
suppression purposes, or to maintain water pressure due to long service runs or their
location within the system. This increase in meter size does not impact the City’s
infrastructure or the on-going maintenance requirements, since lines and infrastructure
are already sized to provide fire flow requirements. In this instance, there is no need to
increase main size to meet supply requirements and therefore no additional costs to the
utility. Likewise, an increase in meter size to maintain water pressure does not require
the City to maintain additional capacity to serve these meters. Thus, the City proposes to
charge all residential customers with 5/8”, ¾”, and 1” meters, which include fire flow, a
uniform monthly service fee. New residential developments in general are connected
with at least 1” meters. To ensure uniform administration and equitable cost allocation,
and based on analysis of the above-described system characteristics, Raftelis agrees
that it would be prudent to charge all residential meters up to 1” the same charge. Non-
residential customers are required to have a separate fire service meter, which ensures
that the meter size for the remaining water consumption is more reflective of their actual
daily and seasonal impact on Palo Alto’s water system. For these customers it is
appropriate to continue to use the meter capacity to determine monthly service fees.
The adjustments were made to the model used to calculate the City’s existing rates, which has
been updated to reflect FY 2020 budget requirements.
Adjustment 1: Revenue Requirements, Customer Data, and Peaking Factors Update
Raftelis updated the revenue requirements (both operating and capital expenses) and customer
accounts and water usage data using FY 2018 actual and FY 2019 budget data to complete the
cost of service analysis and project the future revenue adjustments necessary to fund all
projected operating and capital costs. We also updated the peaking factors calculations, as
discussed in detail below.
Rates for customer classes can be differentiated by the peaks that they impose on the water
system. Peaking factors are the rate of use compared to the average rate of use of any class or
of the water system as a whole. Average rate of water use is the total water used in a year
divided by the number of months or days or hours or billing period. Customers do not use water
at the average rate; when the faucet is turned on, water in a typical residential home may
discharge 2 gallons per minute. At this rate the usage in a day would be 3.8 ccf or 115 ccf per
month. The average use for a typical single family home in the City is about 11 ccf per month.
To allow customers to use water at the higher demand rate, components of the water system
need to be designed to handle these higher loads. The operating and capital costs associated
with this oversizing of the system to meet the higher or peak demands are passed on to
customers in peaking charges. Different customer classes have typically different peak
demands which are used to assign costs to each class.
There are two types of peaking factors used in water system design and in the rate study for
cost allocation purposes: the system peaking factors and the customer specific peaking factors.
Peaking factors are expressed by maximum day and maximum hour demand. The maximum
day demand is the maximum amount of water used in a single day in a year. The maximum
hour demand is the maximum usage in an hour on the day with maximum usage. It is generally
expressed as a factor of the average water usage in a day. Max day factors are typically used to
size reservoirs and transmission facilities, whereas peak hour factors are typically used to
CITY OF PALO ALTO: WATER RATE STUDY UPDATE 3
design distribution systems and booster pumps. For example, the City’s system wide peaking
factors, as measured by staff, are 1.70 for Max Day and 2.05 for Max Hour. This means that the
water usage on the maximum day of the year is 1.7 times the average usage for that year.
System peaking factors allow the allocation of different components of the system costs to
average and peak (Max Day and Max Hour) customer demands. Different components of the
water system, such as transmission lines and distribution facilities, and the costs associated
with those components are designed to meet the peaking demands of customers. Therefore,
the extra capacity costs of these different components include the costs associated with
meeting peak customer demand and are allocated proportional to the system peaking factors.
Once the costs of peaking are determined, costs to each customer class is calculated based on
their individual peaking characteristics. To assign these costs to customers based on their use
of the system, it is necessary to identify the peaking factors for the different classes and tiers.
Table 1 shows the customer specific peaking factors, based on the maximum month factors
calculated from each customer class’ actual water usage in FY 2018 (in the columns “2018 Max
Day” and “2018 Max Hour,”) compared to the peaking factors used in the 2015 study update (in
the columns “2014 Max Day” and “2014 Max Hour.” These were calculated using the same
methodology for both the 2014 and 2018 columns. The primary differentiator of rates amongst
different customer classes is based on the demand that they put on the system. This demand is
expressed in terms of the maximum day and maximum hour factors. These are the demands
expressed as a ratio of the maximum demand to the average demand for each customer class.
For example, if the maximum demand for a customer class were 10,000 CCF per day, and the
average annual demand were 5,000 CCF per day, the peaking ratio (or Max Day peaking factor)
would be 2.0.
Residential customers generally have higher peaking factors than commercial customers since
residential uses are a combination of both domestic use and irrigation use, while commercial
customers usually have separate irrigation meters. Irrigation use typically shows the highest
peak demand due to the timing and amount of water used for irrigation purposes. In the
absence of actual max day data by customer class, maximum month demand is used to
represent max day demand.2 The maximum month demand is then used to calculate the max
day peaking factor for each customer class. The max day peaking factor for each customer
class is calculated by dividing the maximum month usage by the average monthly usage.
The ratio of the max hour and max day for the whole system is used to estimate the max hour
factor for each customer class. For example, the max day factor for Residential customers for
2018 is 1.45. The ratio of the system max hour over max day is 1.21 (2.05 / 1.70). Thus, the
estimated max hour for Residential customers is 1.75 (1.45 x 1.21). This is the method used to
calculate columns “2014 Max Hour” and “2018 Max Hour,” using the appropriate ratio of system
max hour over max day (2.4/1.53 in 2014, and 2.05/1.70 in 2018). Since usage in the
Construction – W2 class is intermittent and varies based on the construction activity in the City,
customers in the Construction – W2 class are considered to be the same as the Commercial –
W4 class for the purpose of calculating variable charges. These two classes are differentiated
only in the fact that temporary hydrant meters are used for construction customers, while
commercial customers have permanent services.
2 This is reasonable given the importance of using relative peaking factors of the different customer classes to assign
costs equitably. Since the system relationship of max day and max hour is used to determine the max hour use for
each class, we use the max day nomenclature throughout this cost of service analysis.
CITY OF PALO ALTO: WATER RATE STUDY UPDATE 4
Table 1
Updated Peaking Factors by Customer Class3
The change to the peaking factors by customer class shifts the capacity or peaking-related
costs among the customer classes, to equitably reflect their demands on the system and
recover the City’s cost of providing service.
The peaking factors for the W1, W4 and W7 customer classes have decreased, as shown in
Table 1. The max day factors in both 2014 and 2018 data are similar. However, the 2018 max
hour factors are significantly lower than the 2014 max hour factors because of the availability of
AMI hourly production data from the wholesale water provider (San Francisco Public Utilities
Commission) in 2018 compared to 2014. Using AMI information to calculate the peaking factors
results in more reliable and accurate calculations. Additionally, the data used in the 2015
updated study (in the columns “2014 Max Day” and “2014 Max Hour”) is from FY 2011, while FY
2018 data is used in this study update. In the 7 years that elapsed between those two data sets,
the underlying usage patterns changed, including a decline in average day usage. Because the
peaking factors are ratios using average day usage, the peaking factors are impacted by the
change in average usage over time. Although maximum day usage in FY 2018 did not decline
relative to FY 2011, the highest hour of usage during that maximum day of usage declined
substantially. Customer experiences and changes that occurred during the drought of 2014 –
2017 may have influenced usage characteristics such as automatic sprinkler systems program
settings spreading the irrigation and over more different off hours rather than during peak times
or days, or water efficiency appliances and tools may have influenced peak usage patterns on a
system-wide basis.
Table 2 shows the peaking factors for each tier of the Residential – W1 customer class. The
methodology to calculate the peaking factor is the same as the methodology used in the 2015
study update. Raftelis analyzed the water usage per month per account for the residential class
in FY 2018. Since the maximum month usage for residential customers occurs in August, the
August usage in each tier was compared with the average usage in each tier to determine the
relative peaking factor for each tier. Table 2 shows the calculation of the peaking factor for each
tier, representing the amount of extra capacity needed on the system to serve customers in that
tier. The max day peaking factor for Tier 1 is 1.06 (i.e., the peak is 1.06 times the average or 6
percent above the average Tier 1 usage.) This low peaking is expected since this is mostly
3 July 2017 was an anomaly in water usage for W7 irrigation customers due to a change in the landscaping of the
municipal golf course, which typically uses a blend of potable and recycled water usage. To account for this one-
time change, Raftelis replaced the July and August 2017 usage of the municipal golf course with the most recent
July and August usage to estimate the typical July and August usage for the W7 customer class.
Customer Specific Peaking 2014 Max Day 2014 Max Hour 2018 Max Day 2018 Max Hour
(a)(b) = (a) x (e)/(f) (c)(d) = (c) x (g)/(h)
Residential - W1 1.45 2.27 1.45 1.75
Master MFR/Commercial - W4 1.27 1.99 1.25 1.51
Irrigation - W7 1.81 2.84 1.78 2.15
Construction - W2 1.27 1.99 1.25 1.51
(e) = 2.4 system max hour peaking factor for 2014
(f) = 1.53 system max day peaking factor for 2014
(g) = 2.05 system max hour peaking factor for 2018
(h) = 1.70 system max day peaking factor for 2018
CITY OF PALO ALTO: WATER RATE STUDY UPDATE 5
indoor usage which changes little with seasons. Note that the 16,655 customer bills in Tier 1
include all customers who uses between 0 and 6 ccf of water, not just those that only use 6 ccf
or less per month. This means that customers who are in Tier 2 also have 6 ccf of Tier 1 usage.
Thus, the Tier 1 peaking factor is very low since most, if not all customers, use all of their Tier 1
water. Similarly, the max day peak for Tier 2 is 147 percent above the average for Tier 2 usage.
This peak primarily results from irrigation use in summer. The delivery cost, or average cost of
providing service, is recovered from the average component, and the peak costs recovered from
the peak components.
Table 2
Max Day Peaking Factors for Tiers 1 and 2
Adjustment 2: Separation of Water Supply Cost
These updates discussed above result in the calculated rates shown in Table 3 for FY 2020,
without any revenue increase. Each commodity rate has three components: supply rate,
delivery rate, and peaking rate. The supply rate represents the cost of purchased water from the
SFPUC, which is applied to all customer classes and tiers equally since the City only has one
source of water. The $4.10 per ccf represents only the variable cost of the total SFPUC costs. It
does not include the fixed costs and water losses of approximately $3.16 million in FY 2020.
This supply rate would be a separate line item on the customer’s bill. The supply rate will
automatically be updated annually based on the purchased water cost from SFPUC.
The City rate only includes the delivery and peaking rates. The delivery rate represents the
City’s fixed costs of operating the water system to serve year-round base load consumption,
excluding any peaking related costs. This component is also applied to all customer classes and
tiers equally. The peaking rate represents the capacity related costs of the system necessary to
serve peak load, and it differs per customer class and tier based on the calculated peaking
factors for each customer class and tier, as shown in Tables 1 and 2. The Difference column in
Table 3 combines the Supply Rate and the City Rate to compare with the Current Rates, since
FY 2020 would be the first year the Supply Rate will be called out separately.
Table 3
FY 2020 COS Commodity Rate – No Revenue Adjustments
Peaking Factor Analysis for W1 Customers
Max Month
Usage Bills in Tier Usage per Bill Average Usage Peaking
Factor
Tier 1 - 0-6 CCF 88,625 16,655 5.32 5.04 1.06
Tier 2 - over 6 CCF 165,473 11,786 14.04 5.68 2.47
Customer Class Tier (ccf)Supply Rate
($/ccf)
Delivery Rate
($/ccf)
Peaking Rate
($/ccf)
City Rate
($/ccf)Current Rates Difference
Residential - W1
Tier 1 6 $4.10 $2.37 $0.14 $2.51 $6.64 0%
Tier 2 over 6 $4.10 $2.37 $3.53 $5.90 $9.44 6%
Average Rate $4.10 $2.39 $4.26 $8.09 3%
Master MFR/Commercial - W4 $4.10 $2.37 $1.18 $3.55 $7.77 -2%
Irrigation - W7 $4.10 $2.37 $3.07 $5.44 $9.33 2%
Construction - W2 $4.10 $2.37 $1.18 $3.55 $7.77 -2%
CITY OF PALO ALTO: WATER RATE STUDY UPDATE 6
Adjustment 3: Calculation of Monthly Meter Service Charge
The monthly meter service charge includes customer service, metering, and billing charges as
well as the costs associated with the service connection and a portion of the water system
capacity. Fire service meter charges include costs associated with maintaining system capacity
to serve fire flows for private fire meters.
The American Water Works Association (AWWA) M1 manual recommends setting meter
charges according to meter flow capacity because meter charges are designed to represent the
maximum demand that a customer actually puts on the system. As a result, meter charges
increase proportionally to the flow capacity of the meter. Meters are usually sized to meet the
demand a customer can place on the system. While this methodology is appropriate for larger
meter sizes, this approach may not be appropriate for the City for small meter sizes (up to 1”)
since, due to updated building codes, sometimes residential meters are required to be sized
larger, for various reasons, even though the customer’s actual demand does not necessitate a
larger meter. Additionally, Palo Alto sizes its main replacements to provide every customer with
enough capacity for a 1” meter, so the amount of system capacity available to smaller
customers is fairly uniform.
In the City, meter sizing is not always driven by customer usage characteristics. Meters
operating at different pressures may have different flow capacities. Under lower pressures, a
larger meter may be required to maintain flows. There are instances in the City where the utility
installs larger meters than would typically be needed when customers experience lower
pressure due to long service runs or their location on the system. At times, this has been done
for the convenience of the utility. For example, in one neighborhood, water meters were located
in the back of the house, attached to a water line running along the rear property lines. The
utility moved the water line out to the street for easier maintenance, but ran long services to the
meters at the back of the houses, which reduced pressure, requiring larger meters. These
customers did not have unusually large usage or fire sprinklers, but had larger meters
nonetheless.
Note that there is a difference between allocating meter-related costs according to the capacity
available to the customer and allocating the remaining revenue requirement across customer
classes. The remaining revenue requirement should be allocated according to the relative
peaking demands each class puts on the system, whereas meter related costs must be
allocated according to the capacity that is available/ready to serve the customer at any given
time irrespective of the customer’s usage.
The City has two reasonable options for addressing the issues outlined above:
1. Create a system of charges that differentiate high usage residential customers from
residential customers with fire sprinklers, low pressure, or other similar
characteristics; or
2. Recognize that residential customers (with 1” or smaller meters) have different
reasons for their meter size, including pressure needs and fire sprinkler
requirements, and create a uniform charge for all residential customers with 1” or
smaller meter sizes.
Because the cost to provide the capacity to serve a 5/8”, ¾” or 1” residential meter is similar and
the need for larger meters (up to 1”) may be necessitated because of fire flow or low system
pressure, the City is proposing to charge a uniform monthly service charge to all Residential –
W1 customers with 1” or smaller meter sizes. This uniform charge results in higher charges for
the 5/8” meter and lower charges for the ¾” and 1” meters, since the costs to the City of
CITY OF PALO ALTO: WATER RATE STUDY UPDATE 7
providing service to these different meter sizes are similar and therefore the City must fully
recover these costs from these customers. The proposed uniform charges for Residential – W1
customers with meter sizes up to 1”, as shown in Table 4, are the same at $20.12 per month
with no revenue adjustment; with the proposed revenue increase, the proposed uniform charge
for these Residential customers is $20.25 per month as shown in Table 5.
Unlike residential customers who typically only have one meter for all water uses: domestic,
irrigation, and fire suppression, non-residential customers are required to have a separate fire
service meter. This means that none of the small commercial customers have meter sizes up to
1” due to fire sprinkler requirements. This distinguishes the commercial customer class from the
residential class and ensures that the meter sizes used for commercial customers are based on
water demands that are reflective of the commercial customer’s actual daily and seasonal
usage impact on the City’s water system. For these customers it is appropriate to continue to
use the methodology in the AWWA M1 Manual.
Table 4 shows the FY 2020 COS monthly meter service charge, based upon the updated
revenue requirements and customer data for all customer classes.
CITY OF PALO ALTO: WATER RATE STUDY UPDATE 8
Table 4
FY 2020 COS Monthly Meter Service Charge – No Revenue Adjustments
W1 Residential Customers
Meter Size
Meter
Capacity Cost Billing Cost
Proposed
Charge Current Charge Difference
5/8"$14.40 $5.72 $20.12 $18.43 9%
3/4"$14.40 $5.72 $20.12 $24.83 -19%
1"$14.40 $5.72 $20.12 $37.64 -47%
1 1/2"$59.34 $5.72 $65.06 $69.66 -7%
2"$94.94 $5.72 $100.66 $108.08 -7%
3"$207.68 $5.72 $213.40 $229.75 -7%
4"$373.82 $5.72 $379.54 $409.05 -7%
6"$771.37 $5.72 $777.09 $838.09 -7%
8"$1,424.07 $5.72 $1,429.79 $1,542.50 -7%
10"$2,254.77 $5.72 $2,260.50 $2,439.01 -7%
12"$2,966.81 $5.72 $2,972.53 $3,207.45 -7%
Non-W1 Customers
Meter Size
Meter
Capacity Cost Billing Cost
Proposed
Charge Current Charge Difference
5/8"$11.87 $5.72 $17.59 $18.43 -5%
3/4"$17.80 $5.72 $23.52 $24.83 -5%
1"$29.67 $5.72 $35.39 $37.64 -6%
1 1/2"$59.34 $5.72 $65.06 $69.66 -7%
2"$94.94 $5.72 $100.66 $108.08 -7%
3"$207.68 $5.72 $213.40 $229.75 -7%
4"$373.82 $5.72 $379.54 $409.05 -7%
6"$771.37 $5.72 $777.09 $838.09 -7%
8"$1,424.07 $5.72 $1,429.79 $1,542.50 -7%
10"$2,254.77 $5.72 $2,260.50 $2,439.01 -7%
12"$2,966.81 $5.72 $2,972.53 $3,207.45 -7%
Fire Service Charge - W3 Service
Meter Size
Meter
Component
Proposed
Charge Current Charge Difference
2"$4.16 $4.16 $4.16 0%
4"$25.74 $25.74 $25.73 0%
6"$74.76 $74.77 $74.74 0%
8"$159.32 $159.33 $159.28 0%
10"$286.52 $286.52 $286.43 0%
12"$462.81 $462.81 $462.67 0%
CITY OF PALO ALTO: WATER RATE STUDY UPDATE 9
The proposed FY 2020 cost of service rates, shown in Table 5, include a proposed 0.75 percent
revenue adjustment for FY 2020. The rates and charges in Tables 3 and 4 did not include the
revenue adjustment to evaluate the impact of the COS update.
Table 5
Proposed FY 2020 Water Rates
General Monthly Meter Service Charge - Residential W1
Meter Size July 1, 2018 July 1, 2019
Up to 1"varies $20.25
General Monthly Meter Service Charge*
Meter Size July 1, 2018 July 1, 2019 Difference
5/8"$18.43 $17.71 -4%
3/4"$24.83 $23.67 -5%
1"$37.64 $35.59 -5%
1 1/2"$69.66 $65.40 -6%
2"$108.08 $101.17 -6%
3"$229.75 $214.44 -7%
4"$409.05 $381.37 -7%
6"$838.09 $780.79 -7%
8"$1,542.50 $1,436.57 -7%
10"$2,439.01 $2,271.20 -7%
12"$3,207.45 $2,986.60 -7%
Monthly Fire Meter Service Charge
Meter Size July 1, 2018 July 1, 2019 Difference
2"$4.16 $4.17 0%
4"$25.73 $25.80 0%
6"$74.74 $74.96 0%
8"$159.28 $159.74 0%
10"$286.43 $287.27 0%
Commodity Rate ($/ccf)
July 1, 2018 July 1, 2019 Difference
SFPUC Water Rate included $4.10
Residential - W1
Tier 1 0 - 6 ccf $6.64 $2.56 0%
Tier 2 over 6 ccf $9.44 $5.97 7%
Master MFR/Commercial - W4 $7.77 $3.61 -1%
Irrigation - W7 $9.33 $5.50 3%
Construction - W2 $7.77 $3.61 -1%
*Applies to Master MFR/Commercial - W4, Irrigation - W7, Construction -
W2, and Residential - W1 customers above 1"
GENERAL RESIDENTIAL WATER SERVICE
UTILITY RATE SCHEDULE W-1
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No W-1-1 Effective 7-1-20189
dated 7-1-20178 Sheet No W-1-1
A. APPLICABILITY:
This schedule applies to separately metered single-family residential dwellings receiving Water
Service from the City of Palo Alto Utilities.
B. TERRITORY:
This schedule applies everywhere the City of Palo Alto provides Water Services.
C. RATES:
Per Meter
Monthly Service Charge: Per Month
For meters 5/8-inch to 1 inchmeter .......................................................................... $ 18.4320.25
For 3/4 inch meter ..................................................................................................... 24.83
For 1 inch meter ........................................................................................................ 37.64
For 1 1/2 inch meter .................................................................................................. 69.6665.40
For 2-inch meter ........................................................................................................ 108.08101.17
For 3-inch meter ........................................................................................................ 229.75214.44
For 4-inch meter ........................................................................................................ 409.05381.37
For 6-inch meter ........................................................................................................ 838.09780.79
For 8-inch meter ........................................................................................................1,542.501,436.57
For 10-inch meter ......................................................................................................2,439.012,271.20
For 12-inch meter .......................................................................................................3,207.452,986.60
Per Hundred
Cubic Feet
VolumetricCommodity Rates: (To be added to Service Charge, and applicable to all pressure zones.)
Per Month
Per Hundred Cubic Feet (ccf)
Per Month All Pressure Zones
Commodity Rate:
Water Delivery Charge from SFPUC .................................................................................... $4.10
GENERAL RESIDENTIAL WATER SERVICE
UTILITY RATE SCHEDULE W-1
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No W-1-2 Effective 7-1-20189
dated 7-1-20178 Sheet No W-1-2
Distribution Rate:
Tier 1 usage ........................................................................................................................$6.642.56
Tier 2 usage (All usage over 100% of Tier 1) ........................................................................9.445.97
Drought Surcharges (deactivated):
A drought surcharge will be added to the Customer’s applicable commodity rate for Tier 1 and Tier 2
Water usage when the City Council has determined that a Water reduction level is in effect for the
City as described in Section D.3. The drought surcharges in the table below are measured in dollars
per hundred cubic feet (ccf).
Water Usage
Reduction level Level 1 (10/15%) Level 2 (20%) Level 3 (25%)
Tier 1 0.20 0.43 0.64
Tier 2 0.58 1.21 1.85
Temporary Service – Developers
Temporary unmetered service to residential
subdivision developers, per connection ........................................................................ $6.00
D. SPECIAL NOTES:
1. Calculation of Cost Components
The actual bill amount is calculated based on the applicable rates in Section C above and
adjusted for any applicable discounts, surcharges and/or taxes. On a Customer’s bill
statement, the bill amount may be broken down into appropriate components as
calculated under Section C.
2. Commodity Rate
The Commodity Charge is based on the water delivery rate per the San Francisco Public
Utility Commission (SFPUC) Water Rate Schedule W-25: Wholesale Use with Long-Term
GENERAL RESIDENTIAL WATER SERVICE
UTILITY RATE SCHEDULE W-1
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No W-1-3 Effective 7-1-20189
dated 7-1-20178 Sheet No W-1-3
Contract. The Commodity Charge will be passed through automatically via periodic rate
adjustments to account for increases in wholesale water charges, as well as inflation. The
pass-through period will be effective for fiscal years 2020 through 2024, inclusive.
Customers will be provided notice of any adjustments via their billing statements.
2.3. Calculation of Usage Tiers
Tier 1 Water usage shall be calculated and billed based upon a level of 0.2 ccf per day
rounded to the nearest whole ccf, based on Meter reading days of Service. As an
example, for a 30 day bill, the Tier 1 level would be 0 through 6 ccf. For further
discussion of bill calculation and proration, refer to Rule and Regulation 11.
3.4. Drought Surcharge
During period of Water shortage or restrictions on local Water use, the City Council may,
by resolution, declare the need for citywide Water conservation at the 10/15%, 20% or
25% level. While such a resolution is in effect, a drought surcharge will apply. The
purpose of the drought surcharge is to recover revenues lost as a result of reduced
consumption.
{End}
WATER SERVICE FROM FIRE HYDRANTS
UTILITY RATE SCHEDULE W-2
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No W-2-1 Effective 7-1-20198
dated 7-1-20187 Sheet No W-2-1
A. APPLICABILITY:
This schedule applies to all Water taken from fire hydrants for construction, maintenance, and
other uses in conformance with provisions of a Hydrant Meter Permit.
B. TERRITORY:
This schedule applies everywhere the City of Palo Alto provides Water Service.
C. RATES:
1. Monthly Service Charge.
METER SIZE
5/8 inch ........................................................................................................................... 50.00
3 inch ........................................................................................................................... 125.00
2. CVolumetricommodity Rate: (per hundred cubic feet) ................................................... $7.77
Commodity Rate:
Water Delivery Charge from SFPUC ........................................................................ $4.10
Distribution Rate: ................................................................................................................. $3.61
3.
4. Drought Surcharges (deactivated):
A drought surcharge will be added to the Customer’s applicable Commodity rate when the City
Council has determined that a Water reduction level is in effect for the City as described in
Section D.5. The drought surcharges in the table below are measured in dollars per hundred
cubic feet (ccf).
Water Usage
Reduction level Level 1 (10/15%) Level 2 (20%) Level 3 (25%)
Surcharge 0.26 0.53 0.77
D. SPECIAL NOTES:
WATER SERVICE FROM FIRE HYDRANTS
UTILITY RATE SCHEDULE W-2
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No W-2-2 Effective 7-1-20198
dated 7-1-20187 Sheet No W-2-2
1. 1. Monthly charges shall include the applicable monthly Service Charge in addition to usage
billed at the commodity rate.
1.2. The Commodity Charge is based on the water delivery rate per the San Francisco Public Utility
Commission (SFPUC) Water Rate Schedule W-25: Wholesale Use with Long-Term Contract. The
Commodity Charge will be passed through automatically via periodic rate adjustments to account
for increases in wholesale water charges, as well as inflation. The pass-through period will be
effective for fiscal years 2020 through 2024, inclusive. Customers will be provided notice of any
adjustments via their billing statements.
2.3. 2. Any person or company using a hydrant without first obtaining a valid Hydrant Meter Permit
shall pay a fee of $50.00 for each day of such use in addition to all other costs and fees provided in
this schedule. A hydrant permit may be denied or revoked for failure to pay such fee.
3.4. 3.A Meter deposit of $750.00 may be charged any applicant for a Hydrant Meter Permit as a
prerequisite to the issuance of a permit and Meter(s). A charge of $50.00 per day will be added for
delinquent return of hydrant Meters. A fee will be charged for any Meter returned with missing or
damaged parts.
4.5. 4.Any person or company using a fire hydrant improperly or without a permit, or who draws Water
from a hydrant without a Meter installed and properly recording usage shall, in addition to all other
applicable charges be subject to criminal prosecution pursuant to the Palo Alto Municipal Code.
5.6. 5.During period of Water shortage or restrictions on local Water use, the City Council may, by
resolution, declare the need for citywide Water conservation at the 10/15%, 20% or 25% level.
While such a resolution is in effect, a drought surcharge will apply. The purpose of the drought
surcharge is to recover revenues lost as a result of reduced consumption.
{End}
FIRE SERVICE CONNECTIONS
UTILITY RATE SCHEDULE W-3
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No W-3-1 Effective 7-1-20189
dated 7-1-20168 Sheet No W-3-1
A. APPLICABILITY:
This schedule applies to all public fire hydrants and private fire Service connections.
B. TERRITORY:
This schedule applies everywhere the City of Palo Alto provides Water Service.
C. RATES:
1. Monthly Service Charges
Public Fire Hydrant .................................................................................................... $5.00
Private Fire Service:
2-inch connection .......................................................................................................$4.164.17
4-inch connection .......................................................................................................25.7325.81
6-inch connection ....................................................................................................... 74.7474.96
8-inch connection .......................................................................................................159.28159.74
10-inch connection .....................................................................................................286.43287.27
12-inch connection .....................................................................................................462.67464.02
2. Commodity (To be added to Service Charge unless Water is used for fire extinguishing or
testing purposes.)
Per Hundred Cubic Feet
All water usage........................................................................................................... $10.00
D. SPECIAL NOTES:
1. Service under this schedule may be discontinued if Water is used for any purpose other
than fire extinguishing or testing and repairing the fire extinguishing facilities. Using
hydrants and fire Services for other purposes is illegal and will be subject to the
commodity charge as noted above, fines, and criminal prosecution pursuant to the Palo
Alto Municipal Code.
2. For a combination Water and fire Service, the Water Service schedule shall apply.
FIRE SERVICE CONNECTIONS
UTILITY RATE SCHEDULE W-3
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No W-3-2 Effective 7-1-20189
dated 7-1-20168 Sheet No W-3-2
3. Utilities Rule and Regulation No. 21 provides additional information on Automatic Fire
Services.
4. Repairs and testing of fire extinguishing facilities are not considered unauthorized use of
Water if records and documentation are supplied by the Customer.
{End}
RESIDENTIAL MASTER-METERED AND
GENERAL NON-RESIDENTIAL WATER SERVICE
UTILITY RATE SCHEDULE W-4
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No W-4-1 Effective 7-1-20198
dated 7-1-20187 Sheet No W-4-1
A. APPLICABILITY:
This schedule applies to Water Services to non-residential buildings, and multi-family residential
dwellings served through a Master-Meter.
B. TERRITORY:
This schedule applies everywhere the City of Palo Alto provides Water Service.
C. RATES:
Per Meter
Monthly Service Charge Per Month
For 5/8-inch meter .................................................................................... $ 18.4317.71
For 3/4-inch meter .................................................................................... 24.8323.67
For 1-inch meter .................................................................................... 37.6435.59
For 1 ½-inch meter .................................................................................... 69.6665.40
For 2-inch meter .................................................................................... 108.08101.17
For 3-inch meter .................................................................................... 229.75214.44
For 4-inch meter .................................................................................... 409.05381.37
For 6-inch meter .................................................................................... 838.09780.79
For 8-inch meter ....................................................................................1,542.501,436.57
For 10-inch meter ....................................................................................2,439.012,271.20
For 12-inch meter ....................................................................................3,207.452,986.60
Per Hundred
Cubic FeetC
Volumetricommodity Rates: (to be added to Service Charge, applicable to all pressure zones) Per
Month
Per Hundred Cubic Feet (ccf)
Per Month All Pressure Zones
Commodity Rate:
Water Delivery Charge from SFPUCPer ccf ...........................................
..................................................................................................................$ 7.774.10
RESIDENTIAL MASTER-METERED AND
GENERAL NON-RESIDENTIAL WATER SERVICE
UTILITY RATE SCHEDULE W-4
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No W-4-2 Effective 7-1-20198
dated 7-1-20187 Sheet No W-4-2
Distribution Rate: ........................................................................................... 3.61
Drought Surcharges (deactivated):
A drought surcharge will be added to the Customer’s applicable commodity rate when the City
Council has determined that a Water reduction level is in effect for the City as described in Section
D.2. The drought surcharges in the table below are measured in dollars per hundred cubic feet
(ccf).
Water Usage
Reduction level Level 1 (10/15%) Level 2 (20%) Level 3 (25%)
Surcharge 0.26 0.53 0.77
D. SPECIAL NOTES:
1. Calculation of Cost Components
The actual bill amount is calculated based on the applicable rates in Section C above and
adjusted for any applicable discounts, surcharges and/or taxes. On a Customer’s bill
statement, the bill amount may be broken down into appropriate components as
calculated under Section C.
2. Commodity Rate
The Commodity Charge is based on the water delivery rate per the San Francisco Public
Utility Commission (SFPUC) Water Rate Schedule W-25: Wholesale Use with Long-Term
Contract. The Commodity Charge will be passed through automatically via periodic rate
adjustments to account for increases in wholesale water charges, as well as inflation. The
pass-through period will be effective for fiscal years 2020 through 2024, inclusive.
Customers will be provided notice of any adjustments via their billing statements.
RESIDENTIAL MASTER-METERED AND
GENERAL NON-RESIDENTIAL WATER SERVICE
UTILITY RATE SCHEDULE W-4
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No W-4-3 Effective 7-1-20198
dated 7-1-20187 Sheet No W-4-3
2.3. Drought Surcharge
During period of Water shortage or restrictions on local Water use, the City Council may,
by resolution, declare the need for citywide Water conservation at the 10/15%, 20% or
25% level. While such a resolution is in effect, a drought surcharge will apply. The
purpose of the drought surcharge is to recover revenues lost as a result of reduced
consumption.
{End}
NON-RESIDENTIAL IRRIGATION WATER SERVICE
UTILITY RATE SCHEDULE W-7
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No W-7-1 Effective 7-1-20198
dated 7-1-20187 Sheet No W-7-1
A. APPLICABILITY:
This schedule applies to non-residential Water Service supplying dedicated irrigation Meters.
B. TERRITORY:
This schedule applies everywhere the City of Palo Alto provides Water Services.
C. RATES:
Per Meter
Monthly Service Charge Per Month
For 5/8-inch meter .................................................................................... $ 18.4317.71
For 3/4-inch meter .................................................................................... 24.8323.67
For 1-inch meter .................................................................................... 37.6435.59
For 1 1/2 inch meter .................................................................................... 69.6665.40
For 2-inch meter .................................................................................... 108.08101.17
For 3-inch meter .................................................................................... 229.75214.44
For 4-inch meter .................................................................................... 409.05381.37
For 6-inch meter .................................................................................... 838.09780.79
For 8-inch meter ....................................................................................1,542.501,436.57
For 10-inch meter ....................................................................................2,439.012,271.20
For 12-inch meter ....................................................................................3,207.452,986.60
Per Hundred
Cubic Feet
CVolumetricommodity Rates: (to be added to Service Charge, applicable to all pressure zones)Per
Month
Commodity Rate:
Per Hundred Cubic Feet (ccf)
Per Month All Pressure Zones
Water Delivery Charge from SFPUCPer ccf ....................................
..........................................................................................................$ 9.334.10
NON-RESIDENTIAL IRRIGATION WATER SERVICE
UTILITY RATE SCHEDULE W-7
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No W-7-2 Effective 7-1-20198
dated 7-1-20187 Sheet No W-7-2
Distribution Rate: ........................................................................................... 5.50
Drought Surcharges (deactivated):
A drought surcharge will be added to the Customer’s applicable commodity rate when the City
Council has determined that a Water reduction level is in effect for the City as described in Section
D.2. The drought surcharges in the table below are measured in dollars per hundred cubic feet (ccf).
Water Usage
Reduction level Level 1 (10/15%) Level 2 (20%) Level 3 (25%)
Surcharge 0.53 1.25 2.02
D. SPECIAL NOTES:
1. Calculation of Cost Components
The actual bill amount is calculated based on the applicable rates in Section C above and
adjusted for any applicable discounts, surcharges and/or taxes. On a Customer’s bill
statement, the bill amount may be broken down into appropriate components as
calculated under Section C.
2. Commodity Rate
The Commodity Charge is based on the water delivery rate per the San Francisco Public
Utility Commission (SFPUC) Water Rate Schedule W-25: Wholesale Use with Long-Term
Contract. The Commodity Charge will be passed through automatically via periodic rate
adjustments to account for increases in wholesale water charges, as well as inflation. The
pass-through period will be effective for fiscal years 2020 through 2024, inclusive.
Customers will be provided notice of any adjustments via their billing statements.
2.3. Drought Surcharge
During period of Water shortage or restrictions on local Water use, the City Council may,
by resolution, declare the need for citywide Water conservation at the 10/15%, 20% or
25% level. While such a resolution is in effect, a drought surcharge will apply. The
purpose of the drought surcharge is to recover revenues lost as a result of reduced
consumption. {End}